Ronald Francis Theres Maclsaac v. Minister of National Revenue, [1974] CTC 576, 74 DTC 6380

The Chief Justice (per curiam) (judgment delivered from the Bench):— This is an appeal from a judgment of the Trial Division dismissing with costs an appeal from a judgment of the Tax Review Board dismissing an appeal by the appellant from his assessment under Part I of the Income Tax Act for the 1967 taxation year.

The sole question in issue is whether the appellant’s share of a profit of $5,000, made on the sale in 1967 of a small apartment building bought by the appellant and two other men in 1965, is a profit from a business within the meaning of that word as enlarged by paragraph 139(1)(e) of the Income Tax Act to include “an adventure or concern in the nature of trade”.

The transaction in question here, taken by itself, is, prima facie, the sale of a revenue-producing asset and, if that were the end of the matter, the resultant profit would not be a profit from a business.

Evidence was led in the Trial Division of surrounding circumstances that were relied on by the respondent as tending to show that the appellant was dealing in real estate. In my opinion such evidence does not lend any support for the assessment. I refer to evidence of a profit from a sale of land made by the appellant which was first assessed by the respondent as a profit from a business and was subsequently dropped from the assessment, to evidence of two or three options by which the appellant made minor profits, to evidence of the appellant doing legal work for real estate companies, and to evidence of investments made by the appellant in real estate companies by way of share purchases and loans. There is in such evidence, in my opinion, no evidence of any of the indications on which the courts have relied as giving rise to an inference of a so-called “secondary intention” to resell at a profit as a motivating reason for the original acquisition.

In my opinion, the assessment, and the decision of the Trial Division, must be supported, if they are to be supported, on the basis of the statement in the statement of defence in the Trial Division that, in assessing the appellant for 1967, the respondent acted, inter alia, upon the assumption that the property in question “was acquired for the purpose of being turned to account at a profit”. As indicated by the learned trial judge, the onus was on the appellant to rebut that assumption. (Compare R IV S Johnston v MNR, [1948] SCR 486; [1948] CTC 195; 3 DTC 1182.)

The learned trial judge said that, on the evidence, no error in the assessment had been proven. Before reaching that conclusion, he reviewed the evidence, in part, as follows:

The Glenayr Apartment from which the profit arose consisted of four or five apartments situate in Nanaimo. In 1965 that apartment was purchased by Goodwin, Ney and the appellant and in 1967, two years later was resold at a profit for which the appellant has been assessed one-third, the extent of the interest received by him.

Goodwin is a chartered accountant, employed by the Nanaimo Realty Limited and is a close friend of the appellant. Ney is manager of the insurance department at the Nanaimo Realty Limited.

The appellant has testified that he bought as an investment; that the apartment block proved uneconomical in that four to five units required the bookkeeping expense of an apartment block of twenty. units. Accordingly the apartment block was resold and was later replaced by premises which contained a butcher shop and also a repair shop in which the tenant and family lived overhead.

The relationship of the three purchasers Goodwin, Ney and the appellant was that of partners and each partner had an equal share, that is, one-third. Also, the majority would carry in any decision to which the partnership might come in purchasing. The partnership relied in this instance on the decision of Goodwin and Ney. . . .

As the appellant has purchased an interest in the partnership assets and as the partnership decision was determined by a majority of the partners, therefore the question must be whether the majority—that is, Goodwin and Ney—at the time of the purchase had the alternative intention of reselling at a profit. Racine, Demers and Nolin v MNR, [1965] CTC 150; 65 DTC 5098, per Noël, J (now Associate Chief Justice) at 159 [5103].

Here the question must be, not whether the appellant acquired his interest as an investment but whether the profit realized by the partnership on the resale is taxable income by reason of the two partners Goodwin and Ney having bought the apartment with the alternative intention of reselling at a profit. Goodwin and Ney were associated in a realty company, the Nanaimo Realty Limited, and as such could readily see whether the full purchase price was realized and whether the property could be replaced to advantage.* [1]

He does not, however, refer to the following passages from the testimony of the appellant:

The reason for the purchase, my lord, was my own retirement, and this was —I am informed by the other two gentlemen and do verily believe their reason for purchasing rental buildings.

Now, ! say that it was not sold for profit, it was sold so it could be replaced by another building which would be economic and would look after our retirement, and that is the total of my testimony.

This latter evidence was not challenged or contradicted and no objection of any kind was taken thereto. The question, in my view, is whether it rebuts the assumption of the respondent, on which he based the assessment, that the property “was acquired for the purpose of being turned to account at a profit’. Had the other two persons involved also been called each to say on his own behalf that the reason for the purchase was to acquire a permanent investment for his retirement, in my view, in the context, in the absence of challenge or contradiction, the evidence would rebut the assumption that the property was acquired for the purpose of being turned to account at a profit. That assumption would also have been rebutted if the appellant had, by unchallenged and uncontradicted evidence, testified that the joint purpose of all three in acquiring the property was to acquire it as a revenue-producing investment for their retirement. While I do not find the evidence as satisfactory as it might be, I have concluded that it comes to the same thing. It is so improbable that the three men would have purchased the property together with one intending it as a permanent investment and the others intending a short-term resale for a profit that I think that, if one accepts the appellant’s testimony as being honest, and there is no suggestion that it is not, the balance of probability is that none of the three intended, even “secondarily”, when they bought the property, to turn it to account for a profit.

In my view the assumption was rebutted, the appeal should be allowed, the judgment of the Trial Division should be set aside, the appellant’s assessment under Part I of the Income Tax Act for the 1967 taxation year should be referred back to the respondent for reassessment on the basis that the profit in question was not a profit from a business and the respondent should pay to the appellant his costs in the Trial Division as well as in this Court.