Fred Voigt v. Minister of National Revenue, [1968] CTC 175, 68 DTC 5113

GIBSON, J.:—There are two issues in this appeal, viz., firstly, is the profit, (whatever the quantum of it) from a ‘‘business’’ within the meaning of that word as used in the Income Tax Act; and secondly, if the answer to the question posed in this first issue is ‘‘yes’’, what is the quantum of this profit?

The purchase and sale of one parcel of land and of 30 shares and $380,000 promissory note of a company which owned another parcel of land give rise to these two issues. The parcel of land is the so-called Winterburn farm property and is four miles west of Edmonton and the parcel of land which the said company so owned called M.C.L. property, is about one-quarter mile northeast of Edmonton. The former is and was at all material times farm land and so zoned, while the latter is and was at all material times industrial land and so zoned.

The appellant bought his interest in each, at about the same time viz., in about 1956; and sold each in 1960.

The appellant’s interest in the Winterburn property was a one-half interest and it cost him $10,000, and he alleges he sold it for $20,000. In respect to this alleged profit of $10,000, he was re-assessed in 1963 for income tax, and he paid the income tax assessed against him at that time.

The appellant’s interest in the so-called M.C.L. property, as stated, was through a company called M.C.L. Development Ltd. This interest cost him $30,000 for which he held a $30,000 promissory note from that company. He also owned 30 of the 128 issued shares of that company.

As stated, in 1960, the appellant sold these two interests, and he received a total of $93,500 for them. There was no allocation of the monies received on the sale between these two interests.

In view of the decision on the motion made at the beginning of this trial, the only matter for decision on this second issue for decision is whether or not the fair market value of the so-called Winterburn farm at the time of sale in 1960 was $40,000 as alleged by the appellant or at least $63,000 as alleged by the respondent.

On this second issue, substantial evidence was adduced, which was not given at the prior appeal before the Tax Appeal Board.

As to the first issue, without reciting the indicia all of which appear in the evidence, I am of opinion that the receipt by the appellant of the monies from the sale of his interest in the Winterburn farm is from a ‘‘business’’ of the appellant, within the meaning of that word in the Income Taz Act.

As to the second issue, the appellant, a Mr. Stanley Arthur Franklin, a realtor in Edmonton, and a Mr. Robert Morris Ross gave evidence.

Mr. Franklin was of opinion that the value of this so-called Winterburn farm in 1960 was $40,000. He based his opinion on his knowledge of the market from his activities as a realtor, and by employing the comparative sales approach using only sales the details of which he was aware of. Two sales he ignored, namely, the sale of this same Winterburn farm in 1960 to Star Land & Exploration Ltd., for $147,761 and in 1966 from Star Land & Exploration Ltd., to Scurry Rainbow Oil Ltd., for the same price. He ignored them, he said, because he thought they did not represent fair market value, but instead some internal financial arrangement; but he made no attempt to find out any facts concerning these sales.

Mr. Ross supplied some of the facts regarding these sales.

Mr. Ross was a co-purchaser with the appellant in 1956 of this so-called Winterburn farm and through his company, Clearmonte Holdings Ltd., in 1960 bought out the appellant’s interest in it along with the appellant’s 30 shares and $30,000 promissory note of M.C.L. Development Ltd., which latter company owned the so-called M.C.L. land, for the sum of $91,500.

The other $2,000 to make up the $93,500 above recited was paid to the appellant by the Department of Highways of the Province of Alberta for a certain strip taken off the property for road widening.

Mr. Ross said that prior to the transaction with the appellant, he had arranged through others to sell the 30 shares and the $30,000 promissory note of M.C.L. Development Ltd., to one Peter Graham, a Nassau, Bahamas lawyer. He did so immediately thereafter, having tried, as he said, to get the maximum dollars for them. Mr. Ross, together with his company, Clearmonte Holdings Ltd., in June 1960 sold a 100% interest in this so-called Winterburn farm to Star Land & Exploration Ltd., for the said sum of $147,761. Mr. Ross said that that amount represented the market value of the property at that time. He also said he knew of no factor increasing its market value from $40,000 in December 1959 to $147,761 in June 1960. He said, although he was the Chief Executive Officer of Star Land & Exploration Ltd., he had only a 17% interest in that company, and that a Mr. Peter Abt, who subsequently became Vice-President of Scurry Rainbow Oil Ltd., and a Mr. Morris Roe, who was the majority beneficial shareholder in M.C.L. Development Ltd., and also a substantial shareholder in Star, and subsequently a President of Scurry Rainbow Oil Ltd., acted in Star’s interest, and that these two latter men had no reason to and did not give Mr. Ross or his company, Clearmonte Holdings Ltd., any more than the market value at that time.

Mr. Ross also said he considered that Clearmonte Holdings Ltd. paid the appellant $20,000 for his interest in the so-called Winterburn farm.

As to the $41,500 difference between $91,500 paid for both interests and the said $20,000 which he says he paid for the interest in the Winterburn farm, plus the $30,000 for the 30 shares and the $30,000 promissory note of M.C.L. Development Ltd., Mr. Ross says he contracted for, paid for, and subsequently sold the latter to the said Peter Graham, the Nassau lawyer.

Mr. Ross says that as a result it could be interpreted that he conferred a $41,500 benefit on Mr. Peter Graham, but that he had no reason to do so.

Mr. Ross does not explain the sale of the same Winterburn farm by Star Land & Exploration Ltd., to Scurry Rainbow Oil Ltd., in 1966 for the same price of $147,761, but he does admit

— part of which is recited above — that Mr. L. Morris Roe at all material times was beneficial owner of the majority of the shares in M.C.L. Development Ltd., a substantial owner of shares in Star Land & Exploration Ltd., a Director of Scurry Rainbow Oil Ltd., from 1956 and President in 1966, and that Mr. Peter Abt, together with Mr. Roe, acted for Star Land & Exploration Ltd., when he (Ross) sold Star the so-called Winterburn farm for $147,761 in 1960. Mr. Ross says that Mr. Abt was Secretary of Star Land & Exploration Ltd., in 1960 and also an employee of Scurry Rainbow Oil Ltd., and that in 1966 Mr. Abt was Vice-President of this latter company.

Mr. Ross undoubtedly knows a lot more than is disclosed by his evidence of the transactions involving Mr. Morris Roe and his connection with Star Land & Exploration Ltd., M.C.L. Development Ltd., and Scurry Rainbow Oil Ltd., and also involving Mr. Peter Abt and his connection with Star Land & Exploration Ltd., and Scurry Rainbow Oil Ltd., and also involving Mr. Peter Graham, the Nassau lawyer, who bought the 30 shares and the $30,000 promissory note of M.C.L. Development Ltd., and of the relationship of the transactions arranged among them, and of the transactions in relation to the so-called Winterburn farm, and also to the so-called M.C.L. farm.

In my view all the evidence of Mr. Ross is suspect. But for the purposes of disposing of this appeal, it is sufficient to state that the thorough and detailed cross-examination of Mr. Ross by counsel for the respondent has caused me to conclude that I must reject in toto any part of his evidence and any of the documents produced of which he was the author, which relate to the second issue on this appeal, namely, the true value of the so-called Winterburn farm in 1960.

Specifically, as a result, I conclude that the purported sale price of it to Star Land & Exploration Ltd., in 1960, and by Star to Seurry Rainbow Oil Ltd., in 1966 for $147,761, does not represent the true market value of it, but instead represents a price paid in the implementation of some dubious. transactions among Ross and the others mentioned and other persons unknown, excluding from such list of persons, the appellant.

Instead, on the second issue, I accept the evidence of Mr. Franklin and the market value of this so-called Winterburn farm in 1960 was $40,000.

Therefore, I conclude that the 1963 re-assessment of the appellant’s taxable income for 1960 was correct, and that the 1965 re-assessment from which this is an appeal, must be vacated.

Accordingly, the appeal is allowed with costs and the said re-assessment is vacated.