Pollock v. R., [1998] 1 CTC 2809, 98 DTC 1197

Beaubier T.C.J.:

This matter was heard at Winnipeg, Manitoba on June 14, 1997 pursuant to the general procedure. The appellant testified, as did his lawyer, Paul Anderson, who conducted litigation with the vendor respecting the property in question.

The appellant claimed a business loss of $102,248.97 for his 1989 taxation year, which was disallowed and treated as a capital loss. He appealed and alleged a business loss of $140,000.00.

At all material times, the appellant was a chartered accountant with a private practice in Winnipeg. In 1968 he purchased a small nursing home and operated a nursing home business as Ablecare Personal Care Home in downtown Winnipeg. It was closed and he received an undertaking from the government that he could obtain a licence for another 40-bed personal care home. Michael Baron had a right to a similar licence.

In 1979 the appellant and Michael Baron purchased part of lot 2, river lot 49, plan 11316 (“lot 2”) near Pentland Street in Winnipeg. The offer to purchase (Exhibit A-l), executed by all parties by February 28, 1979 required a downpayment of $56,000.00 and a 15-year mortgage back to the vendor, Nettie Quiring, of $224,000.00, for a total of $280,000.00. It was subject to a condition that the purchasers apply for approval to construct an 80- to 100-bed personal care home (Exhibit A-l). This was done and the licence was granted in due course. This was to close by April 1. Michael and Irene Baron signed a similar offer to purchase with Nettie Quiring on April 5, 1979 (Exhibit A-3).

These three and Nettie’s husband, Frank, also signed Exhibit A-4 dated April 5, 1979. It contains the following clauses:

AND WHEREAS it is the intention of the purchasers to construct a Personal Care Home on the said lands and premises, above described, subject to approval by the City of Winnipeg and in particular the rezoning thereof;

WITNESSETH that in consideration of the premises and of the sum of $1.00 and other good and valuable consideration paid by the purchasers to the vendor, the parties hereto agree as follows:

1.) The vendor agrees to allow the purchasers to deliver a mortgage to the

vendor in keeping with the terms of the said Offer to Purchase, above referred to, which mortgage shall not bear interest until April 1, 1980.

2.) In the event that the purchasers are unable to secure appropriate zoning

approval for the construction of a Personal Care Home on the said lands and premises, the purchasers agree that one of the following conditions shall apply:

a. ) Frank Quiring (the husband of the vendor) or his nominee shall,

if the property is not rezoned as indicated, at the option of the said Frank Quiring, request from the said purchasers and receive a Transfer of Land, which, when registered, in the Winnipeg Land Titles Office will vest title in the name of Frank Quiring, or his nominee, free and clear of all encumbrances, and in this case or the next paragraph, in either case, the cash payment of Fifty-six Thousand ($56,000.00) shall be returned to the Purchasers in any event or,

b.) In the event that the said Frank Quiring does not exercise his

option, then the purchasers undertake and agree to forthwith list the said lands and premises through the facilities of the Canada Permanent Trust Company (Real Estate Division), as exclusive agent, for the sale of such lands and premises. Such sale shall be deemed to be a separate sale and the purchasers agree that they shall derive no profit from such sale, or alternatively, if the property be sold at a profit, that such sale be subject to the approval of the said Frank Quiring and subject further to an equitable division of such profit between the purchasers and the said Frank Quiring.

The $56,000.00 was both the appellant’s and Barons’ money.

On April 19, 1979 lot 2 was registered one-half in the appellant’s name and one-half in the names of Michael and Irene Baron (Exhibit R-1, tab 3). But it did not have access to Pentland Street as Michael Baron and the appellant thought it had. As a result, the appellant and Baron were denied rezoning on June 14, 1979 (Exhibit A-8). Lot 2 was landlocked and it could not receive services to the land. Frank Quiring would not take the land back pursuant to Exhibit A-4, paragraph 2(a). The $224,000.00 mortgage was on it and there was only one possible purchaser, the property owner whose strip of land blocked access to Pentland Street.

In December 1979 the appellant and Baron purchased property on Mandalay Street in Winnipeg and built a nursing home. By July 1981 it commenced occupation.

Before August 1980, they sued Nettie Quiring and Frank Quiring for recision on the terms of Exhibit A-4, paragraph 2(a). They also joined the realtor, the real estate agent and eventually their lawyer. In the course of litigation, they obtained an appraisal (Exhibit A-16), dated December 22, 1987, that stated that at all pertinent times lot 2 was only worth $50,000.00. Counterclaims occurred.

Commencing in 1984 there is some documentation of possible offers by others to purchase lot 2, but the offers all turned on conditions of acquiring the property to access lot 2. Litigation was intermittent.

After a pretrial conference, the actions were settled in 1989 on the following basis:

1) The appellant and Barons surrendered their $56,000.00 down payment.

2) The appellant and Barons paid Nettie Quiring a further $60,000.00 cash.

3) The appellant and Barons paid all arrears of taxes on lot 2.

4) The appellant and Barons transferred lot 2 back to Nettie Quiring.

The appellant’s share of all of this was the $102,248.97 he claimed as a business loss in 1989. Some of these costs were incurred or paid in 1979 and in other years before 1989. They were not claimed as business losses until 1989.

On the evidence and the appellant’s testimony, the appellant’s primary intention when he purchased lot 2 was to build a nursing home. This is confirmed by the first paragraph quoted from Exhibit A-4.

On June 14, 1979 when the appellant and Baron were refused rezoning, there is no supporting evidence that they contacted realtors or tried to sell. All of the documents indicating this which are exhibited commence long after the lawsuit against Quirings began in 1980.

The question is whether at the time of purchase the appellant had a secondary intention to sell lot 2 for a profit. The appellant has no history of trading in land. Moreover, as litigation established, Exhibit A-4 made any possibility of sale at a profit remote or impossible. Frank Quiring controlled any possible profit one way or the other and by accepting A-4 as part of his contract and suing on it, the appellant virtually denied having any secondary intention to sell lot 2 at a profit.

On the evidence before the Court, the appellant did not consider selling lot 2 at a profit when he bought it. Moreover, there is no evidence that such a sale was an operating motivation of the appellant when he purchased lot

2. The evidence is that he purchased lot 2 for the sole purpose of building a nursing home on it as a capital investment. Thereupon his nursing home corporation or he would operate the nursing home business on the property.

The appeal is dismissed. The respondent is awarded party and party costs.

Signed at Ottawa, Canada the 27th day of October, 1997.

Appeal dismissed.