Sheppard,
DJ:—The
issue
is
whether
the
profit
realized
by
the
plaintiff
on
the
resale
of
property
was
a
capital
gain
on
an
investment
as
the
plaintiff
contends,
or
was
business
income
as
the
Minister
of
National
Revenue
contends.
The
property
from
which
the
profit
was
derived
consists
of
Lots
A
and
B,
Plan
2589
at
1100
Wharf
Street
in
Victoria,
BC.
It
overlooks
the
inner
harbour,
comprises
approximately
125,000
square
feet
or
about
3
acres,
and
had
thereon
two
warehouses.
Part
of
the
property
was
used
as
a
parking
lot
and
the
waterfront
was
used
as
a
wharfage
for
tugs
and
barges.
This
property
was
owned
by
the
Spencer
Estate
and
had
been
offered
for
sale
for
a
long
time
by
the
agents
Ker
and
Stephenson
Ltd
of
Victoria.
By
agreement
of
January
19,
1966
(Exhibit
P2)
and
by
a
formal
agreement
of
April
27,
1966
(Exhibit
P3)
Lemery,
Davis,
Morrison
and
Siddall
bought
the
property
for
$290,000
on
deferred
payments.
Sometime
prior
to
July
22,
1966
(Exhibit
P4)
the
four
purchasers
transferred
the
property
to
the
company
for
equal
shares
issued
to
each
of
the
four
purchasers.
This
transfer
to
the
plaintiff
was
for
the
purpose
of
the
shareholders
arranging
their
estates
and
nothing
turns
upon
that
transfer.
Three
of
the
original
purchasers,
namely
Lemery,
Davis
and
Siddall,
testified
that
the
purchase
was
for
the
purpose
of
developing
the
property
for
use
as
a
site
for
a
hotel,
also
for
apartments,
shopping
centre
and
marina;
and
that
the
purchase
was
without
any
thought
of
a
resale.
Lemery
testified
that
he
knew
that
it
was
waterfront
property,
centrally
located
in
the
city
and
had
been
listed
by
the
Spencer
Estate
for
some
time.
Accordingly,
he
testified
that
he
thought
of
developing
the
property,
not
of
reselling
it,
and
invited
the
others
to
join
in
forming
a
group
to
make
the
purchase.
The
other
three
purchasers
were
Morrison,
a
hotel
man
and
an
interior
decorator
who
understood
design
for
a
hotel,
Siddall,
an
architect,
and
Davis
a
local
manager
of
a
small
loan
company
in
Victoria
who
was
knowledgeable
about
Victoria
property.
Lemery’s
idea
was
to
get
a
mortgage
on
the
property
for
sufficient
money
to
build
and
furnish
‘a
hotel
but
he
thought
that
the
mortgagee
would
probably
require
a
lease
to
some
hotel
company
capable
of
supplying
continuous
management.
After
the
purchase
of
the
property
Lemery
had
drawings
made
showing
the
spaces
to
be
available
for
hotels
and
for
the
stores.
Davis
arranged
for
the
parking
and
rented
two
warehouses
during
one
summer.
Later
these
warehouses
were
torn
down
and
the
whole
of
the
property
being
black-topped
was
used
for
parking.
Essentially
the
plan
was
to
get
a
lease
from
a
hotel
company
and
thereupon
to
apply
to
a
mortgagee
for
sufficient
funds
to
build
and
furnish
the
hotel.
Davis
testified
that
he
was
the
local
manager
of
J
H
Whittome
and
Company
Ltd,
a
loan
company
in
Victoria.
He
joined
the
group
in
purchasing
as
the
property
was
centrally
located
and
was,
he
thought,
suitable
as
a
site
for
a
hotel,
for
residential
apartments,
for
retail
stores
and
for
office
space.
He
joined
in
the
purchase
with
the
idea
of
supplementing
his
future
pension
from
Whittome
with
the
development
of
the
property
as
a
source
of
rental
income.
Also
the
property
might
provide
some
business
for
the
Whittome
company.
Accordingly
he
prepared
figures
of
the
estimated
revenue
to
be
derived
from
the
property
(Exhibit
P24).
He
thought
that
the
property
could
carry
itself
from
the
revenue
which
it
could
produce
by
using
half
of
the
property
for
parking
and
other
parts
for
wharfage
and
warehousing.
However,
such
revenue
would
not
cover
the
instalments
of
the
purchase
price
as
they
became
due.
In
fact,
the
property
produced
$40,000
a
year
gross
revenue
and
$34,000
net
before
taxes.
The
interest
on
the
purchase
amounted
to
$15,000
and
that
would
be
reduced
as
the
capital
was
paid
off.
Davis
thought
that
Western
International
Hotels
Ltd
which
operated
a
chain
of
hotels
would
lease
and
Robert
Simpson
Ltd
would
finance,
that
is,
advance
on
a
mortgage,
the
amount
required
for
a
hotel
and
a
department
store.
Himmelman
of
the
hotel
company
recommended
Maschal,
a
San
Francisco
man,
to
come
to
interview
them
as
to
the
feasibility
but
Maschal
suggested
that
feasibility
could
only
be
determined
after
a
lease
and
mortgage
were
negotiated.
Siddall
also
testified
that
he
had
joined
for
the
purposes
of
developing
the
property
and
future
income.
He
had
no
thought
of
resale,
that
the
Spencer
Estate
had
offered
the
property
for
sale
for
a
long
time
and
he
was
interested
in
returns
derived
from
the
property
which
would
produce
an
income
to
him
after
payment
of
the
purchase
price
and
the
mortgage.
Siddall
prepared
two
rough
sketches
of
the
property
with
buildings
outlined
thereon
(Exhibits
P21,
P22).
He
prepared
no
detailed
plans
because
that
would
depend
upon
the
requirements
of
the
lessee
and
could
cost
hundreds
of
thousands
of
dollars.
Siddall
testified
the
hotel
to
be
constructed
on
the
site
was
central
to
the
plan.
As
to
the
financing
and
development
of
the
property,
before
the
purchase,
Lemery
went
to
the
manager
of
the
Empress
Hotel
in
Victoria
and
learned
from
the
manager
that
the
hotel
company
had
no
plan
to
expand
its
operations.
After
the
purchase
of
the
property
there
were
interviews
with
Western
International
Hotels
Ltd,
Ramada
Inn
and
the
Hyatt
House,
all
of
which
operated
chains
of
hotels.
A
mortgage
was
sought
from
Robert
Simpson
Ltd,
CP
Hotels,
North
American
Life
Assurance
Co,
Standard
Life
Assurance
Co
(Exhibit
P14)
Bentall,
of
the
Dominion
Construction
Co
Ltd
and
Block
Bros
Ltd.
This
development
of
the
property
was
unsuccessful.
There
was
no
acceptance
of
a
lease
by
Western
International
Hotels
Ltd,
the
primary
hotel
company
or
by
anyone
else.
The
original
plan
of
the
owners
to
develop
the
property
was
to
obtain
a
lease
from
some
operator
and
then
apply
for
a
mortgage.
Since
there
was
no
lease,
there
was
no
hope
of
a
mortgage:
(1)
The
plan
of
the
Western
International
Hotels
was
to
take
only
25%
interest
in
a
hotel
property
and
the
balance
of
75%
was
to
be
financed
by
local
people.
(2)
The
Western
International
Hotels
Ltd
became
interested
in
the
Convention
Centre
for
Victoria
which
was
centred
around
the
Empress
Hotel,
and
the
Western
Company
was
not
interested
in
having
two
hotels
in
the
one
city.
(3)
Money
became
tight.
It
was
hard
to
obtain
any
advance
of
money
on
a
mortgage.
Lemery
testified
that
the
Convention
Centre
planned
around
the
Empress
Hotel
was
a
bombshell
to
his
property
and
he
tried
to
encourage
the
City
to
relocate
the
Convention
Centre,
or
at
least
to
interest
it
in
his
property
but
without
success.
The
next
development
was
the
Morrison
letter
of
January
10,
1968.
Morrison
who
was
one
of
the
four
shareholders
wrote
to
the
others
suggesting
their
meeting
in
Victoria
on
June
21,
1968
to
discuss
the
property.
He
wrote
that
they
had
promoted
“various
schemes
for
potential
buyers”
and
“I
think
the
time
has
now
come
to
decide
where
we
are
going”
and
thereafter
he
set
out
four
plans
for
dealing
with
the
property.
At
that
time
Siddall
had
medical
expenses
of
$2,000
per
month
and
had
no
further
money
to
invest
in
the
property.
Davis
financially
could
not
put
up
more
money
to
purchase
the
Morrison
interest
and
because
of
his
previous
experience
he
was
adverse
to
becoming
a
minority
shareholder.
The
four
had
been
unable
to
get
any
hotel
company
to
take
a
lease
or
to
obtain
any
advance
by
way
of
mortgage.
In
the
result
all
agreed
to
sell
their
shares
in
the
company
to
Lemery
and
that
resulted
in
the
agreement
of
June
21,
1968
(Exhibit
D3)
whereby
Etoile
Company
sold
the
Morrison
shares
to
Lemery
and
the
agreement
of
July
2,
1968
whereby
Davis
and
Siddall
with
their
wives
(Exhibit
D2)
sold
their
shares
to
Lemery.
Both
agreements
did
provide
for
resale
as
one
of
the
possibilities
and
for
an
increase
in
the
price,
depending
on
resale
price
(Exhibits
D3
and
D2).
The
agreement
of
June
21,
1968
between
Etoile
Investments
Ltd
(as
the
seller
of
the
Morrison
shares)
and
Lemery
as
purchaser
(Exhibit
D3)
in
clause
2
provides
in
part:
“A
further
$5000
in
case
upon
either
the
sale
by
the
company
of
the
company’s
land
or
the
company
effecting
some
change
in
the
use
of
the
company’s
land
from
its
present
use
as
a
parking
lot.”
The
agreement
of
July
2,
1968
between
Davis,
Siddall
and
their
wives
as
sellers
of
the
Davis
and
Siddall
shares
and
Lemery
as
purchaser
(Exhibit
D2)
in
clause
3
provides
in
part:
“The
sum
of
$10,000
referred
to
in
paragraph
2(b)
hereafter
shall
become
due
and
payable
either
(a)
upon
a
bona
fide
sale
of
the
lands
and
premises
presently
owned
by
the
company
and
described
as
lots
A
and
B.
Victoria
City,
plan
7589
being
effected
by
the
Company
at
a
net
price
in
excess
of
$290,000”
.
.
.
or
“(b)
Upon
the
purchaser
selling,
assigning
or
otherwise
disposing
of
his
shares
in
the
capital
stock
of
the
company
so
that
as
a
consequence
control
of
the
company
is
no
longer
vested
in
the
purchaser”
or
“(c)
upon
the
company
entering
upon
any
development
which
would
have
the
effect
of
changing
the
present
use
of
the
company’s
lands
which
present
use
is
for
surface
parking
lot
purposes”
.
.
.
By
letter
of
September
26,
1968
(Exhibit
P17)
Calvert
a
real
estate
salesman
of
Block
Bros
Ltd
wrote
to
Lemery
about
the
property,
adding
“which
I
understand
you
would
consider
selling”.
Calvert
has
testified
that
he
had
no
such
knowledge
but
Lemery
did
agree
to
meet
with
Calvert
and
Reid
in
which
meeting
the
plaintiff
company
through
Lemery
agreed
to
sell
the
property
for
$650,000.
The
sale
took
place
by
agreement
of
October
16,
1968
(Exhibit
D5).
Upon
review
of
the
above
facts,
the
appeal
of
the
plaintiff
from
the
Minister’s
assessment
must
be
dismissed
for
the
following
reasons:
(1)
The
sale
of
the
shares
by
three
of
the
shareholders
namely
Morrison,
Davis
and
Siddall
was
important
in
that
thereafter
and
for
the
first
time
Lemery
became
the
sole
shareholder
(though
he
no
doubt
sold
a
minority
interest
to
members
of
his
family).
However,
on
the
evidence
Lemery
remained
in
a
position
for
the
first
time
to
force
his
intentions
on
the
plaintiff
company
so
as
to
make
his
plan
the
plan
of
the
company.
Lemery
did
intend
to
sell
the
property
as
that
intention
is
stated
in
the
agreements
for
the
purchase
of
the
Morrison
shares
(Exhibit
D3)
and
of
the
Davis
and
Siddall
shares
(Exhibit
D2)
when
he
first
obtained
control
of
the
plaintiff
company.
Hence
at
the
time
of
Lemery’s
first
acquiring
control
of
the
lands
so
as
to
enable
him
to
compel
the
company
to
sell,
he,
Lemery,
announced
the
sale
as
one
of
the
possible
disposals
of
the
property.
(2)
Lemery
‘acquired
control
of
the
plaintiff
company
and
of
the
property
on
July
2,
1968
(Exhibit
DZ).
Shortly
thereafter,
on
October
16,
1968,
the
plaintiff
company
resold
the
property.
(3)
Although
Lemery
testified
that
he
did
not
have
in
mind
the
resale
of
the
property
at
a
profit
as
one
alternative,
the
plans
for
development
were
quite
tenuous
and
uncertain.
Moreover,
in
the
agreements
whereby
he
acquired
control
it
was
stated
resale
was
a
possibility
and
such
sale
took
place
about
three
months
thereafter
and
only
approximately
two
and
a
half
years
after
the
original
purchase.
On
the
evidence,
Lemery
appeared
to
be
an
experienced
and
successful
investor
and
Davis
had
extensive
knowledge
about
local
real
estate.
From
these
facts
one
must
infer
that
from
the
outset
Lemery
intended
first
of
all
to
develop
the
land,
as
he
testified.
However,
it
would
also
seem
to
be
clear
that
Lemery
was
prepared
from
the
outset
to
sell
the
land
if
the
development
plans
fell
through.
Therefore,
he
may
be
regarded
as
having
a
profit
motive
from
the
beginning
as
an
alternative
or
secondary
intention.
Hence
the
conclusion
in
the
case
at
bar
follows
that
of
Regal
Heights
Ltd
v
MNR,
[1960]
SCR
902;
[1960]
CTC
384;
60
DTC
1270,
wherein
the
facts
were
that
the
promoters
bought
property
intending
to
build
thereon
a
department
store
that
failed
and
the
company
then
sold
at
a
profit
which
was
held
to
be
taxable
income,
and
where
Judson,
J
stated
for
the
majority
at
page
907
[389-90,
1272-3]:
.
There
is
no
evidence
that
these
promoters
had
any
assurance
when
they
entered
upon
this
venture
that
they
could
interest
any
such
department
store.
Their
venture
was
entirely
speculative.
If
it
failed,
the
property
was
a
valuable
property,
as
is
proved
from
the
proceeds
of
the
sales
that
they
made.
There
is
ample
evidence
to
support
the
finding
of
the
learned
trial
judge
that
this
was
an
undertaking
or
venture
in
the
nature
of
trade,
a
speculation
in
vacant
land.
These
promoters
were
hopeful
of
putting
the
land
to
one
use
but
that
hope
was
not
realized.
They
then
sold
at
a
substantial
profit
and
that
profit,
in
my
opinion,
is
income
and
subject
to
taxation.
..
They
failed
to
promote
a
shopping
centre
and
they
then
disposed
of
their
speculative
property
at
a
profit.
This
was
a
venture
in
the
nature
of
trade
and
the
profit
from
it
is
taxable
within
the
meaning
of
Sections
3,
4
and
139(1)(e)
of
the
Income
Tax
Act.
These
cases
must
all
depend
on
their
particular
facts
and
there
is
no
analogy
between
the
sale
of
long-held
bona
fide
capital
assets,
as
in
the
Sutton
Lumber
case,
and
the
realization
of
a
profit
from
this
speculative
venture
in
the
nature
of
trade.
The
onus
is
on
the
plaintiff
(R
W
S
Johnston
v
MNR,
[1948]
SCR
486;
[1948]
CTC
195;
3
DTC
1182,
per
Rand,
J
at
489
[202]
and
Kellock,
J
at
490,
492
[205])
and
as
the
plaintiff
has
not
proved
any
error
in
the
judgment,
the
appeal
is
therefore
dismissed
with
costs
payable
by
the
plaintiff
to
the
defendant.
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