Lamarre
Proulx,
T.C.J.:—This
is
an
appeal
from
reassessments
of
income
tax
with
respect
to
the
appellant's
1982
and
1983
taxation
years.
The
question
in
issue
is
whether
gains
from
the
sale
of
lands
of
which
the
appellant
was
a
beneficial
owner
in
a
proportion
of
12.5
per
cent
are
to
be
treated
as
capital
gains
or
on
account
of
business
income.
In
assessing
the
appellant
for
its
1982
and
1983
taxation
years,
the
respondent
relied,
inter
alia,
upon
the
following
assumptions
of
fact:
a)
the
Appellant
is
a
company
incorporated
in
the
Province
of
British
Columbia
with
a
registered
and
records
office
at
Box
11613,
2660
650
W.
Georgia
Street,
Vancouver,
British
Columbia;
b)
during
the
month
of
February
1978
the
Appellant
and
five
others
purchased
for
$1,300,000.00
approximately
53.7
acres
(20
hectares)
of
raw
land
in
North
Langley,
British
Columbia
bordering
on
the
Fraser
River
described
as
follows:
Lot
11
of
District
Lot
123,
Group
2,
Plan
44947
except
that
part
subdivided
by
Plan
45914
New
Westminster
District;
c)
the
aforesaid
property
was
acquired
by
way
of
agreement
for
sale
dated
February
14,
1978,
registered
in
the
New
Westminster
land
registry
office,
between
Kanaka
Creek
Holdings
Ltd.
(vendor)
and
Geoffrey
Hobbs
in
trust
(purchaser);
d)
with
the
aforesaid
agreement
for
sale
was
filed
in
the
New
Westminster
land
registry
office
a
trust
agreement
under
number
DFP18634,
dated
February
14,
1978
between
Geoffrey
Hobbs
trustee
and
the
Appellant
and
5
others
as
beneficiaries;
e)
the
Appellant
held
an
undivided
12.5%
interest
in
the
property
aforesaid
through
the
trust
agreement;
f)
the
terms
of
the
aforesaid
trust
agreement
provided,
inter
alia,
that
the
trustee
take
title
to
the
53.7
acres
aforesaid
subject
to
the
respective
percentage
interest
of
the
parties
and
with
all
the
beneficiaries
covenanting
to
make
their
proportionate
share
of
interest,
principal,
and
other
payments
required
under
the
agreement
of
sale;
g)
the
result
of
the
aforesaid
agreement
of
sale
and
trust
agreement
was
to
give
Medici
Management
Ltd.,
the
Appellant,
an
undivided
12.5%
interest
in
53.7
acres
of
land
in
North
Langley,
British
Columbia;
h)
on
or
about
November
21,
1981
Geoffrey
Hobbs,
trustee,
executed
an
agreement
with
S.
&
R.
Sawmills
Ltd.
undertaking,
inter
alia,
to
subdivide
the
aforesaid
53.7
acres
so
as
to
create
4
lots
or
less,
such
that
2
lots
would
be
created
for
sale
to
S.
&
R.
Sawmills
for
$3
million
with
completion
date
to
be
February
1,
1982;
i)
the
aforesaid
agreement
stated,
inter
alia,
that
the
vendor
had
authority
from
the
beneficial
owners
of
the
said
lands
to
enter
into
the
agreement;
j)
on
February
1,
1982
Geoffrey
Hobbs,
trustee,
sold
the
property
to
S.
&
R.
Sawmills
by
agreement
of
sale,
which
sale
was
consented
to,
inter
alia,
by
the
Appellant;
k)
at
all
material
times
the
majority
of
the
co-owners
of
the
property
were
actively
engaged
in
buying
and
selling
real
estate
and
were
knowledgeable
in
all
facets
of
real
estate
development;
l)
the
offer
to
purchase
made
by
S.
&
R.
Sawmills
was
not
an
unsolicited
offer;
m)
on
the
sale
of
the
land
aforesaid
the
Appellant
realized
a
net
profit
on
account
of
income;
n)
the
Appellant
acquired
his
interest
in
the
property
aforesaid
with
the
intention
of
turning
it
to
account
by
means
of
resale
whenever
it
became
profitable
to
do
so
and
with
the
intention
that
the
venture
would
turn
the
property
to
account
by
means
of
resale
as
part
of
a
venture
in
the
nature
of
trade
or
profit
making
concern
or
undertaking.
The
appellant
was
the
management
company
of
the
law
firm
of
Mr.
T.
E.
Rafael
and
Mr.
John
MacKay.
It
had
also
for
objects
the
making
of
investments.
Its
shareholders
were
the
respective
holding
companies
of
the
two
lawyers.
Mr.
Rafael
was
called
to
the
Bar
in
1977
and
Mr.
MacKay
a
year
or
so
earlier.
On
February
14,
1978,
the
appellant
with
others
entered
into
an
indenture
of
trust
whereby
it
became
the
beneficiary
owner
of
an
undivided
12.5
per
cent
interest
in
lands
in
the
muncipality
of
Langley
in
B.C.
Mr.
Geoffrey
Hobbs
was
the
trustee
and
was
known
to
both
Mr.
Rafael
and
Mr.
MacKay;
in
the
case
of
Mr.
MacKay,
because
of
real
estate
conveyancing
made
for
him;
and
in
the
case
of
Mr.
Rafael,
through
motor
vehicle
accident
litigation.
Both
Mr.
MacKay
and
Mr.
Rafael
had
much
faith
in
Mr.
Hobbs.
He
was
well
known
in
the
real
estate
field
both
as
a
broker
and
as
a
developer.
Only
Mr.
Rafael
testified
for
the
appellant.
Mr.
MacKay
had
brought
the
project
to
his
partner's
attention
and
according
to
Mr.
Rafael's
testimony,
the
project
was
supposed
to
be
an
industrial
park.
He
says
that
for
him
it
was
a
long-term
investment
in
valuable
lands
to
be
leased
to
industrial
users.
The
lands
were
raw
lands
adjacent
to
the
Fraser
river,
an
area
known
as
being
suitable
to
industrial
users.
He
was
provided
with
neither
a
market
study
nor
with
any
projections,
whether
in
writing
or
verbally,
except
for
Mr.
MacKay's
word
that
this
was
a
good
investment
to
make.
In
fact,
Mr.
MacKay
wrote
the
first
cheque.
Mr.
Rafael
has
never
seen
the
lands
in
question.
He
did
not
know
the
other
participants
in
the
deal;
it
was
Mr.
Hobbs
who
had
found
them
and
put
the
deal
together.
The
purchase
price
of
the
lands
was
$
1,300,000
of
which
$200,000
was
payable
on
the
execution
of
the
purchase
agreement.
Under
the
terms
of
the
agreement
between
Kanaka
Creek
Holdings
Ltd.
(Kanaka)
and
Geoffrey
Hobbs,
in
Trust,
interest
shall
be
paid
by
the
Purchaser
at
the
rate
of
nine
and
one-half
percent
(9-
/2%)
per
annum
.
.
.
from
February
15,
1978
and
shall
become
due
and
payable
on
the
15th
days
of
May,
August
and
November
during
the
year
1978
and
thereafter
.
..
and
as
to
principal,
subject
to
the
accelerated
payments
hereinafter
provided
for,
the
Purchase
Price
shall
be
paid
in
quarterly
instalments
of
Twenty-Five
Thousand
Dollars
($25,000)
each
payable
on
the
15th
days
of
February,
May,
August
and
November
in
each
year
commencing
on
the
15th
day
of
February
1981,
until
the
15th
day
of
February
1986
when
the
whole
of
the
principal
balance
of
the
purchase
price
and
any
interest
thereon
shall
be
due
and
payable
in
full.
Counsel
for
the
respondent
suggests
that
because
of
the
gap
that
exists
between
the
purchase
date,
that
is
February
1978,
and
the
date
when
the
payments
as
to
principal
become
due,
one
may
infer
that
there
was
a
plan
to
sell
some
of
the
lands
to
pay
the
purchase
price.
Counsel
for
the
respondent
also
pointed
out
that
there
may
be
another
indication
of
intent
to
sell
in
the
following
excerpt
from
the
purchase
agreement
between
Kanaka
and
Geoffrey
Hobbs
in
Trust;
The
Purchaser
shall
have
the
right
from
time
to
time
to
re-zone,
subdivide
or
consolidate
the
said
lands.
The
Vendor
will
forthwith,
following
receipt
of
request
from
the
Purchaser,
execute
any
and
all
documents
and
papers
that
are
necessary
from
time
to
time
to
effect
such
re-zoning,
subdivision
or
consolidation.
If
the
said
lands
are
subdivided,
the
Vendor
will
on
request
grant
clear
title
to
any
lot
created
by
such
subdivision
to
the
Purchaser
.
.
.
In
my
view,
it
is
important
to
read
the
objects
of
the
Trust
Deed
to
understand
what
was
really
intended.
Though
I
do
not
intend
to
reproduce
the
deed
in
its
entirety,
I
will
reproduce
large
excerpts
from
it:
WHEREAS:
A)
The
Trustee
is
or
will
soon
be
registered
as
purchaser
(under
an
agreement
for
sale
with
Kanaka
Creek
Holdings
Ltd.)
of
lands
in
the
municipality
of
Langley,
British
Columbia,
described
as:
B)
To
better
expedite
and
accomplish
the
development
and
improvement
of
the
said
lands,
the
parties
desire
the
Trustee
to
take
and
hold
title
to
the
said
lands
in
trust
for
the
Beneficiaries
and
the
Trustee
has
agreed
to
so
take
title
to
the
said
lands
in
trust
provided
all
parties
enter
into
this
Agreement.
Therefore
in
consideration
of
the
premises
.
.
.
4)
The
Trustee
covenants
with
the
Beneficiaries
to
do
nothing
to
encumber
or
otherwise
deal
with
the
said
lands
except
as
authorized
by
the
Beneficiaries
from
time
to
time,
or
except
as
otherwise
authorized
in
this
Agreement.
5)
The
Trustee
is
hereby
directed
and
authorized
to
proceed
to
improve
and
develop
the
lands
and
for
such
purposes
and
otherwise
the
Trustee
may
pay
taxes,
interest,
utilities,
surveyors,
engineers,
contractors
and
all
other
necessary
costs
and
expenses
relating
to
the
said
lands
and
the
Trustee
shall
charge
each
Beneficiary
for
the
Beneficiary’s
proportionate
share
thereof,
such
payment
to
be
made
forthwith
following
demand
by
the
Trustee.
6)
The
Trustee
with
the
written
consent
of
Beneficiaries
who
beneficially
own
70%
or
more
of
the
said
lands
shall
be
empowered
and
authorized
to
transfer,
mortgage
or
otherwise
charge
with
or
deal
in
and
with
the
said
lands
for
all
purposes.
It
is
intended
by
the
foregoing
to
specify
that
the
Trustee
shall
have
all
of
the
authority
and
powers
required
under
Section
149(2)
of
the
Land
Registry
Act.
9)
This
Agreement
and
the
trust
thereby
created
shall
terminate
upon
either
of:
(a)
Mutual
agreement
of
the
Trustee
and
all
Beneficiaries,
or
(b)
By
direction
to
the
Trustee
of
all
of
the
Beneficiaries,
or
(c)
Upon
completion
of
the
total
sale
of
all
of
the
lands
and
the
disbursement
to
the
Beneficiaries
of
all
proceeds
therefrom
along
with
a
full
and
complete
accounting
from
the
Trustee,
or
(d)
Upon
notice
from
the
Trustee
to
all
Beneficiaries.
11)
Geoff
Hobbs
or
John
Lee
or
any
company
owned
or
controlled
by
either
or
both
of
them
or
in
which
either
of
them
is
employed
shall
not
be
deprived
of
any
proper
fee
or
commission
for
work
done
whether
as
a
realtor
or
otherwise
merely
because
either
Geoff
Hobbs
or
John
Lee
has
acted
as
Trustee
under
this
Agreement.
It
can
be
seen
that
the
objects
of
the
Trust
Deed
are
broad
and
not
definite.
They
allow
resale
as
well
as
any
type
of
development.
There
is
no
specific
mention
of
an
industrial
park.
On
November
25,
1981,
the
Trustee
sold
less
than
half
the
property,
that
part
located
on
the
river
for
an
amount
of
$3,000,000.
The
witness
said
that
this
came
[as]
a
complete
surprise
to
him,
that
it
was
fortuitous,
unsolicited
and
presented
to
him
as
a
done
deal.
On
November
19,
1981,
the
beneficiaries
had
received
the
following
letter:
On
behalf
of
the
group,
we
have
now
completed
all
the
subdivision
requirements
in
respect
of
the
property.
This
has
taken
several
years
of
work
and
coordination
with
the
Municipality
and
Hunter
Laird
who
have
completed
the
engineering
and
design
drawings
as
required.
We
have
now
negotiated
a
sale
of
the
two
waterfront
lots
to
S.
&
R.
Sawmills
Ltd.
but
as
trustee,
I
require
your
authority
to
sign
the
documents
of
sale
on
the
following
basis:
Purchase
Price:
$3,000,000.00
Down
Payment:
$1,000,000.00
payable
on
the
completion
date
February
1,
1982
Agreement
for
Sale:
Payable
as
follows:
$1,000,000.00
February
1,
1983
$
500,000.00
February
1,
1984
$
500,000.00
October
1,
1984
Interest
on
the
above
agreement
is
to
be
calculated
at
the
rate
of
prime
¢
/2
payable
monthly.
Our
commission
in
respect
of
this
transaction
is
5%
of
the
gross
selling
price.
On
the
basis
of
the
above,
we
anticipate
no
problems
in
bank
financing
the
agreement
for
sale
so
that
all
the
shareholders
would
largely
obtain
their
investment
proceeds
at
this
point
in
time.
We
are
committed
on
the
basis
of
the
subdivision
to
construct
the
road
within
12
months
of
registration
of
the
said
subdivision.
To
facilitate
the
sale
at
this
point
in
time,
we
are
only
going
to
register
a
plan
showing
the
two
waterfront
lots
and
the
balance
as
the
remainder.
When
we
decide
to
proceed
with
Phase
two
and
three,
we
will
prepare
the
necessary
prospectus.
As
trustee
I
require
your
authority
to
sign
the
purchase
agreement
on
the
basis
of
the
above
and
your
authority
to
sign
the
215
Agreement
as
well
as
the
necessary
subdivision
plans.
We
are
also
at
this
point
in
time
trying
to
determine
whether
on
the
basis
of
an
investment
property,
spreading
the
tax
over
the
term
of
the
agreement
is
possible
and
also
the
spread
of
partial
release
payments
as
required
under
our
existing
agreement.
Please
acknowledge
your
agreement
on
the
above
by
signing
the
duplicate
of
this
letter.
Mr.
Rafael
says
that
this
is
the
appellant's
only
investment
in
real
estate.
However,
as
previously
mentioned,
one
of
the
two
shareholders
of
the
appellant
is
Mr.
Rafael’s
holding
company.
This
company
has
invested
in
tax
shelters
for
condominiums
and
Murbs
(multiple
unit
residential
building).
At
the
outset
of
the
hearing,
I
was
presented,
with
a
motion
to
adjourn
the
case
on
the
basis
that
the
appellant
was
unable
to
obtain
the
presence
of
an
important
witness.
That
witness
was
Dr.
James
Wright
who
is
also
a
signatory
party
to
the
trust
deed.
I
did
not
allow
the
adjournment
on
the
basis
that
the
appellant
had
ample
time
to
prepare
its
case
and
properly
subpoena
the
witnesses
that
it
needed
to
carry
on
its
appeal.
The
witness
would
have
testified
of
his
own
perception
of
the
deal.
It
appeared
to
me
that
Dr.
Wright's
testimony
would
have
been
with
respect
to
his
own
appeal
and
with
his
own
set
of
circumstances.
I
was
told
by
Counsel
for
the
respondent
that
this
taxpayer
did
not
want
his
appeal
to
be
heard
on
common
evidence
with
the
appellant.
Moreover,
Mr.
Rafael
did
not
know
Dr.
Wright
at
the
time
of
entering
into
the
deal.
With
the
benefit
of
hindsight
I
would
not
change
my
decision.
Counsel
for
the
appellant
put
forward
that
the
assumptions
of
fact
as
pleaded
by
the
Minister
did
not
bring
the
taxpayer
within
the
four
corners
of
the
taxing
provision,
(Kit-Win
Holdings
(1973)
Limited
v.
The
Queen,
[1981]
C.T.C.
43;
81
D.T.C.
5030
and
Hiwako
Investments
Limited
v.
The
Queen,
[1978]
C.T.C.
378;
78
D.T.C.
6281).
He
says
that
with
respect
to
the
appellant's
individual
intention
as
opposed
to
the
group
intention,
the
assumption
of
fact
in
paragraph
4(n)
of
the
Minister's
reply
does
not
support
the
assessments.
He
adds
that
the
second
part
of
the
assumption
in
paragraph
4(n)
does
not
assume
the
critical
fact
that
the
Syndicate
as
a
whole,
apart
from
the
appellant
had
at
the
time
of
acquisition
the
intention
to
trade
in
the
property
and
that
such
intention
was
a
motivating
factor
inducing
the
venture
to
make
the
purchase.
The
Minister
did
not
assume
that
the
appellant
controlled
the
Syndicate
and
the
appellant
did
not.
According
to
Counsel
for
the
appellant,
since
the
Minister
has
not
precisely
pleaded
that
the
appellant
acquired
its
interest
in
the
property
with
an
individual
trading
intention
and
only
pleaded
that
it
had
the
intention
that
the
venture
would
trade
in
the
property
but
has
not
pleaded
that
the
appellant
controlled
the
venture
or
that
the
venture
had
a
trading
intention,
the
Minister
has
failed
to
plead
those
facts
which
bring
the
assessments
within
the
four
corners
of
business
income.
The
Kit-Win
Holdings
and
the
Hiwako
Investments
cases
were
decided
on
the
basis
that
the
secondary
intention
was
not
pleaded
appropriately.
I
quote
Mr.
Justice
Cattanach
in
the
Kit-Win
Holdings
case,
at
page
59
(D.T.C.
5041):
The
syndicate
has
the
attributes
of
and
is
analogous
to
a
Partnership.
The
existence
of
a
partnership
implies
the
existence
of
a
business.
The
business
for
which
the
syndicate
was
"formed"
is
assumed
to
have
been
"expressly"
for
the
purchase
and
sale
of
the
property
in
question
at
the
earliest
possible
opportunity.
Thus
the
business
was
this
one
isolated
transaction
for
which
the
syndicate
was
formed.
If
this
is
so
and
that
was
the
“exclusive”
purpose
of
the
syndicate
in
acquiring
this
particular
property
which
follows
from
the
use
of
the
word
"expressly"
in
the
sense
that
there
was
no
other
purpose,
then
the
profit
is
from
its
"business"
within
the
usual
meaning
of
that
term.
If
this
were
the
“exclusive”
purpose
of
the
syndicate
and
the
plaintiff
has
participated
therein
then
the
plaintiffs
gain
in
the
sale
of
the
property
is
taxable
as
income
in
the
hands
of
the
plaintiff.
However,
I
am
not
satisfied
that
this
was
the
exclusive
purpose
of
the
syndicate.
In
the
case
at
bar,
there
is
no
clear
evidence
that
the
intention
of
the
appellant
in
becoming
a
beneficial
owner
of
the
lands
in
question
was
primarily
a
long-term
investment.
The
testimony
of
Mr.
Rafael
does
not
lead
to
this
conclusion.
He
says
that
his
intent
was
for
a
long-term
investment
and
it
was
he
who
made
the
decision
on
behalf
of
the
appellant.
However,
his
evidence
has
not
been
corroborated
by
Mr.
MacKay
who
introduced
him
to
the
project.
There
is
no
documentary
evidence
to
corroborate
Mr.
Rafael's
testimony
in
any
way.
Mr.
Rafael
knew
Mr.
Hobbs
and
may
have
talked
to
him
at
the
time
of
the
investment
but
Mr.
Hobbs
was
not
asked
to
testify
as
to
what
were
the
plans
for
the
development
of
the
lands.
The
purpose
described
in
the
Trust
Deed
is
of
a
general
real
estate
purpose
allowing
sale
as
well
as
leasing;
there
is
no
specific
mention
of
an
industrial
park
with
the
various
phases
leading
to
it.
There
is
a
mention
of
Phase
two
and
three
in
the
November
19,
1981
letter
as
if
Phase
one
had
been
the
sale
of
the
two
properties
in
question.
The
project
never
generated
any
revenue.
When
the
letter
of
November
19,
1981
was
received
by
the
appellant,
there
was
no
opposition
to,
and,
needless
to
say,
no
questioning
of
the
proposed
sale
and
the
appellant
willingly
provided
authority
to
sign
the
purchase
agreement.
In
this
regard,
I
would
like
to
quote
the
words
of
Mr.
Justice
Noel
in
M.N.R.
v.
Clifton
H.
Lane,
[1964]
Ex.
C.R.
866;
[1964]
C.T.C.
81;
64
D.T.C.
5049,
at
page
91
(D.T.C.
5054-55):
It
would
appear
from
this
that
the
syndicate’s
non-active
members
were
quite
content
to
leave
the
handling
of
the
syndicate's
activities
to
the
executive
committee
who
had
carte
blanche
to
handle
the
business
of
the
Syndicate
as
they
thought
best
and
because
of
this
situation,
the
passive
members
here
would
be
in
no
different
position
than
that
of
the
active
members.
Indeed,
if
the
transactions
are
business
transactions,
any
profit
derived
therefrom
from
any
of
the
members
would
be
taxable.
The
evidence
leads
me
to
believe
without
any
doubt
that
when
signing
the
Trust
Deed,
the
appellant
had
acquiesced
in
whatever
decisions
the
Trustee
would
be
taking.
Therefore
the
appeal
is
dismissed.
Appeal
dismissed.
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