Dora a Macfarlane, Robert C Macfarlane v. Minister of National Revenue, [1977] CTC 2184

Delmer E Taylor (orally: December 7, 1976):—These are appeals from Robert C MacFarlane and Dora A MacFarlane with respect to the income tax years 1972 and 1973. With agreement of counsel the two matters have been heard on common evidence although both appellants were provided as witnesses by counsel for the appellants.

The matters at issue citing those of each individual appellant relate to profit realized on the sale of a certain piece of property. With regard to Robert C MacFarlane, the Minister reassessed a federal tax of $5,543 and a provincial tax of $1,779.70 for the year 1973, and a federal tax of $5,296 and a provincial tax of $1,615.40 for the year 1972. With regard to Dora A MacFarlane, the comparable figures are, for 1973, a federal tax of $2,671 and a provincial tax of $857.50, and for 1972 a federal tax of $3,801 and a provincial tax of $1,159.30. These figures are taken from the Notices of Appeal filed by the appellants.

In essence, both appellants are involved with, and are operative officers of MacFarlane Motors Limited, the specific limited company which is the vehicle of their business operation in the Town of Petrolia. It may have had name changes before or during the particular years at issue, or subsequent to that, but in my opinion these are not significant for the purposes of these appeals.

Mr Robert C MacFarlane appeared to be the president of the existing corporation and his wife, Dora A MacFarlane, the vice- president, for all practical purposes. The issue is one which relates to the profit to which I have already referred being taxed by the Minister as income, the appellants claiming it is a capital gain.

The appellants have provided evidence that during the years 1968 and 1969, consummating in the year 1970, they were involved with a process of looking for additional land for the purpose, according to their testimony, of expansion of the motor vehicle agency. Three properties have been discussed and in the evidence it would appear that these were examined in this order:

(1) a property known as the Racher property, which became unavailable, largely because of the price involved, I assume;

(2) a property known as the DeMers property, which does enter into this appeal, a total of 150 acres, of which the appellants desired 10 acres with a frontage of approximately 450 feet on the highway. The sum of $12,000 was offered by the appellants for this 10-acre portion and the then owner of the DeMers property countered by suggesting that the entire 150 acres be purchased at approximately $25,000 or $30,000. This was declined by the appellants at that time, since the DeMers property contained many abandoned oil wells, gas wells perhaps. All or at least several of these were completely abandoned. Indications were that they were no longer productive, and clearing them from the land could have been expensive;

(3) a third property known as the Forsythe property, three and one- half acres, in the same area as the DeMers property, which the appellants did purchase for $9,000. There were no oil wells apparently, abandoned or otherwise, on the Forsythe property. There is an indication at a later date that the appellants did purchase a contiguous additional 1.8 acres which, together with the original Forsythe purchase, provided over five acres for the final expansion.

The appellants have indicated that they foresaw no problems in financing their proposed expansion. Indeed, as events later proved, they not only purchased the Forsythe property, but also the DeMers property, which would rather support the conclusion that the availability of money was not a problem. It is this purchase of the entire 150 acres of the DeMers property for $12,000 and the subsequent sale of this property which is the subject of these appeals.

As background information it should be noted that for a period of time a brother of the appellant, Mr MacFarlane, was involved with the business and was reluctant to continue with the expansion. In fact, he terminated his connection with the business in October 1970. In this general period of time also, although no specific dates were provided, the original owner of MacFarlane Motors, the father of the appellant, Robert C MacFarlane, died. During this same time the son of the appellants was at business school and later joined the firm. Also, evidence has been brought forward that there was no interest in continued oil exploration in the Petrolia area in 1969. However, interest was resumed in the year 1971.

The Board does not accept that the earlier minor involvement by the appellants in real estate matters is at all significant; neither does the Board believe that any delay between the years 1970 and 1972 with regard to culmination of the building plans is significant, when con- sidered against the explanations provided. The appellants seem to have always preferred to build on the DeMers property over the Forsythe property to the degree that they did finally purchase the DeMers property leaving them, in the opinion of the Board, with two good options. The reasons for purchasing the DeMers property, in view of the fact that it was only 200 feet from the Forsythe property, would appear to the Board to be fairly obvious—$9,000 was paid for three and one-half acres of the Forsythe property, and at $12,000, even for 10 acres let alone the 150 acres they received, probably the DeMers property was considered by them to be a good purchase, even with the abandoned oil wells. For their purposes, probably only 10 acres would have to be cleared from these contingent liabilities (the oil wells) if they were required to clear the land at all. The final decision to build on the Forsythe property was no less valid. It was simply a business decision by the appellants, even if influenced or in fact determined because of the 1971, and finally 1972, interest by other parties in the DeMers property as a result of oil or gas explorations. There was no indication that the developments in these years in the Petrolia area were related to normal industrial or commercial ventures—the development only resulted from oil exploration, quite different from the purposes for which the appellants had apparently purchased the property.

The appellants, at least to the degree that can be judged by their appearance here, are to me straightforward, responsible people. To follow a route that would bring me to the conclusion that the appellants acted as traders in land in purchasing an unneeded, virtually useless 150 acres of property, the DeMers property, is entirely too circuitous. This property, with its 450-feet road frontage, remained as their first choice for business expansion. It was available at a good price, and left the appellants with the opportunity of reselling the original purchase

—the Forsythe property. The fact that they reversed these priorities is only the result of the subsequent renewed interest by outside parties, in gas and oil exploration, on the DeMers property.

I accept the evidence and the explanations as given. This is not income from an adventure in the nature of trade flowing from either primary or secondary intent on the part of the appellants. The amount of profit involved should be considered, for income tax purposes, as capital gains. The appeals are allowed and referred back to the Minister for reconsideration and reassessment.

Appeals allowed.