Gerald J Foley v. Minister of National Revenue, [1977] CTC 2187, 77 DTC 138

Delmer E Taylor:—This is an appeal from an income tax reassessment for the year 1971 in which the Minister added to the taxable income of the appellant an amount of $44,405.76, originally regarded by the taxpayer as a non-taxable capital gain. At the commencement of the hearing, Mr A A Sarchuk, QC, shown as the counsel of record for the appellant, made a motion to amend the Notice of Appeal so that, in the event the gain was held to be on income and not on capital account, the appellant be allowed the appropriate reserve provisions under accounts receivable as provided in the Income Tax Act. Counsel for the respondent did not object, but did point out that it would be necessary for the Minister to determine if any of the years involved were statute-barred. Accepting this qualification, the Board allowed the motion and Mr Sarchuk asked leave to withdraw from the case. He was granted his request and the appellant personally assumed the responsibility for the appeal. The appellant gave no specific indication of the section of the Income Tax Act he regarded as applicable and supportive of his case. The respondent relied, inter alia, on sections 3, 4 and paragraph 139(1 )(e) of the Income Tax Act as it applied to the 1971 taxation year of the appellant.

Facts

Prior to receiving evidence, the respondent’s Statement of Facts was reviewed with the appellant and although the latter stated repeatedly that his opinion differed with respect to the emphasis and interpretation placed on the events by the respondent, he was unable to show the Board where the following points taken directly from the respondent’s Reply to Notice of Appeal were not essentially the basis of the case:

3. In November of 1969 the appellant obtained options for the purchase of 2 contiguous pieces of land (hereinafter referred to as the “said lands’’) in the Winnipeg area from the then owners.

4. The appellant purchased the said lands for the approximate total purchase price of $152,500 utilizing possession and adjustment dates for the said purchase transactions of July 31st and August 15th, 1970.

5. Prior to or concurrent with exercising the said options the appellant entered into negotiations with Max Shnier for the resale of the said lands to The Comax Corporation of Canada Ltd or one of its subsidiary or associated companies.

6. The appellant financed the purchase of the said lands utilizing first mortgages back to the vendors totalling approximately $130,000, a second mortgage to Mary Sures for $25,000, and a third mortgage for $15,000 in favour of The Comax Corporation of Canada Ltd.

7. The mortgages back to the vendors provided, inter alia, that no payment on account of interest was to be payable until December 31st, 1971.

8. The mortgage for $25,000 in favour of Mary Sures was arranged for the appellant by The Comax Corporation of Canada Ltd.

9. The $15,000 mortgage was collateral security to a promissory note for that amount in favour of The Comax Corporation of Canada Ltd and secured a loan to the appellant from the said corporation for the maximum amount of $15,000.

10. The terms and conditions of the said loan were, inter alia, that amounts up to the maximum amount would be advanced to the appellant from time to time to enable him to make all cash payments plus all mortgage payments due by him on or before August 31st, 1971, in connection with his purchase of the said lands.

11. Concurrent with receiving a commitment with respect to the aforementioned loan of $15,000, the appellant executed a sale-option agreement, dated September 1st, 1970, with Compark Developments Ltd, a subsidiary or associated company of The Comax Corporation of Canada Ltd.

12. The said sale-option agreement granted to Compark Developments Ltd an option to purchase the said lands at any time on or before August 31st, 1971.

13. Compark Developments Ltd exercised its option to purchase the said lands on August 24th, 1971 thereby purchasing the said lands for approximately $202,500.

14. Between the first day of November, 1969 and the first day of July of 1971, the appellant communicated with a number of persons and corporations, other than those previously mentioned herein, seeking either:

(a) to promote, with the financial assistance of the party or corporation contacted, a project whereby the said lands would be developed, subdivided and sold, inter alia, as lots for a trailer court, or;

(b) to sell the said lands to the said persons and corporations contacted.

The appellant is a professional engineer, practising as Gerald J Foley & Associates, Engineering and Management Consultants, c/o Gerald J Foley, 201-2727 Portage Avenue, Winnipeg, Manitoba.

Contentions

The appellant asserted that:

(a) in order to facilitate the construction of the trailer park, he had expended considerable efforts both in attempts to re-zone the land to the appropriate land use required by a trailer park and in attempts to obtain the appropriate financing for the construction of the trailer park;

(b) while he was able to have that re-zoned, he was unable to obtain the required financing, and as a result of this failure, he was unable to proceed with the construction of the trailer park, and upon receipt of an unsolicited offer from Compark Developments Ltd, he granted Compark an option to purchase the lands;

(c) the option was exercised in 1971 and, as a result, he received a gain on his initial investment of $44,405.76; and

(d) in computing his income for the 1971 taxation year, he did not include the above gain in his 1971 income.

The respondent contended as follows:

(a) the appellant acquired the said lands with the intention, inter alia, of trading or dealing in the said lands or otherwise turning them to account for a profit; and

(b) during the appellant’s 1971 taxation year, the appellant turned the said lands to account for a profit of $44,405.76.

Evidence

The appellant gave evidence himself, submitting with explanations the following exhibits:

Exhibit A-1—Sketch of Mager land with written details;

Exhibit A-2—Letters Patent of Six Wheels Limited dated April 12, 1973;

Exhibit A-3—Prospectus Proposal of Six Wheels Limited dated December 6, 1969;

Exhibit A-4—Projections of earnings and operations of Six Wheels Limited;

Exhibit A-5—Plan of Proposed Sub-Division for 1000 relocateable homes, St Vital, Man (Prepared by Gerald J Foley & Assoc);

Exhibit A-6—Plan—Proposed Mobile Home Sales Area, St Vital, Man. Location & Survey by: Mid-Canada Consultants Limited;

Exhibit A-7—Plan—Dwg No 202—Proposed Mobile Home Park, City of St Vital (Prepared by Gerald J Foley & Assoc);

Exhibit A-8—Plan—Proposed site for Mobile Home Sub-Division (Prepared by B J Fleishman April 6/70);

Exhibit A-9—Sketch Plan—Detached Housing Complex (Prepared by Mid-Canada Consultants Ltd April 17, 1970);

Exhibit A-10—Inter-departmental Memorandum dated March 5, 1970 to the Honourable Leonard S Evans, Minister of Industry & Com- merce, Manitoba, from Lome D R Dyke, Deputy Minister, Industry & Commerce, Manitoba;

Exhibit A-11—Letter dated June 1, 1970 to Mr E A Levin from Northwest Design & Fabrication Limited, Winnipeg, Manitoba.

Counsel for the respondent requested leave to submit a book of documents considered by him to be vital to the case. After identification by the appellant, satisfactory to the Board, these were admitted and counsel allowed to examine the appellant on the contents. The documents were identified for the Board as:

Exhibit R-1—Index of respondent’s book of exhibits numbering 1 to 44, as follows:

Argument

The appellant argued that he had available to him the necessary funds for his plan, from the manufacturers of mobile homes, and that only delay and difficulty with zoning and other necessary approvals and permits prevented the fulfilment of the project.

Counsel for the respondent argued that there was no possibility of the financing necessary for the project; that Comax or one of its subsidiaries had been involved with the project or aware of its progress through the appellant right from the start; that there was no possibility of the appellant proceeding alone in the venture; and that all the evidence pointed clearly to the fact he had entered into the options fully intending to turn over the property for a profit at the most opportune time, and that the possibilities of a trailer park for the site was only one of the prospects explored by the appellant while holding the property at minimum cost to himself, awaiting such an opportunity. Counsel relied on earlier case law on the subject and submitted the following:

1. Hill-Clark-Francis Ltd v MNR, [1963] CTC 337; 63 DTC 1211;

2. MNR v Edgeley Farms Ltd, [1969] CTC 313; 69 DTC 5228;

3. Henry E Dickson v Her Majesty the Queen, [1974] CTC 753; 74 DTC 6653;

4. Henry E Dickson v Her Majesty the Queen, [1977] CTC 64; 77 DTC 5061;

5. Glen J Day v MNR, [1958] CTC 33: 58 DTC 1042:

6. Regal Heights Limited v MNR, [1960] CTC 384: 60 DTC 1270;

7. Birmount Holdings Limited v Her Majesty the Queen, [1977] CTC 34; 77 DTC 5031.

Findings

It appears to me unnecessary to review in much detail the appellant’s submissions other than to say that there was little if anything in the documentation submitted by him (Exhibits A-1 to A-11) that provided support for his position, and that conversely the material submitted by the respondent supports the Minister’s contention in large measure. The appellant’s explanations of that material have not satisfied the Board that his intentions were as firmly grounded as he holds, nor that his financial position allowed him anything but the slimmest hope that he could complete a trailer park. There is no substantial evidence that he had available at any time the prospects of serious financing other than from Comax or one of its subsidiaries. The appellant, faced with certain facts brought out in the documents submitted by counsel for the respondent, rather dramatically changed the tenor of his recollections and recounting of the matter. The appellant has failed to demonstrate to the Board the basis and support for his appeal.

Decision

The appeal is dismissed.

Appeal dismissed.