Alfred Galardo, Gino Mariani v. Minister of National Revenue, [1968] CTC 127, 68 DTC 5084

JACKETT, P.:—These appeals are from a decision of the Tax Appeal Board ((1965) 39 Tax A.B.C. 65, 69) dismissing appeals under Part I of the Income Tax Act.

The appellants were partners in the transactions giving rise to the profits that are the subject matter of the appeals. The appeals were heard together, and on the same evidence.

In each ease, there is an appeal from the appellant’s assessment under Part I of the Income Tax Act for 1960 because the appellant objects to the inclusion in his income for that year of an amount of $91,123.29, being his share of a profit made by the two appellants from the disposition of a part, and the expropriation of another part, of a twenty-acre farm acquired by the appellants in 1954 near the Cartierville Airport. In each case, there is also an appeal from the appellant’s assessment under Part I of the Income Tax Act for 1961 because the appellant objects to the inclusion in his income for that year of an amount of $1,250, being his share of a profit made by the two appellants from the disposition of a small parcel of land on Fleury Street, in Montreal, that the appellants had purchased in 1955.

The only question in each case is whether the profit in question is a profit from a ‘‘business’’ within the meaning of that word as used in the Income Tax Act. During the hearing in this Court, the appellants dropped any other ground of appeal.

Most of the basic facts surrounding the transaction giving rise to the 1960 profit are set out in the decision of the Tax Appeal Board, and I do not propose to repeat them here. Having regard to the view that I have formed, it is unnecessary to recite the details of the transaction giving rise to the 1961 profit.

The appellants’ position in effect, as I understand it, is that, quite apart from the general contracting business carried on by a corporation of which they constituted the management and were the shareholders, the appellants had, for some years, carried on a partnership the business of which was restricted to investment in revenue-producing properties, their business being carried on normally by acquiring land and developing it. In other words, the contention is that their business consisted of

(a) acquisition of land,

(b) erection of buildings on the land, and

(c) holding the land as so improved for the rental income to be obtained from it.

The appellants made a full disclosure of their land transactions over a seventeen-year period, and there is no doubt that they have acquired a number of properties on which they have erected buildings from which they have been receiving an increasing amount of rental income. In addition, however, they have sold, usually at a profit, one such property after it was improved, and a number of parcels of land that were acquired because they were ripe for development. In certain cases, such sales were to oil companies who agreed to use the appellants’ general contracting company for the erection of filling stations on the land so sold. In another case, the municipal authority, after litigation, had succeeded in stopping the appellants from getting a building permit for their proposed development. In another case, the appellants found that mortgage monies were not available to carry out their development plans, and they sold the property to obtain: money for a large development that they had in process elsewhere at the time. Having disposed of that particular parcel, some years later they sold a small parcel of land that had been acquired to ‘round out’’ its frontage. (This latter sale is the one that gives rise to the problem in the appeals from the 1961 assessments.) Then we have the twenty-acre farm near Cartierville Airport that was acquired in 1954, not for immediate development, because it was not then ripe for development, but for development some time in the future when it would, they were confident, become ripe for development—that is, when, as the City of Montreal continued to expand, the Municipality where the farm was located would instal water, sewers, roads, etc.

As it appears, therefore, from the appellants’ own case, there are several deviations from the class of business which, in their minds, was the only kind of business carried on by their partnership. In addition, moreover, the appellants, during the period in question, embarked, with other persons, on three projects of acquiring land for subdivision and resale, which were admittedly speculative and of a trading character.

The appellants’ case is therefore that, leaving aside the speculative transactions on which they embarked with others, which in their view were not part of the partnership business, their partnership business consisted in buying land to be used in the creation of revenue-producing assets to be held as such by the partnership, and that land so acquired was therefore a capital asset of their business, the sale or disposition of which, for one reason or another, before it served its assigned purpose in the business, was not a transaction in the course of carrying on the partnership business and did not, therefore, affect the profit or loss position of the business.

The respondent’s position, as taken before me (and the appellants do not question that it was sufficiently raised by the reply to the Notice of Appeal), is, in effect, as I understand it, that

(a) the appellants’ partnership business included the acquiring of land to be turned to advantage by resale or otherwise, as well as land to be used for development, and

(b) alternatively, the acquisition of the farm near the Cartierville Airport in 1954 was a venture in the nature of trade that was no part of the partnership business if that business had the limited character contended for by the appellants.

With reference to the first of such submissions, which, on the view that I take of the matter, is the only one that I must consider, the question as to the nature of the business carried on by a taxpayer is a question of fact that must be decided on an appreciation of all the facts. Due regard must be paid to the taxpayer’s explanation of his transactions, but his view as to how they are to be classified cannot, of course, be substituted for a judicial appraisal of their character.

I was entirely convinced of the sincerity of the appellant Galardo, who gave evidence before me. I am satisfied that, in his mind, the partnership business was of the restricted character that he described ; that, in his mind, the speculative transactions were ventures quite apart from that business, and that, in his mind, the various other sales were sales of capital assets of the business for various specified reasons.

Nevertheless, I cannot escape the conclusion that the partnership business was not of the restricted character that is attributed to it by the appellants. The history of the partnership transactions shows that, when a property was purchased, even if it was ripe for development at the time of purchase, the partnership might develop it, or sell it, or sell part of it and develop part of it. This must have been the obvious position, to anyone who stopped to think about it, when the partnership acquired a property such as it did in 1954 that was not expected to be ripe for development until some indefinite time in the future. In addition, I cannot leave out of consideration, when considering the character of the appellants’ business in connection with land, the speculative transactions upon which the appellants embarked with others where the avowed purpose was resale alone.

When one looks at the overall picture, one finds that, as a result of some sixteen or seventeen purchases in a period of seventeen years, there have been seven development projects, eight parcels disposed of, one parcel is still held for rental as purchased, and some five or six parcels are still held unsold and undeveloped. These facts make it seem clear to me that the business consisted of acquiring land to be developed or sold, or otherwise turned to advantage. The case would appear to fall within Anderson Logging Company v. The King, [1925] 8.C.R. 45; [1917-27] C.T.C. 198, and is to be contrasted with Sutton Lumber and Trading Company Limited v. M.N.R., [1953] 2 S.C.R. 77; [1953] C.T.C. 237.

It follows that the profits in issue are profits from the business, and that the appeals must be dismissed with costs.