The Assistant Chairman:
1 This is the appeal of Mainland Crystal Glass Ltd from an income tax assessment in respect of the appellant's 1971 taxation year.
2 By notice of assessment dated May 14, 1973 the Minister of National Revenue added an amount of $39,115.97 to the appellant's taxable income for its 1971 taxation year as a result of the inclusion by the Minister of the gain made by the appellant on the disposition in that year of a property known as Crystal Manor.
3 This appeal is a trading case and the question to be decided by the Board is whether the gain made by the appellant on the disposition of Crystal Manor is income or a capital accretion.
4 Mainland Crystal Glass Ltd, the appellant company (known at the time of the assessment as Edmonton Crystal Glass Ltd), was incorporated under the laws of the Province of Alberta in 1953. The beneficial shareholder of the company is Mr Edwin E Bean. The appellant was engaged in the installation of automobile and commercial glass.
5 It is my understanding that the appellant and/or Mr Bean also owned a building known as “The Mall” in which the appellant company's offices and warehouses were located and which also lodged a real estate broker's office, a contractor's office, an insurance company's office and a coffe shop.
6 Next to “The Mall” was a block of 7 lots which the owner, Mr Golden, offered to sell to Mr Bean. Mr Bean, having acquired the 7 lots in December of 1968, then approached Mr Christenson, the contractor whose offices were in “The Mall”, with a view to building a fashionable and quality building of 24 suites and a commercial main floor. There was no land assembling to be done nor any rezoning to be made. Mr Christenson was to look after the drawings as well as the construction of the building so that Mr Bean would not be preoccupied with day-to-day supervision of the building of the project.
7 The contract for the building was let to Mr Christenson on or about September 17, 1969 for a total price of $350,000, and a mortgage commitment of $300,000 was obtained. Once completed the building yielded a return on equity of 13.75%
8 On December 13, 1970 Mr. Wekherlien, a real estate salesman with Weber Bros Realty Ltd approached Mr Bean with a view to selling Crystal Manor. Mr. Bean replied that the building was not for sale but he did state that he would consider offers. Although Mr Bean did not sign the actual listing, Mr Wekherlien prepared a brochure advertising Crystal Manor, confident that, if the property were sold through his efforts, Mr Bean would pay him a commission. In actual fact, Crystal Manor was sold on September 15, 1971 for $530,000.
9 In February of 1968 Mr Bean had learned that his 34-year-old wife was suffering from a malignant brain tumor and had a very limited life expectancy. Mr Bean stated that, under the circumstances, it was imperative that he look toward investing the surplus funds of the appellant company in stable, passive investments rather than further expanding his glass business. Mr Bean alleges that this was the reason why the land was acquired and Crystal Manor was built.
10 However, in 1971, Mr Bean caused an apartment building known as Parklane to be built for the purpose of resale. Mr Bean then built the Shelley Manor, which he retained.
11 Mrs Bean died on February 10, 1971 and the appellant stated that during his wife's illness he spent most of his evenings with her and with his children and was terribly concerned and upset over his wife's condition, which is readily understandable.
12 It is alleged that during that period of time the business of the company deteriorated because of the circumstances of Mr Bean's family life and the fact that he neglected his business. This allegation, however, does not appear to be supported by the facts, since it is on record that Mr Bean went to the company's office every day during the period of Mrs Bean's illness and, according to the financial statements, the company's 1969 fiscal year, during which time Mrs Bean was very ill, was the best that the company had heretofore experienced. Although the 1970 year showed a slump in sales as compared to 1969, the sales were comparable to those of 1968, and therefore the alleged deterioration of the appellant's business because of Mrs Bean's illness is not easily detectable. It is also difficult to see that Mr Bean acquired Crystal Manor because of his wife's condition when he was ready to consider offers of purchase on the property while Mrs Bean was still alive and in the same physical condition as when the property was acquired.
13 It is alleged in the notice of appeal that Mr Bean became gradually more accustomed to his tragic loss and was determined to return to his glass business with more vigour and yet it was after Mrs Bean's death that Mr Bean built the Parklane apartments for resale and built the Shelley Manor. From the evidence there does not seem to have been any spectacular change in Mr Bean's business administration during Mrs Bean's illness or in his activities immediately after her death.
14 Mr Bean alleges that the automotive glass business had become unsuccessfully competitive over the last few years and for that reason he sold Crystal Manor to acquire the necessary funds to meet this competition. From the president of Trans Canada Glass Ltd's annual report to its shareholders, filed by the appellant as Exhibit A-3, it seems to me that the appellant company's western competition existed long before Mrs Bean's illness and long before Crystal Manor was built and sold. Nor was it explained how the subsequent building of Shelley Manor, which was retained as an investment, could help the appellant acquire the necessary capital to meet that competition. It was stated by Mr Bean that Trans Canada Glass Ltd's competition could only be met by the expansion of his own company's activities and that at no time did he ever consider abandoning his glass business. In the light of that statement, how can the construction of Crystal Manor or Parklane apartments be explained other than as a means of acquiring the necessary expansion capital from the construction and quick sale of the buildings in what has been described, and not denied, as a period of a very good, if not booming, real estate market in Edmonton?
15 After a review of all the facts of this appeal, and not underestimating in the least Mr Bean's emotional stress during his wife's tragic illness and her ultimate death, I cannot come to the conclusion that the appellant has proven to the satisfaction of the Board that Crystal Manor was built as a long-term investment in connection with Mrs Bean's illness. In my appreciation of the evidence, it would appear that Crystal Manor, and indeed Parklane apartments were built and quickly sold as a means of acquiring the necessary capital for the appellant company's required expansion in order to meet increasing competition. This of course cannot be considered as a long- term investment.
16 I conclude therefore that the gain realized by the appellant company from the disposition of Crystal Manor is not a non-taxable capital gain from a long-term investment but arises as the result of a venture in the nature of trade, and that it was properly assessed by the Minister as income.
17 The appeal is therefore dismissed.
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