King Edward Hotel (Calgary) Ltd. v. The Queen, 90 DTC 6468, [1990] 2 CTC 214 (FCTD)

Teitelbaum, J.:—The plaintiff, King Edward Hotel (Calgary) Ltd., is appealing from a decision of the Tax Court of Canada upholding the Minister of Revenue's reassessment of the plaintiff's 1979, 1980 and 1981 income tax returns, on the basis that the proceeds of sale of four hotels were bus:ness income rather than capital gains as the plaintiff had claimed. In the case before me, I am only concerned with the proceeds of the sale of two hotels, the King Edward and the Westwind.

The case is a straightforward case of income versus capital gain in real estate transactions and turns essentially on the facts of the case. Domenico Alessio is the chief shareholder and directing mind of the plaintiff. He stated before me that nothing could be done without his approval. After having listened to Mr. Alessio, I was left with the clear impression that no member of his family could make any decision of any significance without his prior approval.

In his opening statement counsel for the plaintiff made certain comments with which I agree. He states that the principal question to determine is what was the intention of Mr. Alessio at the time that he, his company, acquired the asset. He submits that the principal tool is the credibility of Mr. Alessio. If what Mr. Alessio states is credible and since all the other evidence is only circumstantial, then plaintiff should succeed. If I conclude that Mr. Alessio's evidence is not credible, then plaintiff must fail in its action.

From 1972 to 1980, Mr. Alessio, through companies controlled by him, had nine separate transactions involving the purchase and attempted purchase of hotels. There were eight transactions which were successfully completed and one that failed. Between 1974 and 1983, Mr. Alessio’s companies transacted seven sales of hotels two of which are the subject of the present action.

The only witness heard in the proceedings before me is Mr. Domenico Alessio. Mr. Domenico Alessio's son, John R. Alessio was examined on discovery on April 20, 1989 as the person representing plaintiff.

Mr. Domenico Alessio came to Canada in 1951. At that time, he was 22 years old. He came to Canada alone, having left his wife in Italy. She came to join him in Canada in 1954. When he first came to Canada, Mr. Alessio went to Kimberly, B.C. where he remained for about three years. In 1954 he went to work in a pulp mill in Port Alice, B.C. where he remained for seven months. He then returned to Kimberly, B.C. to work in a mine. He remained there for nine years. In 1961, Mr. Alessio moved to Calgary, Alberta and worked as an employee in the insulation business. Soon after, he and a partner opened their own insulation business and he remained in this business to 1972. In 1972, he sold his insulation business because, as he states, he had enough, it was "the heat in the summer and the cold in the winter".

In 1972, Mr. Alessio states he met a friend, a Mr. Jim Jackson, a real estate agent who suggested that he and Mr. Alessio buy a hotel together. According to Mr. Alessio, he went into a partnership with this Mr. Jackson but that it was he who put up most of the money required to purchase the hotel. In order to get sufficient funds, he sold some property he owned in Calgary. He claims he gave $105,000 as a down payment for the hotel and $25,000 for its inventory of a total cost of $210,000. At the time of the purchase of the hotel in 1972 he had four children, Andrew, John, Mary and Dick.

The hotel purchased by Alessio and his partner in 1972 was the Didsbury Inn which was situated in Didsbury, Alberta, a town situated approximately 20 miles north of Calgary. At the time of the purchase, he knew nothing of the hotel business so that, after the purchase, the vendor remained with Mr. Alessio for a period of one month to teach him the business. The hotel made most of its revenue from the sale of beer, not from the rental of its rooms.

Didsbury was, at the time, a town of 1,800 to 2,000 population. Prior to buying the hotel, Alessio was living in Calgary with his family. After buying the hotel, he moved to Didsbury to run the hotel. He remained at the hotel six days a week. The hotel was closed on Sunday and he would drive back to Calgary to be with his wife and children.

During the last six months of owning the Didsbury Inn, Mr. Alessio's son Andrew, who was then about 23 years of age, moved into the inn to operate it while Mr. Alessio had moved to another hotel which he, or his company, had purchased. This would be the King Edward Hotel.

On May 2,1974 the Didsbury Inn was sold. It was held for a little over two years. Alessio purchased his second hotel on February 1, 1974. This was the King Edward Hotel in Calgary. He states that in order to purchase the King Edward, he sold a property which he still owned "in the downtown area" of Calgary and borrowed money from a bank to which he had to give the Didsbury Inn as security. He kept this hotel for some 4 years. It was sold on July 4,1978. During this four-year period, Mr. Alessio, his wife and two sons worked at the hotel. According to Alessio, no documentation of any kind was produced by the plaintiff concerning any sales or purchases to indicate price either of a sale or purchase, the cost of the King Edward Hotel was between $460,000 and $465,000. Mr. Alessio had a partner in the purchase of this hotel and each had made a down payment of $50,000 for a total down payment of $100,000. The King Edward Hotel was purchased by the present plaintiff.

As with the Didsbury Inn, after purchasing the King Edward Hotel, renovations were required. The King Edward was "run down" and extensive renovations were required in order to "get a better clientele”.

The business of this hotel, as it appears for almost all of the hotels owned by companies controlled by Mr. Alessio, was "mostly the beer business, the tape on the machine at night, 99 per cent came from the sale of beer, alcohol and wine, 1 per cent from everything else”.

One year after acquiring the King Edward, he bought out his partner. He claims he purchased the King Edward because it was closer to home and was bigger than the Didsbury Inn so that he could have more of his family to work in the hotel. He claims, as the reason for selling the King Edward, the fact that he was tired and he wanted to get out of the business. His next door neighbour came and offered to buy him out. Alessio asked for $1,100,000 for the business and property, was offered $1,050,000 and accepted this offer.

I have difficulty in accepting as the reason for the sale of the King Edward the fact that Mr. Alessio states he was tired. I do not doubt that after four years of owning the King Edward he may have been tired but Mr. Alessio, during his evidence tried to convince me that the purpose of his buying this hotel was to have a place where his sons could work and he would have a good investment. If this was really the reason for buying the King Edward Hotel and he became "tired" of working in the hotel, surely he could have stopped working and allowed his sons, with his wife to continue to operate the hotel. He claimed it was doing financially well as it provided a living for the entire family and was showing a profit, the profit being $935 for the years 1975 to 1979. This becomes more evident as Mr. Alessio states that three, four or five months later he changed his mind and that because he enjoyed the hotel business he wanted to return to the business and did so by buying the Willingdon Hotel situated 20 miles south of Calgary in Okotoks, Alberta.

It is important to note, when describing how it was that he came to buy the Willingdon, Mr. Alessio states that people in the hotel business know each other and go from one hotel to another and it was that a friend came to Alessio and told him of a "good buy” of a hotel which required no renovations. After consulting his sons, he purchased the Willingdon for approximately $1,200,000 and was to take over the hotel on January 1, 1979 (the King Edward sold in July 1978). Although he had an agreement to buy the Willingdon, he had not, as yet, made any cash down payment. Before signing the papers, Alessio left for a holiday in Hawaii and while there he received a telephone call offering him a $75,000 profit for the hotel. Mr. Alessio sold his rights to or in the hotel. He alleges that the deeds for the hotel were in "his" (the company) name for approximately one month.

This sale would indicate that Mr. Alessio did not buy the Willingdon for investment purposes and to have a place for his family to work. Surely, if the Willingdon was a good investment for the long term and was a good place for the family to work, he would not have sold for the $75,000 profit. He would sell if his intention was to buy with the aim of selling for a profit.

Soon after Mr. Alessio and his wife moved to Victoria, B.C. Mrs. Alessio was ill and she asked Mr. Alessio to either move to Victoria or back to Italy as she wanted to live "in a warm place". He moved and immediately looked to buy a hotel. He found the Westwind in Victoria. He chose this hotel because it was "a better quality new hotel", it was what one may consider a regular hotel, not just a beer parlour. It had a beer parlour, 2 lounges, a coffee shop, a dining room, a cabaret and 52 rooms. Alessio's company paid over $2,000,000 for the hotel. Mr. Alessio and his two sons worked in the hotel. Because of the hotel's size, it had a very large staff and after the hotel was purchased became unionized. Alessio could not make a success of this hotel. He sold the hotel 13 months after its purchase. He sold this hotel, although he claims he could not operate it successfully, at a profit.

In 1980, after selling the Westwind, Alessio's company, purchased the Kings Hotel in Victoria. This hotel is what is known as a “beer hotel”, the same type of hotel Alessio had in Calgary. This hotel, the Kings, is presently operated by Mr. Alessio, his two sons and his wife. After buying the Kings Hotel, Alessio states he had spent approximately $500,000 in renovations.

In discussing various other hotels purchased and sold by plaintiff or a company controlled by Alessio, Alessio referred to the Yale Hotel situated in Trochu, Alberta, a town of approximately 1,400 or 1,500 persons and situated 60 miles north of Calgary. This hotel was purchased in the latter part of 1978. According to Alessio, this hotel was purchased because his son-in-law, who was in the dry-wall business had said "he had no place to go" and asked to go into the hotel business. Alessio went into the business of this hotel because, as Alessio states "I wanted to control more or less everything". The Yale Hotel was sold in October 1980. He states that it was his son-in-law and one son and daughter that ran this hotel, that they ran it for a year and a half to two years. He claims he sold the hotel because his wife complained her children were too far away. According to Alessio, after selling the Yale Hotel, the Cambridge Motel was purchased.

Throughout Mr. Alessio's testimony, he refers as a reason for the sale of a hotel as being "the children are far away" or he had to travel long distances from the hotel to home.

I do not accept as credible this evidence. The evidence is that most of the hotels purchased and sold by Alessio's companies were outside of Calgary and required travel on the part of Alessio or his sons.

It appears that the Cambridge Motel was purchased seven months before the sale of the Yale Hotel. This would appear to show that the reason for the sale of the Yale Hotel as being other than the children being too far from their mother.

In any event, it appears that the Cambridge Motel was not satisfactory because it was too small, it had only 17 units and required being available 24 hours a day. This motel, according to Alessio was held a very short time and sold. When it was sold, in 1981, another hotel, the Tzoubalem Hotel was purchased in Duncan, I assume Alberta. The name of this hotel was changed to the Duncan Inn.

According to Mr. Alessio, the Duncan Inn was purchased in January 1980. An aide mémoire prepared by counsel for plaintiff indicates that the Duncan Inn was purchased in 1981.

This hotel was held for six years. Alessio's son-in-law and youngest son ran this hotel. Mr. Alessio owned part of the shares of this hotel.

In discussing the Carisland Hotel, Alessio states he made an offer to purchase this hotel but was unable to obtain a licence and thus did not go through with the purchase. This resulted in a loss of $10,000 which was given as a deposit.

Mr. Alessio was subjected to a most thorough cross-examination. Most of the cross-examination was, I believe, not relevant except to show a serious lack of credibility on the part of Mr. Domenico Alessio. His answers were, to say the least, evasive. He remembered, it seems to me, what he wanted to remember and could not remember everything else. He had no documents or records and relied on a standard reply of “I don't understand" or “I have no schooling”. In speaking of the Didsbury Inn which Alessio states he purchased on June 6, 1972 for approximately $210,000 with a $105,000 down payment, on the 1973 tax return of the Didsbury Inn, the balance sheet shows the value of the fixed assets as being $242,792.24 and if the value of a car and the renovations are subtracted, it indicates how the purchase price was to be paid, $20,217.50 owing or paid to a Mr. McKay $68,660.50 to the Rosebud Hotel, $39,570.03 to Principal Investments Ltd. Therefore, $128,448 was to be financed. When questioned about the return, Mr. Alessio replied he does not recall or know what was put into the 1973 T-2 return as he, at that time, could not read English and he had no education to understand what was included in the tax return for 1973.

I do not accept that Mr. Alessio, in 1972 and 1973, could not read English. He had been in business for at least ten years and to simply state that he relied on his children for all business matters, I do not accept. After listening to Mr. Alessio, I am convinced he relies on no one other than himself.

In any event, Exhibit D-1 is an excerpt of the Didsbury Inn Ltd. return as of November 30, 1973. Listed under "Other Liabilities” are the above mentioned liabilities for the purchase of the Didsbury Inn. The total remaining debt, as of November 30, 1973, some 17 months after the purchase, is $128,448.03 after having paid $24,038 on the capital debt and interest. If, in fact, the purchase price had been $210,000 and $105,000 was given as a down payment on the purchase price, the above numbers do not appear to be correct.

With regard to the sale of the Didsbury Inn, Mr. Alessio stated that in February 1974 he stopped working at the inn, his son took over its operation and he then went to negotiate the purchase of the King Edward Hotel. An agreement to sell the Didsbury was formalized on May 2,1974 but he could not remember when he was paid for the sale of the inn. He does agree that the sale price was $300,000 and he received an additional sum of $6,145.95 as interest. He does not recall if the actual transfer of the property took place in May or August 1984.

Mr. Alessio stated that he owned 73 per cent of the issued shares of the Didsbury Inn and that his "partner" James Jackson held the balance of the shares. When Alessio was shown Exhibit D-2, minutes of a meeting of the directors of Didsbury Inn dated August 15, 1973, Mr. Alessio stated that the minutes are incorrect. According to these minutes, it is clear that each of Alessio and Jackson had owned 50 per cent of the issued shares. Mr. Alessio could give no explanation for this inconsistency except to say that he did not know that the books of the company showed him as a 50 per cent shareholder.

He states that on February 1, 1974 he, with a partner, a Mr. Freytag, purchased the King Edward Hotel. In fact, the hotel was purchased by a company, the plaintiff. Alessio states he got the money to buy the King Edward Hotel by selling another of his remaining properties and from a loan given by the Bank of Nova Scotia. He obtained $35,000 to $40,000 from the sale of his property and he cannot recall the amount of the loan from the Bank of Nova Scotia.

According to the opening balance sheet of the King Edward Hotel (Calgary) Ltd., the present plaintiff (Exhibit D-3, page 2), it would appear that a sum of $467,150 was paid for the purchase of the hotel. This sum was financed in the following manner:

1. Advances from shareholders:

Empire Hotel (Calgary) Ltd.	$ 53,016
Didsbury Inn Ltd.	$ 53,017
	$106,033
2. Agreement for sale:
United Management Ltd.	$111,739
Mirador Hotels Ltd.	254,814
	$366,553

Payments to commence March 1, 1974 by monthly instalments in the amount of $1,000 to be applied firstly on interest at the rate of 9 /2% per annum, and secondly on principal on the first day of each month, until such time as the balance owing to United Management Ltd. has been paid in full. At that time the payment will be increased on the balance owing to Mirador Hotels Ltd. to $3,000 per month.

(Exhibit D-3, page 4)

Empire Hotel (Calgary) Ltd. is a corporation owned by Mr. Alessio's associate Mr. Freytag. It appears the shareholders of plaintiff, on February 1, 1974, were Empire Hotel (Calgary) Ltd. and Didsbury Inn Ltd. In 1975, a little over one year after the purchase of the King Edward Hotel, the shares of Empire Hotel in the plaintiff company were bought out. According to Alessio he purchased the shares.

In 1977, the plaintiff company, always acting through Mr. Domenico Alessio, and therefore he always states "I did" "I purchased" offered to buy the Carlsland Hotel in Carlsland, Alberta.

As he previously stated, he lost a deposit of $10,000 because he could not obtain a licence for the hotel and he did not go through with the purchase. Alessio's son Andrew was to manage this hotel.

In July of 1978, the King Edward Hotel was sold for $1,050,000. In the fall of 1978, the Didsbury Inn Ltd., Mr. Alessio was the controlling shareholder of this company (his wife held one share) purchased the Yale Hotel. The purchase was made through the Didsbury Inn because, according to Mr. Alessio, the company was not “operating”. He states "I was going to buy another hotel with another company, not the Didsbury. I would not buy another hotel until I found the right one, like now". The Yale Hotel was obviously the right one. Mr. Alessio believes the offer to purchase went through in December 1978. His memory was weak when he was asked what he paid for this hotel. At first he said $325,000 when in fact he paid $525,000. When told that the 1979 tax return for the Didsbury Inn Ltd. showed the purchase price at $525,000, Mr. Alessio states that “it could be”. He states he made no "gain" on this hotel when it was sold "sold for near same amount as I paid for it”. He was shown Exhibit D-4, excerpt of T-2 tax return of Didsbury Inn as of November 30, 1979. When asked about the $241,129 which was due to shareholders, he states, once again, that he could not recall this amount.

When Mr. Alessio was again questioned on the amount of the purchase price for the Yale Hotel, he stated he could not recall, he cannot remember.

In cross-examination, Mr. Alessio was thoroughly questioned about the Willingdon Hotel which he admits to "just flipped”. This hotel, the Willingdon, was purchased by the plaintiff with money loaned to it by the Didsbury Inn Ltd. A gain of $70,000 or $75,000 was made after one month. As he states "I don't refuse that".

In speaking of the Westwind Hotel, he states he first looked at the hotel, which was in Victoria, in March 1979. He purchased this hotel, he states, on May 14, 1979, which was the adjustment date. The purchase price was $2,150,000. This was financed by way of assuming a first and second mortgage of approximately $1,600,000.

In less than one year, in April 1980, Alessio sold the Westwind for $2,450,000.

On April 1st, 1980, Alessio, one of his companies, purchased the Cambridge Motel for $235,000 and sold it for $270,000 in January 1981. The sale was on December 23, 1980. The adjustment date was January 1, 1981.

2076 Holdings Ltd. is a continuation of the present plaintiff for the Province of British Columbia (Exhibit D-6). This occurred on September 14, 1983. Exhibit D-7 is the continuation for the Didsbury Inn Ltd. for the Province of British Columbia.

It was 2076 Holdings Ltd., plaintiff herein, that sold the Cambridge Motel.

Mr. Alessio had a company 3269 Enterprises Ltd. incorporated on the 8th of January 1981 (Exhibit D-8). This company was incorporated to purchase the Duncan Inn for approximately $750,000. This hotel was purchased within a month or two of the purchase of the Kings Hotel, that is, the closing date was in January 1981. The Duncan Inn was sold in September 1983 for approximately $1,500,000 but had to be repossessed some 7 to 12 months later. It was again sold “in 1987 or 1988, I don't remember" for approximately $550,000. In fact, the Duncan Inn was sold the second time in 1987 for $578,000. After the first sale of the Duncan Inn, Alessio, his company, received a down payment of an immovable property which was sold for approximately $195,000. Thus, the Duncan Inn was sold for approximately $733,000.

After some questioning, Alessio admits that the Didsbury Inn was purchased on June 6, 1972 for approximately $210,000 and was sold on May 2,1974 for $300,000. The King Edward Hotel was purchased on February 1, 1974 for approximately $467,000 and sold on July 4,1978 for $1,050,000. The Yale Hotel, the purchase was completed December 4,1978 for approximately $525,000 and sold in October 1980 for $615,000. The Willingdon Hotel was purchased, the date of possession and adjustment date, January 1,1979 for $1,200,000 and sold on February 4, 1979, the adjustment date, for $1,275,000. The Westwind Hotel was purchased on May 14, 1979 (adjustment date) for $2,150,000 and sold for $2,450,000 on April 12, 1980. The Cambridge Motel was purchased on April 1, 1980 for $235,000 and sold on January 1, 1981 for $270,000. The Duncan Inn was purchased in October 1980 with a completion date being January 1981 for approximately $750,000 and was sold, first in August or September 1983 for $1,500,000 but was repossessed and sold a second time in 1987 for $578,000. The Kings Hotel was purchased in November of 1980 for $935,000. This hotel is not yet sold.

The Carlsland Hotel was a transaction whereby the plaintiff (Alessio) made an offer to purchase in 1976 but lost the $10,000 deposit because Alessio could not obtain a licence to operate.

Mr. John R. Alessio gave evidence on an examination for discovery on April 20, 1989.

The following questions and answers were read into the record:

Questions 336 to 373, 384 to 387, 424 to 427, 439 to 443, 446 to 459, 31 to 33, 36, 84 to 89, 94 to 105, 116 to 123, 125 to 128, 159 to 167, 175 to 178, 182 to 189, 201 to 205, 234 to 239, 246 to 250, 274, 295 to 297, 306 and 307, 309 to 322 and 326 and 327.

Mr. John R. Alessio is one of the sons of Mr. Domenico Alessio. John Alessio became a director of plaintiff company in 1985.

In re-examination Mr. Alessio states that the reason the King Edward Hotel in Calgary only showed a profit of $935 for the period 1975 to 1979 was that he took out the income to "feed" his family.

The defence did not present any witnesses.

Plaintiff's Submission

Counsel for plaintiff submits that the issue is for me to determine whether I believe that the King Edward Hotel was acquired by Alessio for the purpose of operating the hotel as a family business or for gain on its resale. The same applies to the Westwind Hotel. Was it acquired for resale or to be operated as a family business? Counsel submits that in order to determine the above I can look at two things (1) circumstantial evidence and (2) the expressed intention of the witness Alessio.

Counsel submits that from 1972 the Alessio family made their living by operating a certain type of hotel. The King Edward Hotel was owned and operated for four years. Alessio sold his home to purchase it and he and his son operated it for the four years. It was the sole support of the family. In 1978 Mr. Alessio was tired so he sold the business.

With regard to the Westwind, counsel submits Mr. Alessio moved to Victoria because of his wife's illness, the hotel business “is in his (Alessio's) blood” and therefore he purchased the Westwind Hotel. This hotel turned out to be a disaster for Alessio because it was not the type of hotel Alessio was used to.

It is further submitted by counsel for plaintiff that the Alessio family worked in the Didsbury Inn, the King Edward Hotel, the Westwind and the Kings for the sole purpose of earning their living, it was an investment and not with the idea of resale for a profit.

With regard to the Willingdon, the Cambridge, the Duncan Inn and the Yale Hotel, counsel submits the only reason these were purchased by Alessio was his desire to help his daughter and son-in-law to become involved in the hotel business.

Counsel submits that the evidence of Alessio before me was most credible. Counsel submits that although Mr. Alessio may not have known the exact closing dates or exact purchase prices, his answers were honest and that what he did not remember did not go to the issue to be decided. Counsel admits that the witness may have been inept but the issue is, did he (Alessio) acquire the hotels as an investment to be run as a family business or for resale.

Defendant's Submission

Counsel for defendant states she agrees with counsel for plaintiff that this case turns on the acceptance of the evidence given by Domenico Alessio.

Counsel submits that from June 6, 1972 to December 1980, there were eight hotels purchased by a company owned and controlled by Alessio, the plaintiff, or its continuation 2076 Holdings Ltd. and 3269 Enterprises Ltd. In six and one- half years, these three companies, all controlled by Alessio, purchased eight hotels, five of these, the King Edward, the Westwind, the Willingdon, the Cambridge and the Kings were purchased by plaintiff in addition to the attempted acquisition in 1977. From May 2, 1974 to November 1983, there were a total of seven sales. Alessio makes all the decisions and it is his intention that determines the issue. Counsel submits that Mr. Alessio's “bare statement" is not sufficient to conclude that it was not the intention of plaintiff to buy and sell the hotels. The facts suggest otherwise.

Issue

Was the acquisition and sale of the King Edward Hotel and the Westwind Hotel in the nature of trade or was it in the nature of an investment? If the transactions were in the nature of trade, the profits resulting from the sale are income, if not, the gains realized are capital gains.

Discussion & Conclusion

The evidence placed before me was the evidence of Mr. Domenico Alessio and that of his son John R. Alessio. John R. Alessio gave no oral evidence. Only portions of his examination for discovery were submitted.

After listening to Mr. Domenico Alessio for one full day, I was left with the impression that he would or could only remember answers to questions that he wanted to remember even if the answer would add nothing to determining the issue before me. It appears that Mr. Alessio had what I would call a “selective memory".

Furthermore, I do not accept, as Mr. Domenico Alessio tried to convince me, that because he could not read or write English, he would rely on his children to explain to him what any transaction was about. Before entering the hotel business Mr. Alessio was in the insulation business and of necessity he would have had to understand and work in English.

It is a fact that from 1972 when the Didsbury Inn was purchased to 1981, when the Duncan Inn was purchased, Alessio, through the companies he controlled purchased eight hotels. It is a further fact that he, or his companies, sold all of the hotels with the exception of the Kings Hotel. Mr. Alessio wants me to believe that in every transaction, his intention was not to buy the hotel to sell it at a profit but to keep the hotel and operate it to support his family.

There is absolutely no evidence before me of this other than the statement of Mr. Alessio which, after listening to him, I do not accept.

Mr. Justice Walsh, in the case of Pierce Investment Corp. v. M.N.R., [1974] C.T.C. 825; 74 D.T.C. 6608 at 831 (D.T.C. 6612), states, as regards the doctrine of secondary intention:

I am also of the view, as has been expressed in other cases, that while the evidence of the witnesses is helpful in endeavouring to determine their intentions, their actual conduct and the steps they took to carry out these intentions gives a much better indication of what they actually were. Without intending to cast any aspersions on the credibility of the witnesses in the present case it is nevertheless evident that in any case where a distinction must be made between a transaction which constitutes an adventure in the nature of trade and one which leads to a capital gain, one must expect the witnesses to insist that their intentions were solely to make an investment and that the idea of reselling the property at a profit had never occurred to them even as a secondary intention at the time of making the original investment, but was merely forced on them subsequently by some event beyond their control. If they were not in a position to testify to this effect they would have little or no ground for appealing against the assessment.

The leading case on the doctrine of secondary intention is that of Regal Heights (supra) in which Judson, J. stated at pages 905-6 [388-9, 1272]:

"There is no doubt that the primary aim of the partners in the acquisition of these properties, and the learned trial judge so found, was the establishment of a shopping centre but he also found that their intention was to sell at a profit if they were unable to carry out their primary aim. It is the second finding which the appellant attacks as a basis for the taxation of the profit as income. The Minister, on the other hand, submits that this finding is just as strong and valid as the first finding and that the promoters had this secondary intention from the beginning.”

Another case which deals with secondary intention is that of Paul Racine, Amédée Demers and François Nolin v MNR, [1965] CTC 150; 65 DTC 5098, in which Noel, J., as he then was, states at page 5103:

"It is not, in fact, sufficient to find merely that if a purchaser had stopped to think at the moment of the purchase, he would be obliged to admit that if at the conclusion of the purchase an attractive offer were made to him he would resell it, for every person buying a house for his family, a painting for his house, machinery for his business or a building for his factory would be obliged to admit, if this person were honest and if the transaction were not based exclusively on a sentimental attachment, that if he were offered a sufficiently high price a moment after the purchase, he would resell. Thus, it appears that the fact alone that a person buying a property with the aim of using it as capital could be induced to resell it if a sufficiently high price were offered to him, is not sufficient to change an acquisition of capital into an adventure in the nature of trade. In fact, this is not what must be understood by a "secondary intention". If one wants to utilize this term.

To give a transaction which involves the acquisition of capital the double character of also being at the same time an adventure in the nature of trade, the purchaser must have in his mind, at the moment of the purchase, the possibility of reselling as an operating motivation for the acquisition: that is to say that he must have had in mind that upon a certain type of circumstances arising he had hopes of being able to resell it at a profit instead of using the thing purchased for purposes of capital. Generally speaking a decision that such a motivation exists will have to be based on inferences flowing from circumstances surrounding the transaction rather than on direct evidence of what the purchaser had in mind.”

Mr. Alessio had made the statement, during his evidence, that, and I am paraphrasing what he said, those in the hotel business know who is selling (and buying) and that the owners of these hotels go from one to the other. This statement clearly indicates to me that Mr. Alessio and others like him in the “beer parlour” type hotel business buy and sell hotels regularly. They buy a hotel, build up its revenue and then sell at a profit. If one looks at the operating income of the King Edward, the Willingdon, the Westwind and the Cambridge, one can easily conclude the hotels were not purchased for investment (see paragraph 2 (h) of the defence).

The whole course of Mr. Alessio's conduct, and I look at all the transactions in which his companies were involved in, not only the King Edward and the Westwind, clearly indicates an intention to buy and sell as profitably and as quickly as possible.

In this case, the number of transactions is a good indication that what Mr. Alessio wanted to do was buy a hotel, make the necessary renovations, build up the business and sell the hotel. This he did in nearly all the hotels he was involved in, particularly in the King Edward.

Another clear indication of his intention is found in his conduct involving the Willingdon Hotel. Mr. Alessio states he was offered a $70,000 profit (it may have been $75,000) before he even began to operate the hotel and he states if someone makes such an offer it would be foolish not to accept. Clearly, this shows an intention to make as quick a turnover and profit as is possible.

I am satisfied, from viewing the number of transactions, from having been told by Alessio that it is normal for persons such as himself in the special type of hotel business they are in, beer parlours, to go from one hotel to the next and from the fact that he admits to always being on the lookout for other hotels, that it was his intention to buy and sell hotels at a profit. I am satisfied that it was not Mr. Alessio's intention to purchase a hotel as an investment.

Plaintiff's claim is dismissed, costs in favour of the defendant.

Appeal dismissed.