Dennis B Walton v. Minister of National Revenue, [1976] CTC 2135, 76 DTC 1111

A W Prociuk:—The appellant, Dennis B Walton, of North Vancouver, British Columbia, appeals from the respondent’s reassessment of his income for the taxation year 1971 wherein the net profit from the sale of two houses in April of 1971 was added to his other income on the ground that it was taxable, being income from an adventure in the nature of trade within the meaning of paragraph 139(1)(e) of the Income Tax Act as it was then in force. The respondent assessed on the basis that from the outset the appellant set out to acquire sufficient property to be able to sell it as an apartment site at a profit to an interested party as soon as it was opportune to do so.

The appellant states that the said profit was a non-taxable capital accretion because the said two houses purchased by him some years earlier were a capital investment.

The appellant now holds the position of Deputy Planner in the District of North Vancouver which is comprised of the area around the City of North Vancouver. He is a graduate of the University of British Columbia with a Master’s degree in Community and Regional Planning which he obtained prior to 1963. From 1963 to August 1973 he was employed as a municipal planning officer of the corporate District of West Vancouver. The City Hall, which had offices for the appellant and his staff, was located on 17th Street and Esquimait Avenue in North Vancouver, approximately two short blocks away from the subject properties which gave rise to this appeal.

I gather from his evidence that his first wife left him to live somewhere in the United States of America, taking with her their infant son and whatever there was in their joint bank account, either just prior to, or early in, 1963. The evidence is not clear as to where they resided but it appears that the fact that they didn’t own a house was one of her grievances and, according to the appellant, her reason for leaving him. His efforts to locate her and his son were unsuccessful but he did find out from a tip he received that she obtained a divorce from him in Phoenix, Arizona, some time in 1966. I found it rather unusual that he received no communication from any legal firm, nor was he served with any documents in respect of the said divorce.

In 1964 he bought a small house municipally known as 1523 Esquimalt Avenue, West Vancouver, for $12,000. He states that he had hoped thusly to induce his wife to return. It does not appear from the evidence that she ever received any information regarding this purchase. He moved into the house alone and lived there for about a year. It was convenient for him as his office was only two blocks away. However, the appellant states that he was always approached by the residents in the neighbourhood for information as to what the City was planning in that area by way of zoning, he being the Planning Officer. This frequently happened in the local supermarket where he shopped for his daily necessities. He began to consider moving elsewhere to avoid these so-called neighbourly chats which caused him some embarrassment and he decided to move. Also, he states that his social life was centred mostly in the Point Grey area, a distance of some ten miles from his place of work. In 1965 he rented the house and obtained a suite for himself in an apartment block at Point Grey at a rental equivalent to what he was receiving from his tenant.

In 1966 he states that he purchased a house municipally known as 1541 Esquimalt Avenue, adjacent to and west of the 1523 Esquimalt Avenue house, for $16,650 as an investment and immediately rented it to a tenant.

In 1967 the appellant remarried. He states that he transferred the 1523 Esquimalt Avenue house to his wife as a wedding present. I should, at this point, refer to the fact that this portion of Esquimalt Avenue had been zoned as RM2 district for some years prior and anyone owning a 99-foot frontage, as the appellant now did, would be subject to higher municipal taxes on the ground that he owned an apartment site. In cross-examination the appellant stated that he was aware of the taxing provision but was not influenced by it. He did continue to report rental income and expenses therefrom in his tax returns in subsequent years.

In the fall of 1967 he and his wife approached the owner of 1509 Esquimalt Avenue, a small house adjacent to and east of the 1523 Esquimalt Avenue house, with a view to purchasing it. The owner agreed to sell it for $20,000 with possession to the appellant in June of 1968. The appellant agreed to this and purchased the said house. He states that the reason for this purchase was that he and his wife wanted to raise a family and this little house appealed to both of them as a suitable place. When he obtained possession of this house in June of 1968, his wife was not pregnant and the house was rented to a tenant on a yearly lease. This testimony does not agree with paragraph 5 of the appellant’s Notice of Appeal when he states that “This property is adjacent to the east of the 1523 property and was purchased as an investment by the taxpayer. The appellant rented the 1509 property from the date of its purchase to the date when it was sold in 1971”. When cross-examined about his initial plan to live in the same neighbourhood from which he moved away in 1965 for reasons he stated earlier, he replied: “Well the situation was different now. I would be coming back as a married man.’’

I do not consider it necessary to recite the remainder of the appellant’s evidence regarding the reasons for not occupying any of the three houses in the ensuing three years. It struck me as unconvincing and almost tailored for the occasion. On being questioned by counsel for the respondent as to his statements in the Notice of Objection and in the Notice of Appeal in respect of the above- mentioned transactions which were at variance with his oral testimony, he was quick to reply that he must have made a mistake in instructing his former solicitor but the notices bear his signature and not that of his solicitor.

The respondent’s main thrust of the assumption of facts on which he reassessed the appellant is that the appellant bought the subject properties with full knowledge that this small area was zoned RM2 with the intent to turn same to account as soon as he had sufficient land for an apartment site.

The evidence satisfies me that the appellant was articulately knowledgeable in the field of city planning and zoning (see Exhibits A-1, R-2 and R-3). He also struck me as an able and shrewd businessman. I am not prepared to accept the appellant’s statement that the purchases were for investment purposes. On cross-examination as to his rental income for prior years, it became obvious that the houses were not carrying themselves financially at all. In April of 1971 the appellant and his wife sold the three houses for $130,500. Initially the respondent reassessed the appellant with regard to the net profit on the entire transaction but on receipt of the appellant’s Notice of Objection, the profit on the house at 1523 Esquimalt Avenue was deleted from the reassessment by the respondent and treated as non- taxable capital gain. The assessment with regard to the gain realized from the sale of the other two houses is the subject matter of this appeal.

In my view, the appellant has not succeeded in any way in demolishing the assumptions of fact on which the respondent based his assessment and the appeal, accordingly, is dismissed.

Appeal dismissed.