145101 Canada Limited (Formerly Beacon Hill Lodges of Canada Ltd.) v. Minister or National Revenue, [1989] 2 CTC 2418, 89 DTC 644

Christie, T.C.J.:—The appellant was reassessed by the respondent regarding its 1981 and 1982 taxation years. It objected to the reassessments, but they were confirmed by the respondent by notice dated April 2,1987. This appeal ensued.

Simply put, the issues are whether, in computing its income for its 1981 taxation year, the appellant is entitled to claim a capital cost allowance of $99,475 in respect of a building, equipment and paving, and whether it is entitled to treat a gain of $1,881,268 that it realized on the sale of real estate in its 1982 taxation year as a capital gain. The same premises are involved in both years. In its returns of income for the years under review the appellant, in estimating the amounts of tax payable, treated the premises as capital property. In reassessing, the respondent considered the premises to be a trading asset and that this precluded the claim for capital cost allowance and liability to tax on the profit arising out of the sale on the basis of a capital gain.

The appellant was created as a public company named Beacon Hill Lodges of Canada Ltd. on April 11,1969, under the Canada Corporations Act. It was later continued under the Canada Business Corporations Act. On June 12, 1985, its articles were amended to change its name to 145101 Canada Ltd. During the period 1980 to 1982 inclusive, Mr. Gerald Raisen, C.A., was vice- president and a director of the appellant. He still is. In 1980 there were eight other directors four of whom, in addition to Raisen, were officers, namely, Mr. Donald Gales, chairman of the board of directors; Mr. Hyman Barlin, deputy-chairman; Mr. William Gala, president and Mr. Morley Greene, secretary. The other directors were Mr. Herbert Hignett, Dr. Albert Rose, Mr. Gerald Gales (brother of Donald) and Mr. Gerald Libling. In the latter part of 1981 Mr. Carl Hunt was added as director and in 1982 the directors and officers were the same as in 1981. The share distribution during 1980 to 1982 was: Donald Gales 29.5, Gerald Gales 7.5 and Raisen 3. All were common shares. Donald Gales was the principal mover behind the incorporation of the appellant.

The first witness, Raisen, said that the purpose of creating the appellant was to engage in the business of nursing homes. Homes of this kind were established by it during the 1970s in Manitoba, Ontario and British Columbia, first in Winnipeg (the appellant's head office), then Fort William (now Thunder Bay) followed by Windsor, Ottawa, Hamilton, Vancouver and Victoria. These homes were constructed for the appellant by Imperial Construction Ltd. which had acquired experience in this regard building homes for Central Park Lodges which was also in the nursing home business. Imperial Construction Ltd. was one of a group of companies known as the “Imperial Group”. A common characteristic of each was that they were controlled by Donald Gales through shareholdings and trust arrangements. There were five principal companies in the group, three of which were engaged in development and two in construction: Imperial Developments (Canada) Ltd. ("Imperial"), the primary developer, Imperial Developments Ltd., Imperial Ventures Limited, Imperial Construction Ltd. and Imperial Construction (B.C.) Ltd. [1] These corporations covered the whole spectrum of development and construction. Projects engaged in by the Imperial Group were often syndicated, i.e. opened to outside investors to participate in the risks and profits, and this led to members of the Imperial Group being involved with up to 400 other corporations. The head offices of the members of the Imperial Group were in Winnipeg and offices were also established in the other provinces. They were involved in the development and construction of both residential and commercial properties and in addition, as previously indicated, they would do work for others under contract. Undertakings were developed and constructed for both sale and retention. During the years 1980 to 1982 the directors of Imperial were Messrs. Donald Gales, Gerald Gales, Gerald Raisen, Gerald Libling and Morley Greene. Subject to one qualification, the shareholders of Imperial during that period were: Trusts for the Donald Gales family or companies controlled by his family - 55; Trusts for the Gerald Gates family - 15; Trust for the Gerald Raisen family - 10; Trusts for Gerald Libling family - 10. These were all common shares. The qualification is that in 1980 the appellant held non-voting preferred shares that were redeemed on April 20, 1981.

In October 1972 Raisen left his practice as a chartered accountant and became involved with the Imperial Group on a full-time basis. In this capacity he was knowledgeable about a project in Burnaby, British Columbia, known as Imperial Square Business Park. In August 1978 Imperial purchased a large tract of land in that municipality, the north end of which faced on the Trans Canada highway and the south end faced on Canada Way. A portion of the north half of the parcel was devoted to a 215,000 square foot office and warehouse project that was syndicated in 1979 with Imperial retaining a 21 per cent interest. This entire project was sold in 1987. For income tax purposes Imperial treated the profits it realized on this office and warehouse project as ordinary business income. A portion of the south half of the parcel contiguous to Canada Way was intended for the construction of two office buildings, one on the southeast half and the other on the southwest half. The street address of the southwest half is 4595 Canada Way and it is hereinafter referred to as the "subject property" and the southeast half is referred to as "the adjacent property".

By letter dated March 26, 1980, sent to the Imperial Group at 5751 Cedarbridge Way, Richmond, British Columbia, to the attention of Mr. Graeme Stamp, Vancouver Manager of the Industrial-Commercial Properties Division of Imperial, from Grover, Elliott & Co. Ltd. of Vancouver, Real Estate Appraisers and Counsellors, the Imperial Group received a detailed report on a "Burnaby Office Space Survey and Review”. It relates to the proposed construction of the office buildings on the subject property and the adjacent property. This letter updated and expanded on a survey of Burnaby office space done in May-June 1978 that was revised in February 1979. It discusses potential competition, rental rates and related matters at length and concludes that the demand for well located quality space is modestly strong and that rental rates for office space in Burnaby will continue to rise in the foreseeable future.

On June 16, 1980, Mr. B. Laurie, the head leasing agent for the Industrial- Commercial Properties Division, submitted to Stamp, Mr. P. W. Skynner, vice-president of that division, and Mr. G. A. Libling, president of Imperial, a document entitled "New Tenant Negotiations” relating to the subject property and the adjacent property. It named potential tenants, the square footage they might lease, rent per square foot and estimated the likelihood of renting on a scale of one to five. It showed good prospects for renting considerable space to affluent tenants.

In a document entitled "New Project Viability Study" dated June 27, 1980, from Stamp to Skynner, the former set down figures regarding anticipated cost, income and return from the subject property when developed. It projects a 9.98 per cent return on investment assuming no debt financing and a 4.96 per cent return on equity assuming a mortgage secured debt (30 years at 12.5 per cent) of two-thirds of the total cost. Raisen regarded these projected returns as excellent at that time.

By August or September of 1980 Libling and Skynner had come to the view that, for financial reasons, the subject property should be sold and Raisen was informed of this. Being a director of the appellant he had some familiarity with its affairs and, of course, knew its president, William Gala. He believed that the appellant might be interested in the subject property because it was having difficulty expanding its nursing home business in Canada due to the inability of obtaining requisite licensing by governmental authorities. Licenses were being issued very restrictively and primarily to non-profit organizations. To acquire nursing homes as going concerns was prohibitively expensive. Raisen spoke to Gala who was interested and Raisen told Skynner to communicate with Gala which was done.

On December 11, 1980, the second quarterly meeting of the directors of the appellant was held at the Imperial Broadway Tower in Winnipeg. The directors present were Donald Gales, Gerald Gales, William Gala, Gerald Raisen, Albert Rose, Hyman Barlin, Herbert Hignett, Gerald Libling and Morley Greene. This was the entire Board. The minutes of that meeting are in evidence and these are extracts from that document:

W. Gala presented the financial report to October 31st, 1980. The pre-tax income of $994,082.00 is $230,000.00 over the budgeted $764,809.00. This compares with the first six month period in 1979 of $605,339.00 — an increase of $388,743.00.

The statement of the Source and Application of funds shows a working capital of $1,720,168.00 for the six month period ending October 31st, 1980. This is an increase of $1,099,933.00 over the $620,235.00 which was the working capital at the beginning of the period.

Mr. Gala gave a brief description of the closing of the purchase of the Monterey homes in the U.S.A. by Beacon Hill America, Inc. This was completed November 20th, 1980.

An advantageous business venture by Beacon Hill Lodges of Canada Ltd. will be to purchase a 40,000 square foot building in Burnaby, B.C. This is one of two buildings in an Industrial Park which Imperial would develop for Beacon Hill at a final price of four million dollars.

H. Hignett observed that such an investment would reflect a movement out of the Health Care field, a departure from Beacon Hill Lodges' direction. Further discussion confirmed the purpose of the investment was to make immediate best use of available cash, with the promise of an excellent return. There is no contemplated change in the direction of Beacon Hill's activities.

On November 20, 1980, Monterey Life Systems (“Monterey”), a chain of nursing homes with 1,720 beds in the United States, was acquired by Beacon Hill America Inc., a United States corporation and a wholly-owned subsidiary of the appellant. Monterey carried on business in California, Texas, Minnesota, and Ohio. The head office was in San Francisco. It had about 1,000 full-time employees plus part-time help. The gross revenue was in the order of $18,000,000. The chain was purchased for $12,000,000 U.S. Five million dollars was paid in cash and the vendor accepted a note for $5,000,000 that was guaranteed by a letter of credit. A mortgage debt was assumed. The appellant borrowed the $5,000,000 cash just referred to from the Bank of Nova Scotia. There was also evidence that a Dutch company, Lorwood N.V., was brought into existence as a subsidiary of Beacon Hill America Inc. "for U.S. tax purposes on the acquisition.” Of the $5,000,000 that the appellant borrowed from the bank, $3,000,000 was advanced to Beacon Hill America Inc. and $2,000,000 was turned over to Lorwood N.V. which, in turn, advanced this amount to Beacon Hill America Inc. This item "appears in the appellant's balance sheet as at April 30, 1981, under assets: investments at cost — $6,035,708.” This relates to the $5,000,000 U.S. just discussed converted to Canadian currency.

Imperial and the appellant entered into a development agreement in respect of the subject property "as of” November 1, 1980. Other dates mentioned in the agreement are:

2.01 In this Agreement the words, phrases and expressions defined in this Article shall have the meanings hereinafter set forth:

(i) “Construction Period" means the period from November 1, 1980, up to but not including the date of Substantial Completion of the Project.

(iii) "Completion Date” means the date upon which the Mortgagee makes its final advance under the Permanent Mortgage. (The evidence is that this was April 1981.)

(xiii) "Positive Cash Flow Date” means the last day of the first complete month next following the month in which there is no deficiency in Net Cash Receipts.

(xvii) “Substantial Completion" means the date upon which Imperial's architect of the Project confirms that the buildings' shells are completed and ready for tenants' improvements. (This date is October 26, 1981.)

(xviii) "Turnover Date" means either the first day of the month next following the Positive Cash Flow Date or April 30, 1983, whichever is the earlier. (The subject property was sold to Metropolitan Life on December 14, 1982.)

The development agreement was executed shortly after the December 11 meeting of the Board of Directors. It is a turnkey contract with a management agreement added to it. All of the interim financing was provided by Imperial and it also undertook to arrange the long-term financing which was to be secured by a mortgage guaranteed by Imperial or an affiliate. In this regard the Toronto Dominion Bank advanced $3,225,000 and repayment was guaranteed by Imperial Ventures Limited. Raisen noted that: “Imperial was taking the entire risk in developing and giving a turnkey position.” The total amount due to Imperial under the contract for land acquisition, construction and services was in the order of $5,612,000. [2] On November 1, 1980, Imperial executed this declaration of trust in relation to the subject property in conjunction with the development agreement.

1. Imperial hereby acknowledges and confirms that it holds in trust for the Developer (the appellant) that portion of real property situate in the Municipality of Burnaby, Province of British Columbia, and legally known and described as:

Lot Twenty-nine (29)

District Lot Seventy-three (73)

Group One (1)

Plan 56913 New Westminster District.

2. Imperial hereby acknowledges and confirms that it holds all its right, title and interest in the said and as bare trustee or nominee for and solely on behalf of the Developer, its successors and assigns.

The reason given for the creation of this trust is that under the laws of Burnaby the subject property and the adjacent property could not be subdivided until both of the proposed office buildings were constructed. The subdivision occurred around June 1982. Finally under the development agreement the appellant agreed to enter into a property management agreement with Imperial or one of its affiliates. An agreement was subsequently made between the appellant and Imperial whereby in consideration of managing the property the latter received 4 per cent of the gross rents and 15 per cent of the operating costs. Imperial had entered into similar management agreements with others.

Clause 10.03 of the development agreement provides that notices under the agreement may be served by registered mail addressed, in the case of Imperial, to 5751 Cedarbridge Way, Richmond, British Columbia, with copy [to] 16th Floor, 363 Broadway, Winnipeg, and in the case of the appellant addressed to 5th Floor, 363 Broadway and copy to 16th Floor, 363 Broadway. That address, 363 Broadway, is the address of the Imperial Broadway Tower. It was further brought to the Court's particular attention that in three places in the development agreement reference is made to "the limited partnership" when no such partnership existed in relation to the agreement. The explanation offered was that the form of the development agreement was based on the kind of agreement used in a syndication and that the reference to a limited partnership was an oversight.

The evidence is that the office building on the subject property consisted of four stories with approximately 47,000 square feet of office space or about 11,750 square feet per story. All of this space was initially leased to four tenants, one lease commencing on September 1, 1981 for ten years, the second on November 1, 1981 for five years, the third on December 1, 1981 for three years and the fourth on December 15, 1981 for five years. Leases were executed sometime prior—perhaps three months—to their commencement date.

Early in 1982 negotiations were initiated for the purchase by Beacon Hill America Inc. of another and very substantial American chain of nursing homes called Continental Care Centres ("Continental"). The possibility of this acquisition had been discovered by Bill Gala, who continued to seek other nursing home acquisitions after the purchase of Monterey. Continental had about 5,200 beds, 6,000 full-time employees and 4,000 engaged as part-time help. The purchase price was $60,000,000 U.S. The down payment was $10,000,000 U.S., and in this regard the appellant borrowed $5,000,000 U.S. from the Bank of Nova Scotia and Beacon Hill America Inc. borrowed a similar amount from the same bank. The appellant guaranteed payment of the loan to Beacon Hill America Inc. and, in addition, payment of the loans was guaranteed by the Imperial Group and by personal undertakings given by Donald and Gerald Gales. The personal undertakings were a matter of considerable concern to the Gales brothers. The vendor took back notes in the sum of $30,000,000 and the rest of the purchase price was mortgage secured debt. Gross revenues were $60,000,000 to $65,000,000 U.S. The Continental deal was closed in June of 1982.

Reverting back to the subject property, in September of 1982 Skynner received an unsolicited offer from Metropolitan Life for the purchase of the subject property and the adjacent property. At a meeting of the appellant's directors later that month it was decided to sell the subject property to Met Life on an all cash basis. The desire to reduce the debt arising out of the purchase of Continental is indicated as the principal reason for the decision to sell and the concern about the personal undertakings given to the bank by Donald and Gerald Gales was an integral part of that reason. The date of the sale of both properties to Met Life was December 14, 1982, and the appellant's gain was $1,881,268. Raisen said that prior to receipt of the unsolicited offer, no thought had been given to selling the subject property. He added that apart from the subject property, the appellant had not acquired other property that was unrelated to its nursing home business.

Donald Gales testified that the skills and organization relevant to the operation of nursing homes were not those involved in the development and construction business so the appellant was isolated from the Imperial Group, and professionals in the nursing home field were hired to manage the appellant's business. The witness had no particular knowledge of that business, but was responsible for the hiring in mid-1979 of William Gala as the chief operating officer and president of the appellant who, in turn, formed the appellant's management team. Immediately prior to his association with the appellant Gala had been working for a nursing home organization in the United States called Extendicare. It is clear from Donald Gales' testimony that he has had a very high regard for Gala throughout. There was no overlapping in the day-to-day management of the appellant and the Imperial Group. Donald Gales and the others who were officers or directors or both of Imperial and directors or officers or both of the appellant were not involved in the continuous direction of the operations of the appellant. The existence of the Imperial Group came about in this way. In the early 1950s Donald Gales started in the business of home alterations. He expanded into the construction of homes and then into the business of general contracting. Some large projects were undertaken in the general contracting field and this led to the development business. Donald Gales felt more in control of the future as a developer and was involved in industrial and commercial development including warehouses. Property management was also an aspect of the business. All of these activities continued up to the period of time relevant to this appeal.

Although Donald Gales said that it was intended that the subject property and the adjacent property be held by Imperial as a long-term investment, Raisen's evidence is that Imperial treated the profit realized on the sale of the adjacent property as business income.

When the appellant acquired the subject property in December 1980 there had been many conversations between Donald Gales and Gala about this acquisition. The appellant was having great difficulty in acquiring nursing homes for reasons already indicated and it was Gala that suggested to Donald Gales that because of the inability at the time to expand the nursing home business the appellant should invest in the subject property. Gala explained to Donald Gales why the subject property would be a good investment. This is the pertinent portion of Donald Gales evidence in this regard:

I talked to my president (Gala) and he said maybe this is a good time to not have our eggs all in one basket. The office building that is presented to us was sound in construction. It was a heck of a fantastic long term hold. I said, yes, that’s true. He was explaining this to me, I remember, and the potential leases that were shown to us were excellent. They were A-1 quality. There was good cash flow from the statement, looking at the financial statement in my hand, good cash flow. The manager was Imperial, so my people had those skills in managing an office building. He said, look, we've got excellent managers, the leases were good, the return was reasonable, a reasonable return. We were going to take no risks, didn't want to take any risks. Imperial gave us a guarantee until, I think, April of 1983.

Q. Guarantee on what?

A. On making sure that the income was there. We didn't take no risks. It was really a carefree investment. As the chairman when I went to the board, I had to take that into consideration because the people we have in Beacon are not real estate people.

Q. Could you explain what you mean by carefree?

A. We have an excellent manager who manages, the project was all leased, and we've got income coming in. Also a consideration was a portion of the equity was paid with tax bucks. That was also a consideration too that made it attractive. It gave us the diversification, gave us a little bit of diversification and it took the heat off the president where he will have now a long term investment and he won't have to buy anything stupidly. He's not hungry to buy. That is pretty well my recollection.

Later this witness added that the possibility of a resale of the subject property by the appellant had never even entered his mind.

The professional background of Gala was in the health-care field and, in particular, nursing homes. From 1977 to 1979 he was vice-president and general manager of Metco Centers in Evansville, Indianna, which was a United States subsidiary of Extendicare that was subsequently purchased by Crownex. Extendicare was a large Canadian nursing home chain. Prior to being employed at Evansville, Gala was vice-president of the Canadian operations of Extendicare and before that executive assistant to the director of the Toronto East General Hospital. He did post-graduate work in health administration at the University of Toronto. He reiterated that he was chosen by Donald Gales in 1979 to be president and chief operating officer of the appellant. His evidence of the size and location of the appellant's operations conforms with the testimony of Raisen. On a day-to-day basis the appellant functioned quite separately from the Imperial Group. In late August or early September 1980 Raisen called him about the possibility of the appellant acquiring the subject property. Skynner who, as already indicated, was vice- president of the Industrial-Commercial Properties Division of Imperial, communicated with Gala and they had detailed discussions about it. Skynner supplied Gala with documents relevant to the subject property including copies of the previously referred to “Burnaby Office Space Survey and Review" of March 26, 1980; the "New Tenant Negotiations" of June 16, 1980 and the "New Project Viability Study" of June 27, 1980. Gala turned this material over to the comptroller of the appellant, Mr. Aaron Socklo, for review. Socklo had previously been employed by the Imperial Group. When in Vancouver on the appellant's business, Gala took a “quick look” at the subject property. This was prior to the commencement of construction.

The minutes of the meeting of the appellant's board of directors on December 11, 1980 were reviewed by Gala. He confirmed those minutes including, in particular, what is said therein about the acquisition by Beacon Hill America Inc. on November 20, 1980 of Monterey and the proposed acquisition of the subject property. Gala said he made the presentation to the board regarding the subject property. The vote in favour was unanimous. There was no discussion of a possible resale of that property.

Gala was referred to the development agreement made between Imperial and the appellant and special reference was made to clause 3.02 that required Imperial to complete the project in accordance with the plans and specifications. He was asked whether he had reviewed those documents and replied, "No". This question and answer followed: “Q. Would anyone in your organization at Beacon Hill have seen them or reviewed them to your knowledge. A. Not to my knowledge. My comptroller may have. I do not recall." Gala agreed that it was not part of his mandate to acquire office buildings for the appellant. The negotiations for the sale of the subject property by the appellant to Metropolitan Life were conducted by Skynner, who kept Gala advised.

The last witness was Mr. Herbert W. Hignett who is presently retired. His professional career had been with Central Mortgage and Housing Corporation from after World War II to 1964 when he was appointed president. He retired in 1973. A year later he was appointed president of the Ontario Mortgage Corporation that provided mortgage funds for provincial investments in housing and president of the Ontario Land Corporation that had been formed to gather together for sale disposable land assets owned by a number of provincial departments of government. He was approached by Donald Gales to join the appellant's Board of Directors in the autumn of 1974 and attended his first meeting in early 1975.

He reviewed evidence that has already been referred to, e.g. the nature of the appellant's nursing home operations in Canada, the difficulty encountered in expanding this business domestically, the advent of Gala in 1979, the acquisition of Monterey and Continental and other matters that need not be repeated in detail. The purchase of the subject property was the first occasion on which the appellant invested in property not associated with the health-care field. There was no discussion at the December 11, 1980 meeting about the subject property being acquired for resale or about that possibility. It was to be a long-term investment employing surplus earnings. Donald Gales chaired all of the meetings of the board and he tended to operate by consensus.

Before stating my conclusions regarding the foregoing evidence I I refer to some observations that have been made in reported cases and that have been borne in mind in the determination of this appeal.

1. O & M Investments Ltd. v. M.N.R., [1985] 2 C.T.C. 2207; 85 D.T.C. 536 at page 2209 (D.T.C. 537) (T.C.C.)

Section 28 of the Interpretation Act, R.S.C. 1970, c. 23, [3] provides that in every act of the Parliament of Canada or any regulations made thereunder "person" or any word or expression descriptive of a person, includes a corporation”. Where under enactments the liability of a "person" depends upon the intention behind a particular course of conduct by that person and the person is a corporation, the intention to be attributed to it must be that of a natural person or persons because, of course, forming an intention is a thought process of which a corporation is incapable. As Viscount Haldane, LC, observed in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co Ltd, [1915] AC 705 at 713: “My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own". It is the intention of the natural person or persons who are properly regarded as responsible for the corporate act or acts giving rise to the issue of liability which is ascribable to the corporation.

Cited with approval by Mr. Justice Muldoon in H.Y. Louie Co. Ltd. v. The Queen, [1986] 1 C.T.C. 499; 86 D.T.C. 6228 at page 506 (D.T.C. 6233) (F.C.T.D.)

2. In Magilb Development Corp. Ltd. v. The Queen, [1987] 1 C.T.C. 66; 87 D.T.C. 5012 (F.C.T.D.), Mr. Justice McNair said at page 73 (D.T.C. 5017):

Moreover, the principle that a corporation is a distinct legal entity with a separate personality of its own does not mean that one can safely ignore the identity, character and behaviour pattern of the individual shareholders. It may be necessary, and indeed often is, to look at the shareholder background and behaviour pattern to determine the true nature of the circumstances surrounding a particular corporate transaction and, if need be, the corporate intent that motivated it: See Welling, ibid., at 125 et seq.; In re Westbourne Galleries, [1973] A.C. 360 (H.L.) per Lord Wilberforce at 379; and De Salaberry Realties Ltd. v. The Queen, [1976] C.T.C. 656; 70 D.L.R. (3d) 706 (F.C.A.).

3. In cases where the question is whether the profit made on the sale of real estate is a capital gain or income:

(a) If the taxpayer is a corporation whose guiding mind is a trader in real property, that is germane to determining the intention motivating the acquisition of the real estate in issue and, in the absence of evidence establishing the contrary, it indicates that the property was not acquired with the intention of long term investment: Vaughan Construction Company Ltd. v. M.N.R., [1971] S.C.R. 55; [1970] C.T.C. 350; 70 D.T.C. 6268 per Laskin, J. (as he then was) at page 353 (D.T.C. 6270) (S.C.C.).

(b) The fact that the property in question was disposed of pursuant to an unsolicited offer is relevant and favourable to the taxpayer, but it is not conclusive in answering the question of what motivated the acquisition of the property. It is something to be weighed with the other relevant evidence: Slater et al. v. M.N.R, [1966] Ex. C.R. 387; [1966] C.T.C. 53; 66 D.T.C. 5047 per Noël, J. at page 58 (D.T.C. 5050) (Ex. Ct.).

(c) "The nature of the property sold and the length of time for which it was held are factors of considerable weight”: Diamond Developments Ltd. v. M.N.R., [1984] C.T.C. 2992; 84 D.T.C. 1811 per Bonner, T.C.J. at page 2994 (D.T.C. 1813). If the property was retained for a short period, that points to a trading intention at the time of acquisition. Also if the prop- erty was of the kind that is likely to attract long term investors, this points away from a trading intention when the property was acquired. The converse of these two propositions is true. Again evidence of this kind is not of itself conclusive, but is to be regarded and weighed in the context of all of the relevant evidence.

4. (a) MNR. v. Taylor, [1956-60] Ex. C.R. 3; [1956] C.T.C. 189; 56 D.T.C. 1125 per Thorson, P. at pages 210-11 (D.T.C. 1136-37) (Ex. Ct.)

The cases establish that the inclusion of the term "adventure or concern in the nature of trade” in the definition of "trade" in the United Kingdom Act substantially enlarged the ambit of the kind of transactions the profits from which were subject to income tax. In my opinion, the inclusion of the term in the definition of "business" in the Canadian Act, quite apart from any judicial decisions, has had a similar effect in Canada. I am also of the view that it is not possible to determine the limits of the ambit of the term or lay down any single criterion for deciding whether a particular transaction was an adventure of trade for the answer in each case must depend on the facts and surrounding circumstances of the case. But while that is so it is possible to state with certainty some propositions of a negative nature.

The first of these is that the singleness or isolation of a transaction cannot be a test of whether it was an adventure in the nature of trade. In Atlantic Sugar Refineries Limited v. M.N.R., [1948] Ex. C.R. 622 at 631; [1948] C.T.C. 326 at 333, I expressed the opinion that the fact that a transaction was an isolated one did not exclude it from the category of trading or business transactions of such a nature as to attract tax to the profit therefrom and cited several decisions in support of my statement. The decision in that case was affirmed by the Supreme Court of Canada, [1949] S.C.R. 706; [1949] C.T.C. 196, and has been followed in other cases: vide, for example, Honeyman v. M.N.R., [1955] Ex. C.R. 200 at 208; [1955] C.T.C. 151 at 158. This does not mean that the isolation or singleness of a transaction has no bearing on whether it was a business or trading transaction. On the contrary, it might be a very important factor.

But "trade" is not the same thing as “an adventure in the nature of trade" and a transaction might well be the latter without being the former or constituting its maker a "trader". And whatever merit the singleness or isolation of a transaction may have in determining whether it was a trading or business transaction it has no place at all in determining whether it was an adventure in the nature of trade. The very word "adventure" implies a single or isolated transaction and it is erroneous to set up its singleness or isolation as an indication that it was not an adventure in the nature of trade. Lord Simonds put the matter explicitly in Edwards v. Bairstow (supra) when he said, at page 54:

"The determination that a transaction was not an adventure in the nature of trade because it was an isolated transaction was clearly wrong in law.”

In my opinion, it may now be taken as established that the fact that a person has entered into only one transaction of the kind under consideration has no bearing on the question whether it was an adventure in the nature of trade. It is the nature of the transaction, not its singleness or isolation, that is to be determined.

(b) M.N.R. v. Freud, [1969] S.C.R. 75; [1968] C.T.C. 438; 68 D.T.C. 5280 per Pigeon, J. delivering the judgment of the Court at pages 440-41 (D.T.C. 5281) (S.C.C.):

It must also be noted that the Income Tax Act defines business so as to include “an adventure or concern in the nature of trade (Section 139(1)(e)). By virtue of this definition, a single operation is to be considered as a business although it is an isolated venture entirely unconnected with the taxpayer's profession or occupation. This consequence of the definition has been recognized and given effect to in many cases but I will refer only to one of them namely McIntosh v. M.N.R., [1958] S.C.R. 119; [1958] C.T.C. 18, in which it was held that a single venture of speculation in land gave rise to taxable income when profit was obtained as a result of an acquisition made with a view to a profit on the resale. Kerwin, C.J. said (at pp. 120-121; p. 20):

It is quite true that an individual is in a position differing from that of a company and that, as stated by Jessel, M.R. in Smith v. Anderson, (approved by this Court in Argue v. M.N.R.)

So in the ordinary case of investments, a man who has money to invest, invests his money and he may occasionally sell the investments and buy others, but he is not carrying on a business.

However, it is also true, as well in the case of an individual as of a company, that the profits of an isolated venture may be taxed: Edwards (Inspector of Taxes) v. Bairstow et al. It is impossible to lay down a test that will meet the multifarious circumstances that may arise in all fields of human endeavour. As is pointed out in Noak v. M.N.R., it is a question of fact in each case, referring to the Argue case, supra, and Campbell v. M.N.R., to which might be added the judgment of this Court in Kennedy v. M.N.R., which affirmed the decision of the Exchequer Court.

In the present case I agree with Mr. Justice Hyndman's findings with reference to the appellant that:

"Having acquired the said property there was no intention in his mind to retain it as an investment, but to dispose of the lots, if and when suitable prices could be obtained.”

5. In Pierce Investment Corp. v. M.N.R., [1974] C.T.C. 825; 74 D.T.C. 6608 (F.C.T.D.) the issue was whether the profit on the sale of a vacant lot in Montreal was a capital gain or business income. Mr. Justice Walsh held it was business income. In coming to this conclusion he said this at pages 830-31 (D.T.C. 6612):

As always in cases of this type, the determination of what were the real intentions of the purchasers at the time they acquired the property and whether they had, at that time, a secondary intention in the event that their primary intention could not be carried out, is a difficult one. There is no doubt, however, that the intentions of appellant cannot be differentiated from the intentions of the Shragie brothers [each of whom held 50% of the shares of the appellant] nor can they disassociate their own real estate experience and that of the other family real estate companies from that of appellant.

I am also of the view, as has been expressed in other cases, that while the evidence of the witnesses is helpful in endeavouring to determine their intentions, their actual conduct and the steps they took to carry out these intentions gives a much better indication of what they actually were. Without intending to cast any aspersions on the credibility of the witnesses in the present case it is nevertheless evident that in any case where a distinction must be made between a transaction which constitutes an adventure in the nature of trade and one which leads to a capital gain, one must expect the witnesses to insist that their intentions were solely to make an investment and that the idea of reselling the property at a profit had never occurred to them even as a secondary intention at the time of making the original investment, but was merely forced on them subsequently by some event beyond their control. If they were not in a position to testify to this effect they would have little or no ground for appealing against the assessment.

This was cited with approval by Mr. Justice Dube in the recently delivered reasons for judgment (February 23, 1989) in Rudelier Ranches & Livestock Company Ltd. and Marvin Mogul v. Canada, [1989] 1 C.T.C. 417; 89 D.T.C. 5180 at page 420 (D.T.C. 5182) (F.C.T.D.). This appeal involved a dispute about capital gain versus income in relation to the sale of an apartment building in Vancouver.

What is to be answered is whether, at the time that the appellant acquired the subject property, it entertained a motivating intention of disposing of it at a profit when opportune circumstances arose or was the appellant's motivating intention the purchase of a revenue producing asset for the long term?

I am satisfied that the acquisition and sale of the subject property by the appellant was an isolated transaction. I also have no hesitation in determining that, at all times relevant to this appeal, the appellant's guiding mind was that of Donald Gales and consequently his intentions at the time of the acquisition of the subject property are attributable to the appellant. All of the witnesses emphasized that Donald Gales paid close attention to what the directors and officers of the corporations he controlled had to say. Hignett said he tended to operate by consensus. I am quite prepared to accept this although I regard some of the evidence pertaining to what passed between Donald Gales and Gala as somewhat overblown. For example, the evidence that Gala, who had no experience in dealing with commercial properties like the subject property, explained to Donald Gales, a person steeped in well over two decades of experience in costly, sophisticated and very successful dealings in various aspects of commercial real estate, why the subject property would be a good investment for the appellant smacks of an uninitiated explaining music to the maestro. Donald Gales was the chairman of the appellant's board of directors and its majority shareholder and there is nothing before me to suggest that, in the last analysis, he did not exercise the authority that he had over the appellant in the manner he thought best.

The reason emphasized at trial for the acquisition of the subject property was the difficulty the appellant was encountering in expanding its nursing home business and the sequential availability of funds for investment in a totally unrelated matter like the subject property. The fact is, however, that when the acquisition of the subject property was approved by the board of directors on December 11, 1980, Monterey had been acquired on November 20, 1980, by the appellant's wholly-owned subsidiary Beacon Hill America Inc. For the purposes of this transaction the appellant borrowed $5,000,000 U.S. from the Bank of Nova Scotia, $3,000,000 of which was advanced directly and $2,000,000 indirectly to the American subsidiary. With respect to dates, while the development agreement between Imperial and the appellant was as of November 1, 1980, it was signed after December 11, 1980. The offer from Met Life for the subject property was received in September 1982 and the property was sold on December 14, 1982, i.e. some two years from the date of signing of the development agreement and six months after the acquisition of Continental. The date between September and December 1982, on which the decision was taken to sell the subject property is not in evidence. Nor is the date on which the subject property was turned over by Imperial to the appellant. Under clause 2.01 (xviii) the latest date for this was April 30, 1983, but as the subject property was acquired by Met Life on December 14, 1982, presumably it was turned over prior to that date.

I believe that counsel for the respondent, Mr. Erlichman, was on the mark when in the course of his argument he informally described what had transpired by saying that the subject property had simply been parked with the appellant. Donald Gales was necessarily concerned with more than the interests of the appellant. The corporate interests of the Imperial Group were also his responsibility and in the context of the acquisition of the subject property by the appellant he would not lose sight of the corporate interests of Imperial. I think it can be inferred that it was the hope or expectation that by transferring the subject property to the appellant it could be ultimately disposed of under circumstances more favourable from the income tax aspect than would be the case if Imperial sold it. When the decision was taken at the meeting of the board on December 11, 1980, to acquire the subject property, the appellant's commitments to the nursing home business for which it was created, including those assumed in aid of its wholly-owned U.S. subsidiary, were such as to be more than capable of absorbing all of its financial resources available for investment and the appellant could not be regarded at that time as being in the position of genuinely searching for a long-term investment for surplus funds. On the whole of the evidence the appellant has failed to established on a balance of probabilities that the respondent erred in assessing its liability to tax in respect of its 1981 and 1982 taxation years.

The appeal is dismissed.

Appeals dismissed.