Douglas J Mintenko v. Minister of National Revenue, [1985] 1 CTC 2203, [1985] DTC 176

St-Onge, TCJ [ORALLY]:—The appeals of Mr Douglas J Mintenko were heard on May 31, 1984, in the City of Regina, Saskatchewan, and it involved sales of land in the appellant’s 1977 and 1981 taxation years.

The facts of these appeals are set forth at paragraph 4 of the reply to the notice of appeal (appeal #82-2036) which reads as follows:

4. In reassessing the Appellant for his 1977, 1978, 1979 and 1980 taxation years in respect of those matters in issue in this Appeal the Respondent assumed, inter alia,'.

(a) that during his 1977 taxation year the Appellant’s net profit from the sale of one parcel of land which is the subject matter of this Appeal was in the amount of $21,250.00, particulars of which are set out in the attached Schedule “A” and forms an integral part thereto;

(b) that during his 1978 taxation year the Appellant’s net profit from the sale of two parcels of land which are the subject matter of this Appeal was in the amount of $6,000.00, particulars of which are set out in the attached Schedule ‘B” and forms an integral part hereto;

(c) that during his 1979 taxation year the Appellant’s net profit from the sale of three parcels of land which are the subject matter of this Appeal was in the amount of $66,433.34, particulars of which are set out in the attached Schedule “C” and forms an integral part hereto;

(d) that during his 1980 taxation year the Appellant’s net profit from the sale of five parcels of land was in the amount of $148,000.00, particulars of which are set out in the attached Schedule “D” and forms an integral part hereto;

(e) that the Appellant dealt with the parcels of land which are the subject matter of

this Appeal in a manner consistent with a marketer or trader in property;

(f) that in acquiring the parcels of land which are the subject matter of this Appeal one of the major motivating factors of the Appellant was the possibility of turning the property to account by means of resale as part of an adventure in the nature of trade or profit making concern or undertaking and alternatively if not acquired and sold with the primary intention to sell for profit at the appropriate time then at least with a dual or alternative intention, ab initio, to do so.

The appellant was born on a farm in 1952. His father, in addition to being a farmer, was in the real estate business. The appellant started to study science but never completed his course, being more interested in real estate transactions, and in 1975, he obtained his real estate licence. In 1974, he purchased farming land from his father for $34,000 which land was municipally assessed at $3,850 — the purchase price being seven times the said assessment. This land was farmed by the appellant with his father’s machinery. In that year, he also acquired some farming land for $24,000, from his grandmother, which was in Moose Jaw, Saskatchewan, some five miles from his land.

According to him, he had no chance to develop this land because he had no machinery. In 1976 he acquired, six miles from his father’s land, the Duke land for $70,000: this price was some fourteen times the municipal assessment. It had a small bungalow and a machine shed. The land was good but hard to farm.

After a while, he discovered that there was a low spot which required substantial drainage of the land. He obtained some financial help but he also spent some $5,000 of his own money.

In 1977, he sold ten acres with buildings thereon for $30,000 and moved in town because the farm house was not suitable and the ten acres had no value to him. Also, according to the zoning by-law, he had to sell ten acres in order to sell the house. He also mentioned that from 1974 to 1977, he has acted as a real estate agent and sold various residential property at profit.

In 1978, he acquired with his partner, Mr Avery, a three-quarter section for the purpose of farming for the price of $210,000 which was fourteen times the municipal assessment: one-quarter section for $75,000 and they leased another one-quarter section with an option to buy at $75,000. The said option was exercised in 1979. This land of 600 acres was sold for $300,000 because his father did not want the partnership to use his machinery.

In 1979, he acquired the Mew’s land, adjacent to his father’s land for $170,000 and sold to the vendor, Mr Tilson, a quarter section for $78,000. He also borrowed from the Farm Credit Corporation $200,000 in order to pay for the land. He traded his grandmother’s land to his father and in 1979 he owned some six-quarter sections and still used his father’s machinery.

The appellant spent $19,000 to put tiles on the land he acquired from his father. In 1980, he seeded the said land with alfalfa and barley but because of the salty soil he did not suceed. Mr Dutchak wanted to sell his land. The appellant was interested therein because it had been seeded for three years in a row, but he had to dispose of his own land to acquire it.

The appellant sold a one-quarter section to Mr Nicholic with a house thereon, and his Duke farm to his two brothers for $200,000. Because of these numerous transactions, the Court asked counsel for the appellant to prepare a document to show the various farming land transactions, the said document was filed as Exhibit A-3 which reads as follows:

1974 — Taxpayer Purchases “Grandmother’s” Land

SW 23-16-27		$ 24,000.00
1975 — No Sale — No purchases.
1976 — Taxpayer Purchases “Duke” Land
NW 17-15-26 )
	)	$ 70,000.00
NE	8-15-26 )
1977 — Taxpayer sells 10 acres to Hiron out of “Duke” Land
(201 sq meters)		$ 30,000.00

1978 — Taxpayer & Avery purchase “Eves’s” Land and “Gamble” Land
“Eves”		E l /2—12-16-26			)
					)	$210,000,00
		NE		1-16-26	)
“Gamble” NW				6-16-26		$ 75,000.00
1978 — Taxpayer & Avery sell to Boechler
NE 12-16-26 (Gamble Land)						$ 75,000.00
1978 — Taxpayer Transfers to Avery 1/2 interest in legal subdivision,
8 of 12-16-26 (Eves Land)
1979 — Taxpayer Trades SW 23-16-27 (Grandmother’s) and $45,000.00
to his father for 5				1/2 of 16-16-27 (Father’s Land)
Taxpayer purchases “Mews” Land
W	/z—11-16-27					$170,000.00
Partnership sale to Dutchak of “Gamble” and “Eves” Land
*/2 interest in $143,733.34						$ 71,866.67
1980 — No Sales or Purchases
(Appellants Position)
1981 — Taxpayer sells “Mew’s” Land to Avery and Father’s Land
all but 40 acres						$365,000.00
— Taxpayer sells 40 acres of “Mew’s” Land to Rick Tilson						$ 78,000.00
— Taxpayer sells to his Brothers “Duke” Land						$200,000.00
— Taxpayer Purchases from Dutchak
SE	12-16-26		)
			)
N l / 6-16-25			)			$433,000.00
			)
NE	1-16-26		)
— Taxpayer purchases from Nicholic
NE 12-16-26						$174,000.00
— Taxpayer sells all but 40 acres of Nicholic Land and all of Dutchak
Land to Bryan						$800,000.00
— Trade in from Bryan					$250,000.00
Sold same day for					$280,000.00
					reported as “income”.

As may be seen, there is a great number of farming land transactions between 1976 and 1981, at substantial gain which transactions were carried out either personally by the appellant or in partnership with Mr Avery.

Counsel for the appellant argued that the appellant was a farmer and that the appellant’s intention, at the time of acquisition, was to carry out farming operations and if he sold some, it was to improve his farming business.

When the appellant sold ten acres and forty acres with the house thereon it was to get something as a hedge against inflation. Counsel for the appellant argued that the appellant should not be taxed on the principal residence that he sold. He also argued that because the appellant dabbled in selling some residential houses he should not be considered as a professional trader in land and that we should abide by a decision Bowyer-Boag Limited v MNR, 2 Tax ABC 202 at 206; 50 DTC 311 at 313 which reads as follows:

In my opinion, the following factors should be taken into consideration: first, the intention of the recipient at the time the asset was received; secondly, the manner in which the asset came into the hands of the recipient; thirdly, the manner in which the asset was dealt with by the recipient in the period during which it was held; fourthly, the economic factors present during the period that the asset was held; and fifthly, the surrounding circumstances and economic factors present when the asset was disposed of.

Counsel for the respondent argued that there was ample evidence to show that the appellant knew what he was doing, that he sold land mostly to persons he knew, at a time that land was escalating in value; that he improved the land either by fertilizing it or drainage in order to increase its value for the purpose of selling the said land.

Now the appellant lives at his father’s home some 420 miles from his farming land which he owns with his partner, Mr Avery, in Montana, and they incurred substantial losses in the United States every year.

He terminates his submission by saying that the appellant and his partner were in the business of buying and selling farm land at profit. As to the issue which was raised during the hearing to know whether some properties were transferred in 1980 or 1981, counsel for the respondent stated that the properties in question were registered at the Land Titles Office on December 23, 1980, and this is what counts, for a third party which in the occurrence is the Minister of National Revenue.

The Court agrees with this argument. As to the issue that the appellant sold his principal residence, the Court was not able to find enough evidence to decide that, in fact, the house that he sold was his principal residence.

The appellant sold a certain number of houses that he occupied before selling. As may be seen, the appellant was very active in real estate transactions. He was born on a farm, but like his father he went also into the business of buying and selling properties.

According to the evidence adduced, the appellant has all the characteristics to brand him as trader in land, namely: the numerous transactions, the short period of holdings, the borrowed moneys, the substantial gains, and the improving of the land before selling.

Furthermore, his reasons for selling are far-fetched. Apparently, every time he acquired a parcel of land he made a mistake and had to sell. It is difficult to conceive that so bright a young man who realized such substantial profits in so short a time would make so many mistakes.

These reasons for selling are not convincing at all. The appellant being a real estate agent did everything to benefit from the tremendous escalation in value of farming land in Saskatchewan, and when he saw that farm land was cheaper in Montana, he sold in Canada and acquired in the United States more land than ever in partnership with Mr Avery.

Taken as a whole, the evidence shows that the appellant, with respect to the land in dispute, did not act as an owner of the land for the purpose of farming, but rather as a trader in farm land. A taxpayer is not allowed under the Income Tax Act to build up a farming business by selling farm land. The selling of farm land is not a farming operation. In the case at bar, the appellant was more active in the selling of land than in the business of farming.

For these reasons, the appeals for the 1977 to 1981 taxation years are dismissed.

Appeals dismissed.