Roland St-Onge (orally: January 9, 1975):
1 This appeal is from a reassessment dated November 21, 1972, with respect to the 1969 taxation year. The appeal was heard on January 8, 1975 in the City of Calgary, Alberta and the appellant company's majority shareholder, Mr Southern, who was representing the company and also appearing on his own behalf, agreed that, if necessary, both appeals be heard on common evidence, on the condition that he be allowed to adduce additional evidence in his own appeal.
2 The undisputed facts are as follows: The appellant is incorporated under the laws of the Province of Alberta; its president is R D Southern, who holds 60% of its outstanding, issued shares.
3 On March 5, 1968 the appellant company purchased 8,400 ounces of gold at a cost of $323,148.28 and 15 months later sold it at a net gain of $51,870.36.
4 On October 16, 1970 the appellant company purchased 8,000 ounces of gold at a cost of $307,820.06 and 15 months later sold it at a net gain of $52,732.36.
5 On January 20, 1972 the appellant company purchased 5,600 ounces of gold at a cost of $262,134.19.
6 On March 5, 1965 Mr Southern's wife purchased 260 ounces of gold and four years and three months later she sold it at a net gain of $1,662.31.
7 On November 20, 1968 Mr Southern purchased 4,620 ounces of gold at a cost of $200,004.23 and six years and six months later sold it at a net gain of $6,316.25.
8 On March 19, 1971 Mr Southern purchased 8,800 ounces of gold at a cost of $348,903.61 and eight months later sold it at a net gain of $52,487.01. On February 4, 1972 Mr Southern purchased 5,200 ounces of gold at a cost of $246,224.42.
9 The appellants contend that these profits are capital gain, whereas the respondent says that they are taxable income.
10 Heard as a witness, Mr Southern explained that the appellant company was forced to sell its gold in 1969 in order to help the parent company pay a substantial amount of income tax, apparently between $1,500,000 and $2,000,000. On this occasion, the shares of Atco Trading Limited, were sold to Atco Industries Limited, and thereafter Atco Trading became dormant.
11 Finally, the tax problem was settled for a total sum of $985,000, which represents the payment of income tax for a period of seven years.
12 After the second transaction, although Mr Southern admitted that his position was weaker, he stated that it was another forced transaction. But his explanations in that respect were not very clear. Evidently he was the majority shareholder of the appellant company, and despite opposition from the other directors, he was able to sell and rebuy the gold as he wished.
13 Apparently the reason for selling gold at that time was a distrust in money. But nine days later, his company re-bought 5,800 ounces of gold.
14 Upon cross-examination he explained that he had studied medicine for some five years and that from 1966, he had done a great deal of reading about international monetary systems. He also said that the money to buy gold came from the sale of Atco Company shares, and also from what was left from the $2,000,000 raised to pay the taxes.
15 Finally, he admitted that the gold could not be of any benefit to him unless it was sold and that the said gold had never served as collateral or security, and if he had bought gold the reason was to acquire peace of mind and security against inflation.
16 Counsel for the respondent argued that because gold was an unusual commodity, it had value only when it was sold. In that respect he referred the Board to Rutledge v. CIR (1929), 14 TC 490. In that case the object of the transaction was a large quantity of toilet paper. Another case, Lindsay et al v. CIR (1932), 18 TC 43, and that of CIR v. Fraser (1942), 24 TC 498, were also referred to me. Here the object of the transaction was a large quantity of whisky. In those two cases the taxpayers had been held liable to tax because of the nature of the object of the transaction.
17 According to the evidence adduced, the appellants herein were not in the business of processing gold to make a profit, and consequently the gold for them was of value as long as it could be exchanged for money. It is inconceivable that the taxpayer, who is not in the business of processing gold to make a profit, would buy such a commodity and in such a quantity without the intention of reselling it at a profit at the earliest opportunity.
18 It is crystal clear that the appellants in the present appeal acquired gold with the intention of reselling it at the best opportunity. No one is really interested in keeping gold too long, and the appellants are no exceptions, since their three most profitable transactions—at a net gain of $50,000 each—took place within a period of not less than 15 months.
19 Furthermore, the reasons given by the appellants are not clear and convincing enough to prove that the said reasons were unique ones for selling the gold.
20 The Board was also referred to Wisdom v. Chamberlain (HM Inspector of Taxes), 45 TC 92at 106, and I read:
Therefore, the learned Judge held, as I understand it, that because it was a hedge against devaluation it was not a trading adventure; and, notwithstanding the other findings of the Commissioners, he held that, if they had rightly appreciated the facts, that was the conclusion to which (...) they must have come.
For myself I cannot take that view at all. In the first place it seems to me that, supposing it was a hedge against devaluation it was nevertheless a transaction entered into on a short-term basis for the purpose of making a profit out of the purchase and sale of a commodity, and if that is not an adventure in the nature of trade, I do not really know what is. The whole object of the transaction was to make a profit. It was expected that there would be devaluation, and the reason for wanting to make a profit was that there would be a loss on devaluation; but that does not make any difference, it seems to me, to the fact that the motive and object of the whole transaction was to buy on a short-term basis a commodity with a view to its resale at a profit.
21 Then counsel for the respondent referred the Board also to MNR v J A Taylor, [1956] C.T.C. 189, 56 D.T.C. 1125. In that case it is important to note the tests which the Court has applied to determine when a transaction, which is not itself a trade or business, can be held to be “an adventure or a concern in the nature of trade”.
22 There was an allegation in that judgment to the effect that an item is either acquired as an investment or it is not. And then, the learned judge of the Exchequer Court laid down the following positive guides at page 214 [1139] stating that a transaction is “an adventure in the nature of trade” (1) “... if a person deals with the commodity purchased by him in the same way as a dealer in it would ordinarily do”, and (2) if “the nature and quantity of the subject matter of the transaction may ... exclude the possibility that its sale was the realization of an investment ...”.
23 In the present appeals it cannot be said that the gold was acquired as an investment. Consequently it was an adventure in the nature of trade. In the light of the jurisprudence cited, and for the reasons mentioned above, I have to dismiss the appeals.
24 Both appeals are dismissed.
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