A
J
Frost
(orally:
May
6,
1977):—I
shall
now
give
my
decision
in
Appeals
Nos
76-52
and
76-386
between
Edmund
Peachey
Limited,
appellant,
and
the
Minister
of
National
Revenue,
respondent.
These
are
income
tax
appeals
from
income
tax
assessments
with
respect
to
the
appellant’s
1972
and
1973
taxation
years.
The
question
at
issue
in
these
appeals
is
a
question
of
fact
and
not
a
question
of
law.
In
1956
the
appellant
company
purchased
a
parcel
of
property
known
as
the
Codlin
Farm
as
part
of
its
house
building
programme.
In
that
year
services
were
2
miles
away
from
the
subject
property.
Mr
Peachey
testified
that
at
the
time
of
purchase
there
was
no
possibility
of
immediately
using
the
land,
but
it
was
anticipated
that
it
would
be
used
for
housing
in
a
few
years.
It
was
the
appellant’s
practice
to
buy
land
in
advance
of
need
and
the
Codlin
Farm
was
included
in
the
company’s
current
inventory.
The
company
did
not
buy
or
sell
or
trade
land
in
any
way;
they
just
built
houses,
some
790
houses
prior
to
1964.
In
the
early
1960’s
Mr
Peachey
testified
he
became
frustrated
as
the
real
estate
market
had
turned
somewhat
sour
and
the
company
was
taking
losses
on
many
of
its
house
sales.
The
land,
he
said,
became
sterilized
and
it
was
decided
to
gradually
phase
out
the
residential
construction
housing
business
and
go
into
the
hotel
business.
Part
of
the
problem,
as
far
as
the
appellant
was
concerned,
was
the
Ontario
Municipal
Board
decision
of
November
21,
1961
to
re-zone
the
area,
which
included
the
Codlin
Farm,
as
industrial.
From
that
time
onward
the
appellant
was
not
interested
in
residential
development.
The
financial
statements
of
the
company
indicated
a
gradual
winding
down
of
the
company
and
the
termination
of
its
house
building
programmes
some
time
in
the
12
months
ended
February
28,
1966.
During
that
12-month
period
the
“Sales
of
Houses”
account
indicated
a
sale
of
only
one
house
which
had
been
used
as
an
office.
This
indicates
that
some
time
prior
to
February
28,
1965
the
appellant
company
was
no
longer
interested
in
the
construction
and
sale
of
houses,
which
agreed
completely
with
Mr
Peachey’s
evidence
that
in
1964
or
thereabouts
he
had
decided
he
would
move
out
of
the
residential
construction
business.
In
most
real
estate
cases
the
reasons
for
buying
are
the
dominating
reasons,
but
the
taxpayer
has
every
right
to
change
his
intention.
Further,
there
is
nothing
to
prohibit
a
taxpayer
from
maintaining
two
inventory
accounts,
a
current
inventory
and
a
capital
inventory.
In
my
opinion
the
appellant
did
indicate
a
change
of
intention
by
going
out
of
the
house
construction
business
and
also
in
the
capitalization
of
his
net
losses.
The
subject
land
was
saleable,
but
the
evidence
indicated
that
the
appellant
was
simply
not
interested
in
selling.
He
held
the
property
for
8
years
as
an
investment.
On
the
evidence
the
Board
finds
that
the
Codlin
Farm,
purchased
in
1956,
was
originally
part
of
the
company’s
current
inventory.
However,
due
to
the
Ontario
Municipal
Board
decision
in
1961
and
the
change
in
the
nature
of
the
appellant’s
operation,
a
definite
decision
was
reached
to
hold
the
Codlin
Farm
as
a
long-term
investment.
That,
in
my
opinion,
clearly
and
unequivocally
indicates
a
change
of
intention
and
establishes
beyond
any
doubt
that
the
farm
was
a
capital
asset.
At
that
point
the
farm
property
became
an
investment
and
its
sale
10
years
later
was
the
sale
of
a
capital
asset
and
the
gain
realized,
both
from
an
accounting
and
legal
point
of
view,
must
be
characterized
as
a
Capital
gain.
For
these
reasons
the
appeals
are
allowed
and
the
matters
referred
back
to
the
respondent
for
reconsideration
and
reassessment
accordingly.
Appeal
allowed.
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