Taylor,
TCJ:—This
is
an
appeal
heard
in
Toronto,
Ontario,
on
July
24,
1985,
against
an
income
tax
assessment
for
the
year
1979,
in
which
the
Minister
of
National
Revenue
taxed
the
appellant
on
the
basis
that
certain
gains
realized
($20,000
and
$70,000)
were
on
income,
not
on
capital
account.
The
notice
of
appeal
prepared
by
Brampton
Tax
Service,
Brampton,
Ontario
reads:
The
facts
of
the
situation
are
as
follows:
1.
John
Ananiadis
earns
his
living
by
driving
a
limousine,
picking
up
passengers
within
and
outside
the
Metropolitan
Toronto
area,
driving
them
to
Pearson
International
Airport
and
picking
up
passengers
at
the
airport
and
driving
them
to
their
destination.
2.
In
July,
1978,
Mr
Ananiadis
borrowed
$90,000
to
purchase
3
limousines
and
3
licences.
The
allocation
of
the
purchase
price
was
as
follows:
—
$30,000
to
purchase
the
limousines
—
$60,000
to
purchase
the
licences.
3.
The
licences
are
2-way,
ie,
it
permits
the
owner
of
the
licence
to
pick-up
passengers
from
Pearson
International
Airport
as
well
as
deliver
passengers
to
the
airport.
4.
These
three
licences
will
only
operate
on
a
frequency
which
is
controlled
by
AARPORT
LIMOUSINE
SERVICE.
5.
When
Mr
Ananiadis
filed
his
1978
tax
return,
one-half
of
the
purchase
price
of
the
licences,
ie,
$30,000,
was
shown
as
an
eligible
capital
expenditure
pursuant
to
paragraph
14(5)(b)
of
the
Income
Tax
Act.
6.
There
was
no
deduction
made
as
an
expense
pursuant
to
paragraph
20(1)(b)
against
revenue
earned.
7.
In
February,
1979
Mr
Ananiadis
was
approached
by
an
employee
of
Macintosh
Limousine
Service
to
purchase
4
licences.
8.
These
licences
are
1-way,
ie,
it
permits
the
owner
of
the
licence
to
pick-up
passengers
and
deliver
them
to
Pearson
International
Airport
only.
9.
These
licences
will
only
operate
on
a
frequency
which
is
controlled
by
Macintosh
Limousine
Service.
10.
Mr
Ananiadis
was
unable
to
purchase
the
licences
as
he
did
not
have
sufficient
funds.
11.
Mr
Ananiadis
approached
a
relative
who
currently
owned
6
licences
and
said
that
he
could
get
him
2
licences
for
$40,000.
12.
The
relative
gave
$40,000
to
Mr
Ananiadis
to
acquire
the
2
licences.
13.
Mr
Ananiadis
acquired
4
Macintosh
licences
for
$40,000.
14.
Mr
Ananiadis
gave
2
licences
to
his
relative
and
retained
2
licences
for
himself.
15.
On
June
15,
1979
Mr
Ananiadis
purchased
2
limousines
and
attached
the
2
Macintosh
licences
to
the
cars.
16.
These
2
limousines
and
the
respective
licences
were
rented
to
third
parties.
17.
On
July
1,
1979,
Transport
Canada
converted
all
1-way
licences
to
2-way
licences.
18.
In
November,
1979
Mr
Ananiadis
was
approached
by
a
third
party
to
purchase
the
2
Macintosh
licences.
19.
The
buyer
wanted
to
purchase
all
15
licences
that
were
currently
allocated
to
Macintosh
Limousine
Service
of
which
2
licences
were
owned
by
Mr
Ananiadis.
20.
Mr
Ananiadis
sold
the
2
Macintosh
licences
for
$45,000
each
for
a
total
of
$90,000.
The
2
limousines
were
sold
to
different
parties.
21.
In
March
1980,
Mr
Ananiadis
purchased
1
AIRLINE
Licence
for
$52,000
and
purchased
1
limousine
for
$13,500.
22.
In
May,
1980
Mr
Ananiadis
sold
1
AARPORT
Licence
for
$51,000
and
acquired
1
AIRLINE
Licence
for
$52,500.
I
am
requesting
that
the
Minister
of
National
Revenue,
Taxation
vacate
his
position
on
reassessing
the
1979
income
on
the
sale
of
the
2
licences,
pursuant
to
section
3
and
subsections
9(1)
and
248(1),
and
to
allocate
this
disposal
to
Cumulative
Eligible
Capital,
pursuant
to
paragraph
14(5)(a)
of
the
Income
Tax
Act.
In
response
the
Minister
stated:
4.
In
reassessing
the
Appellant
with
respect
to
the
1979
taxation
year,
the
Respondent
relied
upon
the
following
findings
or
assumptions
of
fact:
(a)
the
facts
hereinbefore
admitted;
(b)
in
June,
1978,
the
Appellant
started
the
business
of
being
the
owner
and
operator
of
a
limousine
service;
(c)
licences
for
limousines
servicing
the
airport
are
regulated
by
the
government
and
supply
of
the
licences
is
limited;
(d)
the
taxpayer
and
all
other
individuals
in
this
business
prefer
to
own
licences
of
Airlines
Limousine
Service
Ltd
because
that
company
services
most
of
the
corporate
market.
However,
due
to
limited
finances,
the
Appellant
could
not
afford
initially
to
buy
Airlines
Limousine
Licences,
though
he
always
intended
to
convert
to
Airlines
Limousine
when
possible;
(e)
in
June,
1979,
the
taxpayer
decided
to
buy
the
four
licences
of
Macintosh
Limousine
for
$10,000.00
each.
These
licences
were
one-way
as
described
in
the
Notice
of
Appeal,
Paragraph
8,
however,
the
Appellant
knew
at
that
time
that
all
one-way
licences
were
soon
to
be
converted
to
two-way
licences
allowing
drivers
to
pick
up
a
return
fare
from
the
airport.
The
Appellant
knew
that
the
result
of
this
was
that
the
value
of
the
licences
would
increase
dramatically;
(f)
the
purchase
of
the
four
Macintosh
licences
was
financed
by
an
immediate
resale
of
two
of
the
licences
for
$20,000.00
each:
(g)
the
remaining
two
licences
were
sold
immediately
after
the
conversion
referred
to
in
subparagraph
(e)
in
November,
1979;
(h)
in
1980,
from
the
proceeds
of
the
sale
referred
to
in
paragraph
(f)
and
the
sale
of
one
of
the
initial
licences
of
Aarport
Limousine,
the
Appellant
purchased
two
licences
of
Airlines
Limousine
Service
Ltd;
(i)
the
Appellant
had
no
intention
of
retaining
the
four
Macintosh
licences
but
rather
purchased
them
with
the
intention
of
resale
for
a
profit;
(j)
the
profit
realized
by
the
Appellant
from
the
sale
of
licences
in
1979
was
income
from
an
adventure
in
the
nature
of
trade.
B.5
The
Respondent
relies,
inter
alia,
upon
sections
3,
4,
and
subsections
9(1)
and
248(1)
of
the
Income
Tax
Act,
RSC
1952,
Chapter
148,
as
amended.
B.6
The
Respondent
submits
that
at
the
time
of
purchase
of
the
small
airport
limousine
licences
in
question,
the
Appellant
had
in
his
mind
the
possibility
of
resale
and
this
was
an
operating
motivation
for
his
acquisition,
and
as
such
the
profit
realized
by
him
on
the
resale
of
the
licences
is
properly
included
in
computing
the
Appellant’s
income
for
the
1979
taxation
year.
This
receipt
should
not,
therefore,
be
allocated
to
the
cumulative
eligible
capital
pool.
Reference
should
be
made
to
paragraphs
4(d)
and
4(e)
from
the
Minister's
reply
to
notice
of
appeal
(supra).
The
testimony
of
Mr
Ananiadis
was
certainly
to
the
effect
that
his
objective
was
to
obtain
an
"Airline"
licence
if
possible,
and
as
soon
as
possible
(4(d))
but
I
doubt
that
such
motivation
in
itself
can
be
construed
as
an
organized
plan
to
upgrade
from
"Macintosh"
to
"Aarport"
to
"Airline"
by
simply
buying
and
selling
licences
—
even
though
that
is
what
he
eventually
accomplished.
The
Minister's
rather
sinister
assertion,
while
possible,
is
difficult
to
accept.
With
regard
to
paragraph
4(e)
I
doubt
that
Mr
Ananiadis
had
greater
knowledge
of
the
prospects
for
upgrading
the
licences
from
“one-way”
to
“two-way”
than
did
other
operators
or
owners.
As
for
paragraph
4(i)
above,
it
is
possible
that
Mr
Ananiadis
would
have
retained
some
of
the
Macintosh
licences,
if
they
had
been
profitable,
but
with
his
knowledge
of
the
business
(he
already
owned
other
licences
and
cars)
the
prospect
of
such
profit
arising
out
of
the
Macintosh
licences
was
remote
indeed,
when
Macintosh
did
not
have
direct
and
stable
access
to
a
radio
frequency
—
a
factor
which
appeared
to
be
even
more
essential
than
either
a
licence
or
a
cab.
The
real
crux
of
this
issue
arises
in
paragraph
B.6
of
the
Minister's
reply
to
notice
appeal
above,
and
I
repeat
".
.
.
the
Appellant
had
in
his
mind
the
possibility
of
resale
and
this
was
an
operating
motivation
for
his
acquisition
.
.
.”.
The
general
thrust
of
the
information
given
above
contained
in
the
notice
of
appeal
and
the
reply
to
notice
of
appeal
was
confirmed
by
the
appellant
in
his
testimony.
I
am
satisfied
that
Mr
Ananiadis
was
completely
aware
that
he
could
dispose
of
two
of
the
four
"Macintosh"
licences
before
he
acquired
them,
and
at
a
substantial
(100
per
cent)
profit.
The
gain
of
$20,000
on
the
sale
of
the
two
licences
to
his
relative
is
taxable
on
income
account.
Two
points
were
raised
in
argument
regarding
the
other
$70,000
at
issue
($90,000
for
the
sale
of
the
remaining
two
"Macintosh"
licences
in
November
1979,
less
the
$20,000
balance
of
the
cash
associated
with
them).
First,
why
would
Mr
Macintosh
simply
not
hold
onto
the
"one-way"
licences
until
they
became
“two-way’’,
and
thereby
reap
a
much
greater
return?
And,
second,
if
Mr
Ananiadis
were
so
certain
of
eventual
gain
by
upgrading
the
licences
(as
indicated
in
the
Minister's
reply)
why
sell
the
first
two
to
his
relative?
On
the
first
point,
no
evidence
was
brought
forward
upon
which
the
Court
could
determine
the
reasons
for
the
sales
by
Mr
Macintosh
—
but
it
should
be
noted
there
had
been
eight
new
one-way
licences
issued
to
Mr
Macintosh
in
February
1979,
at
a
cost
of
about
$100
each,
for
which
he
did
not
have
automobiles.
He
sold
four
of
them
immediately
and
in
June
1979
sold
the
other
four
to
Mr
Ananiadis.
Clearly
Mr
Macintosh
had
two
options
—
buy
cars,
or
sell
the
licences.
He
opted
for
the
latter.
On
the
second
point
—
by
his
own
admission
—
Mr
Ananiadis
could
not
raise
the
money
to
buy
the
four
licences,
so
he
may
have
had
no
choice
but
to
make
the
noted
arrangement
with
his
relative.
At
least
in
his
mind
he
had
no
residual
funds
tied
up
in
the
two
remaining
Macintosh
licences
he
kept.
One
might
also
ask
why
“the
relative”,
already
in
the
business
(six
licences)
did
not
go
to
Macintosh
and
make
his
own
deal.
Nothing
was
presented
to
the
Court
which
would
bear
on
that
point,
and
accordingly
it
does
not
enter
in
this
decision.
Further
the
testimony
of
Mr
Ananiadis
points
in
the
direction
that
trafficking
in
taxi
licences
was
a
fairly
common
and
regular
occurrence.
Any
prospect
of
selling
for
$50,000,
that
which
had
only
cost
$100
from
the
Government,
must
have
been
a
considerable
lure.
Ultimately
therefore,
while
the
Minister's
“progressive
program”
of
upgrading
the
“Airline”
licences
might
be
viable;
or
indeed
the
Minister’s
assertion
that
the
appellant,
was
a
“trader”
in
licences
over
a
period
of
about
one
and
one-half
years,
could
support
the
assessment;
I
am
satisfied
that
at
least
the
prospect
of
resale
at
a
profit
was
a
major
motivating
factor,
if
not
the
only
motivating
factor,
in
the
appellant’s
acquisition
of
the
additional
two
Macintosh
licences,
at
a
cost
of
$20,000,
then
disposed
of
for
a
total
of
$90,000.
He
was
always
aware
that
they
were
worth
at
least
$20,000
each,
even
as
“one-way”
licences,
since
he
had
sold
two
of
them
directly
at
acquisition
for
that
price.
He
also
knew
if
they
were
upgraded
to
two-way
licences
they
were
worth
a
great
deal
more.
He
may
have
been
just
simply
more
fortunate
in
upgrading
and
selling
the
licences
than
he
had
anticipated,
or
perhaps
sooner
than
he
had
anticipated,
but
that
does
not
relieve
him
of
the
income
tax
obligation
which
results.
Neither
does
the
fact
that
he
“operated”
the
licences
for
a
short
time
have
any
bearing
on
this
situation
—
it
may
have
been
(and
I
am
inclined
to
think
it
was)
the
only
way
(by
“operating”
them)
that
he
could
prove
to
the
authorities
that
he
needed
“two-way”
licences
in
order
for
his
cabs
to
be
viable.
The
appeal
is
dismissed.
Appeal
dismissed.
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