Pleasantview Shopping Centre LTD v. Minister of National Revenue, [1972] CTC 2463, 72 DTC 1405

A J Frost:—These are income tax appeals in respect of appellant’s 1966 and 1967 taxation years. Upon Notices of Objection duly signed and filed, the Minister of National Revenue confirmed the assessments on the ground that the profit realized from the sale of land situated on 111th Street and 51st Avenue in the City of Edmonton, Alberta had been properly included in computing the appellant’s income under the provisions of sections 3 and 4 and paragraph 139(1 )(e) of the Income Tax Act. Subsequently, the appellant filed two Notices of Appeal, one for 1966 and one for 1967. The appeals were heard together on common evidence by the Tax Appeal Board, as it was then constituted, on September 28, 1971 at Calgary, Alberta.

The appellant was incorporated under the laws of the Province of Alberta. The land located at 111th Street and 51st Avenue in the municipality of South Strathcona (hereinafter referred to as “Block R”) was purchased by the appellant from New Trend Construction Ltd (hereinafter referred to as “New Trend’’) in 1960. Michael A Nugent and H Paton each owned 50% of the shares of both the appellant and New Trend. Block R had been acquired by New Trend in April 1958.

The municipality of South Strathcona, located south of the City of Edmonton, was annexed on December 31, 1958. Block R comprised 8.43 acres at time of purchase, and commercial zoning was obtained permitting the appellant to develop a golf driving range. With annexation, Block R lost its commercial zoning.

In 1961 the appellant made an application for commercial zoning to the City and the application was refused. On appeal this decision was reversed, and the appellant then started negotiations with tenants for a major shopping centre.

In 1966 the city of Edmonton announced the construction of a new freeway through 111th Street as part of the Metropolitan Study Plan. This planning study indicated a major north-and-south freeway, which would involve taking 150 feet from Block R thus making a large shopping centre on that property impossible. A complicated replot of Block R was worked out and, after protracted negotiations with city officials, the appellant appeared to have no choice other than to sell a portion of Block R to the City for the proposed freeway. (In addition to cash compensation, the appellant received A of an acre of land, which it subsequently sold. The profit realized in respect of this A of an acre was not before the Board.) The evidence indicated that the “sale” to the City of Edmonton was in the nature of a take-over for freeway purposes. The appellant received $35,950 in 1966 in respect of this sale, and the Minister included this amount as income for the appellant’s 1966 taxation year.

In 1967 the appellant discontinued its plans to develop a major shopping centre, as the amount of land originally held had been reduced and the plans developed by the City did not allow for easy access to the proposed development, reducing commercial viability of appellant’s plans for a major shopping centre and thwarting its basic concepts.

In 1967 a second sale occurred when Horne & Pitfield Ltd, a major tenant with whom the appellant had been negotiating, purchased a portion of Block R at a profit to the appellant of $152,814.02, which the Minister characterized as income for appellant’s 1967 taxation year.

The evidence adduced indicated that Mr Nugent and Mr Paton started to trade in real estate in 1955 and in 1957 New Trend was incorporated for the purpose of trading and development. In April 1958, Block R was purchased after careful investigation into the area, which was adjacent to the city boundary with the odds favouring annexation as “many people” were interested in the area. Mr Nugent testified that the sole object of purchase was the development of a shopping centre. The evidence further indicated that efforts were made over a. number of years to develop the property as a commercially viable enterprise, but the feasibility of developing it as planned was frustrated by the City’s plans to construct a freeway on part of the land proposed for the shopping centre.

The question in issue is: Was Block R an investment and was the gain realized on sale subject to tax under the appropriate provisions of the Income Tax Act?

Looking at the circumstances objectively, I find that Mr Nugent and Mr Paton were speculating as to land values. The appellant company was incorporated for the purpose of developing the proposed shopping centre and in my opinion, must be characterized as a. speculator as its aims, objects and purposes were identical with those of its two shareholders who were speculators. A further indication of the nature of the appellant is that it was capitalized at $2, which in itself is an indication of speculation. A company set up for investment purposes usually has a more imposing capital structure than a mere two-dollar capitalization. Low capitalization, like marginal buying, is one of the badges of speculation, and it is not too difficult to conclude that the company, like its owners, was in fact in the business of speculating in land.

The fact that New Trend and the appellant company were both speculators would not have prevented them from establishing an investment within their various activities, but it does preclude the pleading of frustration as a factor in determining the capital or income nature in respect of a sale of assets. A speculator may invest and an investor may speculate, but intentions do not necessarily change the character of a taxpayer. What a taxpayer actually does or accomplishes is the determining factor in a trading case of this kind. If the appellant had in fact established Block R as an investment, the Board would recognize this fact but, until intentions have materialized to a point where they become a reality, the appellant cannot avoid having the gains from what otherwise might have been a sale of capital assets characterized as income under the appropriate provisions of the Income Tax Act. In other words, the appellant’s efforts must go far enough to establish beyond any reasonable doubt that it was in the investment business in respect of the matter in dispute and not involved in land speculation. Land is a community resource, and its value depends to a large extent on publicly financed projects. Under our Canadian jurisprudence, land is not an investment vehicle in the sense that a corporate share is.

Appeals dismissed.