Heald,
J:—These
actions
are
appeals
from
income
tax
assessments
for
the
taxation
year
1969.
At
the
commencement
of
the
trial,
counsel
for
the
parties
applied
to
have
both
cases
tried
on
common
evidence
and
this
application
was
granted.
The
appellant
Burgess
has
been
in
the
house
building
and
land
developing
business
in
the
Halifax
Area
since
1949,
first
doing
business
as
a
sole
proprietorship
and
since
1958,
as
a
Nova
Scotia
corporation
(Rex.
Burgess
Construction
and
Supplies
Ltd)
which
corporation
is
owned
beneficially
entirely
by
Burgess
and
his
wife.
From
1949
until
1953
Burgess
was
engaged
in
building
a
few
houses
each
year
for
other
persons.
In
1953,
in
equal
partnership
with
one
Jack
Wallace,
Burgess
acquired
a
parcel
of
land
referred
to
as
the
Fleming
Glen
subdivision
located
in
the
suburbs
of
the
City
of
Halifax,
about
4
/2
miles
from
the
centre
of
downtown
Halifax.
There
were
about
100
building
lots
in
this
subdivision
of
which
about
30
had
been
sold
by
the
previous
owner.
Burgess
says
that
he
developed
the
remaining
70
lots
by
constructing
roads
therein,
thereafter
selling
the
lots
to
prospective
homeowners.
After
selling
the
lots,
his
pattern
was
to
endeavour
to
persuade
the
new
owner
to
give
him
the
contract
for
building
his
home.
He
says
that
he
did
in
fact
construct
about
one-third
of
the
homes
in
this
subdivision.
He
said
that
he
never
required
that
the
lot
purchaser
engage
him
as
a
builder
but
the
fact
that
he
was
the
vendor
of
the
lot
and
was
available
for
house
building
gave
him
what
could
be
described
as
a
built-in
advantage
over
other
house
builders.
In
any.
event,
the
fact
is
that
he
did
construct
many
of
the
houses
in
this
subdivision.
Burgess
and
his
wife
purchased
Wallace’s
interest
in
this
subdivision
in
1958.
At
about
this
time
Burgess
became
interested
in
certain
land
on
the
shores
of
Williams
Lake,
also
in
the
suburbs
of
Halifax,
about
/2
mile
distant
from
the
Fleming
Glen
subdivision,
hereinafter
described
as
the
Boulderwood
subdivision.
His
friend,
the
appellant
Forward,
expressed
an
interest
in
the
development
of
this
land
on
a
joint
venture
basis.
Burgess
and
Forward
had
grown
up
together
in
Halifax.
Forward
had
been
in
the
plumbing
contracting
business
since
about
1954
and
Burgess
had
engaged
him
on
some
of
his
house
jobs
as
the
plumbing
and
heating
subcontractor.
Burgess
had
built
Forward’s
own
home
for
him.
They
had
a
fairly
close
personal
and
business
association
established
over
many
years.
Finally,
in
about
1963,
Burgess
and
Forward
were
able
to
acquire
this
property
which
was
transferred
to
a
Nova
Scotia
corporation
known
as
Boulderwood
Properties
Ltd
which
company
was
beneficially
owned
by
Burgess
and
Forward
in
equal
shares.
The
two
partners
proceeded
immediately
to
build
a
road
into
this
property,
they
made
subdivision
plans,
received
tentative
approval
thereof
from
the
authorities,
they
installed
sewer
and
water
and
then
commenced
to
advertise
and
sell
the
lots.
There
were
21
building
lots
in
the
Boulderwood
subdivision,
all
of
which
were
sold
during
the
years
1966
to
1972
inclusive.
Using
the
same
pattern
as
in
Fleming
Glen,
Burgess
built
four
of
the
houses
in
this
subdivision
for
the
new
owners
and
Forward
also
did
some
of
the
plumbing
and
heating
work.
Boulderwood
was
a
reasonably
profitable
enterprise
from
the
point
of
view
of
its
owners,
Messrs
Burgess
and
Forward.
In
the
income
tax
returns
of
Boulderwood
Properties
Ltd,
the
lot
sales
were
reported
as
income
and
tax
was
paid
on
this
income
after
deduction
of
properly
chargeable
expenses.
In.
1961
Burgess
and
Forward
became
interested
in
a
large
tract
of
raw
land
adjacent
to
the
Boulderwood
property
on
the
shore
of
Williams
Lake
which
was
being
advertised
for
sale
for
arrears
of
taxes.
About
16
acres
of
this
tract
was
situated
on
the
north
shore
of
the
Lake
and
was
accessible
through
the
Boulderwood
property.
The
other
portion
was
on
the
south
side
of
the
Lake
and
was
inaccessible
for
the
time
being.
Investigation
revealed
about
100
different
and
separate
titles
and
interests
in
this
property.
The
appellants
set
about
acquiring
these
various
interests
and
by
1967,
had
acquired
all
of
the
necessary
quit
claim
deeds
from
previous
owners
excepting
two
which
had
been
acquired
by
one
Velcoff,
a
Halifax
lawyer.
After
protracted
negotiations
and
discussions,
Velcoff
agreed
to
contribute
his
interest
in
this
property
to
a
new
corporation
to
be
formed
in
return
for
a
one-third
interest
in
said
corporation.
Finally
clear
title
to
this
land
tract
was
obtained
in
1967
and
ownership
thereof
was
vested
in
said
corporation
known
as
Birkwood
Properties
Limited.
Said
corporation
was
beneficially
owned
by
the
appellants
Burgess
and
Forward
and
Velcoff,
one-third
each.
Thus,
the
position
of
these
two
appellants
in
1967
was
that
Boulderwood
was
developing
and
they
were
selling
the
lots
therein.
They
were
also
working
towards
the
opening
up
and
the
development
of
the
Birkwood
Properties.
Beginning
in
1965,
in
the
process
of
developing
Boulderwood,
and,
in
anticipation
of
the
eventual
acquisition
of
Birkwood,
a
road
was
built,
a
10-inch
sewer
line
and
8-inch
water
main
were
installed
with
the
purpose
in
mind
of
servicing
not
only
Boulderwood
but
Birkwood
as
well.
Plans
were
made
to
install
a
pumping
station
at
a
causeway
which
would
connect
the
two
pieces
of
land,
thus
enabling
the
sewer
and
water
mains
to
run
across
the
causeway
to
the
Birkwood
land.
This
causeway
was
constructed
making
the
16
acres
of
Birkwood
land
accessible
for
the
first
time.
Most
of
the
work
of
land
clearing,
road
building
and
causeway
construction
was
done
personally
by
these
two
appellants
between
1964
and
1968.
They
constructed
a
road
across
the
causeway
into
the
Birkwood
property.
By
1967
Birkwood
began
looking
for
prospective
lot
buyers
and
many
persons
indicated
an
interest
in
buying
a
lot
as
soon
as
Birkwood
had
clear
title
and
the
subdivision
had
been
finally
approved.
In
1968
Birkwood
continued
with
its
plans
to
subdivide
the
land
and
tentative
banking
arrangements
were
made
to
finance
the
road
building
and
for
the
extension
of
the
water
and
sewer
lines
to
the
individual
lots.
The
lots
were
advertised.
The
evidence
establishes
that
the
appellants
intended
to
subdivide
and
build
houses
in
Birkwood
following
the
same
pattern
established
in
Boulderwood
and
Fleming
Glen.
Meanwhile,
the
relationship
between
Burgess
and
Velcoff
was
deteriorating.
Burgess
did
not
know
Velcoff
before
he
became
a
partner
in
Birkwood.
He
says
that
he
expected
Velcoff
would
be
able
to
con-
tribute
to
the
venture
in
terms
of
knowledge
of
legal
matters
such
as
subdivisions,
title
work,
etc.
The
evidence
of
both
Burgess
and
Forward
was
that
Velcoff
contributed
nothing
financially
or
physically
to
Birkwood
excepting,
of
course,
his
original
interest
in
this
land.
Their
opinion
was
that
“he
was
along
for
the
ride”.
Forward
said
that
he
contributed
“nothing
but
harassment”.
Their
evidence
was
that
he
was
consulted
at
all
times
on
important
decisions
but
was,
at
times,
very
difficult
to
the
point
of
being
impossible;
that
they
themselves
improved
this
property
on
weekends,
before
and
after
their
normal
working
hours
in
an
effort
to
save
money
and
that
Velcoff
did
not
help
them
in
any
way
except
io
come
along
in
the
evenings
and,
in
the
words
of
Burgess,
“lord
it
over
us”.
This
alleged
course
of
conduct
on
the
part
of
Velcoff
did
not
bother
Forward
much.
He
appeared
to
be
of
a
different
temperament
than
Burgess
and
more
inclined
to
overlook
erratic
behaviour
on
the
part
of
someone
else.
However,
Velcoff’s
actions
bothered
Burgess
a
great
deal.
He
testified
that
Velcoff
would
telephone
him
at
his
home
at
midnight
or
later
and
berate
him
in
rather
vigorous
and
colourful
language.
This
was
very
upsetting
to
him
to
the
point
where
he
began
to
wonder
whether
he
could
put
up
with
this
sort
of
harassment
during
the
length
of
time
which
was
necessary
to
complete
the
subdividing,
the
servicing
of
the
lots,
the
advertising
and
the
sale
of
them.
The
evidence
is
that,
by
the
end
of
1968,
the
relationship
between
Burgess
and
Velcoff
was
going
from
bad
to
worse.
In
December
of
1968
Burgess
was
approached
by
Jack
Wallace,
his
former
partner
in
the
Fleming
Glen
subdivision,
who,
by
this
time,
was
in
the
real
estate
business
in
Toronto.
Wallace
had
a
client
wishing
to
acquire
building
subdivisions
and
lots
in
the
suburbs
of
Halifax.
Wallace
suggested
that
Burgess
sell
either
Boulderwood
or
Birkwood.
Burgess
testified
that
he
advised
Wallace
that
he
was
most
reluctant
to
part
with
either,
that
his
business
profits
consisted
largely
of
the
profits
from
the
lot
sales
and
partly
of
the
profits
from
his
construction
company
and
that
he
needed
both
to
live
decently.
He
says
that
Wallace
persisted
whereupon
he
told
him
he
would
have
to
check
with
his
auditors.
He
said
that,
apart
from
his
interests
in
Boulderwood
and
Birkwood,
he
owned
himself
substantial
undeveloped
land
in
Spryfield,
another
Halifax
suburb,
about
2
/2
miles
further
out
from
the
centre
of
Halifax;
that
he
knew,
in
December
of
1968,
that
the
Spryfield
land,
along
with
the
Birkwood
land,
was
going
to
be
annexed
by
the
City
of
Halifax
on
January
1,
1969
and
he
thought
that
if
he
was
to
get
out
of
Birkwood,
he
would
be
able
to
concentrate
on
the
development
of
Spryfield.
The
other
factor
which
he
says
influenced
him
in
favour
of
selling,
was
the
unpleasant
relationship
which
had
developed
with
Velcoff.
For
those
reasons
in
the
main,
Burgess
reached
a
decision
to
sell.
He
then
persuaded
his
partners
Velcoff
and
Forward
to
also
sell
their
interests
in
Birkwood.
Forward
testified
that
he
was
particularly
reluctant
to
sell
and
did
so
only
as
a
last
resort.
He
testified
that
once
Burgess
became
determined
to
sell,
he
was
left
with
little
choice.
He
said
that
they
could
not
continue
to
operate
Birkwood
without
Burgess,
and
the
prospect
of
continuing
in
a
minority
position
with
new
and
strange
partners
was
most
unattractive
to
him.
The
result
was
that
on
December
9,
1968
all
three
partners
gave
an
option
to
one
T
H
Jackson
of
Toronto,
in
Trust,
to
purchase
all
the
issued
shares
of
Birkwood
Properties
Limited
for
a
total
price
of
$126,000
which
option
was
subsequently
accepted
and
the
transaction
was
completed.
The
respondent
treated
the
gain
made
by
both
appellants
on
the
sale
of
their
shares
in
Birkwood
Properties
Limited
as
being
from
an
adventure
or
concern
in
the
nature
of
trade.
Both
appellants
objected
and
it
is
the
nature
of
this
gain
that
is
the
subject
matter
of
both
actions.
The
corporate
objects
of
Birkwood
as
well
as
Boulderwood
empowered
these
companies
io,
inter
alia,
carry
on
the
business
of
a
land
company
and
to
buy
and
sell
“lands
and
real
estate
of
all
and
every
kind
and
description
whether
vacant,
improved
or
otherwise”.
The
appellant
Burgess
has
a
very
active
and
extensive
background
in
real
estate
development
in
the
Halifax
area
over
the
past
twenty
years.
He
has
been
the
substantial
owner
and
motivating
force
behind
at
least
three
housing
subdivisions
in
the
suburbs
of
Halifax.
He
is
presently
engaged
in
a
fourth
(Spryfield).
The
appellant
Forward
was
a
partner
with
Burgess
in
two
of
these
projects.
His
knowledge
of
real
estate
is
not
nearly
as
extensive
as
is
that
of
Burgess
but
I
am
satisfied
that
he
had
some
knowledge
because
of
his
plumbing
contracting
business.
He
was
a
house
building
subcontractor
and,
as
such,
he
certainly
would
have
had
some
exposure
to
land
and
subdivision
development.
He
said
that
he
relied
on
the
expertise
and
experience
of
Burgess
to
a
very
great
degree.
He
had
great
confidence
in
Burgess
and
he
felt
that
Burgess’
knowledge
of
real
estate
was.
sufficient
for
both
of
them.
He
made
the
observation
in
evidence
that
his
confidence
in
Burgess
had
been
vindicated
by
the
success
of
both
ventures.
Both
Burgess
and
Forward
testified
that
their
intentions
in
acquiring
the
Birkwood
were
twofold:
first,
they
expected
to
sell
the
lots
at
a
profit
and,
second,
they
expected
these
housing
subdivisions.
to
generate
house-building
business
for
Burgess
and
plumbing
and
heating
business
for
Forward.
I
consider
the
decision
of
the
Supreme
Court
of
Canada
in
the
case
of
Ronald
K
Fraser
v
MNR,
[19654]
SCR
657;
[1964]
CTC
372;
64
DTC
5224,
to
be
relevant
to
the
situation
here.
In
that
case,
the
appellant
and
an
associate,
both
experienced
real
estate
operators,
jointly
acquired
four
contiguous
parcels
of
land,
intending
to
build
a
shopping
centre
and
apartment
houses
for
investment
purposes.
The
two
associates
then
formed
two
corporations,
selling
the
shopping
centre
land
to
one
and
the
apartment
house
land
to
the
other.
The
associates
received
all
the
issued
shares
of
both
corporations
in
equal
proportions.
Construction
of
a
store
was
commenced
on
the
shopping
centre
site,
but
before
it
was
finished,
the
associates
sold
all
their
shares
in
the
corporation
holding
that
land
and
shortly
afterwards
all
their
shares
in
the
other
corporation.
Mr
Justice
Judson,
delivering
the
judgment
of
the
Court,
held
that
the
associates
were
carrying
on
a
business;
they
intended
to
make
a
profit
and
if
they
could
not
make
it
one
way,
then
they
made
it
another
way..
The
fact
that
they
incorporated
companies
to
hold
the
real
estate
made
no
difference.
The
sale
of
shares,
rather
than
the
sale
of
land
was
merely
an
alternative
they
chose
to
adopt
in
putting
through
their
real
estate
transactions.
The
Court
accordingly
held
the
profit
on
the
shares
to
be
taxable
as
income.
In
my
view,
the
facts
in
this
case
are
even
stronger
in
favour
of
a
taxable
transaction
than
in
the
Fraser
case.
In
the
Fraser
case,
the
main
original
intention
was
to
construct
fixed
assets
and
to
hold
them
as
investments
from
which
income
would
be
derived.
In
the
case
at
bar,
there
was
never
any
intention
to
hold
this
land
for
revenue.
The
intention
was
clearly
to
acquire
the
raw
land,
improve
it
by
clearing,
installing
roads,
subdividing,
servicing
with
sewer
and
water
and
then
reselling
at
a
profit.
Also,
in
this
case,
such
intention
to
buy
and
sell
at
a
profit
was
a
continuation
of
a
pattern,
earlier
established
in
another
similar
venture
(Boulderwood)
a
venture
in
which
the
profit
on
resale
was
declared
in
the
income
tax
returns
of
the
corporation
as
being
taxable
income.
Learned
counsel
for
the
appellants
submitted
that
the
pattern
established
by
his
clients
was
not
one
of
selling
raw
land,
but
rather
the
sale
of
serviced
lots,
that,
in
the
instant
case
of
the
Birkwood
properties,
this
pattern
was
broken
for
the
reasons
given
by
Burgess
in
evidence,
the
main
one
being
the
unpleasant
nature
of
the
relationship
with
Velcoff.
With
deference,
on
the
facts
of
this
case,
I
do
not
consider
that
the
reasons
for
selling
make
any
difference
to
a
final
determination
of
the
issues
herein,
The
Birkwood
lots
were
acquired
for
resale,
they
were
the
inventory
of
a
trading
business;
by
virtue
of
certain
work
(clearing,
roadwork,
subdivision,
servicing,
etc)
they
were
made
more
valuable
and
were
then
resold
at
a
profit.
These
lots,
it
seems
to
me,
were
trading
inventory
just
as
much
as
the
raw
material
used
by
a
manufacturer
in
the
fabrication
of
a
finished
product
which
is
then
sold
in
the
ordinary
course
of
his
business.
Appellants’
counsel
argued
that
this
transaction
was,
in
reality,
a
sale
of
the
right
to
future
profits,
a
discounting
of
future
income,
a
discounting
of
a
capital
asset.
I
do
not
agree
with
this
submission.
I
think
the
Birkwood
lots
were
trading
assets.
The
evidence
was
clear
that
the
intention
was
to
buy
them,
improve
them
and
then
resell
them
in
much
the
same
manner
as
any
trader
deals
with
his
trading
inventory.
Then,
appellants’
counsel
argued
that
this
sale
was
not
just
the
sale
of
an
inventory
of
land,
that
the
sale
price
of
$126,000
could
not
be
justified
by
the
value
of
the
land
itself.
His
argument
was
that
two
things
were
sold:
first,
the
ability
to
make
development
profits
and,
second,
the
opportunity
of
Messrs
Burgess
and
Forward
to
make
a
profit
in
their
contracting
and
plumbing
business
respectively
and
that
what
they
were
selling
was
a
going
concern
which
should
be
classed
as
a
capital
transaction.
With
every
deference,
I
cannot
interpret
the
evidence
in
this
fashion.
In
my
view,
the
evidence
established
clearly
that
Birkwood
had
only
one
asset,
the
land;
this
was
their
stock-in-trade
and
really
the
only
thing
they
had
to
sell.
The
company
had
no
goodwill
in
anything
other
than
the
land.
The
company
had
no
separate
office
staff;
it
was
operated
by
Burgess
and
his
wife
from
their
home.
Burgess
had
established
a
reputation
as
a
builder
and
developer
and
there
was
certainly
goodwill
attaching
to
Burgess
but
he
retained
this
when
Birkwood
was
sold
and
he
still
carried
on
with
his
construction
business.
I
believe
that
the
evidence
establishes
that
the
purchaser
from
Birkwood
purchased
only
and
received
only
its
stock-in-trade
which
was
the
land
and
the
land
alone.
The
evidence
was
conflicting
as
to
the
value
of
the
land,
the
appellants
submitting
that
tne
land
value
alone
was
considerably
less
than
the
purchase
price,
the
respondent
submitting
that
the
sale
price
of
the
shares
($126,000)
was
clearly
justified
by
the
market
value
of
the
land
at
that
time.
Based
on
the
evidence
of
the
sale
of
the
Boulderwood
lots
and
taking
the
evidence
as
to
value
as
a
whole,
I
am
satisfied
that
the
purchaser
paid
$126,000
for
the
land
alone
and
that
he
was
not
paying
for
or
receiving
anything
else
and
that
such
a
price
was
probably
not
an
unrealistic
amount
to
pay
for
the
land.
Appellants’
counsel
also
submitted
that
since
neither
Burgess
or
Forward
had
a
history
of
buying
and
selling
shares,
that
an
isolated
share
transaction
such
as
this
should
not
be
considered
as
a
trading
transaction.
This
point
was
considered
by
Mr
Justice
Pigeon
in
the
Supreme
Court
case
of
MNA
v
Freud,
[1969]
SCR
75
at
81;
[1968]
CTC
438
at
442;
68
DTC
5279
at
5282;
where
he
said:
.
.
.
Due
to
the
definition
of
business
as
including
an
adventure
in
the
nature
of
trade,
it
is
unnecessary
for
an
acquisition
of
shares
to
be
a
trading
operation
rather
than
an
investment
that
there
should
be
a
pattern
of
regular
trading
operations.
In
the
Fraser
case,
the
basic
operation
was
the
acquisition
of
land
with
a
view
to
profit
upon
resale
so
that
it
became
a
trading
asset.
The
conclusion
reached
implies
that
the
acquisition
of
shares
in
companies
incorporated
for
the
purpose
of
holding
such
land
was
of
the
same
nature
seeing
that
upon
selling
the
shares
instead
of
the
land
itself,
the
profit
was
a
trading
profit,
not
a
capital
profit
on
the
realization
of
an
investment.
.
.
.
In
the
Freud
case,
the
taxpayer,
a
lawyer
and
his
associate,
conceived
the
idea
of
designing
and
developing
a
prototype
of
a
sports
car
with
the
intention
of
selling
their
concept,
embodied
in
the
prototype,
to
a
manufacturer
of
cars
who
could
be
interested
in
putting
it
into
production.
A
corporation
was
formed
to
carry
out
the
project
and
shares
were
issued
to
the
two
associates
and
others
who
put
money
in
the
undertaking.
In
1960
the
taxpayer
advanced
to
the
corporation
a
sum
of
money
in
a
final
attempt
to
sell
the
idea
to
a
manufacturer.
Part
of
this
money
was
paid
to
the
corporation
and
part
consisted
of
direct
payments
for
labour,
materials
and
expenses.
At
page
81
[442,
5282]
of
the
judgment,
Mr
Justice
Pigeon
goes
on
to
say:
If
the
respondent
and
his
friends
had
been
successful
in
selling
the
prototype
sports
car,
they
might
well
have
done
it
by
selling
their
shares
in
the
company
instead
of
having
the
company
sell
the
prototype,
and
there
can
be
no
doubt
that
if
they
had
thus
made
a
profit
it
would
have
been
taxable.
and
at
page
83
[444,
5283]
:
In
the
present
case
as
we
have
seen,
the
basic
venture
was
not
the
development
of
a
sports
car
with
a
view
to
the
making
of
a
profit
by
going
into
the
business
of
selling
cars
but
with
a:
view
to
a
profit
on
selling
the
prototype.
Therefore,
the
venture,
from
its
inception,
was
not
for
the
purpose
of
deriving
income
from
an
investment
but
for
the
purpose
of
making
a
profit
on
the
resale
which
is
characteristic
of
a
venture
in
the
nature
of
trade.
Likewise,
in
the
cases
at
bar,
the
Birkwood
venture
from
its
inception
was
not
for
the
purpose
of
deriving
income
from
the
lots
but
for
the
purpose
of
making
a
profit
on
the
resale
of
the
lots
and
thus,
here,
as
in
the
Freud
case,
the
sale
has
the
characteristics
of
a
venture
in
the
nature
of
trade.
I
have
therefore
concluded
that
the
Minister
was
correct
in
assessing
the
profit
on
the
sale
of
the
shares
in
question
as
income.
Both
appeals
are
accordingly
dismissed
with
costs.