Gilles Tailleur v. Minister of National Revenue, [1978] CTC 2899, [1978] DTC 1633

The Chairman [TRANSLATION]:—The appeal of Mr Gilles Tailleur against a tax assessment in respect of the 1971 taxation year was heard in Quebec City, Quebec on February 8, 1978.

Point at Issue

The Board must decide whether profits in the amount of $26,310 realized by the appellant from the sale of two properties were income from a business in the nature of trade, within the meaning of paragraph 139(1)(e) of the Income Tax Act, RSC 1952, c 148, or whether they constituted a capital gain.

Facts

The appellant, a plumbing contractor, had purchased from Mr Lucien Gosselin, a general construction contractor and president of Gosselin Construction Inc, a lot of land on rue Xavier-Giroux in Courville on October 9, 1970, for $14,000, as indicated on the contract of sale by private agreement (Exhibit A). The seller, Mr Lucien Gosselin, further agreed to obtain an $85,000 loan from General Trust of Canada to enable the appellant to construct a building on the lot so purchased. The sales contract also included five copies of the building plans, the building permit, the staking report and the location certificate. In his testimony, the appellant stated that he had put up $5,000 for the lot, with the balance of the sales price to be paid, according to the contract, out of the first advance from the lending company.

The apartment building to be constructed on the lot was begun, but before the construction work was completed, the appellant resold the property on rue Xavier-Giroux on February 18, 1971 to Gosselin Construction Inc (Exhibit A-3), thereby realizing a profit of $14,468.

On April 5, 1971 the appellant bought from Mr Lucien Gosselin another lot on rue Delage in Beauport for $14,000, on terms essentially the same as those in the contract governing the purchase of the lot on rue Xavier-Giroux (Exhibit A-2). In November 1971, the appellant once more resold the building (still uncompleted) to Gosselin Construction Inc, this time realizing a profit of $11,842.10 from the transaction.

In a notice of reassessment dated September 9, 1974, the respondent added the total of both profits realized from the sale of the properties on rue Xavier-Giroux and rue Delage — $26,310.10 — to the appellant’s taxable income.

Submission

The appellant submitted that the lot on rue Xavier-Giroux was purchased with a view to constructing an income-producing apartment building as a long-term investment, and that he had no intention of reselling the property. He explained that the funds for constructing the building were delayed and that he had consulted a lawyer in that regard. The lawyer advised the appellant that, in the circumstances of the contract, he should either obtain the property titles or sell the property. According to the evidence, the appellant resold the property to Gosselin Construction Inc.

The appellant submitted that the second lot was also purchased from Gosselin Construction Inc with a view to investment in an incomeproducing property, and that there was no intention of reselling the property when the lot was bought. In support of these submissions, counsel for the appellant entered as Exhibit A-4 a statement by Mr Lucien Gosselin that neither he nor Gosselin Construction Inc had entered into an agreement with the appellant to purchase apartment buildings when the properties in question were sold. He further stated that there was no contract whereby the appellant would construct buildings for Gosselin Construction Inc.

On the other hand, the respondent submitted, with a long line of case law in support, that the facts of this appeal clearly demonstrate that, according to the principles and criteria established by the Federal Court, the appellant was in fact and in law engaged in a business in the nature of trade in the transactions involving the two buildings located on rue Xavier-Giroux and rue Delage respectively.

Counsel for the respondent pointed out that one of the principles established by the Federal Court is that before there can be any ques- tion of income of a capital nature, the appellant’s intent to invest must be established to the exclusion of any other intent or possible motivation when he entered into any sort of transaction. Further, counsel for the respondent recalled that the Federal Court has frequently upheld decisions that a declaration of intent on the part of a taxpayer is only valid if the appellant’s related deeds and actions confirm and do not contradict his intent.

The respondent submitted that the appellant, in purchasing the lot on rue Xavier-Giroux with the intent which he alleges he had of constructing an income-producing building, and putting up only $5,000 for a project that might cost in excess of $100,000, does not meet one of the criteria established, namely that a person who expresses his intent to invest for the long term must show that he is able to finance the project. The respondent pointed out that, in both transactions before the Board, it was not the appellant who financed the two apartment buildings construction projects, but Mr Gosselin, under rather unusual circumstances. The very short time that elapsed between the purchase of the lots and the sale of the uncompleted buildings is, in the respondent’s view, another criterion already established by the Federal Court, which raises serious doubts about the appellant’s expressed intent of investing for the long term.

Conclusions

In considering all the facts in this appeal, I must take into account the role that Mr Lucien Gosselin, the appellant’s witness, played in the transactions which are the subject of this case. I would point out here that I do not accept as evidence any intent that Mr Gosselin may have attributed to the appellant in respect of the purchases of the lots, and confine myself to the facts, which were not disputed at the hearing of the appeal.

According to the evidence, Mr Lucien Gosselin was a general contractor engaged in the construction and resale of buildings on lots he owned. Gosselin Construction Inc was a well-known company and frequently received offers of purchase for buildings thus constructed or in the process of being constructed.

It was also proven that the appellant knew Mr Gosselin prior to the transactions at issue, and it seems likely that the appellant had already concluded a similar transaction with Mr Gosselin. It appeared to me that the appellant was uncertain in his testimony as to whether it was indeed he who had taken the steps to purchase the lots or whether Mr Gosselin had offered them to him. It would seem that if it was indeed the appellant’s intent to construct an apartment building for himself as a long-term investment, this fact would have remained graven in his memory.

In my opinion, Mr Gosselin’s statement that when the lots were purchased there was no contract or verbal or other agreement with the appellant for the resale of the properties, or that there was no agree- ment that the appellant would construct the buildings for Mr Gosselin, does not constitute valid proof that the appellant, when purchasing the lots, intended to construct buildings on the properties as investment.

The Board has before it a statement by the appellant that, when he purchased the lots, he intended to invest and to construct rental income-producing buildings: however, all the facts entered as evidence do not corroborate this. The appellant was aware that Mr Gosselin’s business bought and sold buildings; the appellant does not remember whether it was Mr Gosselin who offered him these lots; the plans, building permit and loan were all provided to the appellant by Mr Gosselin. The amount of capital that the appellant put up for each of these projects was minimal and there was no proof that the appellant had the wherewithal to finance them; no calculation of the income from the properties was submitted to the Board; the appellant sold the property on rue Xavier-Giroux without making any effort to obtain the titles, as his counsel suggested. The properties were sold very shortly after each of these lots was acquired.

In the circumstances of this case it is impossible for me to conclude that the appellant, when he purchased the two lots in question, had no other intent but to invest in the buildings for the long term in order to derive income from them. I must conclude that the profit the appellant realized on the sale of his two properties is income from a business in the nature of trade.

Decision

For these reasons, the appeal is dismissed.

Appeal dismissed.