Keenan v. R., [1998] 4 CTC 2682

Teskey T.C.J.:

The Appellant in her Notice of Appeal wherein she appealed her assessment of income tax for the years 1993 and 1994, elected the informal procedure.

The Issue

The sole issue before me is whether the sum of $20,812 and $54,018 received in 1993 and 1994, respectively, was on capital account or income account.

Facts

The Appellant, a 55 year old married woman, the mother of seven children, describes herself as a sales representative.

In 1981, a joint venture (the “JV”) was formed to purchase, hold, subdivide and develop a property legally described as Lot 275 of District 283 Group, New Westminster District Plan 60932 (the “Lands”).

Exhibit A-1 is the written JV agreement prepared by the Appellant’s own solicitor. By the terms of this January 1st, 1981 agreement, the joint venturers and amount paid and interest thereof, were as follows:

Carmel Keenan is the Appellant’s sister-in-law and Cecilia and Frederick Keenan are her mother and father-in-law.

The joint venturers, by the agreement, nominated her brother-in-law, the husband of Carmel Keenan (“Carmel”), Donald Joseph Keenan (“Donald”) as their agent and trustee to acquire the land for $180,000. The nominee has the right to call for more funds from the joint venturers and to borrow funds for the project and operate a bank account.

The purpose of the JV is set forth in paragraph 1 of the Agreement which reads:

The Joint Venturers hereby form this Joint Venture to acquire and hold the aforesaid lands and premises in common and to provide the finances required for its’ acquisition. To the extent hereinafter set forth each of the Joint Venturers shall own an undivided fractional part in the lands and premises. It is the principal purpose of this Joint Venture to acquire the said lands and premises, for subdivision, development and sale with distribution of the net profits derived therefrom among the Joint Venturers in accordance with their respective interests as hereinafter defined. The Joint Venturers hereby appoint as their Nominee, Donald Joseph Keenan, whose duty it shall be to hold each of the undivided fractional parts in the said lands and premises constituting the Project for the benefit of and as agent for the respective Joint Venturers.

Some of Donald’s obligations were set forth in paragraph 4 thereof and they read as follows:

4. The Nominee shall hold the lands and premises and shall receive the net profits accruing therefrom during the term of this Agreement or so long as the Joint Venturers are the owners in common of the said lands and premises, for the benefit of the Joint Venturers as follows:

(a) Subject to the provisions of paragraph 9 of this Agreement, the said lands and premises and the net profits accruing from the sale thereof, shall be held for the benefit of and distributed to the Joint Venturers in the following proportions, and no Joint Venturer shall have any preference over any other Joint Ven-

turer;
NAME	PROPORTION
Marian L. Selkirk	‘/sth
Mary Holland	'/sth
Joanne Allard	’/sth
Colleen Allard	‘/8th
Carmel Keenan	Vsth
Jacqueline Keenan	‘/sth
Cecilia N. Keenan	’/i6th
Frederick Keenan	‘/i6th
Jent Construction Ltd.	‘/sth

(b) The Nominee shall determine and distribute the net profits from time to time to the Joint Venturers in accordance with their respective interests as set forth above, after payment of all outstanding liabilities as the Nominee shall determine should be paid or partially paid at the time of such distribution.

The property at the time of purchase was a vacant undeveloped landlocked property and could not be immediately developed until an adjacent parcel was purchased by the JV or some other entity and developed.

The development finally took place after a delay of almost 12 years. Carmel was involved in the purchase of the adjoining property. Carmel, at that time, transferred her interest in the JV to her husband’s company, Keenan Construction Co. Ltd.

Donald arranged for the lands to be serviced at the same time he arranged for the adjoining lands to be serviced in 1992.

The Appellant and her family moved to Calgary in 1983 and moved back to Vancouver in 1990. They sold their Vancouver house in 1992 and purchased another house which was described as an ordinary three-bedroom house, nothing special.

The Appellant acknowledged that Donald, a professional engineer with specialized knowledge in sewer layouts in subdivisions, was the directing mind and the principal driving force behind the JV, namely the purchase of the lands, obtaining the necessary approvals for subdividing, the servicing and the building of houses thereon and the sale thereof.

Although the joint venturers changed, no new written agreement or written amendment was entered into. Prior to any development taking place, the interests of Carmel Keenan, Cecilia Keenan and Frederick Keenan’s were transferred to Patrick’s company, Keenan Construction Co. Ltd. and Jent Construction Ltd.’s interest was purchased by the group.

When development took place, the joint venturers and their shares were:

Only the Appellant and Keenan Construction Co. Ltd. dealt at non arm’s length.

The Appellant claims that each of the original joint venturers entered into the JV for the sole purpose of buying the property, subdividing it into eight lots and each '/sth interest would obtain title to a lot to build a princi- pal residence thereon. Therefore the money received was on capital account.

Analysis

I reject the Appellant’s stated position as set out above for the following reasons:

(1) The written JV agreement does not provide for distribution of lots but specifically deals with development of the lands and the distribution of profits therefrom.

(2) During the time from the original purchase in 1981 until 1992, when the original parcel was subdivided, the municipal by-laws regarding lot frontages were changed making it possible to get nine lots out of the original parcel and this was done. (I would have thought that if all the participants only wanted a personal building lot for their own use, they would have each wanted the extra frontage, or if they were content, presumably to have the smaller frontage, to make a profit on the extra lot or lots.)

(3) None of the other joint venturers gave evidence of their intention and I therefore conclude that their testimony would have conflicted with the Appellant’s.

(4) The JV went beyond the original agreement and is building houses on the lots for sale to the general public, those houses being built by Keenan Construction Co. Ltd.

(5) From the testimony received, it is obvious that there were no formal meetings that the Appellant attended after the first inaugural meeting in late 1980.

(6) When the property was able to be developed, Donald, as the sole directing mind, did everything to obtain all approvals to subdivide the lands, service the lands and build houses on the lands, sell the houses and distribute the profits. All of this with no input from the Appellant. Obviously, substantial borrowing was necessary to complete the original purchase, to service the lots and build the houses thereon and assume Jent Construction Ltd’s interest in the adventure.

(7) At no time did the Appellant demand a conveyance of a single lot from the JV or the right to purchase a single vacant lot as her interest in the JV.

(8) The Appellant, because she had no interest in 1992 to own a vacant building lot or to have a new residence built thereon for her, was quite content to sit back and reap the profits from their adventure. She can be described as a passive member of the J.V.

(9) I do not accept the Appellant’s answer to the question how the members of the JV were going to pick their lots when she answered: “It did not matter as all the lots were identical.

I am satisfied that Keenan Construction Co. Ltd., through its shareholder Donald, was the most active participant and that its intention became the JV’s intention as a whole. It is obvious from the written agreement that the joint venturers entered into the business of developing raw land into a subdivision and the sale of the lots thereon at a profit, and then a decision was made by Donald to build houses thereon, presumably to increase the profit for the JV.

The Appellant has not satisfied me that she entered into this agreement only as a means to obtain a building lot for her principal residence. I am satisfied at the very least she had a secondary profit-motive intention. However, even if she had convinced me that her only intention was to obtain a single building lot for her personal use (which she has not), from the evidence before me and what is not before me, I would have concluded that she changed her position and adopted the same profit-motive that the joint venturers had been working on from the start.

For these reasons, the appeals are dismissed.

Appeal dismissed.