Taylor,
T.C.J.:—These
are
appeals
heard
on
common
evidence
in
Calgary,
Alberta,
on
December
3,
1990,
against
income
tax
assessments
in
which
the
Minister
of
National
Revenue
rejected
the
claims
that
certain
real
properties
were
inventory"
of
the
appellants,
and
thereby
subject
to
the
provisions
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
dealing
with
"business
income"
and
the
"valuation
of
inventory”
at
the
end
of
the
fiscal
year.
The
appellants
relied
upon
subsections
10(1)
and
248(1)
of
the
Act.
The
details
of
the
transactions
leading
up
to
these
appeals
are
not
complicated.
In
essence,
the
appellants,
in
April
1984,
sold
a
motel
in
Medicine
Hat,
Alberta,
for
an
amount
of
$720,000,
which
they
had
operated
for
eleven
years.
As
part
of
the
consideration
in
that
sale
they
took
back
two
residential
properties
in
Medicine
Hat,
Alberta,
the
total
consideration
for
which
was
included
in
the
contract
as
$180,000.
The
20th
Avenue
property
was
shown
at
an
amount
of
$120,000
and
the
other,
the
16th
Avenue
property
at
$60,000.
At
the
trial,
the
parties
agreed
that
the
fair
market
value
at
December
31,
1984
was
$135,000
total.
It
was
pointed
out
by
counsel
for
the
respondent
that
even
though
he
had
no
disagreement
with
that
valuation
at
that
date,
it
was
his
view
that
it
had
no
bearing
on
the
appeal.
The
relevant
evidence
provided
to
the
Court
was
that
the
appellants
believed
the
properties
were
worth
the
amounts
shown
($120,000
and
$60,000)
at
the
time
of
acquisition;
that
the
16th
Avenue
property
was
rented
and
continued
to
be
rented
at
$375
per
month;
that
in
May
1984
they
rented
the
20th
Avenue
property
for
$550
per
month;
that
both
properties
had
been
listed
for
sale
in
April
1984
by
these
appellants
for
amounts
of
$107,000
and
$55,000
respectively;
that
the
16th
Avenue
property
finally
had
been
sold
in
1989
for
$58,000,
and
that
they
still
retained
the
20th
Avenue
property,
which
was
rented,
but
also
listed
for
sale,
but
now
at
a
much
lower
figure
than
the
$107,000
in
1984.
The
crucial
testimony
was
that
according
to
them
they
had
never
intended
to
keep
the
properties
for
rental
purposes,
but
had
(and
I
quote
from
the
notice
of
appeal)
the
"sole
intention
and
reason
for
acquiring
the
properties
was
their
immediate
resale”.
When
asked
by
the
Court
why
the
properties
had
not
been
sold
immediately
(April
1984),
the
witness
replied
that
there
was
no
market
for
them.
It
was
the
position
of
counsel
for
the
respondent
in
cross-examination
that:
"at
the
time
the
appellant
obtained
the
Residential
Properties
they
could
not
be
re-sold
at
a
profit
or
with
a
reasonable
expectation
of
a
profit.
.
.”.
Analysis
In
my
opinion,
the
simple
conclusion
is
that
the
appellants
in
order
to
consummate
the
deal
to
sell
the
motel,
agreed
to
amounts
of
value
to
be
attributed
to
the
real
properties
they
were
acquiring,
which
amounts
were
substantially
over-stated.
It
is
not
necessary
for
the
Minister
to
define
precisely
the
character
of
the
transaction
in
acquiring
the
properties—although
he
has
done
so
as
"rental
properties"—it
is
sufficient
for
the
Minister
to
challenge
the
appellants"
contentions
that
the
properties
were
acquired
as
“inventory”
in
a
"business".
It
is
then
for
the
appellants
to
show
that
the
facts
do
support
such
contentions.
In
order
to
accomplish
this,
the
appellants
must
show
that
the
elements
of
dealing
with
the
properties—acquisition,
holding
and
disposal
show
that
there
was
a"
reasonable
expectation
of
profit”.
There
was
no
need
for
the
respondent
to
make
reference
to
this
requirement
in
the
pleadings—it
is
an
axiomatic
outcome
of
the
appellants’
reliance
on
the
"business",
or
even
the
"adventure
in
the
nature
of
trade"
foundation
for
the
appeals.
Because
these
two
appellants
believed
or
hoped
for
whatever
reasons
that
they
could
make
a
profit
on
the
sale
does
not
change
the
result.
There
is
no
substantive
evidence
of
a
"reasonable
expectation
of
profit"
from
the
investment
of
$180,000
in
inventory—which
it
is
claimed
the
two
properties
represented.
There
was
no
prospect
that
rental
rates
of
$375
per
month
(16th
Avenue
property)
and
$550
per
month
(20th
Avenue
property)
would
produce
a
profit,
from
a
"rental"
operation
even
if
the
appellants
agreed
with
that
view.
There
is
further
no
basis
for
the
"business"
claim,
and
the
contention
that
the
$45,000
"inventory"
reduction
should
be
allowed
as
a
"trading"
loss
since
the
$180,000
as
a
purchase
could
not
be
used
to
produce
a
profit—any
sale
would
need
to
be
for
more
than
that,
and
the
evidence
is
that
there
was
no
market
even
at
a
lower
figure.
In
my
view,
these
appellants
were
very
well
informed
regarding
the
general
economic
and
property
conditions
in
Medicine
Hat
in
1984—they
had
been
in
the
”
rental
business”
(albeit
a
motel)
for
some
eleven
years,
they
also
owned
and
operated
a
farm
in
the
area,
and
there
had
been
several
months
of
negotiations
with
the
eventual
purchasers
of
the
motel,
leading
up
to
the
agreement
which
was
concluded.
As
I
see
it,
they
really
did
not
pay
the
amounts
of
$120,000
and
$60,000
which
were
included
in
the
agreement
for
the
sale
of
the
motel,
but
rather
these
amounts
fitted
into
the
total
structuring
of
the
sale
to
provide
some
of
the
elements
for
a
total
sale
price
of
$720,000.
Turning
to
the
other
point
raised
by
the
appellants,
the
parties
have
agreed
that
at
December
31,
1984
(about
eight
months
after
acquisition)
the
properties
were
only
worth
$135,000
and
the
appellants
therefore
claim
that
somehow
the
same
$45,000
($180,000
—
$135,000)
should
be
allowed
to
them
as
some
form
of
loss—it
was
not
specified
precisely
in
what
manner.
The
contention
of
counsel
for
the
appellants
is
that
the
$45,000
difference
actually
dates
back
to
the
agreement
of
sale
for
the
motel
in
April
1984,
that
is,
the
properties
were
only
worth
$135,000
at
that
time,
and
therefore
the
selling
price
of
the
motel
($720,000
according
to
the
contract)
should
be
reduced
to
$675,000,
and
corresponding
adjustments
made
in
the
gains
realized
and
reported.
In
response
to
that
counsel
for
the
respondent
asserted
that
any
”
loss"
on
account
of
capital
(the
assets
acquired
for
$180,000)
could
only
be
taken
into
account
if
and
when
the
properties
were
disposed
of,
not
as
part
of
the
sale
of
the
motel
transaction,
and
then
only
if
it
could
be
supported
that
the
properties
had
been
used
during
tenure
for
rental—at
a
reasonable
expectation
of
profit.
In
addition,
counsel
for
the
respondent
stated
that
there
was
no
valuation
information
available
to
the
Court
as
at
April
1984,
and
he
was
not
prepared
to
agree
that
$135,000,
or
any
other
amount,
was
more
appropriate
at
that
date
than
the
agreed
amount
of
$180,000.
I
agree
with
counsel
for
the
respondent
on
the
latter
point
also.
I
can
understand
the
appellants
not
providing
a
valuation
report
for
April
1984,
since
the
prospect
of
showing
a
value
of
only
$135,000
would
have
totally
undermined
their
primary
argument
that
the
properties
were
acquired
for
$180,000
with
the
intention
and
expectation
of
making
a
profit
on
sale—a
conclusion
which
I
have
rejected
above
in
any
event.
There
is
no
basis
in
the
evidence
provided
for
adjusting
the
transaction
of
selling
the
motel
at
$720,000,
since
that
transaction,
including
the
properties
valued
then
at
$180,000
stands
on
its
own
as
an
arm's
length
agreement,
with
the
attendant
income
tax
results.
One
of
the
properties
was
sold
in
1989
and
there
was
apparently
a
loss
(capital
it
would
seem)
on
that
sale,
and
the
appellants
may
be
entitled
to
consider
that
situation
when
filing
their
1989
returns.
But
those
are
not
our
problems
in
these
appeals
right
now.
I
would
also
add
that
this
matter
does
not
fit
within
the
ambit
of
section
68
of
the
Act,
and
the
comments
made
in
Tom
J.
Zeiben
v.
M.N.R.
(not
yet
reported)
since
there
is
no
"something
else”,
as
I
understand
it,
therefore
no
relief
arises
from
that
source.
There
is
no
basis
for
disturbing
the
assessments
struck
by
the
Minister.
The
appeals
are
dismissed.
Appeal
dismissed.
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