Cullen,
J.:—This
is
an
application
by
way
of
statement
of
claim
appealing
the
Minister
of
National
Revenue's
reassessments
of
the
plaintiff's
1984
and
1985
taxation
years.
Background
The
plaintiff
is
a
businessperson
and
farmer
who
resides
in
Matsqui,
British
Columbia.
The
plaintiff's
son,
Cornelius
J.
Van
Dongen
(Casey)
was
at
the
relevant
time
a
businessperson
who
resided
in
Kamloops,
British
Columbia.
In
August
1982,
the
plaintiff
loaned
his
son
$400,000
for
business
purposes.
It
was
agreed
that
the
loan
would
be
repaid
by
1983,
with
interest.
In
1983
the
plaintiff
sought
repayment
of
the
loan.
At
that
time
his
son
could
not
repay
the
loan
and
the
plaintiff
instead
received
a
cheque
for
$15,000
and
the
transfer
of
Irving
Place
and
Happyvale
condominium,
two
properties
owned
by
Casey.
In
his
1984
tax
return,
the
plaintiff
claimed
a
business
loss
of
$122,456
arising
out
of
the
loan
transaction
with
his
son,
representing
the
difference
between
the
cost
of
the
properties
to
him,
and
their
purported
fair
market
value:
|
Cost
of
properties
|
$422,456
|
|
Fair
market
value
of
Irving
Place
|
$175,000
|
|
Fair
market
value
of
Happyvale
|
$125,000
|
|
Total
fair
market
value
|
$300,000
|
|
Profit
(Loss)
|
($122,456)
|
In
claiming
the
loss,
the
plaintiff
characterized
the
two
properties
as
"inventory".
The
plaintiff
then
deducted
the
loss
by
means
of
an
inventory
"writedown"
from
the
purported
$422,456
cost
to
the
claimed
$300,000
fair
market
value
pursuant
to
subsection
10(1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.S.C.
1970-71-72,
c.
63)
(the"Act").
The
Minister
disallowed
the
deduction
for
three
reasons:
(1)
the
properties
in
question
are
not
business
inventory
within
the
meaning
of
subsections
10(1)
and
248(1)
of
the
Act,
and
section
1801
of
the
Income
Tax
Regulations;
(2)
in
claiming
a
loss,
the
amounts
used
by
the
plaintiff
to
compute
the
loss
did
not
represent
the
fair
market
value
of
the
properties;
and
(3)
the
properties
were
not
acquired
in
an
arm's
length
transaction.
The
Irving
Place
property
was
the
personal
residence
of
the
plaintiff's
son,
who
continued
to
live
there
after
the
transfer
of
the
property
to
the
plaintiff.
The
defendant
reassessed
the
plaintiff
for
the
amount
of
$100,556,
which
was
determined
by
disallowing
the
$122,456
business
loss
and
allowing
a
deduction
for
interest
expense
of
$21,900
not
previously
claimed
by
the
plaintiff.
Issues
The
primary
issue
is
whether
the
plaintiff
has
incurred
a
loss
from
a
transaction
that
could
be
properly
classified
as
a
"business"
activity,
which,
if
so,
would
result
in
the
loss
being
characterized
as
non-capital
in
nature.
A
supplementary
issue
is
the
valuation
of
the
properties
in
question
depending
on
whether
or
not
they
are
considered
to
be“
inventory”.
Analysis
The
plaintiff
has
characterized
the
Irving
Place
and
Happyvale
properties
as
inventory".
Inventory"
is
defined
in
subsection
248(1)
of
the
Act
as
"a
description
of
property
the
cost
or
value
of
which
is
relevant
in
computing
a
taxpayer's
income
from
a
business
for
a
taxation
year".
The
characterization
of
these
properties
as
inventory
is
significant,
because
any
gain
or
loss
from
the
disposition
of
the
inventory
will
be
treated
as
business
income
or
loss
rather
than
a
capital
gain
or
loss.
Pursuant
to
subsection
3(d)
of
the
Act,
all
non-capital
losses
may
be
deducted
from
all
income
subject
to
tax.
In
contrast,
only
a
portion
of
capital
losses
is
deductible,
and
only
against
the
taxable
capital
gain
for
the
year.
This
is
a
result
of
the
wording
of
subsection
3(c)
and
the
definitions
of
“
taxable
capital
gain"
and
“
allowable
capital
loss”
found
in
section
38
of
the
Act.
Due
to
the
different
tax
treatment
accorded
to
non-capital
losses
and
capital
losses,
a
taxpayer
will
attempt
to
classify
the
transaction
from
which
the
transaction
arose
as
being
business,
or
otherwise
non-capital,
while
the
Minister
will
likely
characterize
the
loss
as
capital
in
nature
and
non-deductible.
(a)
Inventory
write-down:
After
having
classified
the
two
properties
as
business
inventory,
the
plaintiff
"wrote
down"
the
value
of
the
properties
from
their
purported
cost
to
the
purported
fair
market
value
pursuant
to
subsection
10(1)
of
the
Act.
Subsection
10(1)
reads
as
follows:
10.
(1)
For
the
purposes
of
computing
income
from
a
business,
the
property
described
in
an
inventory
shall
be
valued
at
its
cost
to
the
taxpayer,
or
its
fair
market
value,
whichever
is
lower,
or
in
such
manner
as
may
be
prescribed
by
regulation.
It
should
be
noted
that
both
the
definition
of
inventory
in
subsection
248(1)
and
the
valuation
provision
in
subsection
10(1)
refer
to
inventory
in
the
context
of
business.
In
order
for
the
plaintiff
to
qualify
for
the
inventory
write-down
in
subsection
10(1),
it
must
be
established
that
the
write-down
loss
was
incurred
in
the
course
of
carrying
on
a
business.
(b)
Identifying
income
of
loss
from
business:
The
question
of
whether
a
particular
loss
was
a
business
loss
is
a
mixed
question
of
law
and
fact
which
must
be
resolved
by
reference
to
both
statute
and
the
particular
circumstances
of
the
case.
The
term“
"business"
is
broadly
defined
in
subsection
248(1)
as
follows:
"business"—"business"
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatever
and,
except
for
the
purposes
of
paragraph
18(2)(c),
section
54.2
and
paragraph
110.6(14)(f),
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment.
The
case
law
on
the
issue
of
whether
a
particular
gain
or
loss
is
in
the
nature
of
business
or
capital
generally
hinges
upon
whether
the
profit
or
loss
in
question
was
the
result
of
an
investment,
in
which
case
it
is
capital,
or
if
the
transaction
was
speculative
in
nature,
with
the
property
having
been
acquired
with
the
intention
of
reselling
it
at
a
later
date.
If
the
property
was
acquired
with
the
intention
of
reselling
it
at
a
profit,
any
gain
or
loss
will
probably
be
considered
to
be
a
business
gain
or
loss.
If
the
property
was
acquired
as
an
investment,
any
gain
or
loss
on
resale
will
probably
be
considered
as
capital
in
nature.
A
demonstrated
intention
to
resell
at
a
profit,
however,
while
very
relevant
in
the
characterization
of
the
transaction
as
business
or
capital,
is
not
conclusive
of
the
issue.
As
was
held
in
M.N.R.
v.
Taylor,
[1956]
C.T.C.
189;
56
D.T.C.
1125
at
211-12
(D.T.C.
1137):
The
intention
to
sell
the
purchased
property
at
a
profit
is
not
of
itself
a
test
of
whether
the
profit
is
subject
to
tax
for
the
intention
to
make
a
profit
may
be
just
as
much
the
purpose
of
an
investment
transaction
as
of
a
trading
one.
Such
intention
may
well
be
an
important
factor
in
determining
that
a
transaction
was
an
adventure
in
the
nature
of
trade
but
its
presence
is
not
an
essential
prerequisite
to
such
a
determination
and
its
absence
does
not
negative
the
idea
of
an
adventure
in
the
nature
of
trade.
Therefore,
it
is
useful
and
necessary
as
well
to
examine
the
evidence
for
any
of
the
"badges
of
trade"
generally
associated
with
land
trading.
A
classic
statement
of
the
business/capital
distinction
is
found
in
the
case
of
Californian
Copper
Syndicate
Ltd.
v.
Harris
(1904),
5
T.C.
159
at
165-66:
It
is
quite
a
well
settled
principle
of
dealing
with
questions
of
assessment
of
Income
Tax,
that
where
the
owner
of
an
ordinary
investment
chooses
to
realize
it,
and
obtains
a
greater
price
for
it
than
he
originally
acquired
it
at,
the
enhanced
price
is
not
profit
in
the
sense
of
Schedule
D
of
the
Income
Tax
Act
of
1842
assessable
to
Income
Tax.
But
it
is
equally
well
established
that
enhanced
values
obtained
from
realization
or
conversion
of
securities
may
be
so
assessable,
where
what
is
done
is
not
merely
a
realization
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out,
of
a
business.
The
simplest
case
is
that
of
a
person
or
association
of
persons
buying
and
selling
lands
or
securities
speculatively,
in
order
to
make
gain,
dealing
in
such
investments
as
a
business,
and
thereby
seeking
to
make
profits
.
.
.
What
is
the
line
which
separates
the
two
classes
of
cases
may
be
difficult
to
define,
and
each
case
must
be
considered
according
to
its
facts;
the
question
to
be
determined
being—Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realizing
a
security,
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit
making?
The
most
important
factor
to
be
established
in
such
cases
is
the
intention
of
the
taxpayer
at
the
time
the
property
was
acquired:
Sutton
Lumber
and
Trading
Co.
v.
M.N.R.,
[1953]
2
S.C.R.
77;
[1953]
C.T.C.
237;
53
D.T.C.
1158
(S.C.C.);
Becker
v.
The
Queen,
[1983]
C.T.C.
11;
83
D.T.C.
5032
(F.C.A.).
Evidence
of
intention
is
not
limited,
of
course,
to
the
taxpayer's
sworn
testimony,
but
can
be
deduced
objectively
from
the
taxpayer's
whole
course
of
conduct
viewed
in
light
of
all
the
circumstances:
Cragg
v.
M.N.R.
(1952),
3
Tax
A.B.C.
203;
52
D.T.C.
1004.
Adventure
in
the
Nature
of
Trade
The
plaintiff,
a
farmer,
is
not
involved
in
a
business
that
would
normally
trade
land
and
thus
require
an
inventory
of
land,and
this
is
an
isolated
transaction.
Generally,
a
trade
involves
some
continuity
of
business
operations.
As
was
stated
in
C./.R.
v.
Livingston
(1926),
11
T.C.
538
at
542:
.
.
.
a
single
transaction
falls
as
far
short
of
constituting
a
dealer’s
trade,
as
the
appearance
of
a
single
swallow
does
of
making
a
summer.
The
trade
of
a
dealer
necessarily
consists
of
a
course
of
dealing,
actually
engaged
in
or
at
any
rate
contemplated
and
intended
to
continue.
However,
it
is
not
necessary
that
one
operate
a
business
in
the
traditional
sense
of
a
going
concern
to
qualify
a
loss
as
a
business
loss.
The
definition
of
business
in
subsection
248(1)
includes
the
concept
of
an
''adventure
in
the
nature
of
trade".
An
adventure
in
the
nature
of
trade
involves
an
isolated
transaction
only:
Ward
v.
The
Queen,
[1988]
1
C.T.C.
336;
88
D.T.C.
6212.
However,
the
isolated
nature
of
the
transaction
by
itself
is
not
enough
to
conclude
that
it
is
an
adventure
in
the
nature
of
trade:
M.N.R.
v.
Taylor,
supra.
In
a
number
of
cases
in
which
an
inventory
write-down
of
real
estate
was
claimed,
the
deduction
was
allowed
on
the
basis
that
the
transaction
was
an
adventure
in
the
nature
of
trade.
The
general
principles
used
in
characterizing
a
transaction
as
an
adventure
are
found
in
Interpretation
Bulletins
IT-459
and
IT-218.
(See
also
M.N.R.
v.
Taylor,
supra,
and
Tara
Exploration
and
Development
Co.
v.
M.N.R.,
[1970]
C.T.C.
557;
70
D.T.C.
6370
at
563-64
(D.T.C.
6374-76).)
The
Evidence
at
Trial
The
two
key
witnesses
at
the
trial
were
the
plaintiff's
son,
Cornelius
J.
Van
Dongen
(Casey)
and
the
plaintiff
himself.
It
was
a
treat
to
hear
evidence
straightforwardly
given
and
lacking
in
any
evasiveness.
Also,
it
was
very
clear
that
there
was
much
trust,
respect
and
affection
between
these
two
men.
Unhappily,
however,
their
evidence
did
not
make
the
case
alleged
in
the
statement
of
claim,
namely
that
the
properties
qualify
as
inventory
and
there
is
a
business
loss
within
the
meaning
of
the
Income
Tax
Act.
Casey
at
all
material
times
was
a
general
contractor,
building
houses
and
apartments.
He
built
his
own
home
at
955
Irving
Place,
Kamloops,
B.C.
and
had
resided
there
since
1978.
Also,
Casey
built
a
condominium
project
known
as
1616
Happyvale
(Happyvale)
in
Kamloops.
This
latter
property
was
to
be
a
10-
unit
MURB
townhouse
which
he
started
in
1981.
Casey's
company
was
Total
Concept
Developments
Ltd.,
which
company
was
to
build
the
Happyvale
building
and
sell
it
as
a
completed
development
for
a
profit.
It
was
hoped
that
Happyvale
would
be
started
in
December
1981
and
completed
in
May
1982
pursuant
to
a
sale
made
in
December
1981.
This
project
was
to
be
sold
to
a
Kamloops
businessman,
Ron
Fawcett,
for
$750,000.
Casey
had
trouble
getting
interim
financing,
"was
forced
to
abandon
the
deal”
and
had
to
relinquish
the
down
payment.
(Casey
blames
this
on
the
fact
that
he
and
Fawcett
dealt
with
the
same
branch
of
the
Royal
Bank,
Fawcett
wanted
out
making
it
impossible
for
Casey
to
get
the
financing).
He
was
forced
to
abandon
construction
in
about
February
1982.
At
page
37
of
the
transcript
he
states:
A.
At
the
end
of
February
we
had
some
of
the
foundations
in.
We
had
started
some
of
the
framing
and
we
had
sub-trades
working
on
the
project
in
anticipation
of
meeting
the
May
completion.
As
part
of
releasing
the
purchaser,
I
had
been
promised
some
interim
financing
from
the
Royal
Bank
in
the
amount
of
$50,000,
and
this
was
given
by
my
local
account
manager
in
Kamloops.
Q.
Okay.
Were
those
funds
in
fact
advanced?
A.
No.
In
the
middle
of
March,
when
I
started
pressing
for
these
funds,
and
I
was
informed
that
Vancouver
turned
down
any
request
for
further
funds
on
this
project.
Casey
then
followed
several
avenues
to
sell
or
unload
on
an
"as
is"
basis,
plus
working
on
several
other
houses.
He
also
sought
alternate
sources
of
interim
financing.
There
is
no
question
on
the
evidence
that
Casey
was
what
he
purported
to
be—a
"business
that
bought
lots,
built
houses
and
selling
them
on
a
completion
basis”.
This
was
not,
however,
his
father's
business.
A
proposed
trade
for
the
Belchum
Ranch
in
Merritt
(the
ranch)
would
have
involved
Happyvale
and
Irving
Place
and
provided
his
father
(the
plaintiff)
and
the
rest
of
the
family
an
improved
opportunity.
The
deal
fell
through
but
even
if
it
had
succeeded
it
was
clearly
Casey's
deal,
an
attempt
to
get
out
from
under
the
problem
chiefly
with
the
Happyvale
project
and
not
just
the
fact
it
would
produce
a
"compatible
operation"
(page
39
of
the
transcript).
Casey
wanted
to
refinance
with
some
other
bank
and
pay
off
the
Royal
Bank.
At
page
40
of
the
transcript
he
states:
Q.
Okay.
Just
pausing
for
a
moment
then.
You're
referring
to
titles
and
that
that
the
Royal
Bank
had.
What
titles
did
they
have?
A.
They
had
a
mortgage
on
the
condominium
property
of
$85,000.
They
had
the
title
to
what
was
then
my
personal
residence
as
collateral
for
a
line
of
credit,
and
they
had
numerous
other
personal
guarantees
and
I'm
not
exactly
sure
what
I
all
signed
over
the
years
with
the
Royal
Bank.
Casey
did
not
have
the
benefit
of
the
Fawcett
deal
that
would
have
grossed
$750,000
and
so
was
left
with
the
debts.
One
source
of
funds
would
have
been
the
ranch
if
that
deal
had
gone
through.
Page
41
of
the
transcript:
We
worked
with
the
Bank
of
Montreal
on
that
until
just
about
the
end
of
August,
and
because
it
involved
a
ranch,
which
I
was,
you
know,
hoping
to
gain
some
income
off
through
my
father
and
things
like
this,
.
.
.
Thus
Casey
was
dealing
to
get
the
ranch
for
himself
with
his
family
leasing
and
giving
him
income.
This
was
not
the
plaintiff's
deal
in
anyway.
When
Casey
heard
that
the
Royal
Bank
was
going
to
garnishee
moneys
he
had
earned
on
government
contracts,
he
"felt
I
had
no
other
choice
but
to
get
out
of
Royal
Bank
.
.
.”
(page
41
of
transcript).
Under
this
financial
pressure
Casey
asked
his
father
"if
he
would
lend
me
the
money
to
get
out
of
Royal
Bank”.
The
plaintiff
loaned
Casey
$400,000
and
$50,000
was
advanced
to
clear
some
liens
on
the
condominium
property,
plus
giving
Casey
a
little
working
capital.
The
$350,000
was
to
be
used
to
pay
off
the
Royal
Bank.
With
the
payment
to
the
Royal
Bank
all
title
documents
and
personal
guarantees
were
sent
to
Casey's
lawyer.
The
$350,000
or
the
$400,000
was
borrowed
by
the
plaintiff
from
the
Bank
of
Montreal
at
an
interest
rate
in
excess
of
15
per
cent.
This
money
was
loaned
to
Casey
by
the
plaintiff
at
an
interest
rate
of
ten
per
cent.
Of
significance
also
is
the
fact
that
the
plaintiff
apparently
had
every
confidence
that
his
son
would
repay
the
loan
and
never
sought
or
received
any
security
nor
even
a
promissory
note.
It
was
the
Bank
of
Commerce,
sometime
later,
that
advised"
the
plaintiff
that
he
should
get
title
to
the
properties
as
security
for
his
loan
to
Casey.
Transcript
at
page
42:
The
Court:
The
bank
wanted
security
for
.
.
.
wanted
the
properties
for
security.
Was
this
money
that
your
father
had
got
from
them
and
advanced
to
you,
or
was
this
money-.
.
.
A.
Yeah,
this
was
money
that
my
father
had
got
from
the
Bank
of
Commerce
and
they
felt
he
should
have
some
security
from
me.
[Emphasis
added.]
and
later,
at
page
44:
Mr.
Heinrich:
Q.
Okay.
And
did
you
have
any
discussion
with
your
father
as
to
what
you
were
going
to
do
about
that?
A.
Yes.
Well,
we
were
continuing
to
try
to
sell
it
and
that
was
always
my
intent.
We
felt
that
the
only
way
to
handle
it
then
was
for
us
to
sell
him
the
properties
that
we
had
and
transfer
the
title
and,
you
know,
then
he
would
be
fully
secure.
And
so
we
took
a
look
at,
you
know,
what
we
had
to
offer
in
satisfaction
of
the
debt,
and
the
two
main
components
at
that
time
were
my
house
and
the
condominium
.
.
.
[Emphasis
added.]
And
on
and
on
it
goes
because
this
was
not
really
a
transfer
of
title
to
the
plaintiff
but
a
means
of
securing
Casey's
debt
while
Casey,
as
he
describes
it
at
page
44
of
transcript,
A.
And
we
felt
that
with
that
100,000
that
I
could
finish
some
of
the
units
in
the
condominium
complex
and
the
common
site
work
in
satisfaction
of
that
debt,
and
that's
what
we
did.
That's
what
was
agreed
on.
What
could
be
clearer,
and
all
this
evidence
was
given
in
chief
by
Casey.
The
plaintiff's
evidence
provides
no
contradiction
of
Casey
and
in
fact
supports
his
son's
testimony
right
down
the
line.
The
plaintiff
did
not
seek
security
and
even
when
he
had
received
"title"
he
was
simply
waiting
for
Casey
to
be
in
a
position
to
pay
off
the
loan
at
ten
per
cent
interest
and
whatever
deals
Casey
made
were
of
little
or
any
interest
to
the
plaintiff.
He
just
wanted
to
get
his
money
back
and
was
not
interested
in
owning
either
Happyvale
or
Irving
Place.
It's
true
that
Casey
paid
$400
a
month
rent
for
Irving
Place
but
even
that
figure
was
established
by
Casey.
Comments
In
the
case
at
bar,
the
plaintiff
did
not
acquire
the
real
property
in
question
with
the
intention
of
reselling
it
for
a
profit.
Rather,
he
acquired
the
property
to
protect
the
investment
he
had
in
the
loan
he
had
made
to
his
son.
A
similar
issue
was
considered
in
Bailey
v.
M.N.R.,
[1990]
1
C.T.C.
2450;
90
D.T.C.
1321
(T.C.C.).
In
that
case,
the
taxpayer
was
an
investor
in
real
estate.
The
taxpayer
and
his
wife
purchased
an
unfinished
MURB
in
1981.
Due
to
problems
in
construction,
however,
the
property
was
totally
unsatisfactory
for
their
purposes
and
had
to
be
sold.
The
property
was
sold,
with
a
mortgage
back
to
the
taxpayers.
However,
in
order
to
close
the
deal,
it
was
necessary
for
the
taxpayer
to
purchase
a
piece
of
farmland
from
third
parties
who
had
dealings
with
the
purchasers
of
the
MURB.
The
purchasers
of
the
MURB
defaulted
on
their
mortgage
payments
to
the
taxpayer
and
his
wife,
and
the
taxpayer
reacquired
the
property
upon
foreclosure.
The
taxpayer
testified
at
trial
that
their
intention
upon
foreclosing
on
the
MURB
was
to
resell
it
for
a
profit
and
not
to
retain
it
as
an
investment.
After
they
had
reacquired
the
MURB
the
taxpayer
was
still
unable
to
sell
it
or
the
farmland,
and
thus
in
1983
decided
to
deduct,
as
a
business
loss,
an
inventory
write-down
on
the
MURB
and
the
farmland.
The
Minister
disallowed
the
deduction
and
the
taxpayer
appealed.
The
appeal
was
allowed
in
part.
With
respect
to
the
MURB,
it
was
held
that
the
property
had
been
acquired
for
the
purposes
of
capital
cost
allowance
and
as
a
general
investment.
It
was
not,
as
the
taxpayer
asserted,
a
business
or
an
adventure
in
the
nature
of
trade.
This
was
clearly
demonstrated
by
the
fact
that
the
profit
on
the
original
disposition
of
the
MURB
had
been
reported
as
a
capital
gain.
Rip,
T.C.J.
was
also
not
convinced
of
the
taxpayer's
assertion
that
the
MURB
had
been
reacquired
by
foreclosure
with
the
intention
of
reselling
the
property.
Rather,
the
motivation
of
the
taxpayer
in
foreclosing
was
the
protection
of
his
economic
interest
in
the
property.
While
a
sale
may
have
been
necessary
upon
reacquisition,
the
Court
held
that
the
property
had
not
been
acquired
for
resale
in
a
trade
or
an
adventure
in
trade.
An
analogy
could
be
drawn
between
the
taxpayer
in
Bailey
foreclosing
to
protect
his
economic
interest,
and
the
plaintiff
in
the
case
at
hand
acquiring
the
properties
to
protect
his
exposure
to
his
son's
default.
It
could
be
persuasively
argued
that
in
neither
case
were
the
parties
acquiring
the
property
with
an
intention
to
resell,
but
only
to
protect
their
investments.
In
so
holding
in
the
Bailey
case,
Rip,
T.C.J.
put
considerable
emphasis
on
the
fact
that
the
MURB
was
heavily
mortgaged
and
the
taxpayer
was
personally
liable
on
the
mortgage.
In
the
case
at
hand
the
transfer
of
the
properties
was
the
only
realistic
chance
of
the
plaintiff
recovering
his
investment.
Clearly
the
judge
in
the
Bailey
case
was
influenced
by
the
previous
treatment
of
the
MURB
as
a
capital
asset
by
the
taxpayer,
which
is
a
distinguishing
factor
from
this
case.
However,
any
lack
of
capital
treatment
of
the
two
properties
in
this
case
does
not
change
the
likely
intention
of
the
plaintiff
in
acquiring
the
property.
The
judge
also
noted
that
there
was
no
evidence
before
the
Court
as
to
what
price
the
MURB
would
have
commanded
in
the
period
after
the
foreclosure,
when
the
taxpayer
claimed
he
wanted
to
sell
the
property,
and
thus
could
not
conclude
that
there
was
any
reasonable
likelihood
of
a
profit
on
any
sale.
In
Gillis
v.
The
Queen,
[1978]
C.T.C.
44;
78
D.T.C.
6103
(F.C.T.D.),
it
was
held
that
in
order
for
an
undertaking
to
be
considered
a
business,
it
must
be
carried
on
with
a
reasonable
expectation
of
profit.
Evidence
of
this
type
had
to
be
looked
at
during
the
trial
to
substantiate
any
claim
that
the
plaintiff
might
make
of
holding
the
property
for
resale
as
an
adventure
in
the
nature
of
trade.
None
was
forthcoming.
With
respect
to
the
farmland,
however,
the
deduction
was
allowed.
The
farmland,
unlike
the
MURB,
had
not
been
acquired
as
an
investment,
but
rather
to
facilitate
the
sale
of
the
MURB.
Furthermore,
the
farmland
was
located
in
an
area
that
was
the
focus
of
a
great
deal
of
land
speculation.
Rip,
T.C.J.
accepted
the
testimony
of
the
taxpayer
that
they
did
not
intend
to
hold
the
farmland
as
a
capital
asset,
but
rather
had
acquired
the
property
on
speculation
for
resale
at
a
profit.
The
judge
accepted
that
the
acquisition
of
the
farmland
constituted
the
first
step
of
an
adventure
in
trade,
with
the
final
step
of
disposition
yet
to
occur.
Rip,
T.C.J.
made
these
findings
without
evidence
of
the
intention
of
the
taxpayer
to
subdivide
or
otherwise
market
the
land,
or
evidence
of
whether
the
taxpayer
would
sell
if
a
certain
price
could
be
obtained.
I
had
listened
very
carefully
for
any
evidence
in
this
case
which
might
strengthen
any
claim
of
the
plaintiff
to
have
been
involved
in
a
business
venture.
There
was
none.
Having
concluded
that
the
farmland
was
acquired
in
an
adventure
in
trade,
Rip,
T.C.J.
concluded,
after
a
detailed
examination
of
the
statutory
provisions,
that
property
which
is
the
subject
of
an
adventure
in
trade
could
also
be
considered
inventory.
The
judge
dismissed
the
arguments
of
the
Minister
who
argued
that
in
interpreting
subsection
10(1),
Parliament
could
only
have
intended
inventory
to
describe
property
held
for
sale
in
the
course
of
carrying
on
a
business,
i.e.,
where
there
is
a
continuity
of
operations
and
not
an
isolated
transaction.
The
judge
noted
that
the
definition
of
business
in
the
Act
includes
an
adventure
in
the
nature
of
trade,
except
for
certain
specific
exceptions.
Presumably,
if
Parliament
had
intended
that
inventory
not
be
covered
with
respect
to
adventures,
it
would
have
included
subsection
10(1)
in
the
list
of
statutory
exceptions.
Thus,
there
was
no
reason
why
the
farmland
could
not
be
described
as
inventory,
for
subsection
10(1)
directs
that
a
property
be
valued
"for
the
purpose
of
computing
income
from
a
business”.
In
Weatherhead
v.
M.N.R.,
[1990]
1
C.T.C.
2579;
90
D.T.C.
1398
(T.C.C.),
the
taxpayer
acquired
three
pieces
of
real
estate.
The
taxpayer
attempted
to
deduct
an
inventory
write-down
with
respect
to
the
property
in
his
returns
for
1982-84.
The
Minister
disallowed
the
deductions,
and
the
taxpayer
appealed.
Teskey,
T.C.J.
held
that
each
piece
of
property
had
been
acquired
as
an
adventure
in
the
nature
of
trade.
The
properties
had
been
acquired
on
the
facts
with
the
intention
of
making
a
profit
upon
resale,
with
particular
emphasis
laid
on
the
speculative
nature
of
the
transactions,
the
fact
that
the
taxpayer
was
an
experienced
real
estate
speculator,
and
the
detailed
plans
that
the
taxpayer
had
for
the
development
and
resale
of
the
properties.
The
judge
cited
Bailey,
supra,
in
support
of
his
conclusion
that
the
taxpayer
was
entitled
to
inventory
the
properties
at
the
lower
of
their
cost
or
fair
market
value.
In
Gilmour
v.
M.N.R.,
[1989]
2
C.T.C.
2454;
89
D.T.C.
659
(T.C.C.),
the
taxpayer
purchased
a
vacant
lot
with
the
sole
intention
to
resell
it
as
quickly
as
possible,
as
stated
in
the
agreed
statement
of
facts.
He
attempted
to
sell
the
property,
but
was
unsuccessful
for
three
years.
In
1985,
the
property
had
a
fair
market
value
of
$22,000,
but
the
total
cost
to
the
taxpayer,
including
mortgage
interest,
was
$58,799.
Rather
than
deduct
the
mortgage
interest
under
subsection
18(2)
on
a
current
basis,
the
taxpayer
attempted,
by
way
of
inventory
writedown,
to
deduct
the
difference
of
$36,799.
The
deduction
was
disallowed.
On
appeal,
the
case
was
dismissed.
Taylor,
T.C.J.
held
that
by
adding
to
the
original
cost
the
carrying
costs
of
interest,
the
taxpayer
treated
the
land
as
a
capital
asset
and
not
inventory.
The
judge
further
held,
citing
M.N.R.
v.
Taylor,
supra,
that
the
intention
to
sell
at
a
profit
is
not
by
itself
sufficient
to
conclude
that
a
transaction
has
a
business
as
opposed
to
a
capital
nature,
although
its
presence
can
be
an
important
factor
in
concluding
that
a
transaction
was
an
adventure
in
the
nature
or
trade.
An
interesting
aspect
of
this
case
was
the
Minister's
position
that
an
inventory
write-down
under
subsection
10(1)
is
not
available
for
land
held
as
an
adventure
in
the
nature
of
trade.
In
dismissing
the
appeal,
Taylor,
T.C.J.
stressed
that
the
dismissal
did
not
signal
approval
of
the
Minister's
position.
The
later
Bailey
case
appears
to
have
settled
the
issue
that
land
held
as
an
adventure
in
the
nature
of
trade
is
eligible
for
inventory
write-down.
Conclusion
The
plaintiff
has
clearly
been
unable
to
establish
that
the
properties
qualify
as
inventory,
giving
a
business
loss
within
the
meaning
of
the
Act.
No
evidence
along
the
lines.
of
what
was
pointed
out
in
Bailey,
supra,
was
presented
to
substantiate
the
claim.
It
was
obvious
from
the
plaintiff's
own
evidence
and
that
of
his
son
Casey
that
there
was
no
intention
by
the
plaintiff
to
resell
the
properties
or
otherwise
deal
with
them
in
a
business-like
manner.
The
properties
held
by
the
plaintiff
were
held
to
secure
a
loan,
and
if
the
plaintiff
got
his
money
back
at
ten
per
cent
interest
the
paper
title
would
revert
to
the
son
or
to
a
purchaser,
and
Casey
would
keep
any
profit.
Accordingly,
the
action
is
dismissed
with
costs
to
the
defendant.
Appeal
dismissed.
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