Meritt Realty Co. Ltd. v. Brown, [1932] SCR 187

Supreme Court of Canada

Meritt Realty Co. Ltd. v. Brown, [1932] S.C.R. 187

Date: 1932-02-09

Merritt Realty Company Limited (Defendant) Appellant;

and

Charles R. Brown (Provincial Assessor) (Plaintiff) Respondent.

1932: February 3 ; 1932: February 9.

Present: Duff, Rinfret, Lamont, Smith and Cannon JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Taxation—Provincial income tax—Real estate company—All shares but two owned by one person—Profits of company—Whether accretions to capital or income.

A practising dentist incorporated a company with power inter alia to buy, hold and sell real estate and to carry on the business of real estate agents. He held all but two shares and he contended that his purpose was that the company manage his own property and control real estate for the investment of his own money, not for speculation. He conveyed his real estate property to the company in exchange for shares. These lands increased considerably in value and were sold at a profit. He contended that such profits were accretions to capital and not income made in the business of buying and selling real estate and, therefore, not subject to assessment as such.

Held that these profits were profits acquired in a scheme for profit making, which the appellant company was putting into effect as part of its business, and, therefore, were liable to assessment under the provincial Income Tax Act. Upon the facts of the case, the properties in which the company dealt were acquired for the purpose of turning them to account to the profit of the company, by sale, if necessary; and it had been verbally admitted that the possibility of turning its properties to account by selling them at a profit was contemplated by the company from the beginning. Ducker v. Rees ([1928] A.C. 127) and Anderson Logging Co. v. The King ([1925] Can. S.C.R. 49) applied.

APPEAL from the decision of the Court of Appeal for British Columbia[1], affirming the judgment of the Court of Revision at Vancouver, W. H. S. Dixon J., and confirming the assessment made by the respondent as provincial

[Page 188]

assessor of $15,242.18 as income tax for the years 1926, 1927 and 1929.

In 1919 Dr. Gilbert, a practising dentist, incorporated a private company with power inter alia to carry on the business of buying, holding, managing, and selling real estate. He claimed that he intended the company to control real estate for investment of his own money and the management of his own property, not for speculation. He conveyed certain real estate to the company in return for shares all of which except two belonged to him. He conveyed certain of his lands to the company which thereafter increased substantially in value and were sold at a considerable profit. The company bought other lands with the money and in this way dealt with the lands and property which it acquired, selling each time at a profit. The company claimed that these profits were accretions to capital and objected to pay income tax thereon. They were, however, assessed by the government for income tax and on appeal to the Court of Revision the judge upheld the assessment. From that judgment an appeal was taken to the Court of Appeal and the decision was affirmed.

R. S. Robertson K.C. for the appellant.

A. M. Harper for the respondent.

The judgment of the court was delivered by

DUFF J.—The principle of law governing this appeal is not in dispute or doubt. In Californian Copper Syndicate v. Harris[2], it was laid down that the test to be applied is whether the sum in dispute was "a gain made in an operation of business in carrying out a scheme.for profitmaking." That test was adopted by the Judicial Committee in Commissioners of Taxes v. Melbourne Trust, Limited[3], which decision was followed in this court in Anderson Logging Company v. The King[4], the decision of this court being subsequently affirmed by the Judicial Committee of the Privy Council[5]. The test was reaffirmed by the Houses of Lords in Ducker v. Rees[6].

I see no reason for disagreeing with the finding of the Court of Revision, affirmed by the Court of Appeal, that

[Page 189]

the profits in question were profits acquired in a scheme for profit-making, which the appellant company was putting into effect as part of its business. When the facts proved are taken into consideration, there seems to me no real ground for doubting that the properties in which the company dealt were acquired for the purpose of turning them to account to the profit of the company, by sale, if necessary. Indeed, I think it is virtually admitted that the possibility of turning its properties to account by selling them at a profit was contemplated by the company from the beginning. This, in itself, is sufficient to bring the case within the decision in Anderson Logging Company v. The King (1), as well as the judgment of Lord Buckmaster in Ducker v. Rees (2).

The appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Mackay & Fraser.

Solicitors for the respondent: Harper & Sargent.