Macklin v. The Queen, 92 DTC 6595, [1993] 1 CTC 21 (FCTD)

Rothstein, J.:—This case involves whether or not the replacement property rules under section 44 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), apply to a certain disposition of real property in Grande Prairie, Alberta, that took place in 1980. The taxpayer is Matilda Macklin of Grande Prairie, Alberta. If the replacement property rules apply, Mrs. Macklin will not be required to realize a capital gain (or at least a full capital gain) and pay the tax associated with it arising from the disposition because she acquired replacement property. If the rules do not apply, Mrs. Macklin will realize a taxable capital gain of $498,837.94 and will be required to pay tax on this amount even though, as indicated, she did acquire replacement property.

The relevant provisions of the Income Tax Act are paragraph 44(1)(b) and section 248. The relevant portions of each provision for purposes of this case are:

44. (1) Where at any time in a taxation year (in this subsection referred to as the “initial year") an amount has become receivable by a taxpayer as proceeds of disposition of a capital property (in this section referred to as his “former property") that is either

(b) a property that was, immediately before the disposition, a former business property of the taxpayer,

and the taxpayer has

(c) . . .

(d) . . .

acquired a capital property (in this section referred to as his "replacement property") as a replacement for his former property and his replacement property has not been disposed of by him prior to the time he disposed of his former property, notwithstanding subsection 40(1), if he so elects under this subsection in his return of income under this Part for the year in which he acquired the replacement property,

(e) . . .

(f) . . .

248

. . ."former business property" of a taxpayer means a capital property that was used by him primarily for the purpose of gaining or producing income from a business, and that was real property or an interest therein of the taxpayer, but does not include.

(it was agreed the exclusions were not relevant)

The issue here involves approximately 60 acres of land on which certain development work had taken place prior to disposition. The defendant, Her Majesty The Queen, takes the position that as a result of this work taking place, the property in question was converted from farm property to develop- ment property and therefore was not a former business property of the taxpayer immediately before its disposition. The plaintiff, of course, takes the opposite position.

Facts:

I.V. Macklin was a farmer in the Grande Prairie area of Alberta for many years. Matilda Macklin was his wife. Since 1910, he owned, amongst other land, the southwest quarter of 30-71-5-W6, (the southwest quarter). This was farmland.

In the late 1960s, I.V. Macklin, due to age and accidents, became incapacitated. Matilda Macklin carried on farming with her son Irvin R. Macklin doing much of the work. The land stayed in the name of I.V. Macklin. In 1977, I.V. Macklin went to the hospital and remained there until his death on April 2, 1980.

Over the years the Macklins had dealt with Jack Durrant a local developer in Grande Prairie. His companies were D. & B. Contractors Ltd. and D. & B. Developments Ltd. From 1958 small parcels of property had been sold by the Macklins to Durrant or his companies.

The southwest quarter was adjacent to a housing development in Grande Prairie. Commencing in 1978, there was pressure on the Macklins from Durrant and others to develop or sell the quarter section. The sequence of events in the period 1978 to 1980 relating to the development and disposition of the southwest quarter are summarized hereunder.

In September of 1978 Mr. Durrant, being anxious to develop the southwest quarter, (and presumably after discussions with the Macklins) retained the firm of Hosford Impey to prepare an outline plan for the west half of 30-71-5-W6, which included the southwest quarter. The outline plan was completed on December 19, 1978.

On December 21, 1978, pro forma financial statements were prepared by Bennion and Company, Chartered Accountants for a proposed development joint venture between D. & B. Development Ltd. and Macklin Holdings Ltd.

On January 23, 1979 an application for subdivision was submitted to the Regional Planning Commission for the west half.

In June 1979, D. & B. Developments Ltd. agreed to put up a $250,000 good faith deposit with the interest earned on it going to Matilda Macklin and three of her children, Irvin R., Arthur and Ann.

On August 15, 1979, Matilda Macklin made an affidavit in the Surrogate Court of Alberta in support of a petition for an order appointing her as guardian and trustee of I.V. Macklin. In that affidavit she deposed:

10. That the land described above (the west half) is used by Irvin Victor Macklin as farmland and that the said land is now being farmed on his behalf by our son Irvin R. Macklin on a custom work arrangement,

14. The adjusted cost base of the said lands for tax purposes is approximately $2000 per acre. In order to defer immediate tax liability in respect of capital gains which would result from the sale of the said lands to a non family member, I propose to dispose of the said lands as follows:

(a) On behalf of Irvin Victor Macklin, to transfer the said lands to myself beneficially at fair market value, in exchange for demand promissory note payable to the estate of Irvin Victor Macklin, by way of spousal rollover in accordance with subsection 70(6) of the Income Tax Act (Canada) and,

(b) to sell and transfer at fair market value one of the quarter sections of the said lands, namely S.W. /4—30-71-5-W6 to Durmac Developments, a real estate development joint venture comprised of a Macklin family holding company (Macklin Equities Ltd.) a development company controlled by I.V. Macklin’s son, Irvin R. Macklin (Erlin Developments Ltd.), and a third party arm's length development company (D. & B. Development Ltd.), all of Grande Prairie Alberta.

The affidavit makes it clear that at least as early as August 15, 1979, it was Matilda Macklin's intention to dispose of the southwest quarter to the joint venture participants for purposes of development.

The southwest quarter was used for farming purposes in 1978 and 1979.

In September, October and November 1979 various work was undertaken to prepare for development. Engineers were retained and there were communications with the Bank of Nova Scotia relative to financing. Surveyors were also retained. After the 1979 crop was taken off the land, work related to development was performed on the land. Surveyors performed staking work in October. On October 27,1979, stripping of top soil from approximately 60 acres of the southwest quarter commenced. The stripping work was completed on November 2, 1979. The land that was stripped was low lying land and was susceptible to flooding during spring run-off, hence the reasons for stripping in the fall.

In October and November the Macklins had family meetings to decide on the price they wished to obtain for the land. On November 16, 1979 Irvin R. Macklin advised Neil Nichols, the solicitor for the Macklins, that their intention was to“ to pursue sale of section or approximately 150 acres at $20,000 per acre to Durmac". During November and December other developmental activities continued including the obtaining of planning authority approvals, further survey work and proposals to buy adjacent properties.

This joint venture agreement between Erlin Developments Ltd., D. & B. Developments Ltd., and Macklin Equities Ltd., was signed having an effective date of January 10, 1980.

On February 18, 1980, Mr. Justice A.H.J. Wachowich ordered that Matilda Macklin be appointed guardian of the person and trustee of the estate of I.V. Macklin, authorized her to sell or otherwise dispose of any real or personal property owned by I.V. Macklin at fair market value for cash or no cash, promissory notes, preferred shares, or other considerations and further ordered that the sale of the half section, including the southwest quarter from I.V. Macklin to Matilda Macklin at fair market value was approved and confirmed.

On February 19, 1980, separate applications for financing the amount of $4,263,750 on behalf of D. & B. Developments Ltd. and Macklin Equities Ltd. were presented to the Bank of Nova Scotia, Grande Prairie Branch for financing 100 per cent of the anticipated acquisition and development costs of the subject property.

In February, March and April 1980, other work was ongoing to prepare the land for development. Applications were made to relevant planning authorities and approvals were being received. Contracts were entered into for on-site and off-site services and significant sums of money were being committed.

On April 2, 1980, I.V. Macklin died. The parties agreed that it was at this date that Matilda Macklin received the southwest quarter from I.V. Macklin.

On April 11, 1980 conditions which were attached to the approval of financing by the Bank of Nova Scotia were accepted by the loan applicants. The evidence of Mrs. Macklin and Mr. Durrant was that it was as of this date that they had a firm deal to proceed. The plaintiff's counsel says that this is the date Matilda Macklin disposed of the southwest quarter to the joint venture. While he did not specifically agree that this was the date of disposition, the defendant's counsel did agree the date of disposition would have been between April 11, the date on which there was a firm deal to proceed with development and May 23, 1980, the date on which Matilda Macklin signed transfers of land transferring the southwest quarter to the participants in the joint venture. For purposes of this decision nothing turns on the precise date. I will assume that the date of disposition by Matilda Macklin to the joint venture participants was April 11, 1980, the date on which financing was obtained. The actual plan of subdivision for the 60 acres in question was registered in the land titles office on September 2, 1980.

The parties agreed that 100 acres of the southwest quarter remained property used for farming purposes. As Matilda Macklin acquired replacement property, the replacement property rules under paragraph 44(1)(b) applied to these 100 acres. The defendant agreed to this approach for these 100 acres because they had not been stripped and continued to be farmland capable of being used in the business of farming. She thus did not have to realize a capital gain when these 100 acres were disposed of on April 11, 1980 to Macklin Equities Ltd. and D. & B. Developments Ltd. for the joint venture.

As to the other 60 acres of the southwest quarter, the defendant takes the position that this land ceased to be farmland capable of being used in the business of farming on October 27, 1979. This was the date that stripping commenced on these 60 acres. The defendant says that the replacement property rules cannot be applied to these 60 acres because immediately before their disposition on April 11, 1980 to Macklin Holdings Ltd. and D. & B. Developments Ltd., they were not "a former business property of the taxpayer". The defendant says that since they had been transformed into development land by virtue of the stripping, commencing on October 27, 1979, at that date they lost their character as farming property capable of being used in the business of farming.

If the defendant's position is upheld, the following calculations reflect the treatment of the 100 acres to which the replacement property rules apply and the 60 acres to which they do not apply:

It should be noted that for purposes of this litigation, the parties agreed to the split of the quarter section as being 100 acres unscraped and 60 acres scraped. It was acknowledged that this split did not precisely reflect what took place (indeed the southwest quarter owned by I.V. Macklin consisted of only about 154 acres) but the parties were satisfied that I should proceed based on these agreed assumptions.

Law and analysis:

Counsel for the plaintiff argued that the issues in this case relate to the words"immediately" in paragraph 44(1)(b) and "primarily" in the definition of "former business property” in section 248. As to how the word "immediately" is to be construed, the question is: does paragraph 44(1)(b) require that the 60 acres had to be property that could be used in the farming business the instant before its disposition for the replacement property rules to apply? As to the word “primarily”, the question is: does its presence in the definition of "former business property" allow consideration of the entire quarter section as a whole, and therefore, because the majority of the quarter section — 100 of the 160 acres — was land that could be used in the farming business and qualified under paragraph 44(1)(b), that the other 60 acres took on the same character, i.e., because the primary use of the quarter section was farming.

In my analysis of this problem, it is only necessary to deal with the interpretation of paragraph 44(1)(b) and the word immediately”.

Counsel for the plaintiff submitted a number of cases intended to assist in the interpretation of paragraph 44(1)(b) and section 248. These are referred to in The Queen v. McClurg, [1991] 1 C.T.C. 169, 91 D.T.C. 5001, in which Dickson C.J.C. states at pages 182-83 (D.T.C. 5011):

Interpretation of Taxing Statutes

In recent years this Court, in an income tax appeal, has found it beneficial to engage explicitly in the development of an interpretive approach to the Income Tax Act, an approach which is wedded neither to a rule of" strict construction” nor to an all-encompassing test of" independent business purpose”. This trend began with the judgment of Estey, J. in his majority reasons in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305. In that case, Estey, J. undertook an extensive discussion of interpretive techniques, and he drew a conclusion as to the preferred approach to be taken by the courts at 576 (C.T.C. 313, D.T.C. 6322):

It seems more appropriate to turn to an interpretation test which would provide a means of applying the Act so as to affect only the conduct of a taxpayer which has the designed effect of defeating the expressed intention of Parliament. In short, the tax statute, by this interpretative technique, is extended to reach conduct of the taxpayer which clearly falls within “the object and spirit” of the taxing provisions.

Estey, J. expanded upon this test of "object and spirit" in his majority judgment in The Queen v. Golden, [1986] 1 S.C.R. 209, [1986] 1 C.T.C. 274, 86 D.T.C. 6138 at 214-15 (C.T.C. 277, D.T.C. 6140):

. . . the law is not confined to a literal and virtually meaningless interpretation of the Act where the words will support on a broader construction a conclusion which is workable and in harmony with the evident purposes of the Act in question. Strict construction in the historic sense no longer finds a place in the canons of interpretation applicable to taxation statutes in an era such as the present. . . .

More recently, in Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, [1987] 1 C.T.C. 117, 87 D.T.C. 5059, I described the approach in terms of the need to discern the commercial reality of a taxpayer's transaction at 52-53 (C.T.C. 128, D.T.C. 5066-67):

I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes . . . so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on "a common sense appreciation of all the guiding features” of the events in question

This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute. Assessment of taxpayers" transactions with an eye to commercial and economic realities, rather than juristic classification of form, may help to avoid the inequity of tax liability being dependent upon the taxpayer's sophistication at manipulating a sequence of events to achieve a patina of compliance with the apparent prerequisites for a tax deduction.

Thus, in proceeding to analyze the tax consequences of the application of the discretionary dividend clause, it is necessary to determine both the purpose of the legislative provision and the economic and commercial reality of the taxpayer's actions. To a certain extent, the latter inquiry in the case at bar already has been answered by my determination that the use of the discretionary dividend clause is a valid means whereby directors of a company can distribute dividends. The question also is answered, in part, by the fact that it was not argued by the appellant that the payment of dividends to Wilma McClurg was a“ "sham". Therefore, to use the words of Estey, J. in Stubart Investments Ltd., supra, it cannot be said that the transaction was *constructed as to create a false impression in the eyes of a third party, specifically the taxing authority” (at page 572 (C.T.C. 313, D.T.C. 6321)).

These cases articulate a modern, interpretative approach to the Income Tax Act. The interpretation principles which I consider relevant to the case at bar are:

(1) The Act should be applied so as to affect the conduct of a taxpayer which has the designed effect of defeating the expressed intention of Parliament. Regard is to oe had to the object and spirit of the taxing provision.

(2) Strict construction is no longer appropriate. A literal and virtually meaningless interpretation should be rejected where the words will support on a broader construction a conclusion that is workable and is in harmony with the purpose of the Act.

(3) Regard should be had to the true commercial and practical nature of transactions. A commonsense appreciation is to be had for all the guiding features of the events in question. Commercial and economic realities are to be considered.

These are not exhaustive of the principles to be derived from these cases but I cite them as being relevant for purposes of the case at bar.

Counsel for the defendant brought to my attention The Queen v. Multiform Manufacturing Co. et al., [1990] 2 S.C.R. 624, 58 C.C.C. (3d) 257, in which Lamer, C.J.C. states at page 630 S.C.R. (C.C.C. 261-62):

When the courts are called upon to interpret a statute, their task is to discover the intention of Parliament. When the words used in a statute are clear and unambiguous, no further step is needed to identify the intention of Parliament. There is no need for further construction when Parliament has clearly expressed its intention in the words it has used in the statute.

and B.C. v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24, 59 D.L.R. (4th) 726, where at page 31 (S.C.R. 160) McLachlin, J. cites as a guide to interpretation a passage from Driedger, Construction of Statutes, (2nd ed., 1983), page 105:

. . if [the words] are clear and unambiguous and in harmony with the intention, object and scheme [of the Act] and with the general body of the law, that is the end.

I summarize these cases as standing for the proposition that when words in a statute are clear and unambiguous and capable of only one meaning, guides to interpretation are unnecessary.

The word “immediately” is defined in the Shorter Oxford English Dictionary as follows:

Immediately. 1. In an immediate way; by direct agency; directly. 2. With no person, thing, or distance intervening in time, space, order or succession; closely; proximately; directly. 3. Without any delay; instantly.

In considering the definition, it appears that there is more than one meaning of the word. On the one hand, it can be used to convey the intention of something taking place instantly. On the other hand, it can be used when the intention is that something follows closely or proximately. In the context of this case, does paragraph 44(1)(b) require that the 60 acres be farmland the instant prior to disposition or only that they be farmland closely or proximately in time before the disposition.

These alternatives suggest to me that the word" immediately", at least in the context of paragraph 44(1)(b), cannot be assumed to be clear and that some interpretation is necessary. Thus the principles derived from the Stubart, Golden, Bronfman and McClurg cases are useful in this case in considering the interpretation of paragraph 44(1)(b).

In this case there is evidence of an intention to develop the southwest quarter as early as 1978 and an intention to dispose of the land as early as August 15, 1979. Matilda Macklin's affidavit of August 15, 1979, indicates that on that date, when the land was still under cultivation, it was to be conveyed to the companies participating in the joint venture, Macklin Equities Ltd. and D. & B. Holdings Ltd. for development purposes. The evidence indicates that there were complications arising from I.V. Macklin, the registered owner, not being competent, the necessity to enter into a joint venture agreement, and other matters. It is apparent that converting land used in farming to land used for development is a long, costly and complicated process which involves the securing of financing, the obtaining of planning authority approvals, the construction of on- and off-site services, surveying, and probably other things. Similarly, disposition of land can be a long and complicated process as in this case, involving court applications, the formation of a joint venture, joint venture participants acquiring financing and so on. This all takes place over a period of time.

In many cases where there is to be a disposition of property in connection with its changed use, nothing would be done to change the character of the property until after the disposition. The vendor would normally want to be paid for the property before he allowed the purchaser to do anything with it. But this is not invariably the case. A purchaser could put up security satisfactory to a vendor that would induce the vendor to allow the purchaser on to the property to commence converting it to a different use prior to the actual conveyance taking place. There could be other cases where property might be put to an interim use or might sit idle over a temporary period before its disposition (instances referred to in Interpretation Bulletin 491 which I shall refer to shortly).

In this case, because the Macklins had dealt with Jack Durrant, a principal of D. & B. Developments Ltd., in the past and because they themselves, through a family holding company, would participate in the development joint venture, some work associated with development took place before and after the land was under cultivation and in any event before it was disposed of to the joint venture participants on April 11, 1980.

During argument, I asked counsel for the defendant whether with disposition taking place on April 11, 1980, it was necessary that the 60 acres in question be used for farming as of 11:59 p.m. on April 10, 1980, to enable Mrs. Macklin to avail herself of the relief provided by paragraph 44(1)(b). His response was that in its starkest form that is what the section requires. I explored other hypothetical with him. I asked whether, had the disposition taken place on November 15, 1979, about two weeks after the 60 acres was stripped, Mrs. Macklin would have been entitled to paragraph 44(1)(b) relief. I understand him to have allowed that as the examples placed the date of disposition closer and closer to the date when the character of the land changed from being farmland to development land, his case got weaker in a practical sense. I further asked what the mischief was that the word immediately” was required to remedy. As I understand the explanation, it was to ensure that taxpayers did not artificially defer recognition of capital gains by deferring dispositions and putting property to uses other than their former business use in the interim. I note that in this case there is no suggestion that Matilda Macklin was attempting to manipulate her affairs in any inappropriate manner. The defendant's position is that she has simply run afoul of the strict requirements of paragraph 44(1)(b).

As I understand the position of counsel for the defendant, it rests on the theory that a disposition must take place no later than the instant that the farmland had changed its character and had become development land. With respect, while the word" immediately” might connote such a strict approach in the abstract, this is what, in my opinion, the cases seem to indicate can be “a literal and virtually meaningless interpretation” that should be rejected "where the words will support on a broader construction a conclusion which is workable and in harmony with the evident purposes of the Act in question" (this reference to the dicta in Stubart Investments Ltd., supra, is intended to reflect on the very strict and narrow interpretation of paragraph 44(1)(b) which formed a basis of the argument of counsel for the defendant and not on his presentation which I considered articulate and impressive).

In my view, the word “immediately” in the context of paragraph 44(1)(b) is not intended to specify a time in terms of a specific instance. I am of the opinion that it appears in paragraph 44(1)(b) to ensure that where taxpayers attempt to avail themselves of the relief provided by the replacement property provisions, that they do so for bona fide purposes consistent with the spirit and object of the provision. I cannot accept that the word "immediately" is included to catch taxpayers if the sequence of the property changing character and the disposition of the property is not in a particular order. Nothin in the paragraph indicates, and no rationale was put forward to suggest, that the word immediately" is required to regulate the sequence of complicated steps that must be taken in such transitions. It seems to me to be unreasonable to expect taxpayers to ensure in all cases where they wish to avail themselves of the replacement property rules to defer recognition of capital gains, that disposition of property in connection with its development must take place before or, in any event, not one instant after the property changes in character from its prior business purpose, in this case farming, to the development purpose. That would not take account of the practical nature of transactions and particularly the transaction in this case. It would not reflect commercial and economic reality.

There is support for a broader interpretation in Interpretation Bulletin No. 491 dated November 3, 1982. This Interpretation Bulletin assists in the understanding of paragraph 44(1)(b).

I refer to the Interpretation Bulletin on the authority of references in Tax Court Practice 1992, by Robert McMechan and Gordon Bourgard, (Scarborough: Carswell, 1992), kindly provided to me by counsel for the defendant, where at pages 832 and 833 cases are cited which provide that interpretation bulletins are entitled to weight and can be an important factor in case of doubt in the meaning of legislation. On page 832, the case of Vaillancourt v. The Queen, [1991] 2 C.T.C. 42, 91 D.T.C. 5408, a decision of the Federal Court of Appeal, is cited where Décary, J. states at page 48 (D.T.C. 5412):

It is well settled that Interpretation Bulletins only represent the opinion of the Department of National Revenue, do not bind either the Minister, the taxpayer or the courts and are only an important factor in interpreting the Act in the event of doubt as to the meaning of the legislation . . . . Having said that, I note that the courts are having increasing recourse to such Bulletins and they appear quite willing to see an ambiguity in the statute — as a reason for using them — when the interpretation given in a Bulletin squarely contradicts the interpretation suggested by the Department in a given case or allows the interpretation put forward by the taxpayer. When a taxpayer engages in business activity in response to an express inducement by the Government and the legality of that activity is confirmed in an Interpretation Bulletin, it is only fair to seek the meaning of the legislation in question in that bulletin also. As Prof. Côté points out in The Interpretation of Legislation in Canada at page 446: “The administration's presumed authority and expertise is never more persuasive than when the judge succeeds in turning it against its author, demonstrating a contradiction between the administration’s interpretation and its contentions before the Court".

I therefore refer to Interpretation Bulletin 491. Sections 6 and 7 state:

Delays in the Disposition of Former Business Property

6. If a property that would otherwise qualify as a former business property is rented for a short period prior to its disposition, it is a question of fact as to whether or not the renting was simply an interim measure while bone fide attempts were being made to sell the property. If such is the case, the Department may accept that the status of the property as a former business property was maintained, subject to the rule in 3 above. [relating to rental property]

7. Likewise, if the property remained idle for a period of time while attempts were made to sell it, the Department would consider paragraph 44(1)(b) applicable provided the property otherwise qualifies as a former business property.

These two sections suggest that paragraph 44(1)(b) is to be interpreted having regard to the facts of each case and specifically that some dispositions may take place, in a strict sense, after use of the property in the former business had ceased. An example used during the course of argument in this case was that of a building housing a factory. If the owner wished to locate to new premises and there was a delay in disposing of the former factory building, the owner might either rent out the former premises or leave them idle pending a sale. A strict reading of the word “immediately” might lead to the conclusion that the factory had to literally be in operation up to the moment of disposition to allow the owner relief under paragraph 44(1)(b), i.e., that it was former business property the instant prior to disposition. However, the Interpretation Bulletin suggests that the relief provided by paragraph 44(1)(b) should not be denied a taxpayer where property is put to a different use than the former business use for transitional purposes prior to disposition. In the circumstances mentioned in the Interpretation Bulletin, the status of the property as former business property would be maintained. In other words, it would not be necessary that the use to which the property was being put the instant before the disposition in all cases was the former business use. This accounts for commercial reality while not opening the replacement property rules to unintended application. For the examples in the Interpretation Bulletin to be consistent with paragraph 44(1)(b), the word “immediately” must be capable of an interpretation broader than “instantly”, that is an interpretation connoting "closely" or "proximately". Otherwise, an interim renting of property or property sitting idle pending disposition would disqualify the taxpayer from availing herself of the replacement property rules.

In my opinion, the situation in this case is analogous to those referred to in Interpretation Bulletin 491. The period between October 27, 1979 and April 11, 1980, was an interim period during which development work was taking place in contemplation of disposition of the property to the joint venture participants. The stripping was done early because the spring flooding might result in delay. Mrs. Macklin’s affidavit of August 15, 1979 indicates that the disposition was intended even at that date. There was no evidence that disposition was delayed for reasons other than complications inherent in the various processes.

In my view, IT-491 supports an interpretation of the word immediately" that is workable and is in harmony with the purpose of the section and which allows for the recognition of all the events of the process in this case. Such interpretation allows the taxpayer relief under paragraph 44(1)(b) if a disposition follows closely and without delay, the time when the property was used in its former business purpose and when its use in this short period prior to disposition is associated with the disposition.

There was no evidence that there was an ulterior purpose in stripping the land on October 27, 1979. It was done because the land was susceptible to flooding in the spring. While the actual disposition did not take place until April 11, 1980, I am of the opinion that what was occurring in this period was all part of a continuous transitional process under which the land in question was to be converted from land for farming purposes to land for development purposes and to be disposed of to the participants in the joint venture. In this case Mrs. Macklin acquired replacement property. She appears to have had the intention of utilizing the provisions of section 44. I see no reason why paragraph 44(1)(b) should not be applicable in such circumstances.

If the defendant's position were correct Mrs. Macklin would be "caught out” simply because of the sequence in which the various steps were taken in proceeding with the development of the southwest quarter, i.e., stripping the land early to avoid the flooding period in the spring, and the complications involved in disposition. That is not a reasonable interpretation to place on the legislation nor a reasonable result.

I would therefore allow the plaintiff's claim. In view of my disposition of the matter, it is not necessary for me to deal with the interpretation of the word "primarily" in the definition of "former business property" in section 248 and its application to the facts of this case.

It was not absolutely clear to me whether the cost of the replacement property acquired by Mrs. Macklin was sufficient to defer the entire capital gain associated with the 60 acres. The plaintiff's counsel is therefore directed to prepare a formal order, seek agreement as to its form from counsel for the defendant and submit it to me for signature within one week of the date of these reasons for judgment. In the event directions are required, they may be obtained by way of conference call.

Appeal allowed.