CAMERON, J.:—This is an appeal by the taxpayer from a decision of the Tax Appeal Board dated August 12, 1959, dismissing the appellant’s appeal from a re-assessment made upon it for its taxation year ending December 31, 1953. In the re-assessment dated July 28, 1953, the respondent added to the declared income of the appellant the sum of $26,897.50, being profits received by the appellant in that year from the purchase and sale of certain stocks, levied certain interest charges on the income so added, and (after making certain other adjustments which are not now in dispute) levied an additional tax of $12,639.38. Following a Notice of Objection by the taxpayer, the Minister, by his Notification dated December 31, 1958, affirmed the said assessment on the ground that it was in accordance with the Act and in particular on the ground that the profits from the sale of the shares had been properly taken into account in computing the appellant’s income in accordance with Sections 3 and 4 of the Income Tax Act.
The sole question now before the Court is whether the profits so realized constitute taxable income in the hands of the appellant as submitted by the respondent, or whether as submitted by the taxpayer, they are in the nature of capital accretions or gains in respect of investments made by the appellant. There is no dispute as to the amounts involved.
The only oral evidence at the hearing was that of Mr. C. E. Chesher who now, as well as in 1953, is the president and a director of the appellant company. It appears that at the time the company was incorporated in 1947, the intention was to purchase farm property and to construct and operate an alfalfa mill at Brooks, Alberta. But that project was never carried out as it was decided that it would not be profitable. For some years thereafter, the company appears to have been dormant.
The profits in question were realized as follows: About February 6, 1953, the appellant purchased 4,000 shares of common stock in Brunswick Mining and Smelting Corp. Ltd. (hereinafter called ‘‘Brunswick’’) at $10 per share. The appellant, as will appear later, had previously arranged a loan from its banker for $50,000 to assist in the purchase of property in Calgary, and when the stock in Brunswick was purchased, it had only $3,000 to its credit in the bank account. Arrangements were made with the bank to allow an overdraft to complete the purchase of the Brunswick stock, and accordingly on February 23, 1953, a cheque for $40,000 was issued in full payment for the stock. A few weeks later—namely, between March 10 and March 13, 1953—2,400 shares of Brunswick were sold and the full profits, amounting to $38,513.50, were deposited in the bank cn March 26, thus paying the overdraft in full. In June, 1953, the remaining 1,600 shares were sold and the proceeds, amounting to $28,345, were credited to the bank loan on June 23. From these sales, the appellant realized a profit of $26,897.50 and it is the nature of these profits that is now in question.
In the meantime, the appellant was engaged in another transaction, and it is alleged that the difficulties encountered therein forced the sale of its Brunswick shares. In 1952, the appellant arranged to purchase a large building in Calgary for $89,000. Apparently it had no funds to apply on the purchase price and the down-payment of $12,500 was advanced as a loan by certain shareholders. The shareholders advanced a further $26,500 in September, 1952, and that amount, together with a bank loan of $50,000 enabled the appellant to pay the balance of $76,500 in September, 1952. When the former tenants vacated, substantial repairs were made to the building and it appears to have been rented from about January 1, 1953, at $1,500 per month, to Locke Gray & Co., a firm with which Mr. Chesher seems to have been associated.
Mr. Chesher’s evidence is that the bank loan of $50,000 in 1952 was understood to be a temporary loan only and was to be paid off as soon as a mortgage for $50,000 could be arranged. Accord- ing to Mr. Chesher’s evidence, the appellant itself did nothing at any time to arrange for a mortgage, either then or later, the matter being left entirely to the manager of the bank to arrange.
Then Mr. Chesher states that at the time the bank agreed to finance the purchase of the Brunswick stock by way of an overdraft, it was agreed that the manager would endeavour to secure a mortgage on the building for $75,000, the proceeds of which would be applied first in payment of the overdraft, and secondly on the bank loan of $50,000, and that any unpaid portion of the loan should be secured by regular monthly payments from the rental of the building. Mr. Chesher says that about one month after the shares were purchased, the company was advised by the bank manager that a mortgage of $75,000 could not be secured, but that one for $40,000 was available. He demanded payment of the overdraft but agreed to carry the original loan of $50,000. Faced with the demand for payment of some $37,000 and having no liquid assets other than the Brunswick shares, Mr. Chesher states that the directors of the company at informal gatherings decided to sell 2,400 shares of that stock which had now increased by about $7 per share. That was done and, as I have said, the full proceeds were paid to the bank and the overdraft completely paid up.
In June, 1953, the bank loan still remained at $50,000. Mr. Chesher says that while the bank advised that a mortgage of $40,000 only was available, the directors feit that more money was needed. The market value of the Brunsiwek shares had increased in value to a point which, in the opinion of the appellant’s directors, was not justified by the Brunswick assets. Accordingly, at informal meetings of the directors, it was decided that the shares still held were no longer attractive as an investment and it was decided to sell them. That was done, and on June 23 the proceeds, amounting to $28,384, were paid to the bank in reduction of the principal of the bank loan.
On behalf of the appellant it is submitted that the Brunswick shares were purchased as an investment and that the profits in question were made upon a realization of that investment, brought about by the bank “calling” the overdraft and by the failure of the bank to secure a mortgage for an amount sufficient to pay the bank loan. The onus is on the taxpayer to establish the existence of facts or law showing an error in relation to the taxation imposed upon him (Johnson v. M.N.R., [1948] 8.C.R. 486; [1948] C.T.C. 195).
On the evidence as a whole, I have come to the conclusion that the appellant has failed to rid itself of the onus cast upon it. The only evidence that the Brunswick shares were intended to be an investment is the statement of Mr. Chesher, and in my opinion the facts and circumstances do not bear that out.
It is perfectly clear that the appellant had no funds of its. own available for investment. The Calgary building—which appears to have been its only asset at the time the shares. were purchased—was financed entirely by loans from the bank or shareholders. Indeed, when the appellant purchased a farm at Stettler between March and June, 1953, for $11,000, the full purchase price was again advanced by shareholders.
Then the very nature of the Brunswick shares indicates that they were purely speculative in value and that no early return by way of income could be expected. The Brunswick assets, according to the evidence, consisted of a number of mining claims in New Brunswick. The area had been previously explored and found to be unprofitable. But in 1952, when iron ore was searee, geologists went into the area and found indications of certain minerals. Geophysical surveys followed and they indicated the possibility of very substantial deposits of lead, tin, sulphur and zine. The company then decided to issue 500,000 shares of stock at $10 per share to raise funds for its exploitation, development, and the construction of a mill. Mr. Chesher had heard of this company through trade journals and his associations with other mining interests. He knew that the funds were being raised to “outline and test’’ the ore bodies. The clear inference from this evidence is that the shares had a purely speculative value and that the dividends would not be available for years, if at all.
Mr. Chesher’s evidence that the bank called upon the appellant to pay up its overdraft within two or three weeks of the purchase of the shares, was not supported by any other evidence. It seems highly improbable that when the bank had permitted an overdraft of some $37,000, it would within two or three weeks: call in the overdraft when it held the shares as security—as. stated by Mr. Chesher—and when they had risen in value by 70 per cent. In my view, it seems more probable that the directors of the company, with their knowledge of market conditions, considered the shares when purchased to have a speculative value and that when, a short time after the purchase, they had increased in value by 70 per cent, it was decided to sell a sufficient amount to pay the overdraft in full, retaining the remaining 1,600 shares now fully paid for in the hope that the market might still further improve. When the remaining 1,600 shares were sold in June, there is no evidence of pressure on the part of the bank and a mortgage on the building for $40,000 was. still available. Mr. Chesher’s evidence makes it clear that he and. his associates at that time reached the conclusion that the shares were Over-priced on the market and accordingly they took advantage of that situation to realize by selling the balance. His statement that they then ‘‘needed money’’ was not explained.
On the evidence before me it is clear that the appellant’s Memorandum of Association does not expressly authorize it to buy and sell shares in companies other than those connected in some way with its main object—that of farming, dairying and fruit growing. Mr. Chesher’s evidence also establishes that with the exception of certain debentures purchased in 1955, after the sale of the Calgary building, the appellant purchased no securities other than the Brunswick shares. Its only assets at the present time consist of farming property.
These facts, however, do not prevent the proceeds from being profits from a business within Section 4 of the Income Tax Act, taking into consideration the definition of ‘‘business’’ as found in Section 139(1) (e), which includes ‘‘an adventure or concern in the nature of trade’’. That term was considered at length by the President of this Court in M.N.R. v. Taylor, [1956] C.T.C. 189, where, after a careful examination of the English and Canadian cases, he said at page 211 :
“And the two last mentioned cases are authority for saying that a transaction may be an adventure in the nature of trade even although nothing was done to the subject matter of the transaction to make it saleable, as in .1 .R. v. Livingston et al. (supra).
Likewise, the fact that a transaction is totally different in nature from any of the other activities of the taxpayer and that he has never entered upon a transaction of that kind before or since does not, of itself, take it out of the category of being an adventure in the nature of trade. What has to be determined is the true nature of the transaction and if it is in the nature of trade, the profits from it are subject to tax even if it is wholly unconnected with any of the ordinary activities of the person who entered upon it and he has never entered upon such a transaction before or since.
And a transaction may be an adventure in the nature of trade although the person entering upon it did so without any intention to sell its subject matter at a profit. The intention to sell the purchased property at a profit is not of itself a test of whether the profit is subject to tax for the intention to make a profit may be just as much the purpose of an investment transaction as of a trading one. Such intention may well be an important factor in determining that a transaction was an adventure in the nature of trade but its presence is not an essential prerequisite to such a determination and its absence does not negative the idea of an adventure in the nature of trade. The considerations prompting the transaction may be of such a business nature as to invest it with the character of an adventure in the nature of trade even without any intention of making a profit on the sale of the purchased commodity. And the taxpayer’s declaration that he entered upon the transaction without any intention of making a profit on the sale of the purchased property should be scrutinized with care. It is what he did that must be considered and his declaration that he did not intend to make a profit may be overborne by other considerations of a business or trading nature motivating the transaction.
Consequently, the respondent in the present case cannot escape liability merely by showing that his transaction was a single or isolated one, that it was not necessary to set up any organization or perform any operation on its subject matter to carry it into effect, that it was different from and unconnected with his ordinary activities and he had never entered into such a transaction before or since and that he purchased the lead without any intention of making a profit on its sale to the Company.”
As emphasized in that case, declarations as to intention must be scrutinized with great care and the main consideration js what was actually done. On the facts in evidence and drawing what I consider to be the proper inferences therefrom, I have reached the conclusion that the purchase in question was not an investment, but a purely speculative purchase, and was entered into with the intention of disposing of the stock at a profit as soon as there was a reasonable opportunity of so doing. It was therefore an adventure or concern in the nature of trade. Reference may be made to the well-known case of Edwards v. Bairstow, [1955] 3 All E.R. 48, where at page 58 Lord Radcliffe said that dealing is essentially a trading adventure. Further reference may also be made to McIntosh v. M.N.R., [1958] S.C.R. 119; [1958] C.T.C. 18.
For these reasons I have come to the conclusion that the purchase of the Brunswick shares was not an investment and that the profits realized on their sale constitute taxable income of the appellant.
Accordingly, the appeal will be dismissed and the re-assessment affirmed. The respondent is entitled to costs after taxation.
Judgment accordingly.
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