Sobier,
T.C.J.:—The
appellant
appeals
from
the
reassessments
by
the
respondent
with
respect
to
his
1985
and
1986
taxation
years.
The
1985
appeal
is
with
respect
to
the
respondent's
treatment
of
the
sale
of
certain
real
property
as
a
sale
of
inventory
and
therefore
income
in
the
hands
of
the
appellant.
The
appellant
claims
the
sale
was
of
capital,
i.e.,
land
used
in
connection
with
his
marina
business.
The
1986
appeal
deals
with
costs
incurred
in
repairing
or
rebuilding
a
sea
wall
and
whether
the
expenditures
were
of
a
current
nature
or
of
a
capital
one.
The
1985
Appeal
Prior
to
commencing
the
marina
business,
the
appellant
was
engaged
in
marine
construction
and
owned
large
pieces
of
equipment,
such
as
barges,
which
required
storage
during
the
winter.
For
a
time
he
stored
them
on
a
portion
of
the
lands
in
question
without
the
owner's
consent.
In
1927
a
plan
of
subdivision
was
registered
by
the
then
owner
of
the
lands
and
the
lands
were
divided
into
building
lots.
There
was
also
a
canal
shown
on
the
plan
with
access
to
the
St-Clair
River.
According
to
the
appellant,
as
result
of
the
Great
Depression
and
flooding
of
the
lands,
the
owner
became
insolvent
and
abandoned
the
venture.
In
February
1954,
the
appellant
purchased
all
of
the
lots
on
the
plan
with
the
exception
of
five
lots.
In
his
evidence,
the
appellant
stated
that
his
original
intent
was
to
use
the
property
to
store
his
marine
construction
barges
and
equipment.
In
August
or
September
of
1985,
he
entered
into
dealings
with
one
Morley
C.
Faulds
("Faulds"),
a
London,
Ontario
businessman.
The
appellant
sold
an
undivided
one-half
interest
in
the
lands
(except
for
five
other
lots)
to
Faulds
and
entered
into
what
he
calls
a
partnership
agreement
(the
"agreement")
with
Faulds,
which
agreement
refers
to
developing
the
property.
The
appellant
stated
he
sold
the
interest
to
Faulds
in
order
to
buy
barges.
He
also
stated
that
Faulds
did
not
wish
to
be
involved
in
the
marine
construction
business.
The
agreement
also
provided
that
on
the
death
or
bankruptcy
of
either
party,
the
other
could
purchase
the
land
for
$5,000.
After
the
sale
of
the
one-half
interest,
the
appellant
continued
his
marine
construction
business.
During
the
time
the
appellant
and
Faulds
were
partners,
no
further
lots
were
sold.
In
September
1958,
he
purchased
Faulds'
one-half
interest,
except
for
one
lot,
for
$12,000.
The
property
was
low-lying,
swampy
and
covered
with
cat-tails.
The
appellant
improved
the
existing
canal
and
built
other
waterways.
The
appellant
stated
that
he
introduced
fill
to
the
land
and
sold
off
some
of
those
lots
which
were
filled,
and
reported
the
proceeds
as
income.
The
marina
business
began
in
the
late
1950s
or
early
1960s
on
lands
which
include
the
lands
which
are
the
subject
of
the
1985
appeal.
These
lands
subject
to
the
appeal
will
be
referred
to
as
the
"island".
They
were
made
an
island
as
a
result
of
being
surrounded
by
the
St-Clair
River
and
some
canals.
Some
boats
slips
were
put
in
1961.
A
bridge
was
built
across
the
canal
to
afford
access
to
the
gas
pumps
on
the
island.
Over
the
years,
the
bridge
was
improved
so
that
it
could
handle
heavy
trucks
and
equipment.
The
appellant
continued
to
improve
the
marina.
The
appellant
built
boat-houses,
docks,
barge
storage
areas,
etc.
He
sold
gas
to
the
public
from
the
island.
There
was
also
a
retail
store
near
the
pumps.
The
island
was
also
used
for
winter
barge
storage.
Some
boat
slips
were
also
built
on
the
north
side
of
the
island
although
most
were
off
the
island.
There
was
an
apparently
thriving
marina
business,
which
included
sales
of
boats
and
motors,
repairs
to
boats,
barges
and
other
craft
as
well
as
renting
boats
slips
for
pleasure
boats
both
on
and
off
the
island
and
mooring
for
large
vessels
and
winter
storage
of
vessels.
Prior
to
1985,
the
appellant
sold
approximately
90
lots
as
residential
lots
and
stated
that
he
put
the
money
back
into
the
marina
business.
Again,
all
the
proceeds
from
the
lot
sales
were
reported
as
income.
He
improved
the
area
and
brought
in
services.
In
1967,
he
built
his
own
home
which
bordered
on
the
St-Clair
River
and
an
entrance
canal
giving
access
to
the
main
canal.
The
house
was
used
as
an
office
and
sales
area
for
Chris-Craft
boats.
The
house
is
not
located
on
the
island.
The
issue
whether
the
island
was
inventory
of
building
lots
has
some
of
its
foundation
in
the
zoning
of
the
marina.
The
appellant
stated
that
in
the
1960s,
he
was
invited
by
the
Township
of
Sombra
to
indicate
what
sort
of
zoning
he
had
in
mind
for
his
marina
property.
He
stated
that
he
wished
the
marina
property,
including
the
island,
to
be
zoned
commercial.
Later
when
he
discovered
that
only
a
very
small
amount
on
the
extreme
east
of
the
property
was
zoned
commercial,
he
complained
but
nothing
was
done.
He
continued
carrying
on
the
marina
business.
In
1984,
another
by-law
was
passed
which
zoned
the
marina
area
off
the
island
as
commercial
as
well
as
a
portion
on
the
east
end
of
the
island.
The
remaining
portion
of
the
island
was
zoned
residential.
The
residential
zoning
is
one
of
the
reasons
the
respondent
chose
to
treat
the
proceeds
of
disposition
of
part
of
this
land
as
inventory.
Those
portions
which
were
zoned
commercial
were
treated
by
the
respondent
as
capital
assets;
those
zoned
residential
as
inventory.
The
appellant
said
that
he
did
not
object
to
the
residential
zoning
because
he
had
by
then
a
legal
non-conforming
use
of
the
island
for
commercial
purposes.
The
marina
business
was
sold
in
1985
for
$400,000.
The
agreement
of
purchase
and
sale
was
for
a
sale
of
assets,
including
the
real
property,
as
a
going
concern.
There
were
conditions
to
be
met
by
the
appellant.
There
were
warranties
as
to
zoning
given
by
him
and
the
purchaser
had
various
escape
clauses,
such
as
being
dissatisfied
with
financial
condition
of
the
business
as
shown
on
the
last
five
years
financial
statements.
The
appellant
warranted
that
the
subject
property
could
be
used
as
a
boat
marina.
Schedule
"A"
to
the
agreement
of
purchase
and
sale
set
out
the
real
property
being
purchased
and
ends
by
saying:
“All
of
the
above
noted
properties
presently
used
by
the
Vendor
as
McMillan
Marina".
Another
reason
the
respondent
chose
to
treat
the
lands
as
inventory
can
be
found
in
the
appellant's
financial
statements.
The
various
balance
sheets
of
the
business
show
as
an
investment
“Islandview
Development
Lots
for
Resale".
There
is
also
a
schedule
headed
“Islandview
Development
Schedule
of
Unabsorbed
Costs"
which
is
broken
into
three
sections
called
sections
1975,1976
and
1977.
Section
1976
encompasses
the
island
and
all
of
the
real
property
used
in
the
marina
business.
Were
the
lots
on
the
plan
of
subdivision
located
on
the
island
and
used
in
connection
with
the
marina
business,
inventory
or
capital?
There
is
no
doubt
that
the
lots
in
question
were
used
in
the
marina
business.
No
lots
on
the
island
were
sold
to
third
parties
or
developed
for
any
other
purpose
other
than
that
of
a
marina
operation
except
for
one
sale
to
an
environmental
protection
organization
known
as
Blue
Water
Clean
which
sale
was
made
subject
to
Blue
Water
Clean
using
the
lands
only
in
accordance
with
a
Sombra
Township
By-law
which
was
restrictive
in
nature.
The
mere
fact
that
the
lots
were
zoned
residential,
in
no
way
alters
the
fact
that
they
were
not
used
for
residential
or
resale
purposes
but
that
they
were
used
exclusively
in
connection
with
the
marina
business.
The
fact
that
they
were
included
under
the
heading
of
“Lots
for
Sale”
was
explained
by
the
appellant’s
accountant
as
his
error.
However,
the
lands
used
in
the
marina
business
(section
1976)
were
separated
from
the
lands
which
were
admittedly
to
be
developed
or
resold
(sections
1975
and
1977).
It
is
clear
that
the
island
lots
were
treated
differently
from
the
others.
When
the
marina
business
was
sold,
there
was
no
indication
of
any
use
or
intended
use
other
than
as
a
marina.
The
agreement
of
purchase
and
sale
is
clearly
an
agreement
to
purchase
a
business
by
way
of
a
purchase
of
assets.
Paragraph
15
of
the
agreement
of
purchase
and
sale
contained
a
warranty
that
the
“subject
property
may
be
lawfully
used
as
a
boat
marina
for
the
storage
and
repair
of
boats,
for
the
sales
and
service
of
boats
and
motors”.
The
purchaser
being
aware
of
the
zoning
as
residential,
wished
to
be
assured
that
notwithstanding
the
residential
zoning,
he
could
continue
to
use
the
subject
property
in
the
same
manner
as
the
vendor;
that
is,
as
a
marina.
The
sale
of
the
marina
business
was
exactly
that
and
for
the
Minister
to
treat
a
portion
of
the
real
estate
as
inventory
and
another
portion
as
a
capital
asset
is
inconsistent,
since
all
of
the
lands
together
were
used
in
connection
with
the
business.
The
appellant's
intention,
that
is,
of
either
holding
the
lots
for
resale
or
using
them
in
connection
with
the
business
is
best
established
and
proven
by
his
actions
and
those
actions
lead
to
the
conclusion
that
the
property,
the
disposition
of
which
is
under
appeal,
was
used
by
the
appellant
in
operating
his
marina
business.
The
Court
finds
that
the
lots
in
question
were
not
inventory
of
the
appellant
but
were
lands
used
by
him
in
connection
with
the
operation
of
a
marina
business
and
accordingly
capital
assets.
The
1985
appeal
is
allowed,
with
costs,
and
the
matter
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
of
the
aforesaid.
The
1986
Appeal
The
issue
in
the
1986
appeal
is
whether
the
moneys
expended
in
connection
with
the
sea
wall
adjacent
to
the
appellant's
home
were
for
repairs
and
therefore
deductible
as
a
current
expense
or
for
replacement
of
the
wall
and
therefore,
creating
a
capital
asset.
The
evidence
in
respect
of
the
1986
appeal
is
sketchy
at
best.
The
original
sea
wall
was
of
wood
construction
and
was
built
in
1967.
The
portion
of
the
sea
wall
above
the
water
line
was
in
a
state
of
disrepair
although
the
portion
below
the
water
line
was
in
good
condition.
A
new
steel
sea
wall
was
constructed
in
front
of
the
old
one
and
the
area
between
the
two
was
backfilled.
The
appellant
stated
that
the
purpose
of
the
repair
was
to
prevent
erosion
in
the
channel
and
the
resulting
buildup
of
silt.
In
order
to
qualify
as
an
expense
under
paragraph
18(1)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act"),
the
outlay
or
expense
must
be
made
or
incurred
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
a
property.
The
appellant
stated
that
the
sea
wall
was
used
to
tie
up
boats
doing
business
at
the
appellant's
home
and
to
moor
boats
which
he
held
for
sale,
and
to
ensure
access
to
the
lots
which
he
had
previously
sold.
In
determining
the
question
raised,
one
must
ask
for
what
purpose
was
the
outlay
made?
The
evidence
establishes
that
there
was
some
business
use
and
some
personal
use
since
the
sea
wall
also
served
to
protect
the
appellant's
home
from
wave
action
which
might
erode
the
land
upon
which
his
residence
was
situated.
Having
established
that,
one
must
also
ask
whether
the
business
portion
of
the
outlay
was
an
expense
of
a
capital
nature.
Several
cases
were
referred
to
by
the
appellant's
counsel
to
bolster
the
position
that
the
expenditure
was
an
expense
and
therefore
deductible
in
calculating
the
appellant's
income.
These
cases
included:
Levinter
v.
M.N.R.
(1951),
5
Tax
A.B.C.
75;
51
D.T.C.
359
(T.A.B.);
English
Estate
v.
M.N.R.
(1956),
14
Tax
A.B.C.
225;
56
D.T.C.
18
(T.A.B.);
Gold
Bar
Developments
Ltd.
v.
The
Queen,
[1987]
1
C.T.C.
2682;
87
D.T.C.
5152
(F.C.T.D.)
The
work
was
done
in
1986
after
the
sale
of
the
marina
business
and
the
expense
was
claimed
in
that
year.
If
the
sea
wall
was
used
in
connection
with
one
of
the
appellant's
businesses
prior
to
its
repair,
and
it
continued
to
be
used
in
this
fashion
afterwards,
it
might
well
be
argued
that
it
was
a
repair
and
not
a
replacement.
However,
no
evidence
was
adduced
as
to
the
use
of
the
old
sea
wall.
In
other
words,
the
appellant
has
not
established
that
the
old
sea
wall
was
used
for
the
purpose
of
earning
income.
Accordingly,
the
appellant
not
having
established
the
use
of
the
sea
wall
until
after
1985,
he
cannot
therefore
claim
he
was
repairing
and
not
replacing
the
sea
wall
which
was
used
in
a
business
prior
to
1986.
Therefore
in
1986
what
the
appellant
did,
was
erect
a
new
sea
wall
which
he
could
use
in
post-marina
business
and
therefore
the
expenditure
was
not
for
repairs,
it
was
of
a
capital
nature.
The
Court
finds
that
50
per
cent
of
the
$16,200
was
expended
for
personal
use
and
therefore
not
deductible
under
paragraph
18(1)(h)
of
the
Act,
and
the
Court
also
finds
that
the
remaining
50
per
cent
was
a
capital
expenditure
whereby
the
appellant
acquired
a
Class
3
asset.
The
1986
appeal
is
dismissed.
Appeals
allowed
in
part.
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