Domenico Tudino and Angela Tudino v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 3037

P.R. Dussault, T.C.C.J.:—These appeals were heard on common evidence; they concern reassessments for the appellants’ 1987 and 1988 taxation years.

In these reassessments, the notices of which are dated September 25, 1990, and October 10, 1990, for Mrs. and Mr. Tudino respectively, the Minister of National Revenue (the Minister") included in the appellants’ income equal shares of the profit realized on the sale of three apartment buildings which they disposed of during those two years, on the ground that these transactions resulted in income from a business and not capital gains, as they submitted in their returns.

In making these assessments, the Minister assumed, inter alia, the facts set out in paragraph 4 of the replies to the notices of appeal. I refer to that paragraph, as it appears in the reply to the notice of appeal for Mrs. Angela Tudino, which reads as follows:

4.(a) during the 1987 and 1988 taxation years, the appellant carried out several real estate transactions for which her share of the profit on the sale of the properties was considered to be income from a business. The details of these transactions are as follows:

Profit on sale

	1987	1988
— 3960 rue Eméry, Montreal	$19 ,080
North
— 554 rue Laurendeau, Repen-	$10,930
tigny
— 7110 rue Baunard, St-Léonard		$16,331
Income from a business	$30,010	$16,331

(b) during 1987, the appellant and her spouse, Domenico Tudino, purchased two buildings which they sold the same year: the properties located at 3960 rue Eméry and 554 rue Laurendeau, having kept these properties for only a few months;

(c) during 1988, the appellant and her spouse purchased another building, located at 7110 rue Baunard, which they kept for only a few months and resold the same year;

(d) these properties were resold quickly for no specific reason, other than to realize a profit on the sale;

(e) moreover, the appellant and her spouse kept these properties only for the periods of time set out below:

Property	Length of time owned
3960 rue Eméry	4 months
554 rue Laurendeau	2 months
7110 rue Baunard	4 months

(f) the appellant and her spouse resold these properties through a real estate broker, and in the case of the property located on rue Laurendeau they even obtained an offer to purchase only a month and a half after they had purchased it;

(g) when she disposed of these properties, the appellant personally realized the profits set out in subparagraph (a);

(h) when the appellant purchased these properties, she had the intention of selling them at a profit and the possibility of selling the properties at a profit was a determining reason the appellant considered at the time she acquired them;

(i) the appellant's profit from selling the properties constitutes income from a business;

(j) the taxable capital gains of $15,005 reported for 1987 and of $11,429 reported for 1988, and the capital gains deduction of the same amounts, were revised accordingly, based on the applicable provisions of the Income Tax Act.

[Translation.]

Paragraph 4 of the reply to the notice of appeal of Mr. Domenico Tudino is for all practical purposes identical and the amounts set out therein are also identical, but for one dollar, for 1988.

Mrs. and Mr. Tudino testified as to the circumstances surrounding these transactions as well as the 1989 purchase of another apartment building which they still own. Mr. Pierre Langlois, an auditor with Revenue Canada, also testified as to the reasons why he decided to make reassessments for the 1987 and 1988 taxation years.

I conclude from the evidence as a whole that these reassessments are wrong and that the appellants realized a capital gain, and not income from a business, in respect of each of the transactions carried out in relation to the apartment buildings in 1987 and 1988.

Despite the fact that the appellants carried out three transactions in a short period and that on each occasion the building that had been purchased was kept for only a short time and quickly put back up for sale, I believe that the overall conduct of the appellants is more consistent with the concept of investment than it is with the concept of a business or of speculation.

I find from their testimony that their primary intention was genuinely to make an investment to provide them with regular supplementary income and not a profit through quick resale of each of the buildings.

The secondary intention attributed to them, of purchasing in order to resell at a profit, can only be relevant, as the courts have often said, if the possibility of reselling at a profit was a determining reason for making the purchase. I do not believe that this was the case here.

In my view, each of the buildings was purchased in order to secure a source of stable income without too many problems. Faced with certain difficulties which they described in respect of each of the buildings, the appellants preferred to liquidate their investment while economic conditions were favourable and in order, on each occasion, to secure an investment which was more appropriate to their situation, their means and their requirements at the time. After a few experiments, they finally found the building that suited them and which they still own.

The mere thought that one might realize an investment in an advantageous manner if it is not suitable, or is no longer suitable, does not transform an investor into a speculator or a trader, nor the transaction itself, which is primarily a capital transaction, into a venture in the nature of trade.

This having been said, even though the distinction between a transaction which gives rise to a capital gain rather than to income from a business is well known, some circumstances are such that application of the distinction is pushed to the limit and that it is the relative weight attached to each of the various criteria which tip the balance slightly to one side rather than the other.

Here, the circumstances of this case fall quite close to this limit. It is the appellants’ sincerity and what I consider to be the credibility of their testimony which, despite other factors, and given the evidence as a whole, tip the balance in their favour.

For these reasons, the appeals of Mrs. Angela Tudino and Mr. Domenico Tudino are allowed and the assessments are referred back to the Minister for reconsideration and reassessments.

Appeal allowed.