McArthur
J.T.C.C.:
—
This
appeal
was
heard
in
Vancouver
under
the
Informal
Procedures
of
this
Court
with
respect
to
the
appellant’s
1992
taxation
year.
The
issue
is
whether
the
appellant’s
gain
on
the
sale
of
real
property
was
on
account
of
income
or
capital.
In
the
Reply
to
Notice
of
Appeal
paragraphs
13
and
14
read
as
follow:
13.
In
reassessing
the
appellant,
on
18
July
1994,
for
the
1992
taxation
year,
the
Minister
of
National
Revenue
(the
“Minister”)
deleted
the
taxable
capital
gain
and
included
in
the
appellant’s
income
the
profit
from
the
sale
of
the
Properties
calculated
as
follows:
Proceeds
(50%
of
total
proceeds):
$
68,500.00
Costs,
50%
of
total
cost
for
each
item:
Cost
of
land:
$32,500.00
Property
purchase
tax:
325.00
Appraisal
fee:
87.50
1990
legal
and
property
tax:
572.40
Drafting
design
services:
535.00
Interest
on
loans:
8,790.46
Legal
costs:
1,000.00
Property
taxes:
2,380.56
Total
Adjusted
Cost
Base:
$46,190.92
$46,190.92
Profit
from
sale:
$19,609.08
14.
In
response
to
a
Notice
of
Objection
filed
by
the
appellant
the
Minister
allowed
additional
legal
expenses
in
the
amount
of
$9,000
and
reassessed
the
appellant
on
23
March
1995
reducing
the
profit
from
the
sale
to
$10,609.08.
Facts
In
September
of
1990
the
appellant
took
title
to
vacant
parcels
of
land,
lot
1
and
lot
21
(Westsyde
lots).
The
purchase
price
of
$65,000
was
paid
for
from
the
proceeds
of
a
$65,000
mortgage
secured
on
the
principal
place
of
residence
of
the
appellant
and
Roy
Fraser.
After
the
failure
of
the
common-law
relationship
of
the
appellant
and
Roy
Fraser,
the
Supreme
Court
of
British
Columbia
held
in
an
Order
dated
April
20,
1993:
THIS
COURT
FURTHER
ORDERS
that
the
proceeds
from
the
sale
of
the
Westsyde
lots
presently
held
in
trust
by
the
law
firms
of
Mair
Jensen
Blair
and
Jensen,
Mitchell
&
Company,
belong
to
the
Plaintiff
and
the
Defendant
equally.
The
appellant
testified
that
to
complete
the
transaction
she
obtained
a
$65,000
loan
from
a
Credit
Union
where
she
was
the
credit
manager.
She
testified
further
that
the
residence
given
as
security
for
the
loan
was
registered
in
her
name
alone
and
that
she
paid
the
interest
on
the
loan
in
the
approximate
amount
of
$17,580.
Fraser
was
unemployed
when
the
lots
were
purchased
and
remained
without
work
for
most
of
the
period
the
$65,000
mortgage
was
outstanding.
The
loan
payments
were
automatically
withdrawn
by
the
Credit
Union
from
the
appellant’s
account.
The
appellant
stated
that
as
a
consequence
of
the
relationship
breakdown
and
an
unfavourable
change
in
appellant’s
financial
circumstance,
appellant
concluded
it
necessary
to
sell
the
investment
lots.
Property
taxes
for
the
investment
lots
were
outstanding
for
two
years.
On
October
13,
1992
appellant
obtained
a
Court
Order
which
ordered
the
investment
lots
be
sold.
Fraser’s
request
that
he
be
granted
a
60
day
exclusive
period
in
which
to
complete
a
sale
was
granted.
It
would
appear
that
the
two
lots
required
improvement
to
include
services
and
rezoning
or
amended
zoning
before
economic
construction
could
be
entertained.
The
appellant
did
not
present
any
compelling
arguments
to
satisfy
the
Court
that
the
lots
were
purchased
on
her
account
for
long
term
investment
purposes.
It
would
appear
that
Fraser
had
the
intention
of
subdividing
the
land,
to
be
sold
as
individual
building
lots,
although
there
was
no
direct
evidence
to
this
effect.
Position
of
the
appellant
The
sale
of
the
investment
lots
be
designated
a
capital
gain
transaction;
and/or
in
the
alternative,
appellant
be
entitled
and
receive
a
100
per
cent
deduction
for
all
of
the
relevant
expenses.
Position
of
the
respondent
The
appellant
undertook
a
venture
in
the
nature
of
trade
with
respect
to
the
properties
and
that
50
per
cent
of
the
net
profit
from
the
sale
should
be
included
in
her
income.
Analysis
The
Court
is
asked
to
decide
if
the
purchase
and
sale
of
the
two
properties
was
a
venture
in
the
nature
of
trade
or
on
account
of
capital.
Without
hesitation
I
conclude
that
the
transaction
was
a
venture
in
the
nature
of
trade.
The
appellant
purchased
the
property
with
her
then
partner
Fraser.
The
undeveloped
land
was
not
capable
of
producing
income.
The
appellant
had
borrowed
all
of
the
money
needed
for
the
purchase
and
after
separation
from
Fraser,
was
unable
to
make
the
interest
payments
on
the
borrowed
funds.
This
Court
is
satisfied
that
the
appellant
and
Fraser
intended
to
develop
the
properties
or
sell
lots
after
municipal
services
had
been
installed
and
suitable
zoning
was
effected.
It
is
not
sufficient
to
make
the
general
statement
to
the
effect
that
the
lands
were
purchased
as
an
investment
and
therefore
any
profit
upon
sale
is
on
account
of
capital.
In
Californian
Copper
Syndicate
Ltd.
v.
Harris
(1904),
5
T.C.
159
at
page
165
the
following
test
was
applied:
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
of
profit-making?
This
Court
is
satisfied
that
the
intention
of
the
appellant
and
her
partner
was
to
sell
the
lands
for
a
profit
after
certain
improvements
had
been
accomplished
such
as
municipal
services
and
change
in
zoning
by-laws.
I
accept
the
appellant’s
evidence
that
she
paid
all
of
the
interest
on
the
loans
made
to
purchase
the
lands
and
increase
the
“Interest
on
loans”
as
allowed
by
the
Minister
from
$8,790.46
to
$18,560.92.
The
accounting
in
paragraph
13,
page
3
of
the
Reply
to
the
Notice
of
Appeal
shall
therefore
be
amended
to
read
as
follows:
Proceeds
(50%
of
total
proceeds):
$68,500
Costs,
50%
of
total
cost
for
each
item:
Cost
of
land:
$32,500.00
Property
purchase
tax:
325.00
Appraisal
fee:
87.50
1990
legal
and
property
tax:
572.40
Drafting
design
services:
535.00
Interest
on
loans:
18,560.92
Legal
costs:
1,000.00
Property
taxes:
2,380.56
Total
Adjusted
Cost
Base:
$55,961.38
Profit
from
sale:
$12,538.62
The
appellant’s
purchase
and
sale
of
the
Properties
constitute
a
venture
in
the
nature
of
trade.
The
determination
of
the
Minister
of
National
Revenue
deleting
the
taxable
capital
gain
is
maintained.
The
appeal
is
allowed
to
increase
the
Interest
on
loans
permitted
by
the
Minister,
from
$8,790.46
to
$18,560.92
and
Adjusted
cost
base
to
$55,961.38
and
Profit
on
sale
to
$12,538.62.
Appeal
allowed.
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