Leslie E Niemi v. Minister of National Revenue, [1981] CTC 2267, 81 DTC 249

Roland St-Onge:—The appeal of Mr Leslie E Niemi came before me on May 6, 1980, at the City of Peterborough, Ontario, and the issue is whether the sale of land was an adventure in the nature of trade in the appellant’s 1975 taxation year.

The contentions of the parties are well spelled out at paragraphs 1 to 9 inclusive of the notice of appeal and paragraph 12 of the reply to notice of appeal which read as follows:

Notice of Appeal:

1. The Taxpayer, a blacksmith, conditionally offered to purchase approximately 130 acres of partially cleared land in the Township of Whitney (the “Property”) on or about November, 1973 from Mrs Hebert (‘‘Hebert’’) for $25,000.000 (sic) (the “Offer to Purchase”).

The Offer to Purchase was understood to be conditional upon the Taxpayer selling his own principal residence, 143 Front Street, in South Porcupine (a few miles away), which later sale was completed on December 21, 1973.

2. The Offer to Purchase on the Property was completed on December 22, 1973, after the original offer had been revised to include a vendor take back mortgage rather than cash to the first mortgage as originally proposed.

3. The Offer to Purchase provided as well that the offer “is conditional on the vendor obtaining sole ownership of the above lands held in joint tenancy by William Hebert and Patricia Hebert ... In the event that ownership is not obtained the deposit shall be returned without interest”. Another version of the offer provides that “cost of installed furnace to be discharged by the vendor”.

4. The Taxpayer offered to purchase the property after Hebert had mentioned on more than one occasion to him that she was considering selling since without her husband around it was difficult to keep the place up. As well, it was difficult for the children getting to and from school from the property due to the busing route and winter weather problems. The Taxpayer frequented the Property often since he was the “Big Brother” to Hebert’s 9 year old son, Douglas.

5. The Taxpayer acquired the Property for the purposes of making it his principal residence which is evidenced by his and his family’s (wife, sister, and brother-in- law) actual occupation of the home, including the making of necessary improvements to the home. In addition, a prime consideration in the purchase of the Property by the Taxpayer was the time saving and convenience of boarding his horses on the Property, rather than continuing to commute 60 miles round trip daily to attend to the horses which were boarded at Connaught.

6. As a result of an unsolicited offer, the Taxpayer sold the Property on February 28, 1975 for $234,000 to an undisclosed purchaser (Texas Gulf) who was attempting to parcel land for development. Farm properties nearer to Porcupine and contiguous to the Property were also purchased by Texas Gulf.

7. Shortly after the sale of the Property, March, 1975, the Taxpayer and his spouse moved to Havelock where they purchased another farm on which they still reside. They continued to live on the farm and maintain the horses just as was done with the Property, and the Taxpayer continued his blacksmith business.

8. In 1978, Hebert commenced a civil suit against the Taxpayer, his spouse, Texas Gulf Canada Ltd, the local real estate firm and its principals and salesmen et al, attempting to allege a conspiracy on the original sale of the Property in 1973 and be compensated for damages to the extent of the “windfall gain” realized by the Taxpayer on his sale to the developer, Texas Gulf. The civil action was published in the local newspapers and the Minister assessed the gain as income pursuant to section 9(1) of the Income Tax Act (the ‘‘Act’’).

9. The nuisance suit promoted by Hebert’s lawyer was settled for $20,000 in October, 1979. The Taxpayer settled the nuisance suit for less than his estimated costs of trial, $5,000. The local real estate company and its principals settled for $15,000. The “Minutes of Settlement” and the “Full and Final Release” is attached as Exhibit “A” hereto.

Reply to Notice of Appeal:

12. In reassessing the Appellant for his 1975 taxation year, the Minister of National Revenue relied, inter alia, on the following assumptions of fact:

(a) prior to moving to Havelock, the Appellant lived with his family (mother and grandmother) at 123 Moore Street, South Porcupine;

(b) on April 20, 1972, Karolina Wastuck (the Appellant’s grandmother) transferred a property on 142 Front Street, South Porcupine to the Appellant;

(c) the Appellant derived rental income from the property on 142 Front Street until it was sold on December 21, 1973;

(d) in 1973, J W Spooner and Son Ltd, a real estate firm, agreed with Ecstall Mining Ltd (now known as TexasGulf Ltd) to attempt to assemble land for Ecstall in Mountjoy township in the west side of Timmins. Spooner’s attempt was unsuccessful;

(e) in the latter part of 1973, J W Spooner and Son Ltd offered to assemble land for Texas Gulf Canada Limited in the Bob’s Lake area (where the Hebert farm was situated);

(f) at all relevant times, the Appellant was a shareholder of TexasGulf Canada Limited;

(g) Mr George Groom was a real estate agent for J W Spooner and Son Ltd in 1973 (he continued working for Spooner until 1976) and knew of Spooner’s agreement with TexasGulf Canada Limited;

(h) the Appellant married Groom’s daughter, Marcia, in July 1974;

(i) because of his relationship with Groom, the Appellant knew that Texas Gulf Canada Limited was interested in a land assembly in the Hebert farm area when he offered to purchase the Property in November, 1973;

(j) the motivating reason for the Appellant’s purchase of the Property was the prospect of reselling it to Texas Gulf Canada Limited at a profit;

(k) in order to finance the purchase of the Property, the Appellant sold the property at 142 Front Street. The sale was completed on December 21, 1973 through J W Spooner and Son Ltd as agent for the Appellant;

(l) the house located on the property was not habitable without extensive major repairs being completed and the Appellant and his wife were never ordinarily resident there in 1974 or 1975;

(m) the farm land was made up of mainly bush land with only a small amount of clear acreage;

(n) in March 1974, the Appellant listed the Property for sale with J W Spooner and Son Ltd;

(0) on November 30, 1974, the Appellant accepted an offer of purchase for the Property from a Mr Cousineau, acting as trustee for Texas Gulf Canada Limited, in the amount of $234,000;

(p) of the $234,000 sale price to Texas Gulf Canada Limited, the Minister attributed $8,000 to the value of the farm house and its site;

(a) on or about November 30, 1974, many other owners in the Bob’s Lake area also entered into agreements of purchase and sale with Texas Gulf Canada Limited;

(r) in 1976, Mrs Hebert filed a writ against, inter alia, the Appellant, Groom and Texas Gulf, alleging that the Appellant and Groom failed to disclose to her their speculative interest in the Property but represented instead that the Appellant wanted the land for farming. The suit was eventually settled out of court.

The appellant testified that he purchased the farm as a hobby for the purpose of living and having horses thereon, but it took a year to do it and the horses were never moved thereon.

What struck me the most upon cross-examination was when the appellant was interrogated about the negotiations of the selling price, he said: “When she mentioned the price, I thought I should buy.” This answer gives me the impression that he saw a good bargain and, from that moment, his intention was to buy the farm and dispose of it at the best opportunity.

Futhermore, what reinforces my thinking is the fact that the appellant’s father-in-law seems to have been the guiding light in all these transactions. He always seemed to be present when a decision had to be taken.

As to the testimony of the witnesses, there is ample jurisprudence to say that it is much more important before rendering a decision to look at all the facts as a whole than to give weight to the testimonies, especially when there are too many unanswered questions.

One of the most important witnesses who should have testified was the father-in-law but he did not come to corroborate the appellant’s testimonies or to explain his own conduct.

Futhermore, the allegation in the notice of appeal that the offer to purchase was conditional was refuted by the respondent whereas the respondent substantiated all of the allegations of paragraph 12 of the reply to the notice of appeal.

The onus was on the appellant to prove that the Minister’s assessment was wrong in facts and in law but he failed to do it. Therefore, I decide that this transaction was an adventure in the nature of trade, and the parties agreed that in such event, the net gain would be $172,671.55.

The appeal is allowed in part and the matter referred back to the Minister for reassessment and reconsideration accordingly.

Appeal allowed in part.