Kempo,
T.C.C.J.
(orally):—
This
general
procedure
appeal
concerns
the
appellant's
1987
taxation
year
and
arises
in
respect
of
the
taxability
of
his
sale
of
a
single
family
residence
located
at
3721-Sixth
Street,
Ottawa,
Ontario
which
the
Minister
of
National
Revenue
(the"Minister")
assessed
as
a
transaction
on
account
of
income.
The
appellant
urges
that
the
profit
on
its
sale
is
properly
on
account
of
capital
as
reported.
This
property,
for
the
sake
of
clarity,
will
hereafter
be
referred
to
as
the
“lot
1
property".
The
basic
approaches
of
each
party
to
this
appeal
are
outlined
in
the
pleadings
as
filed.
Clauses
1
to
4
inclusive
of
the
reply
to
notice
of
appeal
read:
1.
He
denies
all
allegations
of
fact
contained
in
the
notice
of
appeal,
except
as
expressly
admitted.
2.
In
computing
income
for
the
1987
taxation
year,
the
appellant
reported
the
sale
of
3721
Sixth
Street,
Ottawa,
Ontario
(the
"property")
on
capital
account
and
claimed
a
capital
gain
deduction
in
the
amount
of
$25,000.
3.
In
reassessing
the
appellant
for
the
1987
taxation
year,
the
Minister
of
National
Revenue
(the"Minister")
treated
the
sale
of
the
property
on
income
account
and
disallowed
the
capital
gain
deduction
of
$25,000.
4.
In
so
reassessing
the
appellant,
the
Minister
relied
upon,
inter
alia,
the
following
assumptions
of
fact:
(a)
the
facts
hereinbefore
stated;
(b)
in
1985,
the
appellant
and
four
other
individuals
purchased
a
parcel
of
land
described
as
part
of
Lot
8
in
Concession
IV,
(Rideau
Front),
of
the
Geographic
Township
of
Gloucester
in
the
County
of
Carleton.
The
land
was
subsequently
divided
into
ten
lots,
two
of
which
were
received
by
the
appellant.
(c)
in
September
1986,
the
appellant
began
the
construction
of
a
building
on
one
of
the
lots,
which
construction
was
completed
in
August
1987
(the
lot
and
the
building
are
hereinafter
collectively
referred
to
as
the
"property");
(d)
the
following
costs
were
incurred
by
the
appellant
in
respect
of
the
prop
erty:
|
Cost
of
land:
|
$31,500.00
|
|
Cost
of
construction:
|
$143,357.59
|
|
Cost
of
installation
of
city
services:
|
$4,101.48
|
|
Real
estate
fees:
|
$16,260.00
|
|
Total
|
$195,219.07
|
(e)
on
August
24,
1987,
the
appellant
disposed
of
the
property
for
$271,000;
(f)
the
appellant's
profit
from
the
sale
of
the
property
in
the
amount
of
$75,780
was
on
income
account;
(g)
at
all
material
times,
the
appellant,
who
is
in
the
business
of
constructing
and
selling
new
homes,
was
very
well
acquainted
with
the
real
estate
market;
(h)
the
appellant
acquired
the
lot
and
constructed
the
building
with
the
primary
intention
of
selling
the
property
at
a
profit;
(i)
an
operating
motivation
in
the
appellant's
acquisition
of
the
lot
and
construction
of
the
building
was
the
prospect
of
selling
the
property
at
a
profit.
With
respect
to
the
appellant's
pleadings,
the
assertions
appearing
under
the
heading
entitled
"C.
Material
Facts”
on
the
first
and
second
page
of
the
notice
of
appeal,
and
the
assertions
in
clauses
1
to
4
inclusive
of
the
appellant’s
answer
to
the
respondent's
reply
read
as
follows:
C.
Material
Facts:
The
Department
has
reassessed
Mr.
Buffone's
1987
tax
return
to
include
in
income,
gains
made
on
the
disposal
of
a
property
at
3721
Sixth
Street.
Their
reasons
for
doing
so
are
as
follows:
(i)
Construction
of
residential
housing
is
related
and/or
constitutes
part
or
all
of
Mr.
Buffone’s
past
and
current
employment/business
occupation.
(ii)
Mr.
Buffone
and
his
spouse
have
had
numerous
dealings
within
the
residential
real
estate
market.
(iii)
There
is
insufficient
evidence
that
the
Buffones
were
under
financial
constraints
at
the
time
which
would
have
prompted
the
sale
of
3721
Sixth
Street.
We
are
prepared
to
argue
that
the
gains
realized
on
the
sale
of
this
property
were
properly
reported
as
capital
gains
for
the
following
reasons:
(i)
Mr.
Buffone
was
exclusively
in
the
drywall
business
from
1967
to
1987.
At
this
point
in
time,
he
had
never
built
a
house
for
resale
and
had
no
intention
of
selling
3721
Sixth
St.
either.
This
house
was
built
as
the
Buffone's
next
principal
residence.
Their
fourth
move
in
27
years
of
marriage.
(ii)
Mr.
Buffone’s
numerous
real
estate
dealings,
as
stated
by
the
auditor,
consisted
of
purchasing
properties
for
rentals
as
an
investment
for
his
retirement
years.
Neither
of
the
Buffones
quality
[sic]
for
a
company
pension.
In
1987,
their
joint
property
ownership
consisted
of
seven
properties.
Three
of
thesehave
been
owned
for
over
twenty
years.
(iii)
The
Department
verified
our
assets
and
bank
records
but
failed
to
take
into
account
our
liabilities
and
coming
obligations.
Great
upheavals
happened
in
that
year.
When
the
property
in
question
was
listed
for
sale,
it
was
a
desperate
move
by
a
man
who
new
[sic]
that
very
soon,
his
cash
resources
would
be
strained
to
its
limit.
Our
intent
from
the
beginning
was
to
make
this
3,200
square
feet
custom
built
home
—
our
dream
home.
We
nurtured
its
construction
for
12
months.
It
was
listed
for
sale
only
when
it
became
obvious
that
we
were
not
getting
any
offers
on
our
present
home
located
on
Athans
Avenue
property
where
we
had
lived
for
over
five
years.
We
almost
lost
the
sale
when
we
realized
that
we
were
not
registered
as
builders
with
the
Ontario
New
Home
Warranty
Program
(ONHWP).
One
year
later,
we
did
build
a
home
on
an
adjoining
parcel
of
land
and
made
it
our
principal
residence.
Our
house
on
Athans
had
finally
sold.
Answer
1.
The
appellant
admits
to
the
facts
as
stated
in
paragraphs
2,3,
4a,
b,
c,
d,
e,
and
g,
of
the
reply.
2.
The
appellant
denies
the
allegations
and
assumptions
contained
in
paragraph
4f,
h,
and
i
of
the
reply.
Answer
to
Allegations
3.
Re.
4"f"
The
appellant
was
not
in
the
business
of
selling
homes
or
of
building
for
resale,
but
was
in
the
drywall
business.
Upon
being
forced
to
sell
the
property
in
question,
a
capital
gain
was
correctly
declared.
All
past
related
activity
of
the
appellant
reflects
very
clearly
a
set
pattern
of
building
only
main
residences.
Rental
properties
were
acquired
only
in
order
to
secure
our
old
age
income.
4,
Re
4
”
h”
and"i"
These
lots
were
acquired
from
an
elderly
lady
who
had
moved
to
Calgary
and
who
had
no
remaining
interest
in
this
community.
The
prime
objective
of
this
land
acquisition
was
to
be
completely
assured
that
the
residential
zoning
(AAA)
be
maintained
therefore
allowing
only
single
family
homes
to
be
erected.
This
purchase
therefore
guaranteed
that
the
character
and
quality
of
life
in
Athans
Park
would
be
maintained.
If
profit
making
had
been
our
primary
objective,
we
would
have
petitioned
for
rezoning
and
built
high
density
row
housing,
which
has
been
the
practice
of
other
builders
in
the
surrounding
areas
of
our
community.
The
individual
purchasers
who
pooled
their
resources
were
all
residents
of
this
area
and
all
shared
the
same
vision
for
this
community.
NB:
The
appellant
will
gladly
supply
the
names
of
the
other
purchasers
if
requested
to
do.
Oral
testimony
was
advanced
by
the
appellant
and
by
his
wife,
both
of
whom
in
my
opinion
were
forthright
and
credible.
However,
the
direct
evidence
of
a
person
who
has
an
interest
in
the
outcome
of
an
appeal
regarding
the
intention
behind
a
transaction
or
series
of
transactions
is
not
determinative
of
the
existence
of
the
stated
intention.
Generally
speaking
the
intention
is
to
be
ascertained
from
the
entire
course
of
conduct
and
relevant
circumstances
and
the
inferences
flowing
therefrom:
Racine
v.
M.N.R.,
[1965]
C.T.C.
150,
65
D.T.C.
5098
(Ex.
Ct.).
The
distinction
between
an
income
or
business
gain,
and
a
capital
gain,
is
fundamentally
factual
and
comprises
essentially
of
two
main
tests.
These
tests
home-in
on
the
intention
of
the
taxpayer
(which
is
subjectively
based)
and
his
whole
course
of
conduct
in
dealing
with
the
property
in
question
(which
is
objectively
based).
In
the
end,
the
taxpayer's
subjectively
stated
intentions
ought
to
have
been
confirmed
or
supported
through
the
objective
evidence
relevant
to
the
particular
transaction
and
reasonable
inferences
drawn
from
that
evidence.
In
drawing
inferences
the
courts
have
considered
certain
factors
particularly
relevant;
however,
no
single
factor
is
in
itself
conclusive.
All
of
the
particular
surrounding
circumstances
must
be
carefully
weighed
and
balanced.
Of
relevance
here
are
the
following
factors.
1.
Relation
of
the
transaction
to
the
appellant's
business:
Here
the
evidence
was
that
the
appellant
was
in
the
drywall
business
and
had
not
engaged
in
house
trading
transactions.
Over
the
prior
decade
six
rental
properties
had
been
acquired
(out
of
which
only
one
had
been
sold)
for
purposes
of
an
investment/
retirement
portfolio.
At
one
time
one
parcel
of
vacant
land
was
acquired
with
several
other
participants
and
then
resold.
2.
Number
and
frequency
of
similar
past,
present
and
future
transactions:
The
appellant's
first
home
was
built
in
1960,
was
occupied
until
1970
and
then
sold.
A
larger
house
was
built
on
a
large
comer
lot
in
the
Athans
Park
area.
It
was
occupied
until
1980
when,
with
utility
services
being
provided,
the
lot
was
subdivided
into
two
parts
and
an
even
larger
house
was
built
for
the
family
on
the
rear
lot
with
the
retention
of
a
swimming
pool
which
had
been
built
in
the
early
19705.
Following
lengthy
negotiations
the
subject
parcel
of
land
was
acquired
in
1985
in
concert
with
four
other
individuals,
one
of
whom
expressed
a
desire
to
resell
while
the
others
wanted
to
build
and
live
there.
Following
subdivision
each
participant
received
two
lots,
and
the
appellant
then
began
to
build
his
dream
home
(this
being
the
lot
1
house).
The
family
house
then
being
occu-
pied
(the"old"
house)
was
put
up
for
sale
on
an
informal
basis
in
the
belief
it
could
be
sold
easily.
As
it
turned
out,
this
would
not
be
the
case.
More
will
be
said
about
this
later.
The
lot
1
house
was
sold
in
mid-1987
and
in
1988
another
similar
but
less
extravagant
house
was
built
and
occupied
on
the
adjoining
lot
(the
“lot
2
house").
The
evidence
was
unclear
as
to
when
its
construction
actually
began
as
the
appellant
and
his
wife
were
of
the
mistaken
belief
that
events
after
1987
were
irrelevant
and
thus
they
had
not
prepared
themselves
to
give
these
details.
In
any
event
they
were
certain
that
the
lot
2
house
was
occupied
after
the
sale
of
the
old
house.
The
lot
2
house
was
sold
in
1990
only
after
a
desired
vacant
lot
was
obtained
which
became
available
only
after
its
sale,
default
and
repossession.
A
smaller
home
was
built
thereon
for
retirement
purposes
as
the
family
needs
were
then
diminishing.
3.
The
nature
of
the
property
and
the
holding
periods:
The
lot
1
property
was
single
family
zoned
and
was
originally
acquired
on
the
specific
condition
that
it
have
a
single
family
zoning
status.
It
was
a
residential
lot.
The
lot
1
house
as
planned
and
constructed
was
large,
incorporating
many
personally
desirable
aspects
including
R2000
insulation,
double
walls
and
windows,
special
heating,
hardwood
flooring,
a
jacuzzi,
state
of
the
art
appliances
and
an
interlock
double
driveway.
Construction
costs
were
estimated
at
$100,000.
An
amount
of
$60,000
was
borrowed
for
this
purpose
and
secured
by
way
of
mortgage
on
one
of
the
rental
properties.
Unlike
a
trade-
oriented
timetable,
this
house
was
built
by
the
appellant
during
afternoons
and
weekends.
The
old
house
was
said
to
be
no
longer
satisfactory
primarily
because
of
the
difficulties
attended
upon
the
then
17-year
old
swimming
pool
plus
the
need
for
a
larger
home
for
the
family’s
growing
needs.
4,
Factors
motivating
the
sale:
The
old
house
was
not
attracting
purchasers
as
originally
thought
and
so
it
was
formally
listed
with
a
realtor,
along
with
the
lot
1
house,
in
the
spring
of
1987.
Within
four
weeks
of
its
listing
the
lot
1
house
was
sold.
The
decision
to
put
it
up
for
sale
was
made
in
the
spring
of
1987
for
several
reasons.
Mr.
Buffone
said
he
was
getting
scared
because
he
was
financially
unable
to
have
two
family
residences
on
hand.
His
wife
testified
this
was
the
case
as
she
handled
all
their
personal
and
business
financial
matters.
Further,
the
drywall
company
in
which
the
appellant
had
an
interest
with
others
was
then
rapidly
coming
apart
because
of
financial
losses
and
personal
difficulties
between
the
shareholders.
On
its
settlement
and
dissolution,
one
business
contract
was
retained
by
the
appellant
which
required
a
large
cash
infusion
into
his
new
company
for
start-up
purposes.
Mr.
&
Mrs.
Buffone
rejected
the
alternative
of
liquidation
of
their
RRSP
plans
and/or
their
rental
property
portfolio
because
these
comprised
their
old
age
security
plan.
To
them
it
then
made
sense
to
try
and
sell
either
the
lot
1
house
or
the
old
house
to
take
financial
advantage
from
whichever
one
sold
first.
As
it
turned
out,
the
lot
1
property
was
the
most
desirable
from
a
purchaser's
point
of
view
as
it
sold
very
quickly.
Mrs.
Buffone
said
the
buyers
were
pleased
with
all
the
special
features
that
had
been
incorporated
into
the
house.
Both
Mr.
&
Mrs.
Buffone
denied
that
either
of
lot
1
or
lot
2
had
been
acquired
with
the
primary
or
secondary
motivation
of
resale.
Indeed,
Mr.
Buffone
said
his
original
plan
in
1985
for
lot
2
was
to
either
keep
it
vacant
or
to
give
it
to
one
of
his
children
like
some
of
his
partners
had
intended
doing
and
had,
to
date,
actually
done.
There
is
an
overwhelming
inference
here
that
the
lot
2
property
was
seen
for
the
first
time
as
the
next
possible
site
for
the
family
dream
home
only
when
the
reality
of
the
poor
real
estate
market
for
the
old
property
in
late
1986
and
early
1987
actually
hit
home.
Until
then,
the
original
plan
remained
unchanged.
The
real
weakness
of
the
appellant's
case,
if
it
may
be
so
described,
is
in
failing
to
immediately
list
and/or
more
aggressively
pursue
the
sale
of
the
old
house
in
1986.
Further,
there
was
a
readily
apparent
connecting
chain
or
series
of
events
occurring
during
1985
to
1990
as
aforedescribed.
However,
when
each
event
is
put
contextually
within
all
the
described
events,
each
takes
on
a
different
and
explainable
hue.
I
believe
Mr.
and
Mrs.
Buffone
as
to
how
and
why
these
events
happened
and
am
satisfied
that
the
lot
1
property
was
acquired
for
personal
purposes
and
sold
as
a
capital
transaction
for
the
reasons
given.
As
I
said
earlier,
it
is
essential
to
consider
all
of
the
relevant
factors
and
surrounding
circumstances
individually
and
collectively
to
determine
whether
the
appellant’s
expressed
subjective
intent
has
been
established.
The
factual
differences
in
the
case
submitted
by
the
Minister’s
counsel
of
Bachuk
v.
M.N.R.
(1961),
27
Tax
A.B.C.
316,
61
D.T.C.
537
(T.A.B.)
render
it
unhelpful
to
the
Court
to
this
appellant's
situation.
Finally,
there
is
no
probative
evidence
supporting
the
Minister’s
theory
advanced
during
argument
that
at
the
very
outset,
in
1985,
both
lots
1
and
2
were
simultaneously
burdened
with
resale
motivation
in
that
the
appellant
would
have
certainly
occupied
one
and
sold
the
other.
Notwithstanding
that
this
is
exactly
what
happened,
it
does
not,
in
itself,
necessarily
prove
the
original
motivation.
It
is
but
one
factor
to
be
considered
within
the
whole
set
of
relevant
circumstances.
In
any
event,
this
case
was
not
assessed
nor
approached
on
a
secondary
intention
aspect.
If
this
became
the
position
at
trial,
the
burden
would
have
been
on
the
respondent
which,
given
the
evidence,
would
have
not
been
met.
In
conclusion
then,
the
appeal
is
allowed
and
the
matter
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
that
the
gain
on
the
sale
of
the
3721
Sixth
Street,
Ottawa,
Ontario
property
was
a
capital
transaction.
The
appellant
is
entitled
to
his
costs
on
a
party-to-party
basis.
Appeal
allowed.
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