Hillsdale Shopping Centre Limited v. Minister of National Revenue, [1977] CTC 402, 77 DTC 5256

Cattanach, J:—These are appeals from assessments of the appellant by the Minister to income tax for its 1963 and 1965 taxation years.

In assessing the appellant the Minister added to the appellant’s income the amounts of $95,460.51 and $51,643.04 respectively in the 1963 and 1965 taxation years, those amounts resulting from the sums of $175,500 and $58,000 awarded to the appellant on the expropriation of approximately 20 acres of land in which the appellant held an equitable interest less certain: costs and expenses which the Minister allowed as deductions on the ground that the amounts so added constituted profit from a business within the definition of a business extended by paragraph 139(1)(e) to include an adventure or concern in the nature of trade.

The appellant is a joint stock company incorporated pursuant to the laws of Saskatchewan on May 2, 1956 with head office in the City of Regina for the following objects:

(a) To acquire land and any other property in the South-Eastern Section of the City of Regina, in the Province of Saskatchewan, or elsewhere in the City of Regina, for the purpose of Community Shopping Centre or Centres.

(b) To develop a community shopping centre or centres in the City of Regina and for that purpose to construct, build, improve, lease, rent, control, develop and manage all and every kind of building, structure, shop, store, office premises, plant, service station and any other business or other premises of all or any kind which may be considered conducive or incidental to the development or benefit of any such shopping centre.

It is specifically provided in the memorandum of association that the ancillary and incidental powers in clause (q) of section 30 of The Companies Act of Saskatchewan are excluded. That clause reads:

(q) to sell, improve, manage, develop, exchange, lease, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the company;

By reason of the express exclusion of such incidental powers the appellant is precluded from selling, exchanging or otherwise turning to account all or any part of the property of the company. To do so would be ultra vires the company.

The objects set out in the memorandum of association will generally determine the nature of the operation contemplated and to be under- taken by this company. If the company pursues acts unauthorized by its memorandum of association the fact that its acts are ultra vires or illegal is not an answer to the propriety of an assessment to income tax on any profits as derived by the company (see England v Webb, [1898] AC 758).

At the very most the incorporation of a company merely raises a presumption of an intention to carry on business as outlined in the memorandum but this presumption may be rebutted and accordingly is not conclusive. The question remains as to what the company actually did and whether what it did, ultra vires or otherwise, resulted in a profit from a business within the extended definition of that word in the Income Tax Act in which event the profit would be taxable or in a gain realized upon the enhancement in value of a capital asset in which event the gain would not be taxable. That is the question raised for determination in these appeals.

The appellant was incorporated at the instigation of Mr F W Hill. Mr Hill has been prominent and successful in the real estate business and its related businesses such as insurance, property management and the like over a number of years.

The business in which Mr Hill is engaged was begun in 1903 by his father in a partnership known as McCallum Hill which was incorporated in 1935. He joined the company in 1946 as manager of the insurance department.

In 1953 he purchased the assets owned by the 1935 company from the estates of the then deceased original partners and shareholders and incorporated a new company under the name of McCallum Hill & Co Limited (hereinafter referred to as McCailum Hill) to continue the business of the former company.

Mr Hill owned 99 shares in the newly incorporated company and his wife held one share out of the total of 100 issued and outstanding shares of the capital stock. At approximately the same time Mr Hill acquired ownership of the McCallum Hill Building which for some years past had been a landmark and the most prestigious office building in the City of Regina. A company was formed to hold the office building in which the shares were held equally by Mr Hill and his wife and the management of the building was undertaken by the property management department of McCallum Hill.

As early as 1953 McCallum Hill under the direction of Mr Hill became engaged in residential development in that section of Regina south of Wascana Lake and the Legislative Buildings. A parcel of land, designated in a plan of subdivision as Block A, was acquired at that time for that purpose.

On May 5, 1955 McCallum Hill entered into an irrevocable option expiring on April 20, 1965 with Robert A Kramer for 457.31 acres in the vicinity mentioned above at a price of $3,000 an acre. The option could be exercised at any time during its currency in part. The obvious purpose of this provision was to permit McCallum Hill to take down land as the development progressed southward and to register plans of subdivision with respect to those parcels of land on which the option was exercised. This is what was done.

For the purposes of these appeals, the parcels of land so taken and designated as Blocks J, K, L and M are material, particularly Blocks J and M.

This development was designated as Hillsdale and its southernmost extension was bounded by another more advanced development known as Whitmore Park.

The development was an attractive one, planned with care and foresight and has proven to be successful. What was done with the greater proportion of the land was to divide it into residential lots for private homes, which lots were sold to builders on which were erected homes for individuals or for sale. In some instances McCallum Hill erected the homes and sold the house and lot itself and in other instances other types of structures were erected such as garden homes (formerly called row houses or terraces) and apartments.

It was only natural that a shopping centre should become an essential part of the development to constitute an attraction to prospective residents therein and to serve the needs of these residents as well as those of the residents of Whitmore Park and residents of adjacent areas and, depending on ease of access, to persons further removed.

There is no doubt that McCallum Hill was a trader in land and that residential lots and similar lots comprise its stock in trade. However, because a person is a trader for one purpose does not mean that that person cannot also be an investor. Into which category the person falls is one of fact.

It is axiomatic and common sense that the location of the proposed shopping centre should be dictated by the facility of access thereto and that access is dictated, in turn, by the arterial road system of the city.

There were two main arterial streets running north and south, one of which was Albert Street and the other was Broad Street. Albert Street was a continuation of the Trans-Canada Highway through the centre of the city. A by-pass was constructed but Albert Street continued to be the main access to the centre of the city and was also used by the residents of the southern developments for the same purpose.

The difficulty with Broad Street was a narrow antiquated bridge spanning Wascana Creek which in effect precluded a diversion of the heavy traffic from Albert Street to Broad Street. The bridge was constructed in 1910 to serve as a secondary access route to the Legislative Buildings and the farming area to the south. Because Wascana Lake was used for recreational purposes the bridge was so constructed as to permit sailing craft to pass beneath it which, in turn, resulted in high grade approaches. While the width of the bridge was adequate for the light and slow-moving traffic of the pioneer days with the increase in vehicular traffic over the ensuing years and the extensive development immediately to the south, specifically Hillsdale and Whitmore Park, this bridge had become completely outmoded and wholly inadequate and a serious traffic hazard.

This was recognized and in the early 1950’s application was made to the Government of Saskatchewan to have the bridge replaced. At this time the City reinforced the decking of the bridge to carry heavier vehicles but nothing further was done at that time.

In 1955 the City Engineer recommended the replacement of the bridge in a new location approximately 1,000 feet to the east of the existing structure.

I think it is safe to conclude that as early as 1955 it was evident that a new bridge would be built but when and where it would be built and any consequent realignment of streets still remained in the realm of uncertainty.

The Community Planning Committee of the Regina City Council submitted a recommendation dated December 17, 1957 that an Outline Master Plan for the entire area bounded by Wascana Lake, No 1 By-Pass and Albert Street, and No 1 By-Pass should be approved in principle. This was done at a meeting of City Council on December 23, 1957.

Basically, as I appreciate the Outline Plan for South Regina, it was that a new bridge would be built approximately 1,000 feet to the east of the old bridge. Broad Street would pass over that bridge and would be realigned to the east of its former location south of Wascana Lake, pass through 21st Avenue running east and west at approximately right angles thereto, meet 25th Avenue, an east and west street, at right angles at a traffic circle or roundabout and then continue on to the south terminating at a street running parallel to No 1 By-Pass. 25th Avenue would continue generally east but curving gently to the south to meet No 1 By-Pass and so provide another access to the Trans-Canada Highway. The significant thing about this Outline Plan is that Block J, which Mr Hill had conceived as the site of the proposed shopping centre, would be bounded on the north by 21st Avenue, on the south by 25th Avenue and on the east by the extension and proposed realignment of Broad Street. As I appreciate the circumstance the old location of Broad Street over the old bridge was the western boundary of Block J.

There is no question that, if the Outline Plan were implemented as approved by the City Council on December 23, 1957, Block J would be an ideal site for a shopping centre with the ease of access provided thereto by two arterial streets, that is Broad Street running north and south and providing the eastern boundary and 25th Avenue running east and west and providing the southern boundary, as well as secondary streets providing the north and west boundaries.

I would assume that Mr Hill by reason of his detailed and vast experience in the real estate and development business in Regina would have been entitled to entertain the expectation as early as 1955 that a general plan similar to that approved on December 23, 1957 would be adopted and eventually implemented. This likelihood was dictated by the congestion of traffic on Albert Street, the inadequacy of the old Broad Street bridge and the definite trend of residential development to the south. Whitmore Park had been substantially developed as a select residential area prior to Mr Hill’s embarkation of the development of the Hillsdale residential area. Mr Hill’s option agreement on the 457 acres with Mr Kramer is dated May 5, 1955.

On January 18, 1956 application was made to the City Council to rezone Block J as commercial. Prior to this time the area had been zoned as residential. This is one year prior to the adoption of the Outline Plan mentioned immediately above. The application for rezoning makes specific mention of the plan to construct a shopping centre. At the time of the application it was known that a shopping centre which would offer competition was in contemplation on Albert Street by a national developer of shopping centres. The application extols the advantages of McCallum Hill, by whom the application was made, over that of a shopping centre on Albert Street principally on the basis of location.

By by-law dated May 28, 1956 the application for rezoning from first density residential to local business was approved. Simultaneously the site of the proposed competing shopping centre on Albert Street was also rezoned as commercial.

On May 2, 1956 Hillsdale Shopping Centre Limited, the appellant herein, was incorporated.

On May 8, 1956 an agreement for the sale of Block J was entered into between McCallum Hill and the appellant at the option price to Mr Kramer, $3,000 an acre. No transfer of title was ever made to the appellant.

Throughout the active existence of the appellant company, its interest and intentions were identical with those of McCallum Hill and the interest and intention of McCallum Hill with respect to the shopping centre project coincided with those of Mr Hill.

Mr Hill was justifiably concerned about the prospect of two shopping centres in close proximity to each other and particularly since he knew that the developer of the competing centre was Principal Invest- ments Limited, a company which was the first in the field of developing shopping centres in Canada and enjoyed the reputation of a successful and experienced developer of those projects with all prospective national tenants.

Accordingly Mr Hill approached Mr Bennett of that company with the proposal of entering a partnership or some form of joint venture for the development of a shopping centre on the Hillsdale site. Mr Bennett apparently acknowledged the superiority of the location of the Hillsdale site over the Albert Street site but categorically rejected the plan advanced for any kind of a joint venture. Instead he countered with the proposal that Mr Hill should sell the Hillsdale site to Principal Investments Limited pointing out the overwhelming advantage that company would have over Mr Hill in competing for prime tenants if the centre on Albert Street were proceeded with. Mr Hill was overawed by the prospect of so competing and reluctantly agreed to sell, subject to a satisfactory price being agreed upon and that McCallum Hill be retained as management agents for the shopping centre.

Subsequently on April 13, 1956 Principal Investments Limited advised Mr Hill that it was no longer interested in buying the Hillsdale site and had decided to proceed with a shopping centre on Albert Street.

Prior to this event Mr Hill had commissioned Larry Smith & Co of Seattle, Washington, a firm of real estate consultants who also describe themselves as economic consultants, to prepare a brochure of the proposed shopping centre including a site plan of the centre showing the location and description of retail outlets and a drawing of the centre, both prepared by H K Black, an architect in Regina engaged by Mr Hill to do this, a plan of the development the same as the general Outline Plan approved by the City Council on December 23, 1957, which was a year subsequent to the completion of the brochure in December 1956, to demonstrate the accessability of the site, a review of the trade area to be served, the income and buying power of the residents of that area, the sales potential and the prospect of increase therein and a comparison of the Hillsdale site with competing sites.

Mr Hill was encouraged by the comparison of the advantages of the Hillsdale site and the Albert Street site which was favourable to the Hillsdale location.

In the meantime Mr Hill had been engaged in correspondence and personal interviews with prospective tenants over the period from October 21, 1955 to September 27, 1957, the first date being correspondence with Food Town of Canada Ltd, later to become Dominion Stores, as well as Kresges, Simpson-Sears, Eaton’s, Loblaws, the Imperial Bank, Woolworth’s, Zeller’s and a Saskatchewan-based drug chain. Overtures were also made to J C Penny, a United States department store chain.

Principal Investments Limited, in a series of press releases, conveyed the impression to the public that Zeller’s and Loblaws had committed themselves to the Albert Street site.

Mr Hill ascertained that neither Zeller’s nor Loblaws had made any such commitment to Principal Investments Limited and in mid-April 1956 responsible officers of Zeller’s and Loblaws indicated that they were convinced that the Hillsdale location was more desirable than the Albert Street location. So encouraged by the consultant’s report and the officers of Loblaws and Kresges, Mr Hill then decided to revert to the original plan to build a shopping centre on Block J.

It was then that Mr Hill engaged the architect, H K Black, to prepare preliminary plans and drawings of the proposed shopping centre.

It is significant to note at this time that while the key tenants such as Kresges and Loblaws had made no firm commitment to Principal Investments Limited neither they nor any other of the tenants whom Mr Hill had approached had made any firm commitment to Mr Hill. This is understandable. It was much too early a stage for them to do so. Naturally such tenants would prefer to wait until greater progress had been made towards the construction of the shopping centre to better assess the advisability of locating there.

The negotiations between McCallum Hill and Loblaws proceeded to such a stage that a writ issued on February 28, 1958 whereby McCallum Hill sued Loblaws for breach of an agreement to lease a supermarket to be erected. The appellant herein was later joined as a plaintiff. A defence was filed denying that any agreement to lease premises from the defendant had been made between the parties. In the meantime Loblaws had located at the Albert Street site which no doubt precipitated the action. The matter never came to trial and the action was eventually abandoned by the plaintiffs and negotiations were resumed with Dominion Stores as the prospective tenant of a supermarket.

All of these negotiations were with a shopping centre proposed to be erected on the 20 acres comprising Block J.

On April 22, 1958 Mr Hill received a report on the Hillsdale Development for McCallum Hill from Mayer, Whittlesey and Glass, planning consultants.

This report recommends a development plan which departs from the City’s Outline Plan for South Regina approved on December 23, 1957 in that the extension of Broad Street would no longer form the boundary of Block J but would be moved eastwards to form the northeasterly boundary of Block M and would intersect 23rd Avenue further to the east. Block J and Block M would be divided by a street called Hillsdale running from the proposed extension of Broad Street to 23rd Avenue. Hillsdale Street would replace the proposed extension of Broad Street as depicted in the City’s Outline Plan.

This plan was recommended over the Outline Plan for the reasons that it provided a better traffic solution, yielded the best shopping centre site and provided a handsome site for a head office building which was to be built by the Saskatchewan Power Corporation. This plan therefore recommends the abandonment of Block J as the shopping centre site and recommends that Block M become the site of the shopping centre for convincing reasons outlined in its report. It was also recommended that Block J should become an office and institutional building area. The office use contemplated was a prestige site for the head office building of the Saskatchewan Power Corporation which at that time had its employees scattered about in various offices throughout the City and the construction of a head office building was inevitable. Only the site was in doubt. It was eventually built in downtown Regina. Block J was considered ideal as an expansion area for provincial government buildings. This area frozen against that expansion in preference to residential or business uses by others was limited to 7.4 acres of the 20 acres in Block J. Institutional uses in contemplation was a hospital on a quiet lakeside street, churches, clubs, a fire station and the like. Those proposed uses would necessarily result in sales and accordingly Block J would revert to inventory if it had become anything else which is one issue that must be decided in these appeals.

Mr Hill testified that he accepted the preferred recommendation in this report for what it was, that is, merely a recommendation and that he neither accepted nor rejected the recommendation that the site of the proposed shopping centre should be relocated from Block J to Block M.

Naturally the location of the shopping centre would be dependent on the adoption by the City of the relocation of the bridge and the realignment of streets consequent upon the construction of the bridge at a site different from the existing one. That the bridge be relocated and a realignment of streets had been adopted in principle by the City on December 23, 1957. Pursuant to that plan, if implemented, Block J would be the most desirable site for the shopping centre for the reasons given above.

That plan was not implemented. Significantly, McCallum Hill, through its solicitors, by a proposal dated September 2, 1958 urged upon the City the adoption of the plan for the new arterial street pattern to complement the construction of the Broad Street bridge as recommended by its consultant.

On November 9, 1959 the City Council by a majority vote adopted the recommendation of the City Planning Committee that the recommendation of the consultants, Mayer, Whittlesey and Glass, engaged by McCallum Hill be adopted in principle. By that plan, Block M became the most desirable site for the shopping centre.

In the meantime, on May 8, 1957, a money by-law to provide funds for the construction of a new Broad Street bridge had been defeated by the taxpayers of Regina by a resounding majority.

That rejection did not prevent the City Council from adopting the general Outline Plan for the development of southern Regina on December 28, 1957 nor the slightly revised plan on November 9, 1959. This is a recognition by the City Council of the necessity of the plan for development but that the City was without funds to construct the bridge upon which the consequent street pattern depended.

The proposal, dated September 2, 1958, by McCallum Hill to the City included an offer to loan the City sufficient funds to cover the cost of erecting the new Broad Street bridge with interest at 5 /2%, repayment not to commence until the municipal tax year two years following the completion of the bridge. The principal and interest would be recovered on the basis of 50% of the taxes collected on the increased assessment on land and improvements in the area bounded by old Broad Street, Winnipeg Street, 23rd Avenue and Was- cana Creek, that is to say J, K, L and M, the balance being parkland which would be donated to the City. As already indicated this proposal was accepted by the City on November 9, 1959.

However to become effective the acceptance by the City of the loan from McCallum Hill and conditions of repayment required ratification by the Provincial Legislature.

An Act of the Provincial Legislature assented to on April 14, 1959 ratified an agreement to this end between McCallum Hill and the City dated December 31, 1958 as amended on March 23, 1959. However, this Act included a section requiring that there should be submitted to the vote of the burgesses of the City of Regina a question to afford the burgesses an opportunity to indicate whether they were in favour or opposed to this agreement.

The vote taken pursuant to the direction to do so was opposed to the agreement.

After this defeat McCallum Hill built the bridge at its own expense. In doing so I am certain that Mr Hill was activated by motives of Civic pride and his own financial advantage since the bridge enhanced the Hillsdale development. A shopping centre was eventually built on Block M, not by the appellant but by another company in which the Shareholding was identical with that in the appellant.

The significance of the recital of these facts is that as at December 31, 1958, the date of the agreement between McCallum Hill and the City, Mr Hill had resolved to abandon Block J as the site of a shopping centre and to utilize Block M for that purpose subject to the conditions subsequent to that agreement being met.

Mr Hill testified that a firm decision to locate the shopping centre on Block M was made in the spring of 1960. There is no doubt that serious consideration was given to this location much earlier though no firm decision may have been taken.

However, the fact that Block J was abandoned as the site of a shopping centre does not of itself resolve these appeals for reasons I shall give later.

In August 1959, which is subsequent to the consultants’ report recommending Block M as the shopping centre site and that Block J should be devoted to office and institutional uses, Mr Hill proposed an exchange of Block J for an equivalent area of land in the Dominion Experimental Farm which was being abandoned for use as such. This proposal was inspired by the hope that the Saskatchewan Power Corporation, an agency of the provincial government, would build its head office in Block J to conform to institutional use rather than as a shopping centre site and the land sought in exchange therefor could be used for residential development.

On April 14, 1962 The Wascana Centre Act, being chapter 46, Statutes of Saskatchewan 1962, received Royal Assent and the Act was deemed to be in force as of April 1, 1962.

On September 19, 1962 the Wascana Centre Authority, created by this Act, expropriated the whole of Blocks H, J, K and L in the Hillsdale Commercial Development by filing in the Land Titles Office a resolution passed by the Authority authorizing the expropriation in accordance with The Wascana Centre Act for use in accordance with a plan previously adopted by the Authority. Block M was not expropriated.

The prime movers of The Wascana Centre Act were the provincial government, the University and the City with the view to joint participation in the development of the lands surrounding Wascana Lake. For some time prior to the enactment of The Wascana Centre Act there was public knowledge that studies were being conducted for the development of these lands. The City made reference to the project which would inevitably occur as early as December 1961. Government officials advised Mr Hill at that time that the lands owned by McCallum Hill were to be included in the Wascana Centre and sought his co-operation in not proceeding with the development of the lands.

At this point I would add that the taxability of a gain is not affected merely because the gain is realized upon expropriation of the land rather than by a sale thereof.

There is no doubt whatsoever that when McCallum Hill undertook and began the Hillsdale residential development on the grand scale on May 5, 1955 to be completed in a progressive and orderly manner Mr Hill was also convinced of the desirability of including in that development a shopping centre to be owned by himself and his wife as an income-producing project similar to the ownership by them of the McCallum Hill Building.

In 1955 the City Engineer had recommended the construction of a new Broad Street bridge at a different location. Steps were taken forthwith to bring the concept of the shopping centre to a reality.

The appellant company was incorporated on May 2, 1956 for the objects as stated above.

At that time the best information available to Mr Hill upon which to forecast the future indicated to him that Block J would be the most likely site for the shopping centre.

On May 8, 1956 the appellant entered into an agreement with McCallum Hill to purchase Block J.

On May 28, 1956, pursuant to an application therefor by McCallum Hill, Block J was zoned commercial by the City.

In April 1956 Mr Hill was faced with the prospect of a competing shopping centre on Albert Street to be constructed by Principal Investments Limited. He made overtures to eliminate that competition, the first of which was to suggest a joint venture to operate a shopping centre which was rejected. Then with reluctance he accepted an offer, Subject to qualifications, to sell the proposed Hillsdale site to the competitor.

Accordingly, as at that time and before the shopping centre was constructed, Mr Hill indicated a willingness to turn the site to account if he could not fulfil his plan to build a shopping centre himself due to adverse circumstances which, in his opinion, made it impractical for him to do so.

On April 13, 1956 Principal Investments withdrew its offer to purchase Block J.

In the meantime Mr Hill received a report which had been commissioned by McCallum Hill from a consultant on these matters extolling the advantages of the Hillsdale site over the competitor’s site. He also ascertained that prospective tenants with whom he had been negotiating earlier had made no firm commitment to his competitor.

A fact which I have not specially mentioned before is that Mr Hill made an offer to purchase the Albert Street site which was rejected. I attach no great significance to this offer because while it would eliminate the competition it would also provide Mr Hill with a valuable speculative property which he could readily dispose of in his business as a trader in real estate.

Thus encouraged, Mr Hill reverted to his original plan to construct a shopping centre as an incident to the Hillsdale development.

While I am convinced that Mr Hill was at this time firm in his resolve to construct a shopping centre that conviction does not determine the matter because I am not convinced that Mr Hill had formed the firm resolve to construct the shopping centre in Block J.

The selection of Block J as the site was, from necessity, predicated upon future events particularly the construction of the Broad Street bridge in a new location and the alignment of arterial streets. That such future events would happen and if they should happen when they would happen, could not be predicted with any certainty.

It is inconceivable that Mr Hill, possessed of the business acumen of which he is possessed and the years of experience he had accumulated in the real estate and development business in the City of Regina was oblivious of these uncertainties and would not have a second string to his bow if his hopes, which is what he must have cherished, were not realized. That his hopes for the construction of a shopping centre on Block J were not realized is demonstrated by subsequent events which did occur, the possibility of which must have been present to Mr Hill’s mind from the outset. In 1956 there was no commitment as to the building of a new bridge, its location and realignment of streets.

On May 8, 1957 the money by-law to provide the City with funds to construct the new Broad Street bridge was defeated.

Despite that defeat on December 23, 1957 the City adopted in principle a plan for the development of southern Regina which if implemented would make Block J the ideal site for a shopping centre. That plan was never implemented.

On April 22, 1958 McCallum Hill received from consultants it engaged a report which, for very convincing reasons, recommended a plan for the development of the area in question including the building of a new Broad Street bridge and an alignment of streets which differed from the plan adopted in principle by the City on December 23, 1957. The recommendation in this report and the plan envisioned therein effectively destroyed Block J as the site of the proposed shopping centre and also recommended that, as a result of the plan if adopted, Block M would become the ideal site and that Block J should revert to McCallum Hill’s stock in trade.

On September 2, 1958 in representations made by McCallum Hill to the City it was strenuously advocated that the plan recommended in the report of the consultant dated April 22, 1958 to McCallum Hill should be adopted.

On November 9, 1959 the plan so recommended and advocated was adopted by the City.

When it was contemplated that Block J should be used for governmental and institutional uses Mr Hill sought to exchange Block J with the provincial government for land in the Experimental Farm which could be utilized for residential lots in the Hillsdale development, in other words to trade Block J for inventory lots.

It has been consistently held in cases involving the sale of land the question of whether the activity amounts to a "business” or “‘an adventure or concern in the nature of trade” is one of fact.

The question of fact in these appeals is whether the purpose for which Block J was placed in the position of being acquired by the appellant in 1955 was so placed that upon acquisition it would be used as the site of a shopping centre to produce rental income.

If that was the exclusive purpose at the time of acquisition, profit from the expropriation of Block J would not be a profit from a business or an adventure in the nature of trade. If that was not the exclusive purpose at that time then in the circumstances there can be no doubt that the right of the appellant to acquire Block J had for its purpose, or one of its possible purposes, subsequent disposition at a profit and resulting profit is, therefore, taxable. The onus of disproving the Minister’s assumption, in assessing the appellant as he did, that the latter was the case is on the appellant.

For the reasons expressed giving attention to all of the evidence, I am not satisfied that there is a balance of probability that the appellant in placing itself in the position to acquire title to Block J did so for the purpose of building a shopping centre therein to the exclusion of any purpose of disposition at a profit.

This brings the matter precisely within the principle enunciated by the Supreme Court of Canada in Regal Heights Limited v MNR, [1960] SCR 902; [1960] CTC 384; 60 DTC 1270.

Accordingly it cannot be said that the assumptions of the Minister in assessing the appellant as he did were not warranted.

Assuming that the exclusive intention of the appellant at the time of the acquisition of Block J was to use it as the site of a shopping centre for producing rental income and therefore as a capital asset, which for the reasons expressed I have found as a fact not to have been the case but rather that the appellant also had as a purpose the turning of Block J to account by sale if its use as a capital asset proved impractical as it did, even then the fact that there was no intention of profit-making by resale at the time of acquisition does not necessarily prove that a profit resulting from sale or expropriation is not assessable to income tax.

In Moluch v MNR, [1967] 2 Ex CR 158; [1966] CTC 712; 66 DTC 5463, decided by myself, I held that land originally held as a capital asset, in that case for farming purposes, became inventory at a subsequent point in time because the owner of the land embarked upon the business of land subdividing for profit, and that clearly resulting profits were not merely a realization of an enhancement in value but rather profits from a business.

The decision of the question whether Block J here in question ceased to be a capital asset, and I have found that it had not become such an asset for the reasons indicated, and became stock in trade of the appellant depends on all of the facts, including the degree of businesslike enterprise and activity with respect to that particular parcel of land.

While not conclusive in itself an unchallenged starting point is that Mr Hill was a trader in real estate and the interposition of the appellant’s equitable interest in the property does not subtract from this feature.

On April 28, 1958 the report of the consultants engaged by McCallum Hill recommended the abandonment of Block J as the shopping centre site and the substitution of Block M therefor.

On September 2, 1958 McCallum Hill sought the adoption by the City of the plan of development recommended by their consultants. That indicates the abandonment by the appellant of Block J in favour of Block M as the site for a shopping centre.

The City accepted that plan of development on November 9, 1959.

In August 1958, prior to the representations made to the City on September 2, 1958, McCallum Hill had made an offer to the Provincial Government to exchange Block J for land of the Province which McCallum Hill could use as residential building lots. That, to me, impresses upon Block J the same characteristics as the land sought to be obtained in exchange for Block J.

McCallum Hill also embarked upon negotiations with the Provincial Government and Saskatchewan Power Corporation to use portions of Block J as building sites or for other uses which necessitates the intention to sell that land.

Mr Hill acknowledged that in the spring of 1960 he had completely abandoned any plan to use Block J as a shopping centre site. From the facts above recited his probable intention to do so was present as early as August 1958.

Expropriation did not take place until 1962.

In the interval between 1958 and 1962 the appellant dealt with Block J in the same manner as a trader in real estate would deal with it.

For these additional reasons it follows that the Minister was right in including the amounts realized upon the expropriation of Block J as income to the appellant in its 1963 and 1965 taxation years.

Two subsidiary issues arise in these appeals.

The first such subsidiary issue is that the amounts of $175,000 and $58,500 received by the appellant in its 1963 and 1965 taxation years could not be retained by it until the propriety of the awards of the arbitrator and the Saskatchewan Court of Appeal was determined by the Supreme Court of Canada. Those awards were confirmed by the Supreme Court of Canada in 1967.

In view of jurisprudence subsequent to that date, particularly Vaughan Construction Company Limited v MNR, [1971] SCR 55; [1970] CTC 350; 70 DTC 6268, counsel for the appellant abandoned the contention that the assessments were not properly made in the appellant’s 1963 and 1965 taxation years and accordingly it is not incumbent upon me to decide that issue.

The second issue raised results from the addition to the appellant’s income in its 1965 taxation year [of] an amount of $17,457.62 received by it as interest on the compensation awarded. The appellant’s contention in this respect is that the appellant was a personal corporation.

At the trial it was conceded by counsel for the Minister that the appellant was a personal corporation within the meaning of section 68 of the Income Tax Act, RSC 1952, c 148.

Being a personal corporation its income by virtue of section 67 of the Income Tax Act (supra) is deemed to have been distributed and received by the shareholders in the 1965 taxation year and is income of the shareholders.

The shareholders of the appellant, Mr Hill and his wife, included their proportionate shares of interest in the amount of $17,457.62, as income in their 1965 taxation year.

In view of the conclusion that I have reached that the expropriation compensation received by the appellant was income to the appellant in its 1965 year, it follows that the interest received by the appellant in that year is likewise income of the appellant in that year.

That being so it follows that the amount of the income taxes paid by the shareholders in the appellant on the interest income of $17,457.62 should be credited against the income tax payable by the appellant in respect of its 1965 taxation year, it being incongruous that the Minister should exact tax twice on the same amount. That is double taxation.

Accordingly the appeals are dismissed with costs and, at the request of counsel for the parties, the assessment of the appellant for its 1965 taxation year is referred back to the Minister for reassessment and in order that the Minister in so reassessing the appellant may credit the income taxes paid by the shareholders of the appellant on its interest income of $17,457.62 to the income tax payable by the appellant in that year.