Bel Dor Holdings Limited v. Minister of National Revenue, [1969] CTC 309, 69 DTC 5217

Gibson, J.:—The issue of fact to be determined in this case is whether the gain over cost of acquisition resulting from the realization of a real estate purchase is income of the appellant in its 1963 taxation year. If the realization was of an investment within the meaning of the decided cases, it was not income. If the purchase and sale and the whole transaction generally was a ‘‘business’’ within the extended meaning in the Income Tax Act the gain on realization was the profit from such a ‘‘business’’ and is income.

The appellant and its chief executive officer and main shareholder was a builder and promoter and each had carried on such activities for many years. In 1953 the appellant owned, with two others, the premises on which an office building was being constructed in the Town of Oakville (which building it subsequently acquired solely in its own right). In that year the appellant bought a property referred to in evidence s. the “Finch-Noyes property” for $112,000. The gain on the sale of this property ten years later is the subject matter of this appeal. It was represented to the appellant at that time by the Mayor of the Town of Oakville that this property would be rezoned for a shopping centre, The said office building was immediately adjacent to the Finch-Noyes property. Unless the zoning was changed to permit a shopping centre, the purchase price was exhorbitant in that it made no economic sense to use the land for any other purpose.

For ten years the appellant attempted in an extraordinary variety and number of ways to get the land rezoned for a shopping centre. Exhibit 1, a book of documents, is substantially illustrative of the efforts to get the land rezoned. The appellant made many efforts to get the land rezoned. The appellant made many efforts in its own name to have this property rezoned. And also among the efforts, two other applications for rezoning were made, one by a corporation called Oakfield Plaza Limited, which was a corporation owned by the same shareholders as those of the appellant, and the other by Loblaw Groceterias Company Limited. Both of these were in reality applications of the appellant. In each case, the appellant made sham contracts of purchase and sale of this Finch-Noyes property for the purpose of permitting these applicants to make their applications.

During the ten year period, the appellant could have financed by itself and with mortgage borrowings, the construction of the shopping centre. The concept was sound. Opposition to it locally was from local merchants and others. The decisions of the Ontario Municipal Board, (of which the one dated February 10, 1958 is a typical example, which decision refused rezoning of this property for the purpose of a shopping centre and permitted only the use of this property for residential purposes of a type having the lowest population density of any residential lands in Oakville) undoubtedly gave the appellant reason to believe on any logical basis that at some juncture this property would be rezoned for shopping centre use. The area around this Finch-Noyes property was commercial and in some respects run down, and so at all material times the Finch-Noyes property was unsuited logically for any such residential zoning and use, and suited logically for shopping centre zoning and use.

Finally in 1963, the appellant ceased his efforts when the Council of the Town of Oakville at that time, for reasons unexplained, reversed its support of its plan for rezoning for shopping centre purposes the Finch-Noyes property, and the appellant sold this property to a group of Town of Oakville builders who were shareholders in a company called Atlas Plastics & Products Limited. This group had arranged informally prior to signing the contract of purchase and sale with the appellant, for the rezoning of this property and although the contract of purchase and sale was conditional upon this property being rezoned, this presented no difficulty to the purchasers and rezoning was accomplished quickly.

Atlas built on this property several apartment buildings and in the process of building them and in partial operation of them, went bankrupt and others got control of the buildings and premises and own and operate them today.

During the ten year period from 1953 to 1963 the appellant spent over $20,000 in solicitors’ fees and other fees, and also incurred other costs and charges.

Scrutinizing the appellant’s intent from all the circumstances of this case and not solely or substantially from what the president of the appellant said in evidence, the question is whether the appellant has satisfied the burden on it to prove that this transaction should be characterized as an investment and not as a ‘‘business’’ within the extended meaning in the Income Tax Act.

In this case, on the evidence, there is no doubt that the appellant intended during all the period to establish a shopping centre on this Finch-Noyes property and that at all material times it was practical for it to establish or cause to have established a shopping centre on it, and the establishment of a shopping centre would have been a financially sound act. Any secondary intention seems to have been non-existent for any practical purpose.

Shopping centres are and were a well known form of investment in this country, especially during the material period in this case. As established, they earn income for the owners of the same and are not and have not usually been built and established for the purpose of sale and realization of a profit from a sale after being built and established.

The appellant had the capacity to finance its project by itself with mortgage loan; it had the prime tenant, Loblaw ; it had an ideally located property for such; but as it turned out, the appellant never had the support of local merchants and others, or their opposition to the appellant’s project was too successful.

The acquisition in 1953 of this property at the price the appellant paid for it, as stated, made no economic sense for any other use except use as a shopping centre; but more than that, perhaps even in 1963, despite the phenomenal, unprecedented and unforeseen rise in land values in the Town of Oakville and also generally, it may be that the only economic use of this property at that time was use as a shopping centre and not for apartments.

In the result, on the facts of this case, I am of the view that this asset at all material times was an investment of the appellant’s and therefore, the gain on its realization in 1963 was not income under the Income Tax Act.

The appeal is allowed with costs.