T.D.M.C. Holdings Ltd. v. Minister of National Revenue, [1987] 1 CTC 2104, 87 DTC 71

Christie, A.C.J.T.C.:—This appeal relates to the appellant’s 1980 and 1981 taxation years. The question to be answered is whether the gain of $20,866 on the sale of two lots (Nos. 23 and 24) in the appellant’s 1980 taxation year and the gain of $37,150 on the sale of two lots (Nos. 20 and 21) in its 1981 taxation year is capital in nature or business income.

The appellant was incorporated in 1979 under laws of British Columbia to receive and manage the assets of Mr. Paul A. Turner and his wife Sylvia. They transferred assets of considerable value to the appellant, most of which were in the form of securities and real estate. The bulk of the shares were issued to Mr. Turner and his wife. Their four children were relatively minor shareholders. Turner was president of the appellant. Its counsel described him as the appellant’s "operating mind and management". The appellant's taxation year was June 1 to May 31.

From 1973 to 1979 Turner was vice president and general manager of British Columbia of Engineered Homes Limited, a subsidiary of Genstar Corporation. It built homes and also purchased and developed lands on which it built homes for sale. It was a business of significant magnitude. Turner retired at the beginning of 1979.

In 1979 and 1980 the appellant acquired 12 residential lots on Lancelot Drive in Central Saanich, near Victoria. All had been the property of Engineered Homes at the time Turner was an officer of that company. Four lots had foundations at the time of purchase. One of the lots (No. 30) was purchased by Turner from Engineered Homes and then transferred to the appellant. The remaining 11 lots were purchased directly in groups of eight and three.

The appellant constructed homes on five lots which were then sold. This was done over a period of six years. The appellant treated and reported the gains from these sales as business income. Lots 23 and 24 were sold in 1980 prior to May 31. Lot 23 was sold to a Mr. Hanson. Lot 24 was sold to a contractor named Desuzo. Lots 20 and 21 were sold in 1980 after May 31. One was sold to a carpenter named Wisener and the other was sold to a Mr. Callaghan. Lots 20 and 21 had foundations. Wisener and Callaghan worked for the appellant. Subsequently two more lots were sold and one lot remained with the appellant at the time of the hearing. This accounts for the 12 lots.

Turner said that when these lots were acquired it was not intended that the appellant would construct houses for sale on all of them. Further it was not intended to construct homes for rent on any of the lots. He said: "It was not a rental area out there. It was a single-family residence, residential area.” He described the lots as a "good investment". The may well have been, but not necessarily in the strict sense of the word "investment", i.e. expenditures on capital assets the profit from the sale of which would be a capital gain, which is requisite if this appeal is to succeed.

In M.N.R. v. Valclair Investment Co. Ltd., [1964] C.T.C. 22; 64 D.T.C. 5014, Mr. Justice Kearney of the Exchequer Court had before him the question whether the profit on the sale of farm land was a capital gain or business income. He concluded on the particular facts of the case that it was a capital gain. He said this at 28 (D.T.C. 5018) regarding the meaning of investment:

. . . in the absence in the Act of any definition of “investment” I think recourse must be had to dictionaries and jurisprudence; the following definition of the word “investment” is found in The Shorter Oxford English Dictionary, 3rd ed., p. 1040:

5. Comm. The investing of money or capital; an amount of money invested in some species of property, b. A form of property viewed as a vehicle in which money may be invested.

In respect of jurisprudence I think it indicates that when a purchase is made — such as in the instant case — in order for it to qualify as an investment, the object purchased must be at least susceptible of yielding an annual return such as rental, dividends or interest.

To my mind it must be a rare result to regard the proceeds of disposition of real estate as other than business income in circumstances where a taxpayer acquires either building lots meant for homes that are not rental units or lots unencumbered by that restriction with no intention of constructing such units, and commences to dispose of them within a relatively short period.

I am satisfied on the evidence that when the appellant acquired the 12 lots it was Turner's intention that some be used in the appellant’s business of constructing and selling homes and the rest sold whenever it was regarded as financially advantageous to sell. Having regard to Turner's relationship to the appellant, this intention is attributable to it: Leonard Reeves Incorporated v. M.N.R., [1985] 2 C.T.C. 2054 at 2058; 85 D.T.C. 419 at 421. It follows that the proceeds from the sale of Lots 20, 21, 23 and 24 in the appellant’s 1980 and 1981 taxation years is business income.

The appeal is dismissed.

Appeal dismissed.