Madame Z v. Minister of National Revenue, [1972] CTC 2400, 72 DTC 1325

Maurice Boisvert:—This appeal concerns the 1967 and 1968 taxation years and has to do with the purchase of a farm which the appellant quickly disposed of by selling the house and a part of the farm at a profit in 1967, and another part also at a profit in 1968.

The appeal was heard in Quebec, Province of Quebec on October 14, 1971 by the Tax Appeal Board as it was then constituted.

The appellant had, as it is commonly expressed, been dabbling in real estate, first as an agent and later as a broker. She was married, with three children. She liked to ski, and her children even more so. Her husband was not overly enthusiastic about this type of sport. Since the appellant wanted to go in for skiing and her husband did not, the couple were at loggerheads. The appellant had a brother who had purchased a farm at Saint-Féréol which she visited out of sheer pleasure on weekends, with other friends.

In 1966 a gentleman from Quebec City was looking for a piece of property for himself in the Sainte-Anne-de-Beaupré area. To add to the miracles of the good Saint Anne, shrewd promoters pictured the slopes of Mont Ste-Anne being developed as a ski centre since they were admirably suited to this sport. Quebec was gripped by ski fever. Everybody, giddy over the long ski-runs on the mountain, wanted to move in closer and the quest for old houses began. The oldest ones were still on habitant lands. The gentleman mentioned above wanted “an old Canadian House (an absolute condition), an old Canadian house that really did date back to the French régime”, a historic treasure of a house. Since he knew the appellant, being a friend of the couple, he visited the Beaulieu farm in 1966 with the appellant. It happened that the appellant, after her visit, as claimed in her testimony, became sick with desire to get the house for herself. The shrewd, foxy old owner let them bend his ear rather than pull his leg.

The appellant did not have any money but she had a gross income of $4,000. The declared net income from her profession was $546.46 for 1967, and $1,025.73 for 1968. The owner’s asking price for the entire farm including machinery, cows, pigs, etc was $35,000. Selling a portion of it was out of the question. It was all or nothing. As the story goes, the farm-house dated back 200 years; it was dirty and, according to the witnesses’ statements, it had smells that were as old as the house itself. But a longing for the house overrode everything else. On May 24, 1966 the following agreement was signed by the vendor and the appellant:

(TRANSLATION)

Agreement concluded between the undersigned parties:

The parties declare that on April 23, 1966, Mr Benoît Beaulieu promised to sell to Mrs . . ., wife of Mr . . ., who promised to purchase from the latter, a piece of land bearing numbers fifty-four, fifty-five and fifty-seven (54, 55 and 57) of the book of reference of the Parish of Sainte-Anne-de-Beaupré for the price of thirty-five thousand dollars ($35,000), one thousand dollars ($1,000) of which was paid on April 23, 1966, nineteen thousand dollars ($19,000) payable upon the signing of the deed of sale and fifteen thousand dollars ($15,000) two (2) years after the signing of the deed of sale.

At the same time, all structures on the said property, plus appurtenances, livestock, tractor, milking-machine and all other farm implements were included in the aforementioned sale price.

This having been declared, the parties agree as follows:

(a) Mr Benoît Beaulieu agrees to Mrs . . .’s selling or arranging for the sale of the livestock, tractor, milking-machine and other farm implements at any time from this date, provided that the latter pays him on account of the sale price, the sum of four thousand dollars ($4,000);

(b) Mrs . . . agrees to pay in advance and on account of the sale price, a further sum of six thousand dollars ($6,000) on the first day of June, one thousand nine hundred and sixty-six (1966), but the parties agree that the balance from the nineteen thousand dollars ($19,000), ie nine thousand dollars ($9,000), shall be paid by the purchaser to the vendor on the first day of September, one thousand nine hundred and sixty-six (1966).

These agreements having been concluded, the vendor gives release of all liens that he might have on the said livestock, tractor, milking-machine and other farm implements.

All the other agreements and obligations mentioned in the promise of sale signed on April 23, 1966 remain, in so far as they are not incompatible herewith.

Two days after the signing of the above agreements, Mr Beaulieu agreed to the following clause:

(TRANSLATION)

I undertake to purchase the tractor from Mrs . . . for the sum of $1,900, which shall be deducted from the $6,000 instalment payable on June 1, 1966.

The appellant paid $1,000 on April 23, 1966. It will be noted that she was to give $19,000 when the deed of sale was signed. The appellant sold the farm implements and livestock at an auction that brought in about $5,000 and, as agreed, sold the tractor to the farmer for $1,900 which amount was deducted from the $34,000 owing.

The deed of sale was signed on August 18, 1966. We see from the deed of sale that the farm described therein had an area of 8,064,000 square feet, English measure. We also see that there were two sites, all as it appears on a plan prepared by Mr Jean-Yves Massé, land surveyor, dated May 27, 1966, a copy of which is attached to the deed of sale and signed by the parties.

Therefore, we have a 200-year old house, two sites, and a rather unproductive farm situated at the foot of the mountains forming the horizon.

Between the agreement of May 24, 1966 and the date of the deed of sale, August 18, 1966 the appellant spent nearly $7,000 for cleaning, building a fireplace, painting and refurbishing, which gave. a new appearance to the centuries-old walls. During this whole time the gentleman, already mentioned, kept an eye on things; Mont Ste-Anne was becoming an important ski centre to which were added varied and exciting attractions. There were many slopes. To meet the $19,000 instalment payable upon the signing of the deed of sale the appellant had to borrow $20,000 from her parents’ estate.

On March 31, 1967 the appellant sold, for $45,000, the site on which the house was erected and the two sites described in the deed of sale between Mr Beaulieu and the appellant. The profit was not enormous when we consider the cost of the improvements that were made. But the appellant sold the house and kept the fields and the woodlot. On July 28, 1968 she again sold a portion, about 1,761,250 square feet, for the sum of $17,612.50. The purchaser, an astute businessman and heir to a large estate, was the person with whom the appellant had visited the old house in 1966 before deciding to purchase it supposedly for herself, as well as for the pleasure and enjoyment of skiing and snow- mobiling. On the second sale the profit was larger since the appellant retained ownership of the woodlot — a stand of maple (not sugar maple) but a pleasant shady spot, with underbrush where partridge nested and rabbits romped. A pastoral setting too has its enchantment.

The assessor had had enough of all that and taxed the profits as profits from the appellant’s profession.

Although the appellant did not put the properties up for sale directly by advertising or otherwise, her intention could not have been other- wise than twosided. She already had an interested person who had a very strong yen for the house. Then, she was having problems with her husband who was not a romantic at heart since he did not want to go and spend the weekends with the appellant and her children in the dream house. Moreover, she had improved and redecorated the property to make it more suitable and attractive. Lastly, she knew that she would have to pay back the $20,000 borrowed from her parents’ estate. As so often happens in such cases, Manon’s dream faded into thin air. The demands of an agonizing, pressing and practical reality triumphed. She sold it to the person who had wanted it before she purchased it, in the hope of bringing back to the fold a husband who was finding that he could not afford the luxury of a country house. Wooded and pastoral landscapes were hardly of any more interest to him than skiing. The sale and the profits only made matters worse since the appellant sued for divorce which, moreover, she obtained. Euphoria gave way to realism and, to top it all, the taxation department, curious as a ravenous wolf, appeared on the scene, gloomy and greedy. It is difficult to read what goes on in the mind of a fine, intelligent woman. However, her behaviour always ends up by giving away her innermost thoughts.

The possession and occupancy of the house were short-lived. The appellant dealt through another real estate broker and she used the profits from the transactions to purchase apartment buildings, one of which she sold and the other which she still owns and manages at a loss.

Purchases with little money, entertainment expenses, advertising, social clubs, flowers, gifts and subscriptions — $7,024.52 in 1967 — these are sufficient to conclude that the appellant was in fact in the real estate business. It should be noted that on her balance sheets for 1967 and 1968 the Ste-Anne property appears in her inventory, along with another property, an apartment building. The loan from the estate rose from $20,000 in 1967 to $45,000 in 1968. Lastly, we see therein that she owes $11,000 in commissions to sub-agents.

In this case it is impossible to conclude that she did not want what she got. Therefore it is without remorse but with regret that I must dismiss the appeal, being bound by the decision of the Supreme Court of Canada in Regal Heights Limited v MNR, [1960] SCR 902; [1960] CTC 384; 60 DTC 1270; by the recent decision handed down by the Federal Court in Rosslynn Estates Limited v MNR, [1972] CTC 65; 72 DTC 6051; and by the decision handed down in Edward A Schaffer v MNR, [1971] CTC 577; 71 DTC 5306.

It often happens that a taxpayer begins a venture with a specific intention in mind and ends up with another. In this appeal, on the one hand the appellant’s husband was against taking the risk and, on the other, the appellant did not need the property, except only to satisfy a whim or make a sale. It was the latter alternative that won out.

For the above reasons, the appeal is dismissed.

Appeal dismissed.