Milton Sorokin, Norman Witten, Henry C. Brezer, H Mie Lieberman, Lawrence G. Rollingher, Estate of the Late Hymie Klein, Viola Klein, Shimon H. Laskin, Louis Lieberman and Robert S. Margolis v. Minister of National Revenue, [1986] 1 CTC 2385, 86 DTC 1312

Tremblay, T.C.J.:—These appeals were heard on April 17, 1985 at the City of Edmonton, Alberta.

1. The Point at Issue

Pursuant to the pleadings, the point is whether the ten appellants, all partners in the “Circle Ten Club” in partnership since September 24, 1956, are correct in considering as capital gain the profits on three transactions of pieces of land totalling 29.51 acres: two expropriations by C.N.R. in 1977 totalling 18.57 acres and one forced sale to the City of Edmonton of 10.94 acres. They were part of a piece of land acreage of 42.16 acres which was purchased in 1959.

The appellants’ contention is that the purpose of acquisition of the land related more to the concept of personal security and pride of ownership. Moreover, the appellants contend that the Valuation Day value was at the time $7,300 per acre.

The respondent mainly contends that a major motivating factor, if not the sole motivating factor, for the appellants at the time of acquiring their interest in the said land was the possibility of turning the said lands to account by resale at a profit in the future. The respondent contends that the Valuation Day value is not over $3,500 per acre.

2. The Burden of Proof

2.01 The burden of proof is on the appellants to show that the respondent's assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessment or reassessment are also deemed to be correct. In the present case, the assumed facts are described as follows in the reply to notice of appeal of Milton Sorokin (the reply to notice of appeal for each of the other nine appellants is identical):

13. In so reassessing the Appellant as to matters here in issue in his 1977, 1979 and 1980 taxation years, the respondent relied, inter alia, upon the following assumptions:

(a) the facts as admitted, supra;

(b) that, in acquiring his interest in the said lands, a major motivating factor, if not the sole motivating factor for the appellant was the possibility of turning the said Lands to account by resale at a profit in future.

2.03 “The facts as admitted, supra’’, as alleged in paragraph 13(a) of the said reply to notice of appeal, are those described in the notice of appeal and admitted as follows:

1. On September 24, 1956 the constitution of a partnership known as “Circle Ten“ (herein called “the partnership” or "Circle Ten”) was signed with the stated purpose and objective of:

"1. To gather for a social evening as often as is decided by a majority of those members entitled to vote.

2. To accumulate funds for profitable investments.”

[Respondent admits.]

2. The constitution of Circle Ten provided that the maximum number of members shall be ten married couples. With respect to investment of funds the constitution stated:

"When membership funds are accumulated in the amount of $500, they are to be converted into a revenue bearing investment decided upon by a majority of those members entitled to vote.”

[Respondent admits but denies it was the same intent at the time of the acquisition of the subject property.]

3. The initial members of Circle Ten were:

Mr. & Mrs. Lawrence Rollingher

Mr. & Mrs. Milton Sorokin

Mr. & Mrs. Patrick Greene

Mr. & Mrs. Norman Witten

Mr. & Mrs. Henry Brezer

Mr. & Mrs. Hymie Klein

Mr. & Mrs. Louis Lieberman

Mr. & Mrs. Hymie Lieberman

Dr. & Mrs. Robert Margolis

Mr. & Mrs. Shimon Laskin

[Respondent admits.]

4. Prior to 1959 Mr. & Mrs. Patrick Greene transferred their interest in the partnership to the remaining members and on or about May 20, 1964 Mr. & Mrs. Hymie Lieberman transferred their interest to the remaining partners although they acquired a one-half share of the interest of Mr. & Mrs. Louis Lieberman. The result of the foregoing transfers was that at all relevant times there were seven married couples with one-eighth interest per couple in the Circle Ten partnership (herein called "one-eighth partners”) and two couples (Mr. and Mrs. Louis Lieberman and Mr. and Mrs. Hymie Lieberman) with a one-sixteenth interest per couple.

[Respondent admits.]

5. All members of the Circle Ten partnership were young persons just commencing their careers and were all personal acquaintances, being members of the Jewish faith. Their parents had trained their children (the partners of Circle Ten) to acquire real estate as protection for their retirement and old age. Some of the partners and many of the partners' parents had lived in Eastern European re- stricted social environments and had trained their children to build their estates through the acquisition and retention of real property.

[Respondent has no knowledge.]

6. During the initial years of the partnership’s existence the members looked for a commercial or apartment building from which they could receive rental income and gradually build their equity for their later years but, while being unsuccessful in such a search, they became aware of a farming property containing about 42.16 acres and legally described as:

Lot (A) containing Forty-two and Sixteen Hundredths (42.16) acres more or less, in the Province of Alberta, as shown on Subdivision Plan 7259 K.S. (S.E. 16-53-25-4)

Reserving unto Her Majesty all mines and minerals in that portion of the said Lot (A) which lies to the West of the East shore of Long Lake being referred to in the Crown grant (C. of T. 279-B) dated 4th of April, 1888, and reserving thereout all mines and minerals in the remainder of the said Lot (A);

(hereinafter referred to as the “Lands’’).

[Respondent admits the acquisition of "Lands” as described but denies any other allegations.]

7. All members of the partnership being young, inexperienced married couples looked to their more elderly friend, Dr. Louis Albert Miller, for advice as to the viability of acquiring the Lands and retaining it [sic] for ultimate development of rental producing properties or for division amongst the partnership members for development on their own. Dr. Miller recommended the purchase of the Lands and agreed to participate in the purchase if the partnership members felt it was beyond their means. The Lands were purchased on November 23, 1959 in the name of Norman L. Witten in trust for the Circle Ten partnership as to an undivided 50% interest and for members of Dr. Miller’s family as to an undivided 50% interest.

[Respondent admits that Dr. Miller was instrumental in the acquisition of the said Lands by the members of Circle Ten but denies any other allegations and states that the said Lands were never at any time developed as a viable revenueproducing asset.]

8. At the time the Lands were purchased, the character of the real estate market in Alberta was such that land prices did not fluctuate, but rather maintained a fairly constant value.

[Respondent denies this allegation.]

9. In view of the relatively small costs associated with holding the property, the partnership was prepared to carry the property until such time as development into a profitable investment became more feasible or the Lands could be subdivided and distributed among the partners for their separate uses. The partners contributed funds to Circle Ten at regular intervals so that payments could be made to the original owner of the Lands.

[Respondent denies.]

10. The Lands were held from 1959 to the present time except for certain forced sales and expropriations by the City of Edmonton and Canadian National Railway Company, three of which dispositions are the subjects of these appeals.

[Respondent admits.]

11. The Lands were never advertised for sale, and no steps were ever taken to list the property with a real estate agent, or otherwise to sell the property.

[Respondent admits that the Lands were never advertised but denies the rest.]

12. On or about August 28, 1975 Canadian National Railway filed an expropriation plan with the appropriate government authorities by which a 1.93 acre portion of the Lands, being a 50 ft. strip of land along the C.N. railway adjacent to the Lands was expropriated (herein called "Expropriation One’’).

[Respondent admits this allegation.]

13. On or about January 21, 1977 a settlement was reached between Canadian National Railway Company, Circle Ten and the Dr. Miller Syndicate in respect of compensation payable by Canadian National Railway Company for Expropriation One. The total price received was $50,500.00 which amounted to a share of each one-eighth partner in Circle Ten of $3,156.25.

[The respondent denies the figures but admits the rest.]

14. Following various discussions from early 1976 to early 1977 in which Canadian National Railway Company expressed the desire to acquire a further 18.63 acre portion of the Lands but which was refused by Circle Ten, on May 10, 1977 Canadian National Railway Company filed a plan of expropriation by which a 16.64 acre portion of the Lands was expropriated (“Expropriation Two”). By a series of three payments during 1977, compensation for the 16.64 acre portion was paid by Canadian National Railway Company in the amount of $782,080.00. Each one-eighth partner in Circle Ten was entitled to the amount of $48,880.00 thereof.

[Respondent admits the transaction but denies the rest.]

15. The total compensation received by a one-eighth partner in Circle Ten during 1977 in respect of Expropriation One and Expropriation Two was therefore in the order of $52,036.00 more or less.

[Respondent admits.]

16. During 1977 the City of Edmonton advised Circle Ten that it required approximately 10.94 acres for a new roadway which was planned through the Lands. Circle Ten rejected the idea and asked for a land swap rather than sale if the City insisted on enforcing its plan to acquire a right of way for a new roadway. Discussions continued until early 1979 when Circle Ten reluctantly sold a 10.94 acre portion of the Lands to the City of Edmonton for a total price of $932,635.00 (“the 1979 sale”). The portion thereof of a one-eighth partner in Circle Ten amounted to about $58,290.00.

[Respondent admits the transaction but denies the rest.]

17. The members of the Circle Ten Partnership filed their income tax returns for 1977 and 1979 as if the amount of proceeds from Expropriation One, Expropriation Two and the 1979 sale in excess of valuation-day value were capital gains, being the realization of a long-term investment.

[Respondent denies the words I have underlined above and admits the rest.]

18. The Respondent reassessed the partners to reflect the proceeds of such dispositions over original cost as being gains on account of income.

[Respondent admits.]

19. The Appellant served a Notice of Objection in respect of each of the 1977, 1979 and 1980 taxation years on the Deputy Minister of National Revenue for taxation on June 2, 1982.

[Respondent admits.]

20. By Notification of Confirmation by the Respondent dated January 20, 1983 the Respondent confirmed the aforesaid reassessments.

[Respondent admits.]

21. The said reassessments are based on erroneous assumptions of fact and law.

[Respondent denies.]

3. Agreement and Admissions

At the beginning of the trial, counsel for the appellants informed the Court that:

(a) the parties agreed that, even if the Valuation Day value is also at issue, it is not involved in this hearing. However, if these appeals are allowed on the capital gain issue, then new appeals shall be lodged if an agreement is not reached on the Valuation Day value issue;

(b) the appellants abandoned the position, set out in the pleading, to the effect that a portion of the gains (or profits) should be attributable to the spouses of the appellants. The only spouse who is an appellant is Mrs. Viola Klein, who is beneficiary of her husband's estate.

(c) the parties agreed that the discrepancy concerning the amounts in the computation of the gain, as the pleadings indicate, is not an issue. Indeed, the discrepancy is a matter of only a few hundred dollars.

4. The Facts

Four witnesses were heard on behalf of the appellants.

4.01 The first witness was the co-appellant Mr. Norman Lewis Witten. He testified that:

(a) as a lawyer, he did the legal work required for the group from the formation of the partnership to the agreement of purchase of the piece of subject property and the discussion concerning the agreements following the expropriations, etc;

(b) a map, showing the subject property and indicating the pieces of land involved in the two expropriations by Canadian National Railway (C.N.R.) (in 1975: 1.93 acres and in 1977: 16.64 acres) and in the acquisition by the City of Edmonton (in 1979: 10.94 acres), was filed as Exhibit A-1;

(c) “Circle Ten Club” was formed by the appellants in 1956. There then were ten young couples. The constitution was filed as Exhibit A-2. The wording confirms the quotations above of paragraphs 1 and 2 of the Notice of Appeal (para. 2.03):

That really followed a pattern, a philosophy, that we were all familiar with, and really, it was a very dominant force in most of our families. We were all Jewish, with rare exceptions, all our parents had emigrated to Canada from Eastern Europe. In fact, I think four of the male members in our group in fact were born in Europe, and were brought over here as children.

Their parents had nothing. They had to work hard:

So, we were trained by our parents, by our culture, by our family background, to provide for yourself, and that was just a normal thing, it was just part of our upbringing, it was just part of the way we thought.

So, it was totally natural for young people at our age, that rather than spending whatever we had, that we'd want to allocate some money to set aside for investments, to provide for ourselves when we maybe weren't able to provide for ourselves through illness, old age, whatever it may be. (TS p 13)

(d) “Circle Ten" was interested in a revenue-producing property:

Because, historically, that was security to Jewish people, if you could own property. That was security. I mean, that was — that had a tremendous importance to them because of the historical background that we came from where you couldn't own property in so many of the places in which you lived, and that’s clearly the case in Eastern Europe. (TS p 15)

(e) the minutes of a special meeting of Circle Ten, dated September 14, 1958 (Exhibit A-3) read as follows:

To discuss liquidation of our stocks and to invest in a property deal.

Full sale discussion re. property on 111th Avenue, to lease to Burger Baron. Decided this deal too speculative for us, and we decided that we should look for a deal with revenue in the vicinity of $40,000.

Pat Turner of Melton's Real Estate gave us a report on the above deal. We asked him to investigate other deals which we may be interested.

This minute says that the deal was “too speculative”, again, I can’t remember precisely what went on at the time, but too speculative could — well, meant clearly that we felt it was too risky. (TS p 18)

In fact, what they then asked Pat Turner for was “a developed property in which there was a tenant or tenants . .. and that the income then from those tenants would meet the financing costs on the building, and over a period of years would pay off the mortgage. And that income together with . . . our regular contributions, that’s what we were looking at” (TS p 20).

(f) the contribution in 1956 was $5 every month per couple, in 1959 it was increased to $10. Until the purchase of the land in 1959, Circle Ten invested in “blue chip securities” such as the Alberta Gas Trunkline, the Toronto Dominion Bank and Alberta Distillers. At the end of December 1959, Circle Ten received from the sale of those stocks $6,269.99 (letter of Mr. Witten to Dr. R. S. Margolis, Exhibit A-4). The blue chip securities were sold in fact . . . to generate cash to meet our share of the downpayment on the piece of land that we bought which is the subject of this appeal” (TS p 22);

(g) two of the members, Mr. Shimon Laskin and Mr. Louis Lieberman, were introduced to the piece of land that they ultimately bought:

We finally made the decision to buy, because when we received the full particulars with respect to the land, there were 42.16 acres, I think it was, the cost was $1,000 an acre, which therefore was 42,000 and a little bit. The downpayment was $15,000, and then the balance of $27,000 was to be paid over a period of years with interest.

We wanted to get some advice as to whether the asking price of $1,000 per acre was a reasonable price, and we also had a real concern, we didn’t have $15,000, we had something just over $6,000, and we didn’t have enough money to make the whole of the downpayment.

So, maybe we could have borrowed, but we were nervous, because we were young, and we were inexperienced. So, we, I don’t know what inquiries the respective individuals made, but as a group, there was one person in particular that we felt was experienced, an older Jewish person in the city, that we felt was knowledgeable in these things, and we went to him for advice. (TS p 23 and 24)

It was Doctor Louis Miller who said it was a good investment:

. . . he knew that we were nervous about buying the whole thing ourselves, because we didn’t have enough money, and it involved a lot of ongoing commitments that maybe some of us couldn’t — were afraid we couldn’t meet.

He, in effect, said that if you don’t want to buy it all, I either myself, or members of my family, will buy whatever portion you people don’t want to buy. So, in the result, the Circle Ten bought half, and the Doctor Miller side bought half. So, our downpayment was $7,500 which was only a little bit more than the money we had available, and our share of the annual payments thereafter would have been covered more or less by the contributions that the couples were making each week into our kitty. (TS p 25)

(h) the purchase agreement was signed on November 23, 1959 (Exhibit A-5). The mortgage was $27,060. The capital annual payment was $5,000 at an interest of 7 per cent. Circle Ten had to pay half of that;

(i) the purchaser on the agreement of sale (Exhibit A-5) was Mr. Witten himself as a trustee. The Declaration of Trust, dated January 14, 1960, was filed as Exhibit A-6. This document also shows that, in 1960, there remained only nine couples. One couple indeed had divorced in 1959 and dropped out of the group because of domestic problems. That was before the purchase of the land. Exhibit A-6 also shows that among the members of the Miller group were Dr. Louis Miller, his wife Rae Miller and their children Joe Miller and Joyce Miller. The Miller group had no greater control over the property than did Circle Ten:

In fact, even though in technical terms he was an equal, his group was an equal owner, in practical terms he had a kind of an interesting philosophy.

He said that because we had invited him into this purchase, in effect saying to him, you know, we don’t want to buy it all, we think it’s too much for us, if you’d like to be our partner, by all means. He said, because you acquired, found the investment, because you invited me in, you really have the right to make the decisions as to what you’re going to do with the property, although I would like to be able to express my views, and hopefully they’ll be considered.

There was nothing in writing to say that was the case, but that, in fact, was the relationship . . . (TS p 34)

(j) in the Declaration of Trust there is a reference to a buy/sell agreement or a right of first refusal. It is paragraph (c) on page 3. It reads as follows:

(c) In the event of a bona fide offer being received for the purchase of the said land or any portion thereof, such offer shall be communicated by Norman L. Witten to the Circle Ten partnership officers and to Louis Albert Miller as representative of the syndicate, and no sale shall be made or completed without the consent of the Circle Ten partnership and Louis Albert Miller syndicate, and in the further event that either the Circle Ten partnership or the Louis Albert Miller syndicate is unwilling to sell at the price so offered, then whichever of the Circle Ten partnership or the Louis Albert Miller syndicate is not willing to sell, shall, upon fourteen (14) days notice in writing so to do, purchase the interest of the other wishing to sell at the offered price.

This provision was to avoid problems resulting from a lack of unanimity between the two groups. From the experience of incorrect documentation, since oil was discovered in Leduc, Alberta in 1949, many transactions could not be completed due to a lack of unanimity between partners. This was common knowledge around Edmonton in the legal community, as well as in the business community,

that you should have some sort of arrangements whereby if an offer came along and one person wanted to accept and another didn’t, that they weren't locked in, you didn’t have to have a unanimous decision. That was the background of this, that if the Doctor Miller group wanted to dispose of their interest, or if we wanted to dispose of our interest, that — and the other ones didn’t want to, there was a buy and sell arrangement. This was so that we could unlock our marriage, if I can put it that way. (TS pp 36 and 37)

(k) an agreement was signed on January 14, 1960 between the nine men left in the Circle Ten group to the effect that if the group, for whatever reasons (no longer friends, divorce, etc.), decided to break up, the nine men had to continue making their “contributions until at least the land was paid for, because we had an ongoing obligation"' (TS p 38). The continuance clause reads as follows:

Notwithstanding the fact that the Circle Ten partnership may dissolve insofar as its social objects are concerned and notwithstanding the fact that the partnership may not wish to enter into other investments, the members of the partnership, being the parties to this Agreement, each covenant and agree with the other that they will continue to advance sufficient funds to the partnership to enable the partnership to make all its future payments on account of the purchase price of their interest in the said lands and all expenses such as taxes, maintenance, et cetera, that may be incurred by them as owners of an interest in the said lands, and the said parties further covenant and agree each with the other that none of them will be entitled to withdraw their equity interest in the partnership until the partnership interest in the said lands has been sold in accordance with voting privileges set forth in the said constitution; it being the intent of this Agreement that even though the Circle Ten partnership may dissolve, the partners shall continue as partners in the ownership of the said land until they agree to sell the same in accordance with the voting privileges in their constitution. (Exhibit A-7, p 3)

The witness explaining the word “sell” said:

. . . and the real meaning of the word “sold” is that no one had the right to get his interest out until this land was disposed of in some fashion. It could have been sold, it could have been subdivided, and each one got his proportionate share of the land. I guess those are the only two things that maybe could have happened. (TS p 41)

(l) the purpose of the purchase was the following:

When we bought the land, you know, it was really a fulfillment, if I can put it that way, of the sort of objectives and philosophy that I explained to the Court earlier; we were all interested in saving, some of us to a greater degree, some of us to a lesser degree, but our philosophy was to save.

We had a special interest in owning land, because of our cultural background, which I’ve explained to you. It meant more to some than it did to others. It wasn’t equal to all of us. But, land meant strength, it meant security, it meant saving. (TS p 42)

It was also possible that the land be developed as a group but . . . it was a long ways away from that, because the land wasn't serviced, it was not in the city, but was close by . . .” (TS p 43).

(m) after the purchase of the land, it was rented to the farmer, who was its former owner. The rent was one-third of the crop. On October 7, 1960, a letter was sent by the trustee (Exhibit A-8) to the two groups, informing them that the rent received for 1960 was $411.75.

It wasn't a big return, but, you know, the land wasn’t so much a question of return at that time, as a saving, an investment situation, and we knew that when we bought it. (TS p 47)

(n) in May 1964, Mr. Hymie Lieberman received $2,500 from Circle Ten;

He wanted to withdraw his money from the group and withdraw from the group. He had no right to withdraw in law, and we didn’t have to do it, but we agreed to let him withdraw, and the $2,500 that he received was what he had actually contributed, invested in our group over the years. He made no profit on it. In fact, I don’t think he even got any interest return on his money. He got paid back the capital he had put in. (TS p 48)

The $2,500 was in fact only 50 per cent of the share of Mr. Hymie Lieberman. The latter indeed had previously sold 50 per cent (Exhibit R-6) to his brother Louis. That is why Hymie and Louis Lieberman are both appellants;

(o) many offers were received over the years to sell the subject property. Many phone calls were received by the witness who explained he was only the trustee, and so on. From that time, two or three written offers were received:

But, a lot of agents would phone me. they were really trying to getr a listing. Or, a lot of people would phone me and talk about buying the land, at what really would be a very very low price in relation to whatever the market value was at the time. And when I would say to them, well, you know that the price you're talking about isn’t realistic in the market, they would just back away, because they knew they were — they couldn’t buy it for a steal.

But we did get the odd serious offer, and when we did, I passed it on. (TS p 51)

An offer to purchase for $505,920 was received on December 12, 1973 (Exhibit A-10). It was not accepted. A counter-offer was not even made. Another offer (Exhibit A-11) in October 1979 (hence, after the two expropriations by C.N.R. and the forced sale to the city) of $1,680,000, was made for the residue of the land (12 acres), $650,000 of which being “payable by trade of 42 acres of clear title land in part of [the] N[orth]- E[ast of] 8-53-27 [west of the fourth]. After a long discussion, they unanimously agreed not to accept the offer. No counter-offer was made.

We didn’t want to sell. You know, we just didn’t want to sell. We didn’t think the time was right. We were still talking about developing it amongst ourselves, because the city had now grown, Jasper Place was part of Edmonton, and this land subsequently also became part of Edmonton. (TS p 55)

(p) No steps were taken to develop the land. They did not go to the stage of hiring consultants:

The city always does a lot of advanced planning of new districts, what they think should be done there, and they prepare, you know, very comprehensive reports. (TS p 56)

So, we knew what was happening, and we kept abreast of it, and we never made any representations, because we were satisfied as to what they were doing. (TS p 57)

(q) in spring or summer of 1975, C.N.R. approached the trustee (the witness) to purchase about two acres of the piece of land:

We said no, we’re not selling, and they said, well, if you don’t sell, we’ll expropriate it, and we, in effect, said, well, if you want it, you’re going to have to expropriate it, because we don’t want to sell. (TS p 58)

A short time after, on August 27, 1975, the trustee received the expropriation notice with respect to 1.93 acres (Exhibit A-12). The project was scheduled for completion in the fall of 1977. “Because of the large number of individual owners involved and because of our desire to enter upon the lands almost immediately, it is necessary for the Company to proceed by way of expropriation” (Exhibit A-12, p 2).

On January 21, 1977, a Release was signed by the trustee in consideration of the payment of $54,064.05 (Exhibit A-13). This expropriation was not foreseeable to the Club in 1959:

(r) in June 1976, CNR asked to purchase another piece of land (7.4 acres), which was also refused. This is confirmed by a letter dated June 9, 1976 written by the trustee to Dr. Miller (Exhibit A-14). On February 8, 1977, an official offer to purchase 16.7 acres at the rate of $38,000 per acre was received (Exhibit A-15). This offer was also refused. The date of expropriation was May 10, 1977.

On December 20, 1977, a letter was sent by C.N.R. to the trustee with cheques in the total of $160,831.91, this amount being the balance of $782,080 paid for 16.64 acres at the rate of $47,000 per acre (Exhibit A-16);

(s) in the late 1960s or in the early 1970s, the authorities of the City of Edmonton started to discuss putting a roadway through the City of Edmonton from east to west (six to nine miles), called 125th Avenue, to expedite the movement of traffic. The roadway had to run through the middle of the subject property.

“The City had acquired most of their land that they needed for this 125th Avenue prior to coming to us . . ." (TS p 71). That was around 1975. In a letter dated December 22, 1977 (Exhibit A-17) written by the trustee to the members of Circle Ten, one can read:

The City of Edmonton wrote me on December 14th advising that they need approximately 14 acres for the proposed 125th Avenue, and they want to commence negotiations with a view to obtaining this land. I contacted the appropriate person at City Hall and advised that we would be co-operative with the City, in view of the City’s need for the land, but that we would prefer to exchange land rather than having our land expropriated or sold to the City. He indicated he would check to see whether the City had any land in inventory that they might be prepared to exchange with us if all the necessary agreements could be reached. (Exhibit A-17, p 2)

On May 10, 1978, the City informed the trustee (Exhibit A-18) that the "Highway No. 16 Corridor” had been established on the subject property. An area of more or less 10.90 acres was required. The City had nothing in its inventory to make an exchange. In 1979, 10.94 acres were sold to the City of Edmonton for $932,635;

(t) there was a background behind the sale to the City:

Firstly, we wanted land, rather than money. We didn’t want to sell our land. We knew we were going to lose some of this land, we preferred to get replacement land rather than money. That was number one.

Number two, it was always Doctor Miller’s philosophy in dealing with the City that if they wanted something from you, that you should cooperate with them, and try and do it, make some sort of an arrangement like gentlemen instead of always being in a fight with them, which, you know, was the philosophy that some people, some taxpayers would use. (TS pp 74 and 75)

(u) no member of the Circle Ten Club was a land trader in and around 1959 (TS p 78);

(v) the Club never attempted to realise profits from land by remortgaging or refinancing the land (TS p 78);

(w) there was not much inflation in 1959 compared to what subsequently occurred. Even in the late 1970s, while land prices were escalating, the Club never wanted to sell: "we never voluntarily sold anything” (TS p 79). The land was never listed for sale.

4.02 Under cross-examination, Mr. Witten testified that:

(a) sometime after a meeting that occurred on August 29, 1959, and before a general meeting that occurred on October 10, 1959, there was a special meeting described in an undated minute. It refers to land on 170th Street and 118th Avenue: "Purchase of Land Decided Upon — 40 acres, 1,000/acre 15,000 Cash, Partner — Dr. Miller, Down Pay't — 500 for our share” (Exhibit R-1).

The minutes dated October 10, 1959 (Exhibit R-2) only described the location of the land and the note "Norm to be trustee for all”;

(b) from the first paragraph of the agreement for sale (Exhibit A-5), the date that appears is November 23, 1959. However, the agreement was signed only on January 14, 1960 (Exhibit A-7). In the meantime it was decided to buy "an additional 4 Z> acres for 4,500 payable at the term end, but have to give up 66 [feet] of frontage for the highway, so we end up with a net of 42.06 acres” (Exhibit R-3). The 66 feet required by the Municipality was for an eventual widening of 118th Avenue;

(c) the two sellers, Mr. Goethals and Mr. Blomme, had retained pieces of land on which was located their home property. In 1977, however, the City required those pieces of land to build 125th Avenue (TS pp 92 and 93);

(d) Mr. Laskin and Mr. Lieberman are the members who brought to the attention of the group that a certain piece of land (which became the subject property) was for sale. They had been informed of the fact by one of their friends, a real estate agent (TS p 95);

(e) in 1959, Dr. Louis Albert Miller was a full-time medical practitioner: “he was actively involved in land investments. . . . He had a lot of knowledge at that time, had made investments by that time and he made lots after" (TS p 96).

The members of Circle Ten went to him for advice because he was more knowledgeable than they: “Because we felt he was knowledgeable in land values, and prospective uses of land, and what might happen with them, and that we could rely on his advice as to whether we would be making a good investment or a bad one" (TS p 97).

The witness did not know whether or not if in 1959 Dr. Miller was a trader in land, but he knew that in later years Dr. Miller had a reputation as a trader in land:

We placed a lot of value in what he said, because we respected him, and we respected his knowledge. .. . His advice was that it was a good investment, that the land would always be worth that money, and that it had lots of prospective uses, we could develop it, it could be sold, you could subdivide it, what they were at that date, nobody knew, but all those options were open. (TS p 99)

4.03 Mr. Murphy continued to cross-examine the witness more strongly concerning Dr. Miller.

Q . . . you say you went to Doctor Miller for advice. Now, what was the advice in relation to development, sir?

A Was this a good investment? Was the land worth $1,000 an acre they were asking for? Was there a chance that we were going to be able to make a profit on it? Were we making a bad investment or a good one? What were the prospective uses that might be made of it? What was its ultimate potential?

You know, all those things are encompassed when you go looking to someone for advice in a situation like this, and that’s what we did.

Q And Doctor Miller’s expertise was in buying land and selling it at a profit? Is that not correct, sir?

A Well, it went beyond that.

Q What other expertise did he have?

A He was a knowledgeable investor, he was a knowledgeable person in the real estate industry. Even though he may not have developed an apartment building, or a warehouse, or an office, he knew about those things.

Q He would buy the land speculating that it would go up in value, and sell it for a profit, is that correct?

A He did some of that, there is no doubt.

Q And that’s the man you went to advice for?

A You can put it in your words if you want, but I can describe what kind of an individual he was, and where his knowledge came from.

Q So, you’re telling us that he also suggested you can develop this land? A It was clearly a possibility.

Q Well, let’s review the possibilities. What exactly did he say you could develop it, and what avenues of development did you, as a group, proceed on?

A I can’t tell you what precisely he said to us. All I can give you is the general framework of what he said. The types of development that you might be able to do on that land in due course. It was too early to know.

Q Well, did you check the zoning of the land before you bought it?

A Sure, it was agricultural.

Q Did you check, or attempt to institute any steps to rezone the land, or enter into some type of development, to develop it for townhouses, warehouses —

A Not at that stage.

Q — anything?

A It wasn’t ready for that at that stage. The market wasn’t ready for that sort of thing then. (TS pp 102-104)

4.04 Always under cross-examination, Mr. Witten testified or admitted that:

(a) for an investment of $1,944.43, in 1960, each member received $27 from the proceeds of alfalfa production from the land. In 1961 each member received about $30 (TS pp 110 and 112):

Q You weren't interested in this land as a producer of alfalfa, wheat, or any other farm product?

A We thought the land was a good investment. It was a combination of saving, and we were going to be able to do something with it, in our judgment, at some time in the future, that would enhance our personal positions of worrying about security, and saving, and all the things that go with it.

Q You were going to do something with it at some time in the future, is that what you are saying?

A That was one of the alternates that was available. We didn’t know what we were going to be able to do with it. We knew that there were these theoretical possibilities and that in all probability one of them was going to be a viable one, and we would follow one of them.

Q From 1959 to 1985 did you hire anyone to develop this land for you?

A No.

Q You never developed it, during any of these periods?

A We never developed it. We stayed very close to what was happening in the marketplace because many of us were very knowledgeable in that area, as the years went on. I was a lawyer, another one became an investor, another one became something else, you know. We had knowledge, and we applied that, and we followed what happened with the area. (TS pp 111 and 112)

(b) the only revenue that Circle Ten realised in the land was its sharecrop arrangement and the profit realised from the expropriations and the sale to the City of Edmonton. The major objective in purchasing the land was not to get sharecropping revenue from the 42 acres:

Q And the only thing that’s contemplated in A-6 and A-7 is the sale of the 42 acres. Is that not correct?

A No, I won’t say that’s the only thing that’s contemplated. The word “sold” is in there. I’ve explained to you what we thought might happen. We were concerned, we did two things in these agreements. In the agreement between the nine men left in the partnership, in the Circle Ten, which was A-7, that agreement said that there was no way for any one of those nine men to be able to withdraw from the group. He must continue to pay. There was no severance within that group, because we had an ongoing obligation.

In the Declaration of Trust we made express provision whereby our group could get separated from Doctor Miller’s group, so that those two groups could go their separate ways. . . . (TS pp 117 and 118)

A One of the concerns was that either side, you know, if Doctor Miller was a trader, which you're suggesting he was, he might have got an offer that he wanted to accept, he might have wanted to sell. We weren’t traders, we didn't want to sell, we still haven’t sold.

So, we could have been in a position where he got an offer and he wanted to accept, and we didn't want to sell. In those circumstances, that gave us the right to buy his interest and retain total ownership rather than being forced to sell, or put him in a position where he couldn't dispose of what he wanted to sell. That was the purpose of it. (TS pp 118 and 119)

(c) sometime during the course of the ownership of this property, around 1970, there arose the possibility of leasing the property out to an auto salvage business. It was turned down because:

. . . as I remember it, there are real problems with those locations. They're very unsightly. They're real problems from the Municipal Government's point of view, and I think, I think our agreement was not to go ahead with it, because we were afraid that we may end up with a real mess on our hands, and really more than we bargained for. (TS p 121)

(d) on December 20, 1965, the appellants, through their trustee, wrote to the Municipal district of Stony Plain to apply for a permit to remove topsoil for sale (Exhibit R-4).

The second paragraph of the letter reads as follows:

As you know the land is almost immediately adjacent to 170 Street at 118th Avenue and it would appear that in the very near future the land will be developed for industrial uses. Although there is not anything pending in that regard, I am sure that this will be the ultimate use. In view of these circumstances, we would appreciate if the Soil Conservation Officer would give approval to removal of all the top soil on the property and I would appreciate if you would advise in that connection at your earliest convenience. I may say that we have received some enquiries from people that would be interested in developing the property for industrial purposes but no sale has been negotiated as yet because of difficulty in arriving at a purchase price for the land.

Cross-examined about how many inquiries he had received in 1965 from people interested in developing the property for industrial purposes, the witness could not precisely remember: “1 honestly don't know, but it wouldn't have been very many. I just can't be more precise than that. It was all those years ago" (TS p 130). . . .

Q But, you didn't say that you were going to develop the land. So, you're going to sell the land . .. you were going to sell the land at a profit, weren't you, sir?

A That was clearly one of the possibilities

And Dr. Miller said, in his advice to you, that $1,000 an acre was a good investment because you'd always get your $1,000 an acre, you would sell it for more.

A If we were going to sell it, that's right, that the value would be more. We would always get our money back one way or another, and probably make a profit. How you were going to generate the profit was the question. If we kept the land and we developed it ourselves, and put our own buildings on it and kept them, no one would argue that it was an income gain, they would have said it’s a capital gain.

So, you know, all I can say is that those were the theoretical posibilities that were available to us. If we'd have been so hungry for bucks, you know, when we got the kind of offers like that one for 1 million 600 and something, I think we might have sold. (TS pp 131 and 132)

(e) following a petition (Exhibit R-5) by the appellants and other owners of properties in October 1974, many pieces of land including the subject property were ultimately annexed by the City of Edmonton:

Q Did you have any intention to develop the land that was annexed, sir?

A Our intentions were the same from the time we acquired it, up until the present date. It hasn't changed, and the economic climate in which this land was to be developed, whether we were going to do it, or others were going to do it, would be better, in our judgment, if the land was in the city rather than in the municipality. It could get serviced better and quicker, because it had to get serviced from the city, and you couldn't develop it without it being serviced. (TS pp 133 and 146)

(f) concerning development of the land in case the City split the land in half:

. . . we never got to the stage of doing any detailed planning on the site, of drawing plans, and sub-prospective subdivisions, or designs for buildings that might be created. It never got advanced to that stage. (TS p 144)

(g) concerning the land that he asked to receive in exchange . . rather than having our land expropriated or sold to the City (Exhibit A-17, p. 2), Mr. Witten said the land he wanted “was going to be developable land" (TS p 148). The City advised in a letter dated December 21, 1977 that it “has no surplus land in its inventory for exchange purposes. The City has industrial land for sale at market value, but any land the City has for sale is subject to a building commitment by the purchaser of same" (Exhibit R-7);

(h) concerning the offer received in 1979 to buy the residue of 12 acres for $1,680,000, of which $650,000 would have been payable by trade of 42 acres (para. 4.01 (o)), their refusal was based on the fact that the 42-acre lot was “‘away out in the country in relative terms, so that its development possibility was pretty small, as I remember" (TS p 152). This 42-acre piece of land, located near the Inland Cement factory on 156th Street, is less than two miles north from the residue of 12 acres, on 118th Avenue. However “. . . it's not the actual distance, it’s where its location is in relation to other developed land, in relation to services . . .”

Q And also in relation to how quickly you could turn it over for a profit, isn't that correct?

A l’ve never denied that that was always one of the alternates that we had. (TS p 153)

The 12-acre residue was not developed because the market was not ready (TS p 154).

Q You sat on vacant land, hoping it would increase in value, did you not, sir?

A That’s one of the possibilities. .. . Nothing changed from the time we bought. . . .

Q You didn't develop it ever?

A No. There’s lots of land around that hasn't been either. (TS p 155)

4.05 Dr. Robert Sydney Margolis, in chief examination testified that:

(a) Circle Ten was basically a social club. Just married in May 1956, he and his wife wanted to meet other Jewish people. They decided to put in $5 a week hoping to accumulate funds. They first invested in blue chip stocks and later in real property;

(b) for investing in real property, “1 think that was drilled into me by my parents'" (TS p 159);

(c) he was very excited when the subject property was purchased. With his wife and children . we drove by to look at [it]. It was out in the country, it was a long way, but I was very proud of that land . . . we did talk about it often, and one of the conversations was about the possibility of the ten couples building their own homes on that land, and another time . .. to build a hotel on, because of all the highways that seemed to be going by it” (TS p 161);

(d) Dr. Miller was involved in the purchase because Circle Ten needed the down payment;

(e) for 26 years, Dr. Miller came to the meetings maybe two or three times;

(f) the offers they received were turned down, because the members were not interested in selling the land. They were not interested in the two expropriations. Now they are not even interested in selling the 12- acre residue (TS p 163);

Right now, evidently, it is not really the time to do very much with. So, I’m certainly quite willing to sit on it, and look at it. (TS p 164)

4.06 Under cross-examination, Dr. Margolis testified that:

(a) in 1959, the club members had no history of trading in land. However, subsequently some of them acquired experience in business: Mr. Rollingher, who is now president of a trust company, has a long history as a developer. It is the same for Mr. Sorokin. The Lieberman brothers were in the oil business, Mr. Laskin in the clothing business and Mr. Brezer in the furniture-selling business;

(b) Doctor Miller in 1959 was known to be active in buying and selling land. The group went to him for advice and to partake in the purchase (TS pp 170 and 175);

(d) the Miller group did not actively participate in any discussions regarding the purchase of the land or subsequent offers or dispositions of land (TS p 176). He never personally met Dr. Miller’s wife and children during all those years. “I truly feel that [Dr. Miller] . . . was not an active partner in this, and he left it up to us [TS p 180] .. . was a silent partner"" (TS pp 181 and 182);

(e) the clause binding the club members (Exhibit A-7, p 3) was written “basically ... to protect ourselves"" (TS p 178) until the land was paid because they were concerned by people wanting to leave;

(f) he bought the land as an investment but “I don’t know what we had intentions [sic] to do with it” (TS p 181);

(g) in 1979, they refused to sell the 12-acre residue for $1,680,000, of which $650,000 was being traded for 42 clear acres because the land was increasing in value;

Q That’s right, it was worth more because you could sell it for more money a week or a month down the line?

A Well, sell or develop, or something in that order. (TS p 185)

(h) from 1959 to 1965, no attempt was made to rezone the land or obtain a consultant to assist them in developing the land (TS p 187);

(i) he does not feel the intention was to hold the land until it could be sold at the best price because they really did not know what they intended to do with it (TS pp 189-190).

4.07 Mr. Shimon H. Laskin, a salesman, in his chief examination testified that:

(a) the first time they (he and his wife) were approached to become members of the group (which later became Circle Ten), it was “. . . if we would like to be involved in a social group . . . while we were raising our youngsters’ (TS p 193);

(b) the business aspect was to accumulate sufficient funds to invest in real estate. Why? “. .. imbedded in me by my late father. . .. Pride of ownership.”

(c) at the time of the purchase of the subject land ”. .. we thought that it eventually would be a good spot for a development situation, if not a development situation, then possibly split amongst us” (TS p 196);

(d) they rejected the offers received because of. . pride of ownership. We still wanted to retain our piece of land” (TS p 197). They never tried to sell;

(e) the land has not been developed until now because of “probably the downturn of the economy in the City, and maybe the ability of the funds, the interest rates, etc” (TS p 198);

(f) Dr. Miller was involved in their group because “. . . we didn’t have sufficient monies to buy the land” (TS p 199);

(g) at no time did Dr. Miller take the lead in managing the group;

(h) Dr. Miller was in favour of selling the 12-acre residue and of accepting the 42 acres as a swap, but the group made the decision and refused to sell.

(i) he personally never bought or sold land. In 1965 he bought “a little shopping strip of eight tenants,” and still owns it.

4.08 Under cross-examination, Mr. S. H. Laskin testified that:

(a) in 1958, they refused the offer to buy a developed land in the City on 111th Avenue and get revenue from it because they did not have enough money. In 1959, they bought the subject land, a vacant land, because “it didn’t cost us out of pocket [TS p 207] . . . [with] $500 it was pretty well impossible to get into a revenue bearing property” (TS p 208);

(b) with Mr. Louis Lieberman, he found the subject land;

(c) the land was not purchased with the intention of being resold (TS p 211);

(d) Dr. Miller, who had knowledge about land, had an idea about the subject property, in that there was “. . . a possibility for development there” (TS pp 211 and 212).

4.09 In her testimony, Mrs. Viola Klein said that:

(a) in 1956, she was an original member of the Circle Ten Club with her husband Hymie Klein. He passed away in 1977. She was the beneficiary of his estate;

(b) they were invited to join the group Circle Ten. It was to be social and as an investment. At the beginning there was a meeting every second week. It was more social then.

(c) they hoped to buy some real estate. That would give them "something to fall back . . . as a retirement for us" (TS p 230);

(d) ”. . . there were so many different prospects. It could be developed for all of us individually, or a portion of it for the individuals involved, and some of it as revenue-bearing for the rest, for all of us to rely upon" (TS p 231). They did not want to buy and sell it quickly (TSp 231);

(e) they did not want to sell to C.N.R.

5. Law — Cases at Law — Analysis

5.01 Law

The main provision involved in the Income Tax Act is the definition of “business" in section 248. It reads as follows:

248. (1)

“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), an adventure or concern in the nature of trade but does not include an office or employment;

5.02 Cases at Law

The cases at law referred to the Court by counsel are:

1. The Queen v. Douglas Lloyd Anderson et al., [1973] C.T.C. 606; 73 D.T.C. 5444;

2. David C. MacDonald v. The Queen, [1974] C.T.C. 836; 74 D.T.C. 6644;

3. Jean-Louis Boivin v. M.N.R., [1979] C.T.C. 2312; 79 D.T.C. 50;

4. J.I.C. Developments Limited v. M.N.R., [1978] C.T.C. 2992; 78 D.T.C. 1708;

5. Norton Investments Ltd. v. The Queen, [1978] C.T.C. 154: 78 D.T.C. 6078;

6. Brian McKinney and Stanley G. Watson v. M.N.R., [1978] C.T.C. 2675; 78 D.T.C. 1490;

7. Birmount Holdings Limited v. The Queen, [1978] C.T.C. 358; 78 D.T.C. 6254;

8. Andrew Wynnyk et al. v. M.N.R., [1978] C.T.C. 2724; 78 D.T.C. 1529;

9. Hummel Corporation of Quebec Limited et al. v. The Queen, [1979] C.T.C. 483; 79 D.T.C. 5426;

10. Sam Grossman v. M.N.R., [1979] C.T.C. 2132; 79 D.T.C. 141;

11. David Chin, et al. v. M.N.R., [1980] C.T.C. 2296; 80 D.T.C. 1246;

12. Glacier Realties Limited v. The Queen, [1980] C.T.C. 308; 80 D.T.C. 6243;

13. Marcel Vantighem v. M.N.R., [1981] C.T.C. 3007; 81 D.T.C. 922;

14. Harry C. Palnick et al. v. M.N.R., [1985] 1 C.T.C. 2011; 85 D.T.C. 109;

15. Racine, Demers and Nolin v. M.N.R., [1965] 2 Ex. C.R. 338; [1965] C.T.C. 150; 65 D.T.C. 5098;

16. M.N.R. v. Valclair Investment Co. Ltd., [1964] Ex. C.R. 466; [1964] C.T.C. 22; 64 D.T.C. 5014;

17. Montfort Lakes Estates Inc., v. The Queen, [1980] C.T.C. 27; 79 D.T.C. 5467;

18. M.N.R. v. M. & N.E. Lawee, [1972] C.T.C. 359; 72 D.T.C. 6342;

19. Harms v. M.N.R., [1984] C.T.C. 2714; 84 D.T.C. 1666;

20. Albrumac Oils Ltd. v. M.N.R., [1977] C.T.C. 29; 77 D.T.C. 5041;

21. Pierce Investment Corporation v. M.N.R., [1974] C.T.C. 825; 74 D.T.C. 6608;

22. Roy M. Power v. The Queen, [1975] C.T.C. 580; 75 D.T.C. 5388.

5.03 Analysis

5.03.1 The evidence clearly shows the intention of the appellants in initiating the Circle Ten Club in 1956 in social and financial respects, the latter being the accumulation of funds in view of investment in real estate. This was drilled into them by their parents, coming from Eastern Europe. The appellants started to purchase “blue chips?" They were then all young couples without experience in land trading (paras. 4.01(c), (d), (f), 4.05(a), (b), 4.06(a), (b) and 4.09(b), (c) ). Moreover, this is not contradicted in substance by the respondent.

5.03.2 It seems at first glance that, because the transactions are the result of two expropriations and one forced sale, the profits therefrom must be considered as capital gains. However, the crux of the matter, in reality, is the intention of the appellants in purchasing the subject land. If the intention of the purchase of the land was to sell it, it is obvious that the profits are business income, despite the fact that the transactions resulted from expropriations and a forced sale.

To establish this intention, the participation of Dr. Miller in the partnership, the testimonies and the general conduct of the partners before and after the purchase are the points that made lengthy discussions in Court.

In view of determining the intention, it is appropriate to quote this excerpt of R.M. Power v. The Queen on page 585 (D.T.C. 5391-92) (para. 5.02(22)):

All issues must be determined by a careful consideration of all of the relevant evidence both direct and circumstantial. In any particular case, a specific piece of evidence might, by reason of the surrounding circumstances of the case, necessarily possess great probative value while, in another case, evidence to the same effect might carry little or no weight. The court must also bear in mind that facts often speak louder than words and that free acts are very good indication of what a person really intends and overt acts and their results constitute an excellent means of deciding what the intention actually was . . . The issue of intention must therefore be resolved by a careful weighing of all of the admissible evidence which is in any way relevant to that issue and the person or body charged with finding the facts must refrain from considering each piece of evidence independently but must examine it in the light of all the other evidence both direct and circumstantial.

5.03.3 The testimonies of the four witnesses, all co-appellants, are in the same sense: the land was bought with the intention of investment. They all say in substance that it was not to resell immediately, the retention of the property being very important: pride of ownership. An immediate intention of doing something with it after the purchase was not clear, but renting it to the former owner was only a temporary use for the land (paras. 4.01(a), (m), 4.04(a), (b), 4.05(c), 4.06(c), (i), 4.07(c), (d), 4.08(c) and 4.09(c), (e) ).

5.03.4 In 1958, they refused to purchase a property. It was too risky. They wanted a developed property with tenants so that they could meet the financing costs (para. 4.01(e)).

5.03.5 Doctor Miller was first a consultant for the members of Circle Ten Club. It is only because the members of the Circle Ten Club had a lack of finances that he decided to participate 50 per cent with his wife and his two children (paras. 4.01(g) and 4.05(d)).

The evidence is to the effect that he was not an active member even if legally the Miller group owns 50 per cent (para. 4.01(i)).

Even though, according to Dr. Margolis, in 1959 Dr. Miller was known to be active in buying and selling land (para. 4.06(b)). he had, however, only attended two or three meetings during a 26-year period (paras. 4.05(e), 4.06(d) and 4.07(g)).

The evidence to this effect is the fact that the members of Circle Ten made the decisions. When, in December 1979, Dr. Miller wanted to accept the offer to sell the residue of 12 acres for $1,650,000, of which $650,000 was being made payable by trade for 42 acres of clear title land (para. 4.07(h)), the Circle Ten group refused. Dr. Miller accepted their decision according to his philosophy as explained in paragraph 4.01(i).

Dr. Miller did not then use his right provided in paragraph (c) of the Declaration of Trust to purchase the interest at Circle Ten in this 12-acre piece of land (para. 4.01(j) (j)).

They unanimously refused that offer, as they had refused the offer of $505,920 in December 1973 (Exhibit A-10) without a counter-offer (para. 4.01(0)).

5.03.6 The continuance clause provided in the agreement signed on January 14, 1960 (Exhibit A-7, p. 3), quoted in paragraph 4.01(k), and the buy/sell clause provided in the trust declaration (Exhibit A-6), quoted in paragraph 4.01 (j), were the objects of strong debate between the two counsel.

Counsel for the respondent's argument is that when we look at the Declaration of Trust (Exhibit A-6) and the continuance clause of the agreement (Exhibit A-7), the only one thing contemplated in either document is a sale; there is nothing regarding development or subdivision. The only consideration is for sale. Moreover, Mr. Norman Witten, co-appellant and lawyer of the group, drew up these two documents. Are those two documents referring only to sale and not to development, nor to subdivision, not significant of the actual intention of the purchasers of the subject land? On the one hand, this would confirm that, at the time of purchase, there was no other intention save to own the piece of land (pride of ownership). On the other hand, the Court cannot ignore the admission of Mr. Witten under cross- examination that to sell the land at a profit was clearly one of the possibilities (TS p. 131 quoted in paragraph 4.04(d)): “. . . that was always one of the alternates that we had" (TS p. 153, quoted in paragraph 4.04(h)).

Moreover, I think it is correct to take into account the meaning of the word "sold" given by Mr. Witten in the continuance clause (Exhibit A-7):

. . . and the real meaning of the word “sold” is that no one had the right to get his interest out until this land was disposed of in some fashion. It could have been sold, it could have been subdivided, and each one got his proportionate share of the land. I guess those are the only two things that maybe could have happened. (TS p. 41, quoted in paragraph 4.01(k)).

Does the last sentence mean that there was no room for development?

Concerning the development of the piece of land, Mr. Witten said, "we were still talking about developing it amongst ourselves” (TS p. 55, quoted in paragraphs 4.01(0), (p)). Dr. Margolis testified in the same sense (para. 4.06(h)).

The least the Court can conclude is that “development” was something very vague in 1959 at the time of the purchase and that "selling” was something more present, at least in the documents.

It is appropriate here to quote Mr. Justice Noël in the Racine et al. case (para. 5.02 (15)) at 159 (D.T.C. 5103):

To give to a transaction which involves the acquisition of capital the double character of also being at the same time an adventure in the nature of trade, the purchaser must have in his mind, at the moment of purchase, the possibility of reselling as an operating motivation for the acquisition; that is to say that he must have had in his mind that upon a certain type of circumstances arising he had hopes of being able to resell it at a profit instead of using the thing purchased for purposes of capital. Generally speaking, a decision that such a motivation exists will have to be based on inferences flowing from circumstances surrounding the transaction rather than on direct evidence of what the purchaser had in mind.

5.03.7 However, how can it be explained that the appellants always refused to sell? They refused to sell in 1973 for $505,920 (Exhibit A-10). Twice they refused to sell to the C.N.R.; they were expropriated. If they decided to sell to the City of Edmonton in 1977 it is only because it was the best way to make a transaction with the City, pursuant to the counsel of Dr. Miller (para. 4.01(t)). In substance, however, it was a forced sale. The appellants did not have the choice not to sell.

Finally, they refused to sell in 1979 the residue of 12 acres for $1,650,000, and this despite the fact that Dr. Miller was in favour of accepting. It is true that Dr. Margolis, under cross-examination, admitted that if they refused to sell, it was because the land was increasing in value (para. 4.06(g)).

Should the Court apply the interpretation principle of Mr. Justice Addy, in the Power case quoted above that "facts often speak louder than words and that free acts are a very good indication of what a person really intends and overt acts and their results constitute an excellent means of deciding what the intention actually was . . .”?

In summary, is refusing all the offers more significant to express the original intention at the time of the purchase of the land than to refer to the expression "to sell” as a future transaction in the two original documents, in the circumstances explained above, not taking some practical steps for development of the land for over 25 years?

5.03.8 As contended by counsel for the appellants, the instant case has a similarity with the case of Montfort Lakes Estate Inc. (para. 5.02(17) which is summarized as follows in the headnote of 79 D.T.C. 5476:

The principal behind the taxpayer corporation was an immigrant to Canada who was descended from landed European nobility. He and his wife bought a country estate, having faith in the security of owning land, and intending to keep it in the family for future generations. In order to develop the estate, it was transferred to the taxpayer and some building lots were sold to finance the improvements. Some 17 years after the estate was acquired, the taxpayer received an attractive and unsolicited offer to purchase the entire estate. With reluctance, the estate was sold. The Minister classed the profit as income and the taxpayer appealed to the Federal Court — Trial Division, contending that the profit was a capital gain, except for that portion attributable to building lots.

Held: The taxpayer's appeal was allowed. The Court found that the taxpayer's principal was a credible witness. It appeared that the bulk of the land had been acquired as a long-term asset. The sale of building lots was carried out in order to finance development of the entire estate. The Court observed that a taxpayer could both trade in land and hold other land as a capital investment. The profits flowing from the building lots were income, but the profit on the rest of the estate was a Capital gain. The taxpayer's appeal was therefore allowed.

The Court finds that this case can be distinguished from the instant case. In the latter, indeed, original documents issued at the time of the purchase of the land already provided for the possibility of sale. Such evidence did not exist in the Montfort case.

The burden of proof being on the appellants’ shoulders, the Court agrees with the respondent's contention and maintains the reassessments.

5. Conclusion

The appeals are dismissed in accordance with the above reasons for judgment.

Appeals dismissed.