Aliza Kornfeld, Charles Balint v. Minister of National Revenue, [1980] CTC 2938, 80 DTC 1827

M J Bonner:—These appeals were heard together on common evidence. The appellants appealed from assessments of income tax made on the basis that profits realized on the sale in 1974 and 1976 of certain land were income.

In the Fall of 1972, Louis Winkler agreed to buy a parcel of land located In Surrey, British Columbia, and containing approximately seven acres. He was joined in the purchase by each of the appellants as to a 25% interest. Subsequently, Mr Winkler sold one-half of his remaining 50% interest to Mr and Mrs Steve Floris.

Mr Winkler was described accurately, I think, as the “kingpin” of the group of owners. He was a general contractor and since 1967 had built revenue producing buildings. He said that after he bought the property in question he brought it to the attention of Mr Kornfeld and Mr Balint, Mr Kornfeld being the appellant Aliza Kornfeld’s husband, because he did not have sufficient means to carry on with the venture. It was his intention to construct a warehouse type building, divide it into smaller units and rent the units. Mrs Kornfeld’s objective in entering the transaction was, she said, to earn rental income. Mr Balint said he had a similar objective and, in addition, he planned to take space in the proposed building for use in connection with his automotive repair business.

At the time of the purchase the land was located adjacent to property of the Canadian National Railroad. It was serviced with municipal water, but the water line was too small for the projected building. There was no municipal sewer service. Soil conditions were described as poor, the property being covered with peat to a depth of 50 feet. While no building plans were prepared, Mr Winkler explained that he had his own standard plans which he had used before for other similar buildings. Although there was no evidence that any specific plans or applications to obtain mortgage financing had been made, Mr Kornfeld explained that he had never before failed to find a mortgage.

Mr Winkler made enquiries at the Municipal Hall about obtaining a building permit. This he did after purchasing. Although the property was properly zoned for the proposed land use, I gather that the lack of a sewer was and continued to be an obstacle. The poor soil conditions mentioned before could be rectified by filling the property with sand and hog fuel. It was simply a matter of spending enough money to do the work.

In buying, Mr Winkler thought that the area would be suitable for warehouse development because the CNR had announced plans to locate a railway station just to the north of the property.

Mr Floris was a real estate agent employed by a firm which specialized in the sale of commercial and industrial property. Another agent in that office who had a client seeking property asked Mr Floris if he knew of any available. Mr Floris testified that on an impulse he told the other agent of the land owned by his group. This conversation apparently resulted in a very attractive offer, and in July of 1974 about half the property was sold.

In September of 1974 a small part of the property was either expropriated or sold under threat of expropriation. The remainder was still large enough and otherwise suitable for development of a warehouse of the type and size previously developed by Mr Winkler. However, by this time all of the group apparently felt that the market for space of the type proposed was poor by reason of a decline in economic conditions and thus that the expenditure to erect a building would be foolish. The remainder of the property was listed with Mr Floris in November of 1975 and was sold in 1976.

Cross-examination of Mr Winkler showed that he had made certain statements in a letter written in 1978, which statements were in conflict with evidence given by him at the hearing. I might add that they conflicted, as well, in some respects with evidence given by other witnesses at the hearing. The letter demonstrates, if nothing else, the frailties of human recollection and the danger of deciding a case of this sort solely on statements of subjective intention formed almost eight years ago.

This is a case where both appellants joined with Mr Winkler in a venture which Mr Winkler initiated and in which he could be expected to be the dominant influence. I have no doubt that all of the participants in the venture hoped to be able to proceed with the construction of a warehouse building. At the time of purchase however, Mr Winkler could not have been certain or even reasonably confident that he would be able to carry out the plan. It is important to not that his enquiries regarding a building permit and sewers were not made until after the purchase of the property. Moreover, the CNR project, which I understand Mr Winkler saw as potentially enhancing the attractiveness of the area for the proposed warehouse use, had nothing more than the status of a proposal announced in the newspaper. There is no clear evidence of the existence, at the time of purchase, of a market for the type of space proposed.

As I see it, the sequence of events which did occur suggests strongly that while warehouse development was a preferred plan resale of the land at a profit was an alternate motivating factor which led to the purchase.

Counsel for the appellants suggested that the existence of such secondary intention is negatived because the group did not rush to sell the remaining land after the first very profitable sale was made in 1974. I do not quite see the position in that light. The 1974 sale resulted in the recovery of all costs and the realization of a substantial profit. Carrying costs of the land amounted to only some $600 per annum in taxes. The parties were, if anything, following the 1974 sale of half the property, in a better position than they were at the outset to build a warehouse as soon, at least, as an upturn in the rental market occurred and provided always that the sewer problem could be solved. There was no evidence as to any renewed efforts to obtain sewer service following the 1974 sale. The only material subsequent action was to list and sell the remainder of the property. I am therefore of the opinion that the assessments have not been shown to be wrong and the appeals will therefore be dismissed.

Appeals dismissed.