Numisia Boccia and Armand Boccia v. Her Majesty the Queen, [1973] CTC 731, 73 DTC 5522

Mahoney, J:—The trials of these causes were, by consent, conducted jointly in Toronto, on October 11 and 12, 1973.

On or about September 1, 1966 the plaintiffs, each as to an undivided 25%, and a friend, Gerardo Fiorini, as to an undivided 50%, as tenants in common, acquired a farm property of about 100 acres for a consideration of $70,000 of which $30,000 was paid in cash. The property was located in Pickering Township east of Metropolitan Toronto. Fiorini, an acknowledged trader in real estate, found the Pickering property and invited the plaintiffs to join him in its acquisition.

The plaintiffs are husband and wife, residing together in Toronto. They met shortly after the plaintiff Armand Boccia came to Canada prior to World War II, were married during the war and have together, through a company, Armand Construction, been engaged in the custom house-building business in Metropolitan Toronto since their marriage. While Armand Boccia was the operating head of Armand Construction, Numisia Boccia played an active part, making up the payrolls, paying the bills and keeping the financial records up to the point they were turned over to outside accountants for preparation of statements and so on. I will refer later to a number of real estate transactions, other than the purchase of the Pickering property. There is evidence that the plaintiffs shared equally in some of these transactions; there is no evidence that they did not share equally in all of them. The money which Numisia Boccia used to purchase her share of the Pickering property was accumulated to her credit by Armand Construction for services rendered to it over the years.

I must, at the outset, reject the plaintiffs’ submission that the circumstances are such that I could reasonably reach a different conclusion in each of these cases.

The plaintiffs and Fiorini all testified that they acquired the property as the site for retirement and recreational homes. In the case of the plaintiff Armand Boccia, whose health had been making it difficult for him to carry on his house-building activity, there was also the stated intention to establish and operate a cherry orchard, a pursuit in which his family had engaged commercially in Italy and which he pursues as a hobby at his Toronto home.

To these ends, the plaintiff Armand Boccia planted twelve sapling cherry trees (Exhibit A-6) to test the suitability of the property for a cherry orchard. The trees were planted along the driveway leading to an existing house. It is not clear when the planting took place. However, it seems that some 6 to 8 years from planting would pass before the trees produce fruit. Further, the Boccias and Fiorinis agreed upon the plan for the recreational and retirement home that would eventually be built for each family (Exhibit A-1). The plan was one of a custom home built for a third party by the plaintiffs in the course of their business some years previously. The Fiorinis liked it too and it was agreed that identical structures be built as and when the time came. These recreational and retirement homes were to be 4-bedroom bungalows of some 2,300 square feet, exclusive of the attached double garage, on the ground floor with full basements. The plaintiffs’ reason for deferring execution of their plans was the wish to remain in their present home until their youngest child finished high school.

During the period they owned it, the plaintiffs and Fiorini rented the Pickering property for $100 per month to a tenant who lived on it and kept the weeds down. It was not otherwise used and the only activity conducted on it by the plaintiffs was the planting of the twelve cherry trees.

Sometime during 1968, offers for the property, apparently solicited by Fiorini, started to come in. The plaintiffs cannot remember the details of any of these, except two, but say that a number were received by Fiorini who passed them on to the plaintiffs who declined to accept them because of their determination to use the property for the cherry orchard and retirement home.

The first offer of which details are recalled was for $249,600, dated September 26, 1968 (Exhibit A-2). This came through a real estate firm with which Fiorini’s son was associated. It was suggested that alterations to this form constituted a separate offer. However, it would appear that the alterations, which increased the price to $338,000, were made by Fiorini and constituted an offer by Fiorini to sell rather than a new offer by the prospective purchaser. In any case, the plaintiffs did not accept the offer and there is no evidence that Fiorini’s offer was made with their approval.

The second offer of which details are recalled, dated April 2, 1969, based on an estimated area of 104 acres was for $390,000 (Exhibit A-3) payable by a $5,000 deposit; $75,000 cash on closing; approximately $37,200 by assumption of the existing first mortgage and the balance by the vendors accepting a second mortgage. This offer was accepted. The subsequent survey resulted in an adjustment of the purchase price to $368,700, the first mortgage was $36,400 and the vendors accepted a second mortgage of $252,310 at 7 / for a term of ten years. The second mortgage provided for partial discharges in the event of subdivision.

The plaintiffs’ evidence is that they were extremely disappointed at feeling obliged to yield to Fiorini’s pressure to sell the Pickering property. In explaining their reasons for finally yielding to that pressure, the plaintiffs both state that it would have been far beyond their means to buy out the Fiorini interest at that price and on those terms. Numisia Boccia said that they yielded to Fiorini’s pressure to sell only after the illness of Fiorini’s wife led to Fiorini being obliged to abandon his plan to use the Pickering property as a retirement home. Armand Boccia simply said that they had yielded to Fiorini’s pressure being anxious to preserve their long standing friendship.. Fiorini himself did not cite his wife’s illness as a reason but said, in effect, that the offers, which got progressively better, were too good to turn down.

The plaintiff Armand Boccia, still interested in establishing a retirement home, found another suitable piece of property, some 92 acres, in Markham Township, northeast of Metropolitan Toronto and told his friend Fiorini about it. Fiorini made an offer of $252,000 for the Markham property on May 14, 1969. As agreed on the following day, the purchase price was payable by a $10,000 deposit; $127,000 cash on closing; $35,500 by assumption of an existing first mortgage and $61,500 by assumption of an existing second mortgage. In the result, the plaintiffs, each as to an undivided one-sixth interest, Fiorini and a third party, each as to an undivided one-third interest, became owners of the Markham property. Again it was a tenancy in common.

On May 20, 1971 the Minister of National Revenue reassessed both plaintiffs as to their 1969 income by adding thereto each plaintiff’s share of the net profit on the sale of the Pickering property. The amount of the reassessment is not in dispute in these appeals.

During the summer of 1971 Armand Boccia raised for the first time with the other owners the question of subdividing the Markham property so that the plaintiffs would not again be frustrated in their desire to establish a retirement home by pressure from their co-owners. The plaintiffs did not pursue this because of practical difficulties including the necessity of either paying off or renegotiating the existing mortgages.

The plaintiffs had, in being forced to sell the Pickering property, a practical demonstration of the problems that could confront them and confound their plans in a tenancy in common. Further, in selling that property, their purchasers had flagged for them the possibility of at least providing for partial discharges in certain circumstances. Yet, within six weeks, in acquiring yet another property for a retirement home, they locked themselves into another tenancy in common with a total stranger and the co-owner who had pressured them into giving up the Pickering property and into a mortgage that precluded, in a practical sense, severance of the site for their new retirement home from the total Markham property. I find it hard to accept the plaintiffs’ assertion that they had no other reason for acquiring their interest in the Markham property than to replace the retirement home site lost to them when they yielded to Fiorini’s pressure to sell the Pickering property.

I have equal difficulty in accepting the proposition that the planting of the twelve cherry trees was material to the eventual establishment of an. orchard on the Pickering property. A 100 acre cherry orchard is a substantial undertaking and its operation may or may not be a suitable activity for a man retiring from house building because of health. It is questionable that the planting of these trees along the driveway will prove much about the rest of the property. There is no doubt, however. that it would take several years for the test saplings to prove themselves and, assuming they did, several more years before the newly planted orchard would produce. The orchard could not have been in production for many years after graduation of the plaintiffs’ youngest child from high school; indeed it appears that the test program would not have been completed by that time. Yet completion of high school by that child was the only reason given for deferring development of the Pickering property.

In addition to the subsequent acquisition of the interests in the Markham property, it was established that the plaintiffs, in the course of their custom house-building business, had purchased, built on and sold, one to three lots per year for a number of years. They also, during the relevant period, have held a fairly substantial mortgage on a property on Avenue Road in Toronto. There is no evidence before me as to the circumstances under which the plaintiffs acquired this mortgage.

Subsequent to the acquisition of the Pickering property, some cottage lots on Georgian Bay and a 20% interest in 50 acres of land in Mississauga, west of Metropolitan Toronto, were acquired.

The issue raised in these cases is the plaintiffs’ intention at the time they acquired their interest in the Pickering property. I have already indicated that I do not feel in the circumstances that I can come to a different conclusion in each case.

I do not regard the fact that the plaintiffs had, over the years, engaged in the custom house-building business as material. Nor, in the absence of evidence as to the circumstances under which they acquired the Avenue Road mortgage, can I regard the ownership of that asset as being material.

On the other hand, I am satisfied that, as a result of a series of transactions, unrelated to their custom house building business, the plaintiffs are today engaged n trading in land and interests in land as a business within the meaning of paragraph 139(1 )(e) of the Income Tax Act. The question is whether or not they were so engaged when they acquired their interest in the Pickering property. I am satisfied that they were.

While there is no satisfactory evidence before me that would relate that acquisition to the plaintiff’s previous business activities, there is equally no satisfactory evidence that would divorce it from their subsequent business activities. Indeed the weight of evidence before me is very much the other way.

The appeals are dismissed with costs.