James Antonakos v. Minister of National Revenue, [1982] CTC 2754, 82 DTC 1792

The Chairman:—Mr James Antonakos is appealing from an assessment with respect to the 1975 taxation year. The issue is whether a profit of $95,000, realized by the appellant from the disposition of a certain parcel of land in the Township of Elizabethtown, Province of Ontario, is a capital gain or income from a business or a venture in the nature of trade.

In September 1974 the appellant purchased a luxurious 55-acre estate with a vast lake frontage (see Exhibits R-2 and R-3). The property consisted of a caretaker’s cottage at the entrance to the property, a road leading to the main residence and swimming pool and to a guest cottage situated nearby. In his notice of appeal and his testimony, the appellant emphatically declared that his sole intention in acquiring the property was as his personal residence. However, owing to circumstances over which he had, according to the appellant, no control, he was forced to sell 19 acres of the property and realized therefrom a profit of $95,000, the amount in issue in this appeal.

Although the appellant described himself as a restaurateur, evidence was adduced by counsel for the respondent, clearly establishing that the appellant, prior to, during and after the taxation year under review, had been active in many real estate transactions and had substantial real estate holdings (Exhibit R-25).

This fact was admitted by the appellant’s agent during the course of his argument. The essence of the appellant’s submission was that the disposition of 19 acres of property acquired as a personal residence (but never used as such) was the result of a forced sale and concludes that the profit realized was therefore in the nature of a capital gain.

On September 11, 1974 an offer made by the appellant to purchase the property for $400,000 was accepted (Exhibit R-1). The closing date of the transaction was February 16, 1975 and the possession date was March 28, 1975. The terms of the contract required that the appellant deposit $37,500 with the offer of purchase; the vendor would take back a mortgage of $305,000 and the balance payable at closing (Exhibit R-1). The appellant acquired the property by borrowing the entire amount of the purchase price. A conditional clause in the mortgage contract provided for the release and partial discharge (Exhibit R-4).

On November 6, 1974 a fire destroyed the Revere Hotel in Brockville, Ontario, owned and operated by the appellant. The appellant claimed that the Revere Hotel was his principal source of income, the loss of which forced him to sell 19 acres of the subject so as not to lose his $37,500 deposit and meet the balance of the payment due on closing.

Prior to the closing date of the sale on February 6, 1975 and prior to the Revere Hotel fire on November 6, 1974, the appellant admitted having a first subdivision plan drawn by which the subject property was to be divided into lots. On November 7, 1974 the subject property was included in the appellant’s land inventory with the notation: “Estate Zoned to sell 10 waterfront lots, 200' x 400'” (Exhibit R-25 - K38).

On May 1,1975 the appellant received an offer from Mrs Price to purchase 19 acres on the east side of the subject property. Severance was applied for on May 2, 1975 and the sale was closed on June 24, 1975 for $250,000 for which the appellant realized the $95,000 profit in issue in this appeal (Exhibit R-11). Subsequent to and in addition to this sale, the appellant sold to Mrs Price a triangular parcel of land on which the cottage was situated, the base of the triangular parcel of land being on the waterfront (Exhibit R-19).

In 1975 the appellant also had a draft subdivision plan drawn for the land west of the roadway leading to the main residence. Of the original 55 acres, there was only a relatively small parcel of land on which the principal residence was located which remained unsubdivided (Exhibits R-7 and R-16).

While denying that, at the time of acquisition, he had any intention of selling the property, the appellant stated that the subdivision of the property, which he had drawn up even before the closing of the sale, was part of a contingency plan. He explained that $400,000 was a large sum of money and that he wanted to know what could be done with the property, should he not be able to meet the purchase price. The possibility of reselling at least part of the property was in fact considered at the time of purchase.

Findings

There can no longer be any doubt that while the declared intention of the taxpayer must be taken into account, it is determinative of the issue only when the credibility of the taxpayer is beyond doubt and the facts and the circumstances clearly support the expressed intention. The issue in this appeal must be determined on the facts and the surrounding circumstances of the transaction. As I see it, the credibility of the taxpayer in this appeal is not beyond doubt.

The appellant, who stated he was a restaurateur, operated many businesses, most of which were related to the purchase and sale of real estate (Exhibit R-25). While he did own and operate the Revere Hotel in Brockville, counsel for the respondent clearly established that it was not, as the appellant deemed, his principal source of income (Exhibit R-23). The fire which destroyed the Revere Hotel was not the cause of what the appellant described as the forced sale of 19 acres of land to Mrs Price since the proceeds of insurance from the fire left the appellant with a sizeable capital gain (Exhibit R-21).

The purchase of a $400,000 estate as his personal residence, which the appellant claims was his sole intention, must at least appear to be a plausible objective. On the appellant’s own evidence, the value of his last six or seven residences averaged $75,000. While the evidence is that the appellant owned a value of over $2,000,000 in various real estate holdings, his agent, a chartered accountant, went to great pains to establish that all of it was owing to banks and mortgage holders. It is therefore not surprising that the money for the entire purchase price of the estate was from borrowed funds, as was the financing of most of his real estate business transactions. in his notice of appeal the appellant, in explaining why he had purchased 55 acres of land, stated that he wanted to separate the land and give it to his two daughters as a dowry, according to a Greek custom. In 1975 one of the daughters was nine years of age and the other one was two. The subdivision of the estate, drawn up prior to closing of the sale and before the Revere Hotel was destroyed by fire, had nothing to do with a proposed dowry to his daughters — nor did the appellant refer to that allegation in giving his testimony at the hearing.

Conclusion

I do not accept the appellant’s statement that his sole intention in acquiring the 55-acre estate was, at the time of purchase, for his personal residence. Even if I were to accept that one of the appellant’s intentions was to reside on the property, I would have to conclude that he had a secondary intention at the time of purchase of reselling the property if he could not afford the payments of the purchase price. The subdivision of the land prior to its purchase, which the appellant referred to as a contingency plan, is a Classic example of the existence at the time of purchase of a secondary intention of reselling the property if the original plan could not be realized.

The appellant did not succeed in rebutting the respondent’s overwhelming evidence that the 55-acre estate was acquired with the intention of turning the property to account and to deriving a profit therefrom. The appellant did not establish that the loss of the Revere Hotel by fire was a direct or related cause of the disposition of 19 acres of the property in 1975 and he did not prove that that disposition was a forced sale.

I hold therefore that the profit realized by the appellant in the amount of $95,000 on the sale of the 19 acres of real estate property in 1975 was derived from the appellant’s real estate business and is on income account.

Judgment will go dismissing the appeal.

Appeal dismissed.