Sarchuk
T.C.J.:
These
are
appeals
by
John
Geropoulos
(the
Appellant)
from
assessments
of
tax
with
respect
to
his
1989,
1990
and
1992
taxation
years.
At
all
relevant
times,
the
Appellant
was
a
25%
shareholder
of
Landrex
Woodstock
Centre
Inc.
(Woodstock).
In
1988,
the
Appellant
loaned
the
sum
of
$103,035
to
Woodstock.
He
incurred
a
loss
in
that
amount
on
the
loan
during
1992
and
pursuant
to
subsection
50(1)
of
the
Income
Tax
Act
(the
Act)
disposed
of
the
loan
for
nil
proceeds.
Pursuant
to
paragraphs
39(1
)(c)
and
38(1
)(c)
of
the
Act,
he
reported
this
as
a
business
investment
loss
(BIL)
and
claimed
an
allowable
business
investment
loss
(ABIL)
of
$77,276.25.
The
Appellant
also
sought
to
carry
a
non-capital
loss
back
to
his
1990
and
1989
taxation
years.
The
Minister
disallowed
the
BIL
(and
the
loss
carryback)
on
the
basis
that
not
all
or
substantially
all
of
the
assets
of
Woodstock
were
used
in
an
active
business.
The
issue
in
these
appeals
is
whether
the
loan
made
by
the
Appellant
to
Woodstock,
a
Canadian-controlled
private
corporation,
is
a
business
investment
loss
within
the
meaning
of
paragraph
39(1)(c)
of
the
Act.
Evidence
on
behalf
of
the
Appellant
was
adduced
from
Thomas
Edward
Raymond
Butcher
(Butcher),
a
lawyer,
a
large
part
of
whose
practice
involved
real
estate
principally
from
the
perspective
of
the
public
offering
of
real
estate
based
activities.
He
was
also
one
of
three
equal
shareholders
in
Landrex
Homes
Inc.
(Landrex)
which
was
in
the
house
building
business
since
1985.
In
the
course
of
Landrex’s
activities,
Butcher
and
his
associates
were
exposed
to
various
real
estate
opportunities
which
would
be
presented
to
them
by
real
estate
brokers.
One
such
opportunity
involved
an
18-acre
parcel
of
land
situate
at
the
corner
of
Highways
401
and
59,
near
the
City
of
Woodstock.
The
site
was
interesting
and
in
due
course,
Landrex
determined,
without
having
decided
exactly
what
to
do
with
the
property,
to
proceed
with
its
acquisition.
Woodstock
was
incorporated
to
pursue
the
project.
It
now
became
necessary
to
arrange
for
some
initial
funding
for
the
deposit
and
other
activities
that
would
occur
in
the
near
future.
As
a
result,
Butcher
approached
the
Appellant
and
his
brother,
Peter,
with
respect
to
their
possible
involvement.
Both
had
previously
invested
in
house-building
ventures
with
Landrex.
They
agreed
to
participate
in
the
project,
became
shareholders
of
Woodstock,
and
agreed
to
lend
the
amount
of
approximately
$200,000
to
it.
An
offer
to
purchase
was
made
on
October
18,
1987
and
was
accepted
the
following
day.
The
purchase
price
was
$1,700,000
with
a
deposit
of
$85,000.
The
offer
was
conditional
on
Woodstock
obtaining
the
appropriate
variation
to
have
the
entire
18-acre
parcel
rezoned
for
commercial
use.
The
agreement
also
obliged
Woodstock
to
appeal
any
rejection
by
the
municipal
authority
to
the
Ontario
Municipal
Board
(OMB).
It
was
also
stipulated
that
a
denial
by
OMB
of
such
an
appeal
rendered
the
offer
null
and
void.
When
the
agreement
was
concluded
and
the
application
for
an
amendment
to
the
Official
Plan
was
being
processed,
Woodstock
began
to
put
its
mind
to
developing
the
property.
R.D.
Butcher
met
with
David
Blandford
and
John
Topping,
principal
shareholders
in
Enterprise
Property
Group
(Woodstock)
Limited
(Enterprise),
which
managed
commercial
properties,
including
shopping
centres,
and
presented
the
Woodstock
property
to
them.
They,
in
turn,
made
a
proposal
to
Sears
Canada
Inc.
(Sears),
a
retailer
with
whom
they
were
involved
through
other
business,
to
occupy
space
in
a
regional
shopping
centre
which
would
be
constructed
on
the
Woodstock
property.
Sears
was
agreeable
and
was
prepared
to
commit
to
take
space
if
and
when
that
centre
was
built.
Blandford
and
Topping
(through
Enterprise)
and
Woodstock
then
agreed
to
develop
the
project
and
to
equally
share
the
expenses.
To
this
end,
on
February
6,
1989,
an
agreement
was
concluded
with
Sears
regarding
the
rental
of
space
in
the
proposed
centre.
Discussions
regarding
the
project
were
also
held
with
various
other
retailers
as
well
as
with
planners,
traffic
consultants,
architects
and
lawyers.
There
was
substantial
opposition
to
the
proposed
zoning
changes.
Butcher
testified
that
a
number
of
presentations
were
made
to
Council
and
to
the
planning
committee
of
the
City
of
Woodstock.
Public
meetings
were
held
and
other
public
relations
steps
were
taken.
After
considerable
effort,
the
necessary
approvals
were
obtained
from
the
committee.
As
Butcher
recalls,
the
planning
committee
for
the
next
level
of
government
also
approved
the
rezoning.
Final
approval
was
still
required
from
the
Regional
Council
and
at
that
stage,
the
proposal
was
rejected.
As
required
by
the
agreement
of
purchase
and
sale,
an
appeal
was
launched
to
the
OMB.
According
to
Butcher,
the
expenses
incurred
to
this
point
were
in
the
neighbourhood
of
$425,000
and
it
was
understood
that
substantially
greater
costs
would
be
incurred
in
connection
with
the
OMB
hearing.
They
had
been
advised
that
expert
witnesses
and
legal
counsel
would
have
to
be
retained
and
that
given
the
opposition,
they
should
anticipate
a
very
long
hearing.
Woodstock/Enterprise
did
not
have
the
necessary
funds
with
which
to
finance
further
expenses
and
therefore,
an
effort
was
made
to
“find
some
deep
pockets
to
become
partners”.
On
June
1,
1991,
an
agreement
was
executed
between
Enterprise,
Woodstock
and
Armcorp
4-23
Ltd.
(Armcorp)
(the
Co-Owners)
for
the
purpose
of
completing
the
acquisition
of
the
property
and
the
construction
and
management
of
the
shopping
centre.
This
agreement
certified
that
Woodstock
and
Enterprise
had
incurred
costs
of
$425,000
which
were
to
constitute
their
initial
contribution.
Armcorp
was
to
provide
an
equal
amount
and
subsequent
amounts
would
be
contributed
equally.
Armcorp
also
agreed
to
pay
a
management
fee
to
Woodstock
and
Enterprise.
It
was
also
agreed
that
once
the
property
was
rezoned,
the
project
would
be
restructured
to
permit
Sears
to
acquire
a
one-third
interest
therein
and
the
Co-Owners
would
collectively
hold
two-thirds
through
a
restructured
joint
venture
(Revised
Venture).
As
a
result
of
the
structuring,
Armcorp
would
have
an
85%
interest
in
the
Revised
Venture
and
Woodstock/Enterprise
the
remaining
15%.
Furthermore,
at
the
time
of
such
restructuring
the
lands
were
to
be
revalued
at
the
highest
possible
value
acceptable
to
Sears
(market
value)
which
market
value
would
then
be
paid
to
the
Co-Owners
in
their
respective
Co-Ownership
proportions.
At
all
relevant
times,
the
venture
was
to
be
controlled
by
Armcorp.
In
addition,
Woodstock
and
Enterprise
were
also
entitled,
following
lease-up,
to
elect
to
sell
their
interest
in
the
Revised
Venture
to
Armcorp.
On
April
30,
1992,
Woodstock
learned
that
the
appeal
to
the
OMB
was
unsuccessful
and
that
an
adverse
award
of
substantial
costs
had
been
made
against
it.
Woodstock
had
no
significant
assets
left
and
the
effect
of
this
decision
was
to
render
it
insolvent.
The
project,
needless
to
say,
was
abandoned.
The
loan
made
by
the
Appellant
to
Woodstock
was
determined
by
him
to
be
a
bad
debt,
leading
to
the
claimed
ABIL
as
previously
noted.
It
is
the
Appellant’s
position
that
the
loan
in
question
was
a
business
investment
loss
pursuant
to
paragraph
39(1)(c)
of
the
Act
because
all
the
relevant
statutory
criteria
were
satisfied,
i.e.
the
Appellant
had
loaned
money
to
a
small
business
corporation,
the
loan
became
a
bad
debt
in
1992
which
was
a
capital
loss,
and
there
was
no
possibility
that
the
corporation
would
again
commence
business.
The
Respondent
does
not
dispute
that
the
Appellant
advanced
the
sum
of
$103,035
by
way
of
loan
to
Woodstock,
or
that
the
debt
became
a
bad
debt
in
the
1992
taxation
year.
However,
she
takes
the
position
that
Woodstock
never
carried
on
an
active
business
or
alternatively,
that
the
business
carried
on
by
it
was
a
specified
investment
business.
Conclusion
A
BIL
is
defined
by
paragraph
39(1
)(c)
as
a
loss
that
is
a
capital
loss
realized
on
a
disposition
of
a
debt
owing
by
a
small
business
corporation.
In
these
appeals,
the
disposition
was
a
deemed
disposition
of
a
bad
debt
from
an
insolvent
corporation,
i.e.
Woodstock.
A
“small
business
corporation”
is
defined
in
subsection
248(1)
of
the
Act
as
follows:
248
(1)
In
this
Act,
“small
business
corporation”
at
any
particular
time
means
a
particular
corporation
that
is
a
Canadian-controlled
private
corporation
all
or
substantially
all
of
the
fair
market
value
of
the
assets
of
which
at
that
time
was
attributable
to
assets
that
were
(a)
used
in
an
active
business
carried
on
primarily
in
Canada
by
the
particular
corporation
or
by
a
corporation
related
to
it,
The
issue
in
these
appeals
is
whether
Woodstock
carried
on
an
“active
business”
at
the
relevant
time.
Subsection
248(1)
of
the
Act
defines
the
term
as
follows:
“active
business”,
in
relation
to
any
business
carried
on
by
a
taxpayer
resident
in
Canada,
means
any
business
carried
on
by
the
taxpayer
other
than
a
specified
investment
business
or
a
personal
services
business;
The
Respondent’s
contention
is
that
Woodstock
never
carried
on
an
active
business
and
that
its
activities
were
nothing
more
than
steps
“taken
to
acquire
a
business,
to
get
a
business
enterprise
or
entity
put
in
place”.
It
was
further
contended
that
no
business
as
such
materialized
since
Woodstock
became
insolvent
when
its
plans
failed
to
come
to
fruition.
In
my
view,
this
position
is
not
well-founded.
The
rationale
for
the
distinction
in
the
Act
between
an
“active
business”
and
“specified
investment
business”
was
identified
by
Sobier
J.
of
this
Court
in
Lake
Superior
Investments
Ltd.
v.
Minister
of
National
Revenue^
as
follows:
…
The
text
writers
give
us
some
insight
as
to
why
there
was
a
change
in
dealing
with
active
business
income
and
investment
income,
and
how
this
came
about.
David
Phillip
Jones
in
1982,
30
Canadian
Tax
Journal,
said
at
page
5:
In
a
series
of
cases,
however,
the
courts
effectively
eliminated
the
idea
of
passive
business
and
held
that
virtually
any
business
constituted
an
active
business.
The
purpose
of
the
‘specified
investment
income’
amendment,
therefore,
was
to
make
certain
that
income
from
the
business
of
renting
property
did
not
generally
constitute
active
business
income,
but
rather
was
assimilated
to
investment
income,
thereby
effectively
reversing
the
jurisprudence
on
this
point.
(emphasis
added)
As
was
observed
by
Mr.
Justice
Urie
in
King
George
Hotels
Ltd.
v.
R.:
Before
disposing
of
the
appeal
I
think
it
should
be
stressed
that
whether
a
business
is
an
active
or
inactive
one
is,
as
earlier
pointed
out
on
the
authority
of
the
Rockmore
case,
supra,
one
of
fact
dependent
on
circumstances
of
each
case.
That
being
so,
it
is
neither
possible
nor
or
desirable
to
lay
down
any
rule
or
principle
applicable
to
every
case.
It
cannot
be
said,
therefore,
in
my
view,
that
income
from
“other
than
an
active
business”
necessarily
means
that
derived
from
a
business
“is
in
an
absolute
state
of
suspension”
or
one
“devoid
of
any
quantum
of
business
activity”
as
has
been
said
in
earlier
decisions
in
the
Trial
Division.
In
any
given
case,
the
business
may
be
of
that
kind
but
whether
or
not
it
is,
is
not
necessarily
determinative
of
the
issue,
the
resolution
of
which
depends
on
the
fact
finder’s
view
of
the
true
nature
of
the
business
based
on
the
facts
in
the
particular
case.
The
quantum
of
activity
may
well
vary
from
case
to
case
but
still
it
is
necessary
for
the
Court
to
weigh
all
of
the
evidence
to
characterize
the
quality
of
the
particular
business.
On
the
evidence,
it
is
clear
that
Woodstock
was
in
the
land
development
business.
Its
activities
were
directed
to
the
acquisition
of
property
for
that
purpose.
Substantial
efforts
were
made
and
costs
incurred
with
respect
to
the
rezoning;
discussions
were
held
with
planners,
architects
and
traffic
consultants.
Woodstock
had
assets,
liabilities,
it
actively
sought
out
busi-
nesses
for
the
proposed
centre
and
in
fact,
secured
an
agreement
with
Sears
to
become
involved
as
a
partner
and
prime
tenant.
Such
activities
are
all
part
of
the
business
of
land
development.
The
nature
and
quantum
of
these
activities
were,
for
obvious
reasons,
different
than
those
of
many
other
businesses
but,
nonetheless,
constitute
an
active
business.
I
have
also
concluded
that
the
Respondent’s
position
that
Woodstock
carried
on
a
specified
investment
business
cannot
be
sustained.
The
definition
of
“specified
investment
business”
is
set
out
in
paragraph
125(7)(e)
of
the
Act
and
reads
in
part
as
follows:
125(7)
In
this
section,
(e)
“specified
investment
business”
carried
on
by
a
corporation
in
a
taxation
year
means
a
business
...
the
principal
purpose
of
which
is
to
derive
income
from
property
(including
interest,
dividends,
rents
or
royalties)
unless...
First,
the
Butchers
and
Kuiken
were
actively
involved
in
the
development
of
land
and
the
construction
of
residential
properties
for
resale.
The
Appellant
and
his
brother
were
also
involved
in
several
of
these
projects.
There
is
no
history
that
any
of
the
shareholders
in
Woodstock
had
ever
derived
income
from
rentals
or
any
other
form
of
property.
Second,
it
is
evident
that
Woodstock
did
not
have
the
financial
capability
to
finance
any
portion
of
the
cost
of
the
development
of
a
regional
shopping
centre,
nor
did
it
ever
intend
to
do
so.
Accordingly,
in
1991
an
investor,
Armcorp,
was
brought
in.
The
nature
of
the
Co-Owners
agreement
entered
into
at
that
time
is
of
substantial
significance,
in
particular
the
manner
in
which
the
joint
venture
was
to
be
restructured
upon
approval
of
the
rezoning.
Specifically,
the
proposed
Revised
Venture
diluted
Woodstock’s
interest
in
the
project,
but
also
enabled
it
to
have
its
share
of
the
market
value
calculated
and
paid
out
from
the
proceeds
of
interim
financing.
All
of
this
is
consistent
with
Woodstock’s
position
that
it
had
no
desire
to
be
a
landlord
in
a
shopping
complex
and
was
not
becoming
involved
in
the
purchase
and
development
of
the
property
as
a
long-term
investment.
Butcher
also
testified
that
the
buyout
provision
in
the
Co-Owners
agreement
was
specifically
designed
to
provide
an
exit
mechanism
for
Wood-
stock.
This
matter
was
regarded
by
it
as
fundamental
to
the
revised
agreement.
As
Butcher
noted:
“We
were
very
much
in
a
minority
position,
and
so
we
negotiated
this
technique
for
converting
our
equity
into
cash”.
Butcher
was
quite
specific
in
his
testimony
that
a
long-term
involvement
was
not
what
Woodstock
was
looking
for.
In
his
words:
Our
intention
was
to
develop,
get
some
money,
and
go
on
and
do
something
else,
develop
another
property,
or
build
some
houses,
or
do
something
else,
which
accounts
for
this
arrangement
that
we
arrived
at
with
the
Chrysler
Pension
Fund.
So
we
got
back
our
investment.
We
got
back
the
enhanced
value
that
resulted
from
our
having
made
the
investment
engaged
in
this
activity.
And
we
retained
a
15%
ongoing
interest.
It
was
something
that
we
thought
would
be
a
valuable
asset
which
would
at
that
point
have
cost
us
nothing.
^
His
testimony
was
not
contradicted
or
questioned
in
any
material
aspect.
While
it
is
a
fact
that
the
Co-Owners
agreement
speaks
of
holding
the
project
for
investment
purposes,
Butcher’s
testimony,
which
I
accept,
clearly
negates
that
intention
vis
à
vis
Woodstock.
I
observe
further
that
it
is
inappropriate
to
attribute
the
same
intentions
to
each
of
the
joint
venturers
as
appears
to
have
been
done
by
the
Respondent.
On
the
evidence,
it
is
clear
that
Woodstock’s
intention
was
as
Butcher
said:
“to
develop,
to
get
some
money,
and
to
go
on
and
do
something
else,
develop
another
property”
and
that
any
potential
that
this
development
had
to
provide
Woodstock
with
rental
income
was
entirely
subordinate.
On
balance,
I
am
satisfied
that
Woodstock
was
carrying
on
an
active
business.
The
appeals
are
allowed
with
costs
to
the
Appellant,
to
be
taxed.
Appeal
allowed.