Minister of National Revenue v. Ronald Gordon McIntosh, [1956] CTC 10, 56 DTC 1004

HYNDMAN, D.J.:—This is an appeal from a decision of the Income Tax Appeal Board (12 Tax A.B.C. 183) in respect to the income of the said respondent for the 1952 taxation year, involving Sections 8 and 4 and 139(1) (e) of the Income Tax Act which read as follows:

4 3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year from all sources inside or outside Canada and, without restricting the generality of the foregoing, includes income for the year from all

(a) businesses,

(b) property, and

(c) offices and employments.

4. Subject to the other provisions of this Part, income for a taxation year from a business or property is the profit therefrom for the year.

139. (1) In this Act,

(e) ‘business’ includes a profession, calling, trade, manufacture or undertaking of any kind whatsoever and includes an adventure or concern in the nature of trade but does not include an office or employment ; ’ ’

The material facts may be stated as follows:

Respondent, who lives in Sarnia, Ontario, had been engaged in the business of grocer and meat merchant. In 1948 he sold his business and was without occupation. Shortly after one Clinton Laidlaw, a friend and related to respondent, who was interested in building for the purpose of sale, suggested to respondent that they purchase a vacant property known as Grandview Park Subdivision which adjoined the City of Sarnia, and for sale under the Veterans Land Act. The scheme was that the said property might be purchased and a number of houses erected thereon, a condition of the sale being that houses should be built on said land. The proposal was that they should each acquire a 90-50 interest. Of the two men only Laidlaw had had any experience in house building. Respondent hesitated about entering into the venture, but on repeated urging by Laidlaw, finally decided that he would purchase one-third of the lots, namely 55 out of the 165 lots, into which the property had been subdivided, respondent to pay Laidlaw $2,500 and to receive a deed on paying the further sum of $1,872 on or before May 1, 1948. They were to be associated in the building scheme, but later on differences arose between them and Laidlaw offered to repay the respondent the $2,500 and to end their association in all respects. This offer was unacceptable to respondent who insisted on acquiring the lots. Laidlaw having refused to carry out the sale to McIntosh, the latter brought an action for specific performance in the Supreme Court of Ontario which was ultimately settled out of Court. Respondent then paid the balance due Laidlaw, and the lots were conveyed to him. This ended all dealings between the two men.

Respondent having no experience in building, as was the original intention, decided to sell the vacant lots. The cost to the respondent per lot for the 55 lots was about $112.

In 1952 (which is the year in question) respondent sold 20 of the said lots to one Alfred Sauvé for the sum of $14,545.40, being at the rate of $727 per lot or a profit of about $615 per lot, a total of $12,287.60, later adjusted to $12,087.60.

The question for decision is, therefore, whether said profit was capital accretion, or, income subject to tax.

It can be said at once that this was an isolated transaction, not in any way related to the respondent’s usual or ordinary business.

It is equally true that when he entered into the arrangement with Laidlaw his intention was to make gain or profit. Also, after acquiring the 55 lots from Laidlaw, he had no intention of using them himself or developing them for revenue purposes.

From his notice of appeal to the Income Tax Appeal Board, dated September 27, 1954, I quote the following:

“The appellant’s venture in purchasing the said lots was a speculation. ’’

It was very strongly argued by Mr. Laird, Q.C., counsel for respondent, that the arrangement with Laidlaw having fallen through, an entirely new situation arose affecting or displacing his original intention.

I have given this argument my best consideration, but I cannot escape the conclusion that the original idea, namely, to make gain or profit, continued. It was, as above stated, still a venture or speculation, and not an investment in the ordinary sense.

Having acquired the said property there was no intention in his mind to retain it as an investment, but to dispose of the lots, if and when suitable prices could be obtained.

It was said that the price received by him was one or two hundred dollars less than the real value, and that this fact in some way negatived an intention of entering into a scheme to make a profit on the venture. I am unable to see any force in this argument. In view of all the circumstances, his insistence on obtaining the property could unquestionably only have been with the object of making a gain or profit.

In a recent judgment in this Court, Chutter v. M.N.R., [1955] C.T.C. 377, on December 9, 1955, Ritchie, J., exhaustively reviewed and cited the numerous decisions applying to cireum- stances, in essence, similar or analogous to the salient facts in the case at bar. The contention in most of these cases was that the undertaking or venture was an isolated one, not in the course of the regular or ordinary business of the taxpayer, and consequently a capital gain, and not income subject to tax. This was the defence set up in Chutter v. M.N.R., [1955] C.T.C. 377, and was rejected by Ritchie, J., in view of the authorities referred to by him, and held that it was a venture in the nature of a trade or business, and that the profit was a gain made through an operation of business in the course of carrying on a scheme for profit making.

I find it unnecessary to review again all the decisions as set out in said judgment.

Of the decisions mentioned in the judgment of Ritchie, J., I think I need only to refer to that of the President in Atlantic Sugar Refineries Limited v. M.N.R., [1948] Ex. C.R. 622; [1948] C.T.C. 326; [1949] S.C.R. 706; [1949] C.T.C. 196, which was affirmed in the Supreme Court of Canada.

At page 630 [[1948] C.T.C. 333] the President said:

“There remains the contention that the appellant’s gain was not taxable income because it was not income from any trade and because its venture was an isolated transaction outside its normal business operations and unconnected therewith. The appellant cannot escape liability merely by showing that its entry into the raw sugar futures market was an isolated transaction. While it is recognized that as a general rule an isolated transaction of purchase and sale outside the course of the taxpayer’s ordinary business does not constitute the carrying on of a trade or business so as to render the profit therefrom liable to income tax—vide Commissioners of Inland Revenue v. Livingston et al. (1926), 11 T.C. 538 at 543, per Lord Sands; Leeming v. Jones, [1930] 1 K.B. 279; [1930] A.C. 415; it is also established that the fact that a transaction is an isolated one does not exclude it from the category of trading or business transactions of such a nature as to attract income tax to the profit therefrom. There are numerous expressions of opinion to that effect—vide Californian Copper Syndicate v. Harris (1904), 5 T.C. 159 ; T. Beynon and Co., Limited v. Ogg (1918), 7 T.C. 125 at 133 ; McKinley v. H. T. Jenkins and Son, Limited (1926), 10 T.C. 372 at 404; Martin v. Lowry (1925), 11 T.C. 297 at 308; [1926] 1 K.B. 550 at 554; [1927] A.C. 312; The Cape Brandy Syndicate v. Commissioners of Inland Revenue (1920), 12 T.C. 358; Commissioners of Inland Revenue v. Livingston (1926), 11 T.C. 538; Balgownie Land Trust, Ltd. v. Commissioners of Inland Revenue (1929), 14 T.C. 684 at 691; and Anderson Logging Co. v. The King, [1925] S.C.R. 45 at 96.

Whether the gain or profit from a particular transaction is an item of taxable income cannot, therefore, be determined solely by whether the transaction was an isolated one or not.’’

And at page 633:

While it may not be possible to define the line between the class of cases of isolated transactions the profits from which are not assessable to income tax and that of those from which the profits are so assessable more precisely than in the tests referred to, it is clear that the decision cannot be made apart from the facts. The character or nature of the transaction must be viewed in the light of the circumstances under which it was embarked upon and the decision as to the side of the line on which it falls made after careful consideration of its surrounding facts.”

I might also refer to the case of Edwards v. Bair stow, [1955] 3 All E.R. 48, in which Lord Radcliffe said :

“There remains the fact which was avowedly the original ground of the commissioner’s decision—‘this was an isolated case’. But, as we know, that circumstance does not prevent a transaction which bears the badges of trade from being in truth an adventure in the nature of trade. The true question in such eases is whether the operations constitute an adventure of that kind, not whether they by themselves, or they in conjunction with other operations, constitute the operator a person who carries on a trade. Dealing is, I think, essentially a trading adventure, and the respondent’s operations were nothing but a deal or deals in plant and machinery.”

I can quite understand an inclination in such instances to regard the profit as an accretion to capital, and therefore not taxable. However, in view of the authorities, with much deference to the learned member of the Tax Appeal Board, I feel impelled to the conclusion that respondent was properly taxed, and that the decision of the Tax Appeal Board must be reversed and appeal allowed.

It was admitted by counsel for respondent that if the appeal is allowed the amount claimed by the Minister is correct.

The appeal of the Minister herein will therefore be allowed, the decision of the Income Tax Appeal Board set aside, and the assessment made by the Minister allowed. The appellant is entitled to costs taxed.

Judgment accordingly.