Ann Wisniewski v. Minister of National Revenue, [1979] CTC 2298, 79 DTC 266

M J Bonner:—The appellant was assessed to income tax on the basis that gains realized in 1973, 1974 and 1975 on the disposition of the lake front property and cottage on Roderick Avenue in or near Sudbury, Ontario were income. The appellant asserts that the gains were on capital account, the property having been purchased for purposes of a summer cottage. The appellant and her husband had vague plans for the erection of a year round home on the site. The appellant in 1973 was married and the mother of two children. Her husband was a real estate broker or agent. The family lived in a residential subdivision of Sudbury. In March of 1973 the appellant purchased a block of six lots on one of which was erected a small dwelling. Three of the lots fronted on Roderick Avenue. The remaining lots abutted the first three at the rear and ran through to Ramsay Lake. Each of the lots was about fifty feet wide. The dwelling was located on the central pair of lots.

The property was purchased from a Mrs Milanov, a neighbour of the appellant. The appellant had visited it prior to purchase and found it attractive.

Initially, Mrs Milanov had listed the property for sale with a real estate firm. It remained unsold and it was subsequently listed with the appellant’s husband. The appellant then asked her husband to buy it and he at first refused. She convinced him and the property was ultimately purchased in the appellant’s name.

I will digress from the chronology at this point to comment on the quality of the evidence. It was established that the appellant had, before March of 1973, purchased and resold three lots located elsewhere. The appellant had no independent recollection of the transactions. Her accountant gave evidence that these were transactions wereby the appellant in effect loaned money to a builder on the security of land and that the gains were reported as income. The appellant had, after 1973, engaged in a number of purchases and resales of land for profit. Again, she had no independent knowledge of these transactions.

The reason for her ignorance was that the transactions were all arranged for her by her husband and handled by him, her accountant and her lawyer. The appellant’s only participation was to sign when and where asked to. The appellant displayed similar ignorance of all of the details of the purchase and sale except for her partial role in initiating the purchase of the property in question and her reasons, as housewife and mother, in assenting to the disposition. In short, the dominating mind and will in the purchase and subsequent sale of the lots was that of the appellant’s husband. He was present in Court, but was not called as a witness. The appellant’s husband financed the purchase by taking out a first mortgage. The mortage loan commitment was on a printed form, but contained a typewritten insertion as follows:

14. It is agreed that should you decide to sell Lots 92 and 77, or alternatively Lots 94 and 75, this Company will grant a partial cessation on either of these two packages in the amount of $9,000 per package providing sufficient proof is given that our security does not drop below 75% on a loan ratio basis.

The lots were each 50 feet wide. The appellant testified that she and her husband only needed 100 feet and that the clause just read was inserted to enable them to sell part of the property if they wanted. However, that explanation was plainly conjecture on the appellant’s part. The appellant had no independent recollection of making the mortgage arrangement.

The cottage was in fact used and occupied by the appellant and her family during the summer of 1973.

In the fall of 1973 the appellant and her husband were approached at a dance by a Mr Toppozine who asked if he could purchase two lots, one lake front and one road front. They apparently agreed without hesitation and sold the pair of lots in December of 1973. The appellant said they agreed to sell the lots because they needed the money to pay income tax. At this point the appellant was evidently joking. The gain was included by the respondent in the appellant’s income for 1973. The cottage was unused from the end of the summer of 1973 to June of 1974 when it was totally destroyed by fire. The appellant, or more accurately her husband on her behalf, claimed and received $19,000 in insurance under a policy on the building. The respondent included this amount in computing the appellant’s income for 1974.

The appellant was asked why she did not rebuild. She responded that by that time she had three children and had become apprehensive about the possibility of a drowning accident. She added that the cost of rebuilding was a factor, although she did not investigate what that cost was. The pair of lots on which the cottage sat were sold in July of 1975. The appellant was vague and uncertain in giving evidence as to whether and when the remaining pair of lots was sold. It was only after coaching from either her husband or her accountant, to which I might add counsel for the respondent did not object, that she recalled the sale at all. The gain from the sale of both the pair of lots on which the cottage sat and the remaining pair was included by the respondent in computing the appellant’s income for 1975.

The appellant’s counsel argued that even a real estate speculator might hold a vacation home as a capital asset. I agree with that submission. The respondent’s counsel contended that on an examination, not only of subjective declarations of intent but also on an examination of the whole course of conduct, I should find that the purchase of the entire property was made with a view, in effect, to speculation and that the gains from all dispositions were therefore income. Implicit in the appellant’s submission was the assumption that the entire property was purchased as a capital asset, that is to say, with a view to its use as a summer home. I am not at all persuaded that the appellant has established that such is the case, given the state of the appellant’s knowledge and the absence of the testimony of her husband. I can and do conclude that the central pair of lots, numbers 76 and 93, and the building thereon were purchased and used for the purposes advance by the appellant. I do not think that it has been established on the balance of probability that the remaining two pairs of lots, 77 and 92, which were sold in 1973, and 94 and 75, which were sold in 1975, were not purchased in the course of a speculative adventure in the nature of trade.

There was no clear evidence of any dedication of those four lots or any of them to personal use. The appellant’s husband was the only person who could have given useful evidence on this point. The appellant’s counsel argued that the husband’s evidence would only have been a repetition of that given by the appellant. I cannot accept that argument given the lack of knowledge demonstrated by the appellant throughout most of her testimony. The appeal will therefore succeed only in part. My decision is that the appeal is allowed. The assessment for 1973 will remain undisturbed. The assessment for 1974 is referred back to the respondent for reconsideration and reassessment on the basis that the sum of $12,415.49 relating to insurance proceeds will be deleted from income. The assessment for 1975 will be referred back to the respondent for reconsideration and reassessment on the basis that the gain realized on the sale of Lots 94 and 75 is income and the gain realized on the sale of Lots 93 and 76 is on capital account.

Appeal allowed in part.