CATTANACH, J.:—This is an appeal from a decision of the Tax Appeal Board dated June 18, 1963 whereby the Board dismissed an appeal of the appellant from the assessment of the Minister under the Income Tax Act, R.S.C. 1952, c. 148, for the appellant’s 1958 taxation year.
There is no dispute as to the amounts of the assessment but the question for determination is whether profits realized on the sale of two parcels of real estate were properly included in computing the appellant’s income under Part I of the Income Tax Act for his 1958 taxation year.
By the Notice of Appeal from the Tax Appeal Board the appellant sets out his ease as follows:
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(b) The amounts received by the Appellant from the sale of the said properties constitute capital arising from the disposition of properties acquired for capital purposes.
(c) The amounts received by the Appellant from the sale of the said properties were not received from adventures in the nature of a trade but were a result of the disposition of properties which had been acquired for a specific purpose which purpose was later abandoned.
(d) There was no intent by the Appellant in acquiring the said properties to enter into the business of buying and selling land at a profit.”
The Minister, by his reply to the Notice of Appeal, alleges:
9. In making the re-assessment, notice of which was given on the 3rd day of February, 1960, the Respondent acted upon the following assumptions :
(a) that the Appellant acquired Parcel 1 with a view to trading in, dealing with, or otherwise turning it to account at a profit ;
(c) that the Appellant acquired Parcel 2 with a view to trading in, dealing with, or otherwise turning it to account at a profit;
(e) that the profits arising from the sale of portions. of Parcels 1 and 2 during the Appellant’s 1958 taxation year constituted part of his income for 1958 since they were profits from a business or adventure in the nature of trade.’’
and continues to state:
“13. The Respondent says that the profit arising from the sale of portions of Parcels 1 and 2 in 1958 was income from a business of the Appellant within the meaning of paragraph
(e) of subsection (1) of Section 139 of the Income Tax Act and was properly included in computing the Appellant’s income for his 1958 taxation year in accordance with the provisions of sections 3 and 4 thereof.’’
The narrow issue is, therefore, whether the appellant at the respective times when he purchased these two properties did so ‘‘with a view to trading in, dealing with or otherwise turning (them) to account at a profit’’. If he did the resultant profits are taxable. If, however, the purchases of the properties, as the appellant alleges, were exclusively ‘‘for capital purposes’’, then such profits would not be taxable.
The onus of showing that the assumptions of the Minister in assessing the appellant were incorrect falls on the appellant. To determine whether the appellant has discharged that onus it is necessary to examine the events leading to his acquisition of the two parcels of land.
The appellant, who was born and raised on a farm in Russia, came to Canada at an early age and eventually acquired farms located about 50 miles from the City of Edmonton, Alberta, which he suecessfully operated and where he raised Belgian draft horses and pure bred cattle until 1946. In that year he purchased a small dry-cleaning and related business in the City of Edmonton operating under the firm name and style of ‘‘Page The Cleaner and Furrier’’. By virtue of hard work and astute business acumen the appellant expanded this small dry-cleaning business into the largest and most successful, as well as profitable, chain of dry-cleaning establishments in the city. He purchased land upon which he constructed a modern and efficient plant as well as land upon which he built branches in strategic locations throughout the city. As the business prospered the appellant caused it to be incorporated as a joint stock company in which his two sons assumed active roles.
In 1957, at the urging of his sons, the appellant became interested in racing horses. He professed a love of animals and having both the money and leisure time to do so he yielded to his sons’ urgings to seek more relaxation and enjoyment. Accordingly, in that year he bought two race horses in Toronto, Ontario, Pen- Ever and Handsome Joey for $2,000 each. He employed a trainer and raced these horses in Eastern Canada with moderate «nccess. He also instructed his trainer to be on the alert for a good horse for breeding purposes. On the recommendation of his trainer he bought two more horses, Squire John, a gelding, for $4,500 and Retaliation, a stallion with an extremely good blood line for $6,500, thereby increasing his stable to four. He raced these horses in the East for a short time, then moved them to Winnipeg and eventually to Edmonton.
In 1958 the appellant decided he would race exclusively in Western Canada and, by the acquisition of some good brood mares, expand his operation to include horse breeding and raising as well as training and racing. To fulfil this plan it would be necessary for the appellant to have land and appropriate facilities of his own.
Accordingly he instructed a real estate agent to be on the lookout for a suitable parcel of farm land, about 100 to 150 acres in area, in any direction from Edmonton but within reasonably close proximity thereto so that he could still supervise the dry-cleaning business. This agent showed the appellant a farm of 80 acres about 15 miles south east of Edmonton, which the appellant considered unsuitable because the land was too rolling, too narrow to accommodate a training track and, more important, it was too distant from the city to permit of easy commuting.
The appellant then made his needs known to another real estate agent named Dale who showed him a 60 acre parcel of land just beyond the northern limits of the City of Edmonton about one half mile to the west of a highway running generally north to the Town of St. Albert. It was situated in an area zoned as a Green Belt.
When the appellant cursorily inspected the land it was blanketed with snow, which, he testified, did not permit a detailed examination of the terrain but representations were made to him by another real estate agent, named Kostyniuk, which led him to believe that the land was suitable for his purposes. The representations made by Kostyniuk, who did not receive a commission on the sale, were essentially that the land was not the best for farming purposes, that it was reasonably level, but above all that it was a good buy at the asking price of $350 an acre. In this agent’s view it was a safe buy, he considered it a ‘hot” piece of land and at the price asked he urged the appellant to buy because he insisted, on the basis of location and price, the appellant could not go wrong. The appellant purchased the land forthwith. His entire inspection of the land and consideration of the factors involved took less than 45 minutes. The land was purchased on April 8, 1958 at a total cost of $21,000 paid in cash.
The appellant then had casual conversations with an architect and general contractor, both of whom he had engaged in connection with work relating to his dry-cleaning business. He explained to the architect his general needs, a ranch type home, stables for twenty horses, living facilities for his trainer and help, a training track and other related facilities. However, no working drawings were prepared, nor was any fee paid to the architect. The contractor estimated that the cost of the facilities desired by the appellant would be approximately $100,000, but such estimate was admittedly a very rough one and any contract for their construction would have been entered into on a cost plus basis. The estimate so given to the appellant did not shock him because it confirmed his own estimate of what he would be required and was prepared to spend. Neither the architect nor the contractor inspected the land and no instructions were ever given to either to proceed with the plan.
On the advent of spring and the disappearance of the snow, the appellant showed the land he had purchased to one of his sons, who advised his father that the land was most unsuitable. The land was rolling and would require an inordinately large expenditure for filling, grading, levelling and drainage to permit of the construction of a race training oval. Further the land was adjacent to a large slough or lake (which is shown on detailed maps of the area) in which mosquitoes would breed in great numbers. The land was also not far distant from a cement plant from which the prevailing wind would carry dust i jurious to horses.
The appellant was disgusted and particularly annoyed with Kostyniuk. He therefore instructed Kostyniuk to rid him of this property for as much as he could get for it, but with the express stipulation that any sale should be at a price which would occasion the appellant no loss. A minimum price was, therefore, stipulated but no maximum. The matter was thus left in the hands of Kostyniuk with the additional instructions to locate for the appellant an acceptable and satisfactory parcel of land.
On his part, Kostyniuk testified that he felt an obligation to extricate the appellant because he considered it was at his persuasion the appellant bought this land.
Accordingly Kostyniuk advertised the land for sale at $650 an acre and received numerous enquiries but no purchasers at that price. Shortly after the appearance of this advertisement at $650 an acre there was newspaper publicity of a plan that Dt. Albert was to become a satellite town. Therefore, Kostyniuk again advertised the land for sale, this time at $750 an acre. He was successful in selling 25 acres to Messrs. Kuhn and Andria at $750 an acre, a total selling price of $18,750 less Kostyniuk’s commission. This sale was arranged on May 5, 1958, that is less than one month from its purchase by the appellant on April 8, 1958. The purchasers also took an option on the remaining 35 acres at $25,000, which option was exercised in the late winter of 1959. During the currency of the option the appellant was entitled to remove the timothy hay growing thereon.
Meanwhile Kostyniuk continued in his efforts to locate suitable land for the appellant’s purposes. To this end Kostyniuk showed. the appellant a parcel of 40 acres about 2 miles due east of the first parcel. This land, the appellant inspected more carefully but decided it was too small and while the land was level it was lower than the immediately adjacent land. The asking price was $1,000 an acre. The appellant, therefore, instructed Kostyniuk to negotiate with the owner of the adjacent property, which he did, and came back with a price of $750 an acre. In the appellant’s view the adjacent land was better land and in addition it was available at a lower price. The appellant therefore bought this property, consisting of 80 acres on August 5, 1958 for a total price of $60,000, also paid in cash. This land was also. situate in the green belt but about half a mile to the east of the highway to St. Albert. Adjacent to it is a plastic pipe factory and near by there is a speedway for stock car racing which the appellant likened to a carnival when auto racing was in progress two or three nights a week. Further the land is in the direct track of aircraft using the Municipal Airport some 214 miles distant therefrom. At the time of the appellant’s second purchase of land, this airport was used exclusively for Edmonton traffic although there were rumours of the construction of a new airport to the south of the city. This second parcel was about a mile further away from the cement plant than the property originally purchased and subsequently sold by the appellant. The appellant testified that the plastic plant was a modest warehouse-like building which was buffered from the proposed site of his home and race track by dense bush which would also shield his site from any annoyance from the motor speedway. The appellant gave no thought to the presence of the airport as being detrimental to the establishment of a country estate such as he had in mind.
In the interval the appellant had continued his horse racing activity but, as will be apparent, never did embark upon the breeding part of his enterprise. During the week following his purchase of the second property the appellant’s horse Squire John was entered in a stake race with a purse of $5,000 and a trophy. Squire John came in first in the race but was disqualified for rough riding and was placed fourth by the stewards of the Western Canada Racing Association, under whose jurisdiction the race was run, with the result that Squire John was out of the money to the great and understandable annoyance of the appellant. He protested vigorously to the stewards but to no avail. The appellant’s annoyance was so great that when, within moments after this adverse decision, he met a racer and breeder, he offered to sell him his entire race horse enterprise cheap for cash. He offered his four race horses, tack, hay from the 35 acres of the first property and his farm, being the second property purchased by him a week previously. The breeder advised the appellant he was not interested in the farm since he already owned one, that he might be interested in the hay but wished to inspect it first and that he was definitely interested in the purchase of the appellant’s four race horses. The appellant offered to sell the four horses for $15,000 being their cost to him, for which price he would also throw in the tackle which had cost him approximately $3,000. The breeder countered with an offer of $10,000 whereupon the appellant expressed a willingness to accept $12,000. The difference was settled by a flip of a coin which the appellant won and the transaction was thereupon completed within a space of five minutes at the price of $11,000.
As a result of this disposition of his horses and tackle the second parcel of land was no longer required for the appellant’s horse racing enterprise which he had now abandoned. On August 20, 1958 he, therefore, instructed Kostyniuk to sell this property. The appellant’s instructions to his agent, Kostyniuk, were simply to sell the land for as much as could be gotten for it so long as he, the appellant, did not lose money. Otherwise the matter was left entirely to the discretion of Kostyniuk. Mr. Kostyniuk suggested to the appellant that he might consider holding the land for two or three years because, in his view, this land was also ‘‘hot’’ and there were likely chances of the appellant realizing a substantial profit. The appellant spurned such suggestion and reiterated his instructions that the land be sold forthwith subject to his previous instructions that the sale price should not involve a loss to himself and that he was not adverse to realizing a profit if possible. After having completed such documents as would facilitate the sale the appellant then left for a holiday in Hawaii.
Kostyniuk was successful in selling the second parcel of land, again in two separate and equal pieces by two separate sales.
On November 15, 1958, 40 acres were sold to L. Letourneau Homes Ltd., a house builder, for $40,000 or $1,000 per acre. The remaining 40 acres were taken on option by Star Agencies Ltd., Kostyniuk’s employer, for $50,000, presumably to facilitate the disposition of the land because of the appellant’s absence. In any event the option on the balance of the land was exercised in February 1959 so that in effect the entire 80 acres were sold at an average price of $1,125 per acre. While the appellant was frank to admit that he sustained a loss on the sale of his racing horses sold on the spur of the moment in a fit of pique, he was equally frank in admitting that he realized a profit on the sale of the land.
When the appellant was informed of the offer of $1,000 an acre for the second parcel of land by a long distance telephone call from his solicitor in Edmonton to him in Honolulu he readily acquiesced and the sale was effected forthwith.
On the basis of such facts the appellant contends, as before intimated, that the profits arising from the sale of these two properties constitute capital accretions in his hands whereas the Minister, in assessing the appellant treated such profits as income.
There is no doubt whatsoever that the appellant was a shrewd, capable and successful business man and that he had reached a point in his life at which he could well afford to seek relief from the exacting demands of the dry-cleaning business and engage in the more relaxing business of racing horses. He had accumulated the necessary money to do so and he also had adequate time to devote to that enterprise.
I therefore accept, without hesitation, the appellant’s statement that he intended to embark upon a two-fold horse racing enterprise, (1) the racing of horses, and (2) the breeding, raising and training of race horses. The first of these two-fold purposes was in fact implemented, and could be carried on, as well as actually having been carried on, by the appellant without ownership of a tract of land, although ownership of a tract of land with essential facilities may have been more convenient. For the appellant’s second purpose of breeding horses, (which incidentally was never begun) I accept the proposition that ownership of appropriate land and facilities was essential.
To the end of acquiring a suitable property, the appellant did enter into discussions with several real estate agents in each of which he laid down three stipulations, (1) the land must be sufficiently close to the city to permit of commuting, (2) it must be suitable for race horse training and the construction of a country estate, and (8) it must be reasonable in price.
This third condition, while not express, was most certainly implicit.
There were also discussions between the appellant and his architect and contractor. However, these discussions were general in their terms and no definite steps followed from them. No working plans were ever drawn. They were primarily for the information of the appellant to confirm his own estimate of the ultimate cost to him.
Turning to the first transaction, the land was bought by the appellant after a most casual and even careless inspection taking less than 45 minutes. The real estate agent, Kostyniuk advised the appellant that the land was a really good buy, it was cheap and, while he did not so testify, it is implied in his advice that if the land were not suitable for the appellant’s purposes, he could not lose and, I would assume, that he might reasonably expect to gain. This is precisely what happened within a very short time after the purchase. The appellant decided the land was not suitable so he promptly sold part: of this parcel at a substantial profit in the 1958 taxation year and the balance in the next year. In his precipitous purchase of the property the appellant could not have been oblivious of his agent’s advice.
However, the appellant did not abandon his professed intention to establish his horse breeding enterprise and within a very short time bought a second parcel of land in the immediate vicinity of the first property. I think it fair to say that the second parcel of land, while superior to the first parcel, was not in an ideal location for a country estate such as contemplated by the appellant due to the proximity of a stock car speedway, the cement plant, a plastic pipe factory, a busy municipal airport and a drive-in-theatre. Nevertheless, I accept the appellant’s testimony that he considered this land satisfactory for his plan despite these disadvantages of which he was aware but felt them to be inconsequential. The purchase of this particular parcel was at the instigation of the appellant himself. Kostyniuk had shown him the immediately adjacent property which was for sale at an asking price of $1,000 an acre, but which land, in the appellant’s view, was inferior to the adjoining property. The price for the land bought by the appellant was $750 an acre. It was obviously a better buy. Furthermore the real estate agent also considered this land to be “hot”. When the appellant decided to sell, the agent advised holding in the prospect of even greater gain than the appellant realized and this advice was proven right by subsequent events because the land tripled in value within three or four years after its sale by the appellant The appellant’s decision to sell forthwith is equally susceptible of two interpretations. One that he did not wish to speculate in real estate and the other that he was content to accept an immediate gain rather than gambling on waiting for a greater one. Accordingly such fact is not conclusive either way.
The appellant submits that his decision to sell this second property, which sale was effected within less than three months of its purchase, was prompted by an intervening act which caused the frustration of the enterprise, that is the impulsive sale of his four race horses in the circumstances related above. It should be borne in mind, however, that the second phase of the appellant’s racing enterprise, namely, the breeding and raising of horses had not been begun nor had any definite steps been taken toward its implementation. Further the success of his first transaction was fresh in his memory. The fact that the breeder who purchased the appellant’s race horses expressed no interest in this land did not deter the appellant from selling him the horses and tack. It should also be borne in mind that neither parcel so purchased by the appellant was utilized for the racing business nor were any concrete steps taken to that end.
The cumulative effect of all the foregoing circumstances indicates to me that when the appellant successively purchased these two parcels of land he had the intention of building the facilities he contemplated thereon, if, in the first instance, the land was suitable and in the second instance if it were expedient to do so. In short, he was hopeful of putting either parcel to this use but that hope was not realized and the possibility of such hope not being realized was at all times present in the appellant’s mind. He did, in fact, sell both parcels, each at substantial profit and those profits, in my opinion, are income and accordingly taxable.
It is well established that a taxpayer’s statement of what his intention was in entering upon a transaction, made subsequent to its date, should be carefully scrutinized. What his intention really was may be more accurately deduced from what he actually did than from his ex post facto declarations. Here neither parcel of land was held for any length of time, both were bought precipitously and both were sold within extremely short times of their purchase and in each instance at an attractive profit which circumstances are more consistent with the possibility of sale being present from the outset rather than his sole intention from the outset having been to operate a racing business. Even if one of the motivating reasons for the appellant’s acquisition of these parcels of land was his expectation and hope of build- ing his racing facilities thereon, if the possibility of sale was also present to his mind then the transactions were ventures in the nature of trade from their inception.
After having given careful consideration to all the evidence, I am not satisfied that there is a balance of probability that the appellant acquired the two properties for the purpose of conducting a horse racing and breeding business on them to the exclusion of any purpose of disposition at a profit. Accordingly, it cannot be said that the assumptions of the Minister in assessing the appellant as he did were not warranted.
The appeal is, therefore, dismissed with costs.
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