Gyratron Developments Ltd. v. Minister of National Revenue, [1986] 2 CTC 2229, 86 DTC 1653

Goetz, T.C.J. [Orally]:—The appellant, Gyratron Developments Ltd., (“Gyratron” or “the company”) appeals in respect of its 1981 taxation year. Evidence was given on behalf of the appellant by M. I. Huculak, Esq., a lawyer who practised in the Vancouver area for 25 years and who specializes in real estate and commercial law. He has, quite apparently, done very well in his practice of law with the adjunct of having a keen interest in real estate, dealing for others as well as for himself, and in the process has acquired what I would consider a fortune.

Mr. Huculak is the owner of the appellant company and sole shareholder and the company's business is for investment and trading in real estate.

There are a series of events upon which this appeal is based. On September 15, 1980, Mr. Huculak acquired an option to purchase certain properties in the Shaughnessy Heights area for $600,000. The option was for $1,000 a month.

On October 28, 1980, Mr. Huculak assigned his option to his company for the sum of $1 and on November 4, the company (the appellant) assigned the option to Julia Heah for the sum of $100,000.

The issue to be determined is whether this was a capital transaction or an adventure in the nature of trade.

Dealing with the expressed intention of the appellant, through Mr. Huculak, Mr. Huculak stated that he originally wanted the property for a personal residence and the Shaughnessy Heights area is one of the finest in the Vancouver area. Meanwhile, he had made plans to construct a Mediterranean style home on Angus Drive but was unable to get a building permit. He then resided on Matthews Avenue, across from the subject property. He paid $2,500 a month rent for that property which was a single unit. When the lease to that property expired, he moved into Casa Mia, which I take it is a grand home, and he was there for about two years and intended to buy it for $900,000.

A number of events occurred whereby the appellant (or Mr. Huculak) became involved in the Marine Drive joint venture and at this point he says he lost interest in the subject property as a residence. He says that he was personally in a position to finance the acquisition of the subject property as a residence. He decided to get the property into the name of his company, the appellant, for the purpose of obtaining rental income and a long-term investment. It was a large Tudor home that he wanted to convert into four or six apartments and he declared that the Heah offer, which was brought to him by a Mr. Wardle was “like winning a lottery”. He accepted the offer in spite of his very high regard for its value. Gyratron was involved in the Marine Drive joint venture and his statement is: . suddenly moneys became tied up on the part of Gyratron”, although he did admit that if he had guaranteed Gyratron, it would have been acceptable to his lender. He reiterated that he had no intention of turning the property for a profit, and that it was his intention to have it owned by Gyratron as a good long-term investment.

As mentioned, the property is located in an exclusive residential area in Vancouver and at this time in 1980 the real estate market was rising rapidly and he used the word “booming”.

Mr. John F. Weldon, an appraiser with Revenue Canada, gave evidence to the effect that one out of four sales, not just with the area involved in this appeal, but throughout the City of Vancouver with the booming market, was speculative. He filed with the Court a chart (Exhibit R-8) showing how the price of residential property in the $75,000 range in 1979 rose in value to about $181,000 by mid-1980 and gradually fell to $144,000 by December 1981. It is clear from that exhibit that the whole Vancouver scene was a booming market. The appraiser said that a knowledgeable purchaser would be aware of a good potential of converting old houses into condominiums, along with in-filled developments. This would have been the most economic use of this property.

Further the appraiser disagrees with the projected income by the appellant. He says it is too high considering what could be done to that building.

Those are basically the facts and I have to determine and examine the expressed intention of Mr. Huculak with respect to the use of the property. I can only do that by objectively examining all the facts and factors involved here.

Mr. Huculak was a bright and successful lawyer, who, through his real estate expertise, acquired a large number of assets and has had many dealings in real estate, both on his own behalf and on behalf of his clients. I would consider him indeed a knowledgeable person. He took out an option on the property to purchase it for $600,000. He, of course, then was not required to put a large amount of money down and the option within a few weeks was assigned to his company, his alter ego. The acquisition would be properly termed as highly financed, and the appellant (when I say the appellant, I am really talking about Mr. Huculak) would, in the Court's view, have a very broad knowledge of precisely what was going on in the Shaughnessy area and undoubtedly obtained this information through his own observation. Mr. Wardle, the architect (with whom Mr. Huculak was well acquainted), in fact, brought the Heahs to the appellant to see if he would turn over his option to the Heahs.

There was a short holding period from September 15 to November 4, when the option was assigned to the Heahs. The Crown, in light of this, among other factors, has assumed that the acquisition was for the purpose of trading. I do not feel that the appellant has rebutted this assumption. Considering the flow of events, the transactions seem to be more consistent with a trading venture, as opposed to a lasting investment. Though a realtor can acquire a long-term investment, in the course of his business, the Court does not think it is the case here.

In the Court's view, the case was very well presented by counsel for the appellant. It was clean, clear, concise and to the point.

Nevertheless, having regard to all the facts mentioned above, the Court feels that the appellant has failed to rebut the assumption of the Crown that the transaction was a venture in the nature of trade, and the appeal must be dismissed.

Appeal dismissed.