Conrad Lefebvre, Norman Lefebvre, Wilfred Lefebvre and Yvon Lefebvre v. Minister of National Revenue, [1991] 1 CTC 2185, 91 DTC 192

Mogan, T.C.J.:—The appeals of Conrad Lefebvre (84-2225), Norman Lefebvre (84-2226), Wilfred Lefebvre (84-2227) and Yvon Lefebvre (84-2228) were hêard together on common evidence. The appellants are four brothers who reside near Cold Lake in the Province of Alberta. In January 1980, the appellants agreed to sell in an arm's length transaction a parcel of land containing approximately 160 acres and identified as the south east quarter of section 13, township 63, range 2 west of the fourth meridian (referred to herein as the “subject land”). The appellants claim that they and their parents farmed the subject land until it was actually transferred to the arm's length purchaser in February 1981. The appellants further claim that they each purchased additional farm land in 1980 or 1981 as replacement property" within the meaning of subsection 44(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the "Act").

The only issue in these appeals is whether the subject land was, immediately before its disposition in 1980-81, a "former business property" of the appellants within the meaning of paragraph 44(1)(b) of the Act. At the commencement of the hearing, counsel for the parties agreed that there was no dispute concerning (i) the character of the replacement property purchased in 1980; (ii) the character of any relevant property as being capital or non-capital; or (iii) the computation of any amount relevant to the assessments under appeal. In a nutshell, the only dispute concerns the character of the subject land as a former business property of the appellants.

Former business property is defined in section 248 of the Act as follows:

“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,

(a) a rental property of the taxpayer,

(b) land subjacent to a rental property of the taxpayer,

(c) land contiguous to land referred to in paragraph (b) that is a parking area, driveway, yard or garden or that is otherwise necessary for the use of the rental property referred to therein, or

(d) a leasehold interest in any property described in paragraphs (a) to (c),

and, for the purposes of this definition, rental property" of a taxpayer means real property owned by the taxpayer, whether jointly with another person or otherwise, if the property was used . . .

Applying the above definition to the facts in these appeals, there is no question that the subject land was real property and not excluded by clauses (a), (b),

(c) or (d) of the definition. Also, the parties have agreed that it was capital property with respect to these four appellants. Combining the above definition with the words in paragraph 44(1)(b), what remains in dispute is whether the subject land was, immediately before its disposition, used by the appellants "primarily for the purpose of gaining or producing income from a business" and whether it was real property "of the appellants" during such alleged business use.

The first witness to testify was Antoine Lefebvre, the father of the four appellants, who was born at Cold Lake, Alberta in 1910. He never went to school but from an early age worked at farming, at fishing, in a lumber mill and as a carpenter. He worked for his father until 1938 when he started to acquire farming property to work on his own. In his first winter of commercial fishing (1936-37), he earned enough money to buy a quarter section of land and a team of horses. In 1937, he got married and started farming his uncle’s quarter section and his own quarter section side by side. His farming was the growing of different crops. For a number of years, he purchased a quarter section each year. He never inherited any land from his father but has owned quite a few quarter sections of land at various times during his adult life.

Antoine Lefebvre and his wife Florence had 13 children: five daughters and eight sons. On July 12, 1946, Antoine and Florence purchased the subject land from his brother Olivier for the sum of 700 dollars. Later, they purchased most of the northeast quarter of section 13, township 63, range 2 west of the fourth meridian which is the quarter section of land adjoining and directly north of the subject land. At the time of the subsequent purchase, an area comprising approximately 62.5 acres along the west limit of the northeast uarter had been sold to third parties. Therefore, Antoine and Florence acquired only 98 acres of the north east quarter which ! shall refer to as the " adjoining land”. Part of the north east quarter which had been sold to third parties was a 20-acre parcel in the north west corner which had been purchased by the Town of Cold Lake for a playground.

Antoine and Florence Lefebvre built a new home on the adjoining land where they raised their family. At various times, they gave a quarter section of land to each of their three oldest sons Louis, Victor and Edmond. Mr. Lefebvre stated that he and his children worked together at farming, fishing, logging and construction. Although he gave a quarter section of land to each of the three oldest sons in one sense, he thought that in another sense they had earned it. When Antoine and his family were attempting to farm the subject land and the adjoining land, their efforts were restricted to growing crops.

The above facts are only background for the issue before the Court. When filing their 1980 income tax returns, each of the appellants reported a capital gain of $571,430 with respect to the sale of the subject land but reduced the gain to nil by deducting a reserve under subsection 40(1) of the Act and the cost of ” replacement property" under subsection 44(1). When filing their 1981 returns, the reserve under subsection 40(1) was reduced to nil because the remainder of the selling price was paid in 1981 but the capital gain was significantly reduced by the cost of the replacement property. It is acknowledged that each of the appellants purchased in 1980 or 1981 farming lands which would qualify as "replacement property” within the meaning of subsection 44(1) if the subject land was a "former business property" used in a farming business.

The respondent reassessed the appellants on the basis that the subject land was not used by the appellants in their farming or fishing business and, at trial, the respondent argued that the subject land was not owned by the appellants during the relevant period of its alleged business use. It is therefore necessary to scrutinize the use and ownership of the subject land.

In evidence, Antoine Lefebvre described his wife and himself as being 50-50 in everything connected with their farm—owning the land and doing the work. They also expected their children from an early age to share in the regular and seasonal chores like seeding, haying, feeding cattle, harvesting, bringing hay from distant quarter sections of land and fishing before they could qualify for a commercial licence. These chores were done after school and on non-school days.

From 1962 to 1972 a portion of their land was dedicated tomink farming. They started with 100 female mink and worked up to 300 producing litters of three or four. At times, they had close to 2,000 mink and their fishing operation provided part of the food for the mink. They were forced out of the mink ranch business in 1972 when the price of a pelt fell to $1.50 at a time when it cost $10 to raise each mink. The appellants as young boys had worked particularly hard at the mink operation. They were born in the following years: Conrad 1951, Norman 1953, Wilfred 1958 and Yvon 1959. Antoine owed the bank $10,000 when he stopped the mink ranch and so he went to work as a carpenter for a few years. He also did contract combining for his neighbours. After 1972, the appellants helped their father with his combining contracts and continued to help with the home farming work.

The second and last witness was Conrad Lefebvre, the oldest of the four appellants. He stated that he and his three younger brothers were told in 1972 that they would get the subject land but that it was mortgaged to the bank as security for the $10,000 loan connected with the mink ranch. Therefore, it was in their interest to help pay off the bank loan to retain the subject land. In 1972, Conrad was 21 years old and wanted to leave the family home but he did not want to leave his parents in debt. Over the next two years, the $10,000 loan was paid off mainly from the proceeds of commercial fishing. Conrad got married in 1974.

Having given a quarter section of land to each of the three older sons, Antoine and Florence decided to give the subject land to the four appellants. There is no evidence as to the precise date when this decision was made but it appears to have been made between 1972 (when the mink operation ceased, Conrad being 21 and Yvon 13) and 1975 when the Land Titles Division of the Alberta Attorney General's office wrote to a lawyer in Bonnyville (near Cold Lake) stating that the subject land could not be subdivided into four parcels. The parents did not transfer the subject land into the names of the appellants as co-owners. The end result was that, through the 1970s, the subject land remained registered in the names of Antoine and Florence Lefebvre.

In late 1979, Yates Realty Services Ltd. (Yates") approached Antoine Lefebvre with a view to purchasing the subject land (158.8 acres) and the adjoining land (98.43 acres) on the basis that Yates would not purchase one parcel without the other. Antoine told Yates that they would have to bargain with the four appellants with respect to the subject land because it was theirs. In the resulting negotiations, Antoine and Florence agreed to sell the adjoining land for $22,000 per acre and the appellants agreed to sell the subject land for $2,382,000 based on a price of $15,000 per acre. Antoine participated in the discussions between Yates and the appellants when they negotiated the initial offer of $10,000 per acre up to $15,000 per acre but he stated that it was their land and their transaction.

On January 23, 1980, Antoine and Florence Lefebvre signed a transfer conveying the subject land to the four appellants for a stated consideration of "one dollar and natural love and affection”. On January 28, 1980, the four appellants signed a nine-page agreement with Yates providing for the sale of the subject land at a price of $2,382,000. Antoine explained the transfer to the appellants immediately before their agreement with Yates on the basis that it would not be proper to sell the subject land in his name if it was in fact their property. He and his wife did the transfer so that the appellants could actually oe the vendors to Yates. Title to the subject property remained in the names of the four appellants until February 9,1981 when the balance of the selling price was paid in full. The parents did not receive any part of the proceeds from the sale of the subject land. All of the selling price was retained by and divided equally among the four appellants.

I shall consider first the question as to ownership of the subject land. Was it necessary for the appellants to own the subject land in connection with their business use? The definition in section 248 commences with the following words: 'former business property' of a taxpayer means a capital property . . . that was real property or an interest therein of the taxpayer . . .”. [Emphasis added.] One has to ask if the words" of the taxpayer" imply ownership. Later in the same definition, the following words appear: '"rental property' of a taxpayer means real property owned by the taxpayer . . .”. These last quoted words are a clear indication that, within this definition, the words ‘’of the taxpayer" imply ownership. Therefore, a taxpayer is required to own capital property that was real property or an interest therein. And in these appeals, the appellants were required to own the subject land or an interest therein.

The appellants were legal and equitable owners of the subject land for only five days from January 23 to January 28, 1980. From and after January 28, Yates was the equitable owner by reason of the agreement of purchase and sale. Prior to January 23, Antoine and Florence were the legal owners and possibly equitable owners as well. The respondent submits that, if the appellants are to succeed in establishing their ownership of an interest in the subject land prior to January 23, 1980, they must overcome section 4 of the Statute of Frauds which requires a memorandum in writing signed by the parents, Antoine and Florence. There is no evidence of such memorandum and so counsel for the appellants advanced four arguments to overcome section 4 of the Statute of Frauds.

Firstly, the appellants claim that there was part performance resulting from their working the family farm after 1972 and helping to repay the $10,000 loan after the termination of the mink ranch. The evidence indicates that the three younger appellants continued to work with their parents through the 1970s and their ages in 1979 were: Norman 26, Wilfred 21 and Yvon 20. Also, Conrad stayed home and worked with the family until 1974 when he got married at the age of 23. Given the overall picture of a large family who stayed together and worked together until a mature son or daughter went out" into the world”, it is difficult for me to conclude that the efforts of the four appellants in the 1970s were referable to any promise or expectation concerning the subject land. Their efforts in the 1970s reflect a family pattern of co-operation. Antoine testified that all the children had chores which were performed after school, on weekends and on holidays; and that the mink ranch alone from 1962 to 1972 required the constant efforts of two of the children every day.

Considering the repayment of the $10,000 loan, both Antoine and Conrad testified that the loan was repaid by 1974 when the appellants’ ages were: Conrad 23, Norman 21, Wilfred 16 and Yvon 15. I have no doubt that the family worked together to pay down this loan which was regarded as a burden from the termination of the mink ranch. Antoine stated that in 1972 he went to work as a carpenter for a few years and did "combine work" for some of his neighbours. Conrad stated that the $10,000 mink debt was repaid from commercial fishing. He also stated that while he was growing up his father was a farmer and commercial fisherman. There was no evidence that any one of the appellants paid any specific amount to retire part or all of the $10,000 loan. Even if I could have concluded that the two older appellants (Conrad and Norman) had repaid part or all of the loan, there would be no basis for holding that such repayment was on behalf of all four appellants or was referable to a promise or expectation concerning the subject land. It would more likely have been part of the family philosophy for all to help get rid of a financial burden.

In the Law of Real Property by Anger and Honsberger, 2nd ed. (1985), the following statement appears at page 1087:

. . . the doctrine of part performance evolved on two parallel lines. First, equity would not allow a defendant successfully to plead the Statute of Frauds as a defence where the plaintiff had relied substantially on the defendant's promise. Secondly, the acts of reliance by the plaintiff were evidence that a contract between the parties in fact existed and should be enforced. It is a condition of the application of the doctrine of part performance that "the acts relied upon . . . must be unequivocally, and in their own nature, referable to some such agreement".

Throughout the 1970s, the family farm comprised the 98 acres of adjoining land to the north containing the farm house plus the 160 acres of the subject land to the south. The appellants’ conduct after 1972 of helping to work the family farm and to repay the $10,000 loan is equivocal in the sense that it could reflect the family tradition of all working together or it could reflect an expectation that the subject land would be gifted at some future time. I cannot conclude that such conduct was based unequivocally on the appellants’ reliance on their parents' promise of the subject land.

Secondly, the appellants claim that they are the beneficiaries of a resulting trust under which the parents held the subject land in trust for them after the promise made around 1972. The answer to this argument is found in Law of Trusts in Canada by Waters under the heading"The Resulting Trust Situations” where the author states:

A second essential characteristic is that the claimant (the would-be resulting trust beneficiary) must have“ provided the property or equitable interest vested in the person bound by the trust”, as Morrison J. said in Baird v. Columbia Trust Co. This means that either the claimant originally transferred the property in question to the alleged resulting trustee, or that the claimant supplied the whole or part of the purchase price when the property was bought from a third party and transferred into the alleged resulting trustee's name.

The appellants did not provide the property (i.e., subject land) which is the subject of the alleged resulting trust; nor did they provide all or part of the purchase price when Antoine and Florence first purchased the subject land. Therefore, there was no resulting trust with respect to the subject land.

Thirdly, the appellants claim that they are the beneficiaries of a constructive trust. In my view, there are no circumstances in these appeals under which Antoine and Florence would become, by force of law, constructive trustees toward the appellants. The parents did not take advantage of the appellants. To the contrary, the parents gifted the subject property to the appellants in favourable circumstances (i.e., an anxious prospective buyer) in January 1980. And if the parents had in 1977 sold the subject land to a stranger for their own gain, I cannot find any facts which would have justified the imposition of a constructive trust in favour of the four appellants.

And fourthly, the appellants claim that the actual conveyance on January 23, 1980 is proof of an earlier oral contract under which they would have acquired an equitable interest in the subject land. The actual conveyance in 1980 does not refer to any earlier agreement. In McDougall v. MacKay (1922), 64 S.C.R. 1; 68 D.L.R. 245, the trial judge had found that there was an oral agreement prior to the written one. In the circumstances of these four appeals, I find no evidence of a contract prior to January 23, 1980. There was at least one gratuitous promise around 1972-74 by the parents that the subject land would be given to the appellants but, in my view, it was no more than a gratuitous promise. The fact that the parents fulfilled their promise on January 23, 1980 does not mean that there was an earlier oral agreement concerning the subject land.

Having concluded that the appellants did not own a legal or equitable interest in the subject land when it might have been used by them in a family business, I could simply dismiss these appeals. I shall, however, consider briefly the question as to whether the appellants used the subject land in connection with a farming business.

Copies of the appellants’ income tax returns for the late 1970s were filed as exhibits. I examined the returns for the years 1977, 1978 and 1979 to see if there was any indication in those returns that the appellants were carrying on a farming business in the three years preceding the sale of the land. For the years 1977 and 1978, all four appellants filed returns showing (a) no indication that they were engaged in any kind of farming; and (b) a statement of fishing revenue and expenses under the name “Antoine Lefebvre & Sons” allocating the profit or loss from fishing equally among the father and the four appellants.

For 1979, there was no statement of revenue and expenses for the fishing operation but each appellant reported a modest profit from fishing on page one of his return. Norman, Wilfred and Yvon showed no indication that they were engaged in any kind of farming; and Conrad deducted a farm loss of $487.38 which was obtained by deducting gasoline and oil ($251.38) and machinery repairs ($236) from nil revenue. In summary, Norman, Wilfred and Yvon showed no indication of any kind of farming in the years 1977-78-79; and Conrad deducted a doubtful farm loss of $487.38 in 1979 after showing no farm activity in 1977 or 1978.

Having regard to the words in paragraph 44(1)(b) and the definition of “former business property” in the Act, the appellants have failed to persuade me that the subject land was, immediately before its disposition in January 1980, used by them” "primarily for the purpose of gaining or producing income from a business”. The subject land may have been used by the parents, Antoine and Florence, as part of their family farm operation but such use does not assist the appellants. In my view, these appeals must be dismissed because the appellants did not use the subject land in connection with any business, and they did not own it during the period when they might have used it for business purposes.

Appeal dismissed.