Leonard W Danchak v. Minister of National Revenue, [1978] CTC 3049, [1978] DTC 1770

M J Bonner:—This is an appeal from an income tax assessment for the appellant’s 1975 taxation year. The sole issue in the appeal is whether the profit realized by the appellant on the sale of his one- half interest in certain real estate situated at 250 Beliveau Avenue in the City of Winnipeg was on income or on capital account.

The appellant, who was not represented by counsel at the hearing, was the only person to give evidence. The appellant was employed as the construction manager of a firm engaged in the business of building housing including single family dwellings and some multiple unit apartment buildings. His duties included the hiring of sub-trades and the supervision of construction.

The appellant testified that during a period of one year prior to the purchase of the Beliveau property he had been searching for what he described as an investment in real property which he could afford. Ultimately he found the Beliveau property. It was a small, older home Situated on one side of a large lot having 114 feet in frontage and a depth of 100 feet. The appellant noted that the applicable zoning permitted higher density use. He concluded that he found what he was looking for and he approached his employer, a Mr Goody, and inquired whether the latter was interested in joining in the purchase Mr Goody agreed and joined with the appellant in the purchase. Although the appellant regarded himself as dealing with Mr Goody, he ultimately discovered that the latter chose a company known as Mar- well Holdings Limited to take title to the other one-half interest. The appellant understood that Marwell was a company which dealt, among other things, in the buying and selling of real estate.

Each party put up one-half of the $20,000 purchase price. The appellant borrowed a part of his share of the purchase price from the bank.

The evidence did not clearly delineate the nature of the plans made by the appellant and his associate to develop their “investment”. There was some discussion between the appellant and Mr Goody with respect to the erection of a building which would qualify as a MURB, that is to say, a property falling in calss 32 of schedule B to ihe Income Tax Regulations. The appellant indicated that he was interested in obtaining a ‘‘tax shelter”.

The appellant proceeded to prepare rough conceptual plans for a multiple unit building and he took them in to the municipal zoning office. He was told that he would require certain variances. There was some question whether the redevelopment which he planned might not comply with the applicable parking standards. He then considered alternative forms of residential redevelopment, one of them being a small apartment building.

About three months after the purchase of the property the appellant had occasion to consult with a friend of his who was described as a specialist in concrete work. The friend apparently was a housebuilder as well. The friend is said to have jokingly made an unsolicited offer to buy the Beliveau property and the appellant stated “. . . then it was not a joke anymore”. He readily agreed to discuss a possible sale with his partner and he did so. Mr Goody apparently suggested that. a counter-offer be made which, if accepted, would provide a “good return”. The counter-offer was about three or four thousand dollars higher than the amount originally offered. The appellant stated that he counter-offered because he was not really interested in selling. I should have thought that if the appellant was genuinely disinterested in selling he could have said so and have refused to treat. There was no suggestion that Mr Goody and the appellant were at all hesitant as to the advisability of selling. It was simply a question of selling if the price was right.

The purchase was made in July of 1975. The agreement to sell was entered into sometime around the beginning of November of 1975. During the interim some efforts were made to explore the possibility Of erecting various kinds of multiple unit residential buildings. All such efforts ceased upon receipt of an inquiry from an interested purchaser. Thenceforward it would appear the dominant question was not whether to sell, but rather whether a sufficiently attractive price could be obtained. There was no evidence that unforseen difficulties prevented the erection of some sort of a revenue-producing building.

The appellant stated that the property was not purchased for resale. He asserted that the offer was entertained simply because it was “too good to refuse”. The appellant did not, however, either demonstrate or attempt to demonstrate that the price offered was such that, whether measured by cost per developable housing unit or any other logical yardstick, retention of the property was unsound compared to other investment opportunities.

The evidence establishes, in my opinion, that when the appellant first bought his interest in the property and for some time thereafter there was a definite intention, at least on the part of the appellant, to construct some sort of a multiple unit residential building capable of being rented. However, I am satisfied that the appellant was motivated as well by a secondary intention of selling the property at a profit if it were not possible to carry out the preferred intention or if an election were made not to do so. The appellant was not unsophisticated in matters related to the purchase and sale of land. The venture was in a field closely related to the appellant’s ordinary income-earning pursuits. The appellant chose, as a co-venturer, a person known to him to be familiar with real estate ventures in which land was, in effect, inventory. The appellant and Mr Goody resold with alacrity aS soon as an opportunity to do so presented itself. Nothing occurred in the interim to prevent the appellant and his associate from pursuing plans for the redevelopment of the property.

The result, in my opinion, is that the sale by the appellant of his interest in the property was the sale in the course of an adventure in the nature of trade and the profit resulting therefrom is income from a business.

The appeal is therefore dismissed.

Appeal dismissed.