Robert Blais v. Minister of National Revenue, [1985] 1 CTC 2165

Rip, TCJ [TRANSLATION]:—The appellant appealed tax assessments for the 1977, 1978 and 1979 taxation years in which the Minister of National Revenue, the respondent, included the profits from the sale of certain buildings as income in the appellant’s income for each of the years. The respondent alleged that in the years 1976 to 1979 inclusive the appellant purchased and sold buildings as follows:

The appellant retained ownership of the buildings for periods ranging between three and a half months and thirty months before selling them. He began to buy buildings in 1976; he was then 34 years old. He is married and has two children. He began to work at the age of 14 years. He has worked in a bank, for an insurance company, for the General Motors Acceptance Corporation and for the Unemployment Insurance Commission. While employed with the Unemployment Insurance Commission he also worked part-time for two appraisal companies as an appraiser under the supervision of a qualified appraiser. He did not purchase any buildings before 1976.

The appellant testified that he began to purchase buildings for his retirement. His experience in appraisal and finance convinced him of the need to have assets; accordingly, he decided to purchase buildings. He dealt exclusively with one real estate agent, one Gilles Desmarais of the National Trust Company. Before the first building was purchased, the appellant had a meeting with Mr Desmarais to discuss the properties that he wished to buy. Mr Desmarais testified that Mr Blais told him that he wanted to buy properties as real estate investments. Mr Blais testified that he was looking for good bargains with easy financing. The first properties that he bought were residential, unheated dwellings which required the least maintenance. When he purchased a building, he made repairs and negotiated new leases with the tenants.

The appellant sold his first property, which he had purchased on March 15, 1976, by deed of sale dated May 6, 1977; his second sale was on May 11, 1977, three and a half months after purchase. His profit from the first sale was $9,990, and his profit from the second sale was $12,414. He stated that he had sold the first property because he had had bad luck with the property and the building had been damaged by tenants. He further stated that he had sold the other properties in the years concerned because of plumbing problems, the limited potential of the property, tenants who damaged the buildings, the need to renovate the buildings, notices from the City, the desire of the tenants to purchase a house and the age of the buildings.

At the time of the hearing Mr Blais was owner of seven properties with an approximate total value of $709,000; he is also the sole shareholder of a company that owns eight properties with an approximte total value of $1,082,000. Five of the properties belonging to Mr Blais were purchased in the years concerned. The properties which Mr Blais and his company own are residential buildings (duplexes and triplexes) and buildings with a combined residential and commercial function. The appellant testified that his net worth is $1,500,000, and that his wealth derives directly from his real estate investments. All the properties were sold at a profit.

The appellant also testified that almost all the sales were unsolicited. In the case of many of the sales, Mr Desmarais had a client who wanted to buy a particular kind of property; on examining his records Mr Desmarais would find that the appellant owned such a property. Mr Desmarais would telephone the appellant to find out whether he was interested in selling. In one case the appellant accepted an offer for a property four months after purchase because it was costing too much to heat the building: he spent considerable money on repairs, but the principal commercial tenant had gone bankrupt, and his premises were vacant for some time. Several other cases involved tenants who wanted to own their residences.

Mr Blais impressed me as an intelligent, ambitious man with business acumen developed through hard work. I have no doubt that Mr Blais would like to become a substantial property owner. However, I also have the impression that Mr Blais would be willing to sell any property if he could make a profit. Mr Blais admitted that value does not increase by itself, and that if the value of a building increases there is always an opportunity to resell it.

It is true that Mr Blais still owns several properties that he bought in the years concerned, and it also seems to me that the quality of the properties owned by Mr Blais and his company is better than that of those he owned in the years concerned. However, it is my impression of Mr Blais’s activities in the years concerned that when he purchased the properties he did not have any set purpose in mind in buying a property other than to improve his financial situation. He could improve his financial situation by keeping a property as an investment or by selling it at a profit (vide Edgeley Farms v MNR, [1968] CTC 240 at 241; 68 DTC 5174 at 5174 and 5175).

In my opinion, Mr Blais wanted to have a property portfolio, but to acquire it he engaged in a property buying and selling operation; he used the profits from this operation to acquire other properties. I cannot accept as a reason for sale that a building needed considerable repairs, that it had plumbing problems, or that the tenants were not ideal; anyone buying this particular kind of property must have a reasonable expectation of problems with it, for that is why it was sold cheaply.

The appeal is dismissed.

Appeal dismissed.