Thibodeau Express Limited v. Minister of National Revenue, [1972] CTC 2493, 72 DTC 1424

The Assistant Chairman:—This is an income tax appeal from assessments dated February 16, 1970 in respect of the appellant’s 1965 and 1966 taxation years which was heard at Windsor, Ontario on September 20, 1971 by Mr J O Weldon, QC, then a Member of the Tax Appeal Board.

Mr Weldon having retired from the Board before a decision in this matter was reached, the appellant and the respondent have agreed, as evidenced in a letter dated April 11, 1972 from Mr J S Gill, for Director of the Regional Office of the Department of Justice, that the matter should be disposed of on the basis of the transcript of evidence and argument taken at the hearing. Precedents for the procedure presently followed can be found in the case of His Majesty the King v W D Morris Realty Limited, [1943] Ex CR 140, and that of Brampton Brick Limited v MNR, [1963] Ex CR 305; [1963] CTC 57; 63 DTC 1033.

The appellant was first reassessed for the taxation years 1965 and 1966 on December 18, 1968. The Notice of Objection was filed on March 6, 1969 and the Notice of Appeal filed on January 22, 1970. On February 16, 1970, however, the appellant was once again reassessed for the 1965 and 1966 taxation years and the pertinent documents were received by the Board on March 12, 1970. The first Reply to Notice of Appeal was dated July 24, 1970. On January 22, 1971 a motion was filed by the appellant requesting that the Board issue an order making the pending appeal applicable to the Minister’s reassessment dated February 16, 1970. At the hearing, the appellant moved for leave to amend its Notice of Appeal so as to refer to the new assessments of February 16, 1970, in lieu of the superseded assessments of December 18, 1968, a procedure to which the respondent, through his counsel, expressed willingness to consent. The appellant’s motion having been allowed, the Board is now seized with the appellant’s Notice of Appeal of February 26, 1971 as amended and the Reply to the amended Notice of Appeal filed by the respondent on August 20, 1971.

The point to be determined in this instance is whether parcels of land sold by the appellant in the taxation years 1965 and 1966 constitute trading transactions in which the revenue derived therefrom must be considered as profit from a business and taxable, or whether the profits derived from the sale of these lands can be considered as capital gains and non-taxable.

Thibodeau Express was a partnership formed in 1928 between Mr Calixte A Thibodeau and his brother Leo and was engaged in the trucking business. From 1938 to 1956 Mr Calixte A Thibodeau was the sole owner of Thibodeau Express. In 1956 Mr Thibodeau took in as partners his wife and two sons. In 1960 this partnership was incorporated into Thibodeau Express Limited and all the assets of the partnership were transferred to the newly formed company. The principal shareholders of the company were Leo J Thibodeau, Bruce J Thibodeau and Alice Joyce MacWilliam, sons and daughter of Calixte A Thibodeau who held in trust for each of the brothers two shares of the company. Mr Calixte Thibodeau and his wife no longer had financial interest in Thibodeau Express Limited after 1960. Subsequently Bruce J Thibodeau and Alice Joyce MacWilliam sold their shares to Leo J Thibodeau who then became the principal shareholder of the company.

In 1956 the then partnership, Thibodeau Express, owned .9 acres of land on Walker Road for the operation of its business in the Windsor area. From evidence adduced, which went uncontradicted, this property was not ideally situated—first, because of the very heavy traffic in the area which hindered the egress and ingress of the appellant’s heavy trucks and, secondly, because there was no room for expansion of the business. There seem to have been differences of opinion between Calixte Thibodeau, who was more conservative in his approach to business and did not want to expand, and Leo Thibodeau, who considered that expansion was obligatory if the business were to survive.

In any event, it was decided that a new location for the business be found and, after looking at several parcels of land suitable for the appellant’s trucking terminal, land was found which had adequate solidity, good drainage and was relatively level. Although the appellant was seeking to buy 10 acres of frontage land from a narrow strip of land comprising some 36 acres, the owner would not agree to sell unless the whole parcel of land was bought because otherwise he would remain with some 26 acres of land-locked property. The appellant bought the land on EC Row Avenue for $43,000 in 1956. Construction of the terminal thereon was commenced in 1959 and completed in 1960. The new buildings comprised approximately 25,000 square feet as compared to 12,750 square feet in the old terminal building on Walker Road. More expansion was contemplated. Land adjacent to that of the appellant was owned by a group known under the names of Odette Brothers Eastern Construction Limited and Associated Leaseholds Limited engaged in land developing and which the appellant had approached prior to the purchase of the EC Row Avenue property for the purchase of land owned in that area by the above-mentioned group. The appellant’s offer was refused because of the nature of the appellant’s business. However, the adjacent land having been bought by the appellant, the Associated Leaseholds Limited and the appellant agreed to build a gravel road, each party paying half of the cost and contributing half of the land used for the road. The road extended between their two properties for some 800 to 1,000 feet and ended in front of the appellant’s garage. In 1959 or 1960 Associated Leaseholds Limited suggested to the appellant that a subdivision plan be made of their respective properties to which the appellant agreed. Subsequently the appellant was approached by real estate people who were interested in purchasing certain lots of the appellant’s excess land and were turned down because the appellant considered these lots as expansion property.

In 1962 Associated Leaseholds Limited approached the appellant with a view to purchasing a piece of the appellant’s property for the purpose of providing sufficient land for the Palmer Pann Corporation. From evidence adduced, Palmer Pann Corporation was one of the appellant’s major customers established in Windsor but whose expanding business would necessitate its moving out of Windsor if sufficient land in Windsor could not be provided for its expansion. Palmer Pann Corporation’s land requirement was 7.61 acres which could only be made up if the appellant were to sell 3.32 acres of his excess land. Under the circumstances the appellant considered it good business to sell the land and keep a major customer from leaving Windsor. The appellant did, in fact, sell the 3.32 acres of land to Associated Leaseholds Limited which, in turn, sold 7.61 acres to Palmer Pann Corporation. The appellant received for the sale of the land an amount of $6,640 or $2,000 per acre. Evidence was placed in the record that in the 1962 tax return of the appellant, the profit derived from the sale of this parcel of land was reported as capital gain and was not reassessed by the Minister.

The sales that are pertinent to this appeal took place in 1965 and in 1966. In 1965 a Mr Rodzik was interested in a parcel of land in the southwest corner of the appellant’s property in order to build a steel warehouse. The appellant sold the parcel of land in June 1965 for the sum of $13,000 (Exhibit A-13). There is unchallenged evidence on record that in 1965 the appellant’s working capital was strained because of purchases of new equipment to cope with additional business for the appellant created by Canada-United States Auto Pact. The appellant’s business from 1965 to 1970 tripled as the result of additional work provided to the appellant by the introduction of the Auto Pact.

In 1966 a company known as Plasticast, a heavy die-casting and stamping company was already building a plant on Marentette Road on land adjacent to that of the appellant. Associated Leaseholds Limited which was to construct another plant for Plasticast approached the appellant for the purchase of the appellant’s Lots Nos 43, 44 and 45 required by Plasticast for the new plant. Evidence indicates that the appellant was getting business from Plasticast and continued to do so unitl the plant closed. The appellant sold the required parcel of land for $18,720 on May 10, 1966.

Subsequent to the pertinent taxation years 1965 and 1966 other sales were made and are mentioned in order to show a pattern of sales of land made by the appellant. On September 1, 1967 the appellant sold to Associated Leaseholds Limited Lots 41, 42 and part of Lot 46 for $2,500 in order to permit a company, having some 600 employees, to have adequate parking facilities. Lots 41 and 42 were adjacent ot the company’s earlier property on the south and connected with property owned by the company on the other street.

Also, in 1967 the appellant was approached by Volta Welders seeking to purchase land opposite their own property for expansion purposes and parking facilities. The sale was completed on December 20, 1967 and the selling price was $31,500. Uncontradicted evidence indicates that late in 1966 the appellant purchased 4 acres of land in London, Ontario on which it built a new terminal building which was completed in 1967. In July of 1969 a new terminal was built in Preston, Ontario. In July of 1970 a new terminal was completed in Chatham. It is on record that the heavy expansion of Thibodeau Express Limited was realized on borrowed money and that the current liabilities almost balanced the assets.

There is no evidence that the appellant made any effort to sell the excess land by way of solicitation, advertising or through real estate agents. The advertisement that appeared in the Windsor Star on Monday, April 9, 1962 (Exhibit A-12) for the sale of part of the appellant’s land, from uncontradicted evidence adduced at the hearing, was made by someone in Associated Leaseholds Limited without the authority, consent or knowledge of the appellant.

In argument, counsel for the respondent made several points— the first of which, dealing with the appellant’s intention, was “that intention is to be gathered from all surrounding circumstances” with which I readily agree. I also agree with Mr Weldon that the facts of this case are not only important but different in many respects from the cases cited during the hearing. No doubt the basic principles that emerge from the cases cited have some application to the case at bar, but only to the extent that the facts of this particular case warrant it.

In attempting to determine as accurately and as fairly as possible the nature of the sales of land made by the appellant in the years 1965 and 1966 there is no point in torturing the facts of this case in order to have them fit, no doubt, excellent decisions already rendered in other cases and where the circumstances and the facts differ substantially from those which must be considered here.

On reading the transcript of evidence and considering the facts as they were presented at the hearing, which were not contradicted, one is left with a very strong impression that the appellant did not have either the primary or secondary intention of making a business of selling its surplus land, but that it was almost reluctant to sell it. The appellant’s attitude in respect of the excess land, its occupying the best frontage area, its refusal to sell certain parcels and the nature of the sales it did make to companies who already owned contiguous lands, some of which were clients of the appellant’s trucking business, are facts which are not characteristic of anyone engaged in the business of selling land.

One of the points made by the respondent was that the appellant did not try to sell the land and that it is inconceivable that Associated Leaseholds Limited would not have bought the land if the appellant had wished to get rid of its surplus land. Evidence does show that the appellant did not make any effort to sell its surplus land but evidence also shows that the appellant’s prime consideration and preoccupation have always been the operation, the promotion and the expansion of its trucking business. As to whether or not Associated Leaseholds Limited would have bought the appellant’s surplus land is pure conjecture for which there is, one way or the other, no substantiation whatsoever in the voluminous evidence given in this case.

Another conjecture made by the respondent for which there is no justification in the evidence is to the effect that consent could have been obtained under The Planning Act for the sale of lots smaller than 10 acres had the appellant wished to sell its land. Because consent was obtained for the sale of 7.6 acres of land to Palmer Pann Corporation, a company that was on the verge of leaving Windsor if appropriate land could not be found there, is not in my opinion a guarantee that a general consent could be obtained for the sale of parcels of land of 2 or 3 acres.

Counsel then pointed out that the subdivision of the appellant’s land was indicative of its intention to sell the surplus lands. It is true that the subdivision of land by a person is indicative of his intention to sell the land, but in my opinion it does not become conclusive evidence unless and until positive steps for a systematic sale of the lands have been taken. In this case the circumstances surrounding the subdivision of the appellant’s surplus land are unclear. Associated Lease holds Limited, who were land developers owning land contiguous to the appellant’s land, subdivided their land simultaneously and in conjunction with that of the appellant. The negative attitude of the appellant and the absence of any positive steps on its part for the sale of the subdivided land, which is in marked contrast with the attitude of Associated Leaseholds Limited, counterbalance any presumption that might be made of the appellant’s intentions when it subdivided its land.

Basing himself on evidence given by Mr Mayo who is a recognized evaluator, counsel for the respondent claimed that the appellant could have sold the whole 36 acres had it wanted to by providing access roads- to the property. If the appellant’s intention had been to go into the business of selling land and if it had sufficient money to provide access roads, it no doubt could have done so. But that is just the point the evidence in this case indicates that the selling of land was not the appellant’s purpose in buying the property in the first place ana whatever capital the appellant had went for the construction of the terminal and the garage for the appellant’s trucking business on land it bought for that purpose. Counsel also suggested that access roads could be built so as to open the rear of the appellant’s property. Perhaps that is so but the evidence is to the effect that the appellant did not desire to open the access roads because his capital was needed in its business. Counsel’s arguments are like a dangerous two-edged sword. In attempting to prove that the appellant knew at the time it purchased the land or when it subdivided it that it could render the surveyor’s land saleable at a profit and that it was its intention to trade in these lands when the price went up, counsel by the same token strengthens the opposing view. If the appellant had done what counsel suggests it would most certainly be considered as a trader in land but the facts of the case are that the appellant did none of these things which counsel suggests and which could classify it as a trader. If, in the future, the appellant decides to do what counsel suggests and does eventually become a trader in land, I am confident the Minister of National Revenue will become well aware of the fact and act accordingly, but that would be another case. From the evidence adduced in this case, I am of the opinion that the appellant was not a trader in land within the meaning of the Act.

I am also of the opinion that the cases cited by counsel for the respondent are not applicable to the facts of this case.

The principles that emerge in No 341 v MNR, 15 Tax ABC 103: 56 DTC 231, cited by counsel for the appellant do have application to the facts of the case presently before the Board and it is my opinion that the appellant has complied with those principles.

The citation, however, which most impressed me is that of Racine, Demers and Nolin v MNR, 65 DTC 5098 at 5103:

(TRANSLATION)

To give to a transaction which involves the acquisition of Capital the double character of also being at the same time an adventure in the nature of trade, the purchaser must have in his mind, at the moment of the purchase, the possibility of reselling as an operating motivation for the acquisition; that is to say taht he must have had in mind that upon a certain type of circumstances arising he had hopes of being able to resell it at a profit instead of using the thing purchased for purposes of capital.

The purchase of the land by the partnership on EC Row Avenue was a Capital investment that was transferred as a capital asset to the Thibodeau Express Limited and acquired for the operation and expansion of Thibodeau Express Limited which was in fact achieved. There is evidence to support that, having utilized the front portion of the EC Row Avenue property, the appellant considered the surplus land as land-locked and of relatively small value. No action was taken by the appellant other than would accommodate its business, in building access roads to the land-locked property and no effort was made by it to sell these lands. The sales of the land made by the appellant in 1962 and 1967, as well as those made in the pertinent years of 1965 and 1966, formed a consistent and plausible pattern not characteristic of a trader in land.

In my opinion, in these land transactions the appellant disposed of capital assets as circumstances presented themselves. There is some evidence that the proceeds of the sales were used by the appellant as working capital and investment capital of Thibodeau Express Limited.

For these reasons, I hold that the profits derived from sale of lands in the taxation years 1965 and 1966 were capital gains and not taxable.

The appeal is therefore allowed.

Appeal allowed.