Ethel Annabelle Angle v. Minister of National Revenue, [1969] CTC 624, 69 DTC 5423

SHEPPARD, D.J.:—This appeal is from an assessment by the Minister of National Revenue for adding sums to the income of the appellant as follows :

For 1966:

Benefits from the construction of a pool

house	$47,330.64
and from furniture and fixtures	_. 4,151.62	$51,482.26
Profits on the sale of 1,000 shares of Far
East Minerals Ltd. (N.P.L.)		25,750.00
For 1966 making a total of		$77,232.26

and "'—""—

For 1967:

Benefits from the pool house	$ 4,912.94
and from furniture and fixtures	1,844.20	$ 6,757.14
Profits on the sale of 1,000 shares of the
Far East Minerals Ltd. (N.P.L.) sold
to Transworld Explorations Ltd.		12,750.00
For 1967 making a total of 000000		$19,501.14

The appellant contends: (1) as to the Far East shares, the appellant was not in the business of dealing in shares within Section 139(1) (e) of the Income Tax Act and the alleged profit was not a taxable income within Section 3(a), and (2) as to the pool house, that no benefit or advantage was conferred on the appellant as a shareholder or within the years 1966 or 1967, within Section 8(1) (c).

The onus is on the appellant and as the amounts are not in dispute the basic issues are :

(a) That the appellant was not in the business of dealing i in shares, therefore the alleged profit was not taxable income but a capital gain.

(b) That the pool house (i) was received by the appellant as lessor not as ‘‘shareholder’’ within Section 8(1) (c), (ii) was paid for by the appellant and therefore was not ‘‘a benefit or advantage’’, (iii) or in any event was a benefit received only on expiration of a lease, therefore not in 1966 or 1967 but in 1968.

The facts are as follows: At all material times the appellant was the principal shareholder in Transworld Explorations Ltd., which Company was engaged in developing properties and promoting mineral companies. In Transworld the appellant was president, a director and a shareholder and received a salary from the Company for the year 1965—$35,000; for 1966— $12,000, and for 1967—$6,000. The Transworld Company promoted the Far East Company (exhibits R9 and 10), in which latter Company the appellant acquired 100,000 shares at 15^ per share. After April 1, 1966 the appellant and her husband occupied a residence at 187 Stevens Drive, British Properties, Vancouver, which residence they owned as joint tenants. On July 26, 1966, by quit claim deed (exhibit Al), the husband released to the appellant his interest in the residence for 1,000 of the appellant’s shares in the Far East Company, which she had bought at 15^ per share. The value of the husband’s half interest exceeded $28,000 so that the appellant realized a profit of $25,750 from that sale of the shares to her husband and that profit was added to her income.

In 1967 the appellant being indebted to the Transworld Company, transferred to that Company 1,000 of her shares in the Far East Company for which the Transworld Company gave her a credit of $15,000 against her indebtedness. In respect of that transaction, the Minister added her profit of $12,750 to her income for the year 1967.

The remaining items arise out of the pool house constructed by Transworld Company on the rear of the appellant’s property at 187 Stevens Drive. In 1966 Transworld Company built on the rear of the appellant’s property, a pool house constructed of stone and containing swimming pool, sauna bath, mineral bath, barbecue, bar, fireplace, sitting room, offices, over an area of 3,000 square feet. Before June 1966, van Nessel, a chartered accountant, saw the pool house being constructed and later advised the appellant that the pool house might be added to her income. Sankey began an investigation for the Department of National Revenue.

Under indenture of November 1, 1966 (exhibit A2), the appellant purported to lease to Transworld the whole of the lot at 187 Stevens Drive, for the period of five years from November 1, 1966, at $1.00 per year, with the additional right to the lessee to extend the term for a further five years on the provision that the lessee was responsible for maintaining the back part of the property which the improvements are to be erected on.

Under indenture of November 27, 1967 (exhibit A3), the appellant purported to lease to Transworld Company the said property for one year at a rent of $6,000, payable at $500 per month, with a clause for renewal of the term up to 10 years “by agreement between the parties’’ and a further clause, “In consideration of the granting of this lease, the lessee hereby agrees to surrender to the lessor all of its right, title and interest to the improvements hereby demised for the sum of Forty-Nine Thousand, Seven Hundred and Sixty-Eight Dollars and Fifty- One Cents ($49,768.51)’’. The appellant’s husband arranged a loan to the appellant at the Toronto-Dominion Bank for $50,000 (exhibit A5) and on the day of the loan, December 27, 1967, there was deposited to the credit of the Transworld Company $50,000, being the proceeds of the loan (exhibit A6). As that money was assigned to the bank for security for the loan, it could not be withdrawn by the Transworld Company before the loan was paid. On January 18, 1968, the appellant gave an exclusive listing (exhibit A7) of the residence at 187 Stevens Drive, thereby authorizing the offering of the house for sale by clear title, which listing contains no reference to either lease, nor was either lease registered. In February of 1968, the husband, then going to the United States of America, gave the appellant a Transworld cheque for $50,000, drawn on the Transworld Company account and signed by the husband as agent for the Company. On February 6, 1968, she repaid the bank loan by this cheque of the Transworld Company of $50,000 (exhibit A8 Receipt) and her own cheque by paying interest to February 13, 1968, of $486,65 (exhibit A8). The sale of the residence was concluded in 1968 but the proceeds have not been disbursed, pending the adjustment of her income tax.

In respect of the pool house, the Minister assessed the appellant with having received a benefit within Section 8(1)(c) of the Income Tax Act, to the extent of the expenditures by the Transworld Company in constructing and furnishing the pool house in 1966, in the amount of $51,482.26, and for the taxation year 1967, for the pool house $6,757.14. The appellant contends, among other things, that these items were not within Section 8(1) (c) for the reasons that:

(1) they were received by the appellant as a lessor not as shareholder ;

(2) they were not a benefit as the appellant had to pay for them ;

(3) that any benefit was received by the appellant as at the end of the lease, that is in 1968, not in 1966 or 1967.

As to the shares in the Far East Company purchased by the appellant, the main issue is whether or not she was engaged in the business of buying and selling shares as the Minister contends, so that her purchase and resale of the Far East shares constituted a profit arising from her business and therefore income. On the other hand, the appellant contends that she was not engaged in the purchase and sale of shares and that the purchase was an investment of a capital nature, and therefore not subject to income tax. There is no dispute about the profit; the question is whether or not she was in the business of buying and selling shares. On the evidence, the appellant was in the business of promoting other. companies, including the buying and selling of shares for profit. She was president of the Transworld Company and also a director. Therefore, as president, she was the chief executive officer. As president she received a salary for her services for the year 1965 of $35,000, for the year 1966, $12,000, for the year 1967, $6,000. She was, on her evidence, on call twenty-four hours a day, engaged in entertaining mining men, brokers, discussing mining properties and actively engaged in the Transworld business of promoting and development of other companies. The Transworld Company promoted the Far East Company. The Transworld Company sold to the Far East its mineral properties for 750,000 shares of the Far East Company (agreement of April 27, 1966 (exhibit R9) ), that agreement was signed by the appellant as agent for both companies. The Transworld Company would have these shares of the Far East to sell as part of the Transworld business. The prospectus of the Far East Company declared that the appellant was the only person holding more than 5% of the shares. In the case of the Far East Company, the appellant acted as agent for each company in signing the agreement (exhibit R10) as agent for the Transworld Company in buying 750,000 shares of the Far East Company, and as principal acting for herself, this appellant, in buying her 100,000 shares of the Far East Company. (Exhibit RIO, p. 1, item d.)

The letter of October 18, 1968 (exhibit Rll) written for Transworld Exploration Ltd., by the appellant’s husband, states in part:

Reference Mrs. E. A. Angle, $35,000 that the Company paid her in salaries: Mrs. Angle worked with Transworld Exploration Ltd. from the inception of the Company until today in a capacity of assisting the Company with handling all personal engagements, private telephone conversations, running said corporation when I was out of the city on numerous occasions, handling all entertainment, making all mining conventions and other conventions that were suitable for the Company at the time and helping to promote the Company’s stock holdings through her contacts since Mrs. Angle was in the travel business some years before and has travelled extensively throughout the world. The Company would not have done nearly the amount of business without Mrs. Angle’s assistance.

The Transworld Company was engaged in the business of promoting other companies, which included the sale of mineral claims to such other companies for their shares and selling their shares (exhibits R9 and Rll) as ‘‘promoting the Company’s (Transworld Company’s) stock holdings’’ (exhibit Rll). The appellant ordinarily was engaged in carrying on that business for and as agent for Transworld Company, as indicated by :

(1) her position as president and director ;

(2) her activities, including the agreement between the Transworld Company and the Far East Company (exhibit R9) ;

(3) her salaries ;

(4) the letter (exhibit Rll) : ‘‘The Company would not have done nearly the amount of business without Mrs. Angle’s assistance. ’ ’

In the case of the Far East Company, the appellant carried on the business of the Transworld Company, as evidenced by the agreement of April 1966 but also in the case of 100,000 shares, she carried on business on her own behalf and she bought those shares for the purpose of marketing at a profit.

The appellant’s activities are to be described in the words in N. R. Whittall v. M.N.R., [1967] C.T.C. 877 at 391, quoted by Martland, J.:

The turning of these investments into profit was not merely incidental but instead was the essential feature of his personal trading operations or business speculations.

These investments the realization of which produced the profit, in my opinion, were not “ordinary” investments within the meaning of the Irrigation Industries case, [1962] S.C.R. 346; [1962] C.T.C. 215 and the Californian Copper Syndicate case (1904), 5 T.C. 159.

And as stated at p. 393:

I am of the opinion that there was ample evidence to support the conclusion reached by the learned trial judge in the first para- graph of the passage from his reasons quoted above. Counsel for the appellant took issue with the statement that “the appellant assisted materially in the marketing of these securities”, contending that it was the investment company which had done the marketing and not the appellant. But the learned trial judge uses the word “assisted”, and the appellant was, at the material times the majority shareholder, a director and officer of Ross Whittail Ltd. and the president of its successor. Undoubtedly he assisted in the marketing operations mentioned.

This appellant’s activities were not passive as in Davidson v. M.N.R., [1968] C.T.C. 136. No dividends were received by her from her Far East shares and she gave no evidence of any expectation of dividends, hence the purchase was not an investment as in the Irrigation Industries case (supra) or in Gardner Securities Ltd. v. M.N.R., [1954] C.T.C. 24. It was not a simple purchase and sale of shares as in Hill-Clark-Francis Lid. v. M.N.R., [1963] C.T.C. 337.

As to the pool house, the issue is whether or not she received a benefit within Section 8(1) (c) by Transworld Company having built the pool house upon property of which she was the owner. The pool house was built by the Transworld Company at its expense upon property of the appellant, and she was president and a shareholder of that Company.

(i) The pool house was not received by the appellant as lessor because it was let into the soil; that 1s, construction was begun before there was any lease. The building was of stone and contained a swimming pool, mineral pool, sauna bath, bar, office, sitting room and was let into the soil; moreover it was a building of a type that could not be removed without destroying it as a building; and also became part of the land, being “let into or united to the land or to substances previously connected herewith”, as in Alway v. Anderson (1858), 5 U.C.Q.B. 34 at 41; B.C. Forest Products v. M.N.R., [1969] C.T.C. 156. The building was of a permanent character as referred to in Saint-Germain v. M.N.R., [1969] C.T.C. 194 at 197. Van Nessel said the building was being constructed for some time before he saw it in J une 1966. Therefore, at that time it would have become part of the land, or so much as was then built and subsequently anything added thereto became part of the building and passed to the appellant as owner. It is immaterial whether or not the foundation was begun before or after the appellant acquired the interest of her husband because they, as Joint tenants, would hold one title and the appellant by acquiring her husband’s interest would continue that title from which he had dropped out.

The leases in question were entered into after the first part of the building was let into the land and had become part thereof and had passed to the appellant as owner. The lease of November 1, 1966 (Exhibit A2) could not affect such benefit. Prior to June of 1966, the foundations were built and the lease of $1.00 per year entered into in November would not divest the appellant of the pool house then vested in her as part of the freehold of which she was the owner. The second lease appearing dated November 27, 1967 (Exhibit A3) was obviously entered into after the pool house had been constructed, in any event, after the pool house had vested in the plaintiff and after she had received the benefit from its construction. Accordingly, the benefit of the pool house was not received by the appellant as lessor. The pool house was not paid for by the appellant. It was not paid for in fact because the monies received by the Transworld Company were held at the bank under deposit receipt and, being assigned to the bank, could not be withdrawn by the Transworld Company. Further, that loan was repaid by a cheque of the Transworld Company drawn by the appellant’s husband. Further, any obligation of the appellant to pay for the cost of such building depends upon the clause in Exhibit A3, whereby the “Lessee hereby agrees to surrender to the lessor all its right, title and interest to the improvements hereby demised for the sum of $49,768.51”.

(ii) That payment is to be subsequent to and therefore conditional upon the lessee surrendering all of its rights, title and interest to the improvements, Pordage v. Cole, 1 Wms. Saunders 319, which the lessor cannot do as the lessor had no ‘‘right, title and interest’’ in the improvements as these had already vested in the appellant as owner of the freehold and again the rule of Cooper v. Phibbs (1867), L.R. 2 H.L. 149, would prevent the enforcement of that clause by the lessor.

(iii) The appellant contends that no benefit will vest in her until the expiration of the lease which would be after 1966 or 1967. However, the benefit vests in the appellant not by virtue of an assignment or conveyance by the lessee, but by virtue of the appellant being the owner of the freehold on which the building was erected.

In any event, the leases were not effective. Neither lease was registered, nor disclosed in the listing, but on the contrary the land was sold as of clear title. Again the property demised included the whole lot and therefore included the residence, but the appellant, her husband and family continued to reside on the lot until they had moved to Spokane. The second lease was not registered, nor disclosed to the real estate agent (Exhibit A7) and the sum of $50,000 reportedly paid to the Transworld Company pursuant to the second lease was repaid to the lending bank by cheque of the Transworld Company. The leases. were regarded by the appellant when useful to her in rebutting the inference of her benefit from the pool house, otherwise not. The pool house was a benefit or advantage, conferred by the corporation Transworld Company, on the appellant, a shareholder, within Section 8(1) (c).

As for the furniture in the pool house, all furniture was ordered by the husband as agent of the Transworld Company and paid for by the Transworld Company; that is corroborated by photostatic copies of invoices (Exhibit A4). It would follow that the property in the furniture would pass from the seller to the Transworld Company as buyer and the property being vested in that Company would remain therein unless the furniture as chattels were delivered to the appellant with the intention of passing the property or conveyed to her by deed. Such a passing of property to the appellant was not suggested; on the contrary, most of the chattels, being delivered at the pool house, thereafter remained in the possession of the Transworld Company, excepting solely the dining room furniture and the buffet, which were moved to the residence of the appellant, but not to her as buyer, rather moved because of the dampness of the pool house; therefore, such furniture was moved to the residence for safekeeping and constituted a bailment of such chattels in the residence. On March 9, 1968, the appellant and her children moved to Spokane, and the furniture of the Transworld Company was either moved to Spokane or given to the Salvation Army in Vancouver. In any event, the furniture was not given to the appellant. There is therefore no benefit to the appellant in respect of the furniture of the Transworld Company. The foregoing references to furniture also apply to the alleged fixtures. There is no suggestion that these fixtures were received otherwise than as furniture or that they should not be severed.

In conclusion, the assessment is referred back to the Minister to re-assess by deleting the items in respect of furniture and fixtures for the years 1966 and 1967, and subject thereto, the appeal is dismissed. As to the costs, the appellant will recover one-quarter of her costs and the Minister, as respondent, will recover three-quarters of his costs.