Peter Adamo, Francesco Emanuele v. Minister of National Revenue, [1973] CTC 2253

The Assistant Chairman:—These are the appeals of Messrs Peter Adamo and Francesco Emanuele from assessments in respect of the 1967 taxation year. It was agreed by the parties that the two appeals would be heard simultaneously but that the evidence adduced would apply mutatis mutandis to the respective appellants.

The point at issue in these appeals is as follows: On April 15, 1967 the two appellants purchased Star Cleaners (York) Ltd, a company engaged in the business of dry cleaning and laundering, for $25,000. After having accepted an offer to purchase, the appellants in fact sold the company for $45,000 on May 15, 1967. The respondent alleging that the appellants had purchased the business with a primary and/or secondary intention of turning the purchased assets to account at the first reasonable opportunity assessed the gain realized by each of the appellants as income for 1967. The appellants in objecting to their 1967 assessment contended that the purchase and sale of Star Cleaners was a Capital transaction and consequently the gain realized from the sale was a non-taxable capital accretion.

Although jurisprudence may have, in deciding particularly difficult and complex cases, established fundamental principles and useful guidelines in distinguishing between a capital transaction and an adventure in the nature of trade, some care should be taken that their application in a given case does not confuse an otherwise simple issue.

In the appeals before us we have two Italian immigrants who had never purchased or sold business assets before in their lives, who as Salaried employees at various small jobs for many years managed to Save a little money and decided to go into business for themselves in order to increase their income. They consulted a real estate broker, Mr Patera, who eventually offered them Star Cleaners as a possible purchase. Mr Adamo’s family had been in the dry cleaning business for many years and Mr Adamo therefore had some knowledge of the business. The appellants bought the assets of Star Cleaners, which had been operated successfully for many years, with borrowed money and with savings of their own. Mr Adamo left his job at United Cigar Stores Ltd where he earned $100 a week and worked without pay at Star Cleaners two weeks prior to taking possession of the premises so that he might learn the operations of the business. Mr Emanuele, who had a bread delivery route, was unable to sell his business on time, and not wanting to drop his customers he did not in fact work at Star Cleaners (York) Ltd at any time prior to its resale. Evidence indicates, however, that the plan was that once his bread delivery business was sold, Mr Emanuele was to work at Star Cleaners (York) Ltd relieving Mr Adamo in the six-day work week and would, among other things, solicit business from door to door.

Some six weeks after the purchase of Star Cleaners (York) Ltd by the appellants, Mr Ditta and Mr Scabuzzo, who already owned a dry cleaning plant, made an offer to Mr Adamo for the purchase of the appellants’ business for $40,000. Mr Emanuele’s testimony in this respect was that he was not willing to sell, and having worked outdoors for some seventeen years he wanted to go into the business and work indoors. So the appellants refused the offer. The next day Mr Ditta and Mr Scabuzzo made another offer of $45,000 for Star Cleaners and the appellants, considering that the offer was too good to miss, sold the business. Mr Emanuele’s testimony in this respect is quite eloquent when he stated that the share of profit to be realized by him was the equivalent of two years’ salary.

After the sale of Star Cleaners (York) Ltd, Mr Adamo who was out of a job passed the required test for his licence as a real estate agent in October 1967, worked as an employee for a real estate firm for some time and then went into the real estate business for himself, dealing in residential properties. Mr Emanuele continued his bread delivery route until 1971 and then went into business for himself in the selling of building materials.

On reviewing all the facts of these appeals which are uncontested and on applying the basic principle of the intention of the appellants at the time of purchase of Star Cleaners (York) Ltd, I am satisfied that there is no evidence which might indicate that the appellants’ intention was other than to buy Star Cleaners (York) Ltd for the purpose of operating it and making a living from it. Nor is there any evidence of a secondary intent at the time Star Cleaners (York) Ltd was purchased, of selling the plant at the first reasonable opportunity.

In my opinion, once the appellants’ intention at the time of purchase has been clearly established, the length of time that elapsed between the purchase of Star Cleaners (York) Ltd and the eventual resale of that company is really immaterial as is indeed the argument that an isolated transaction can be an adventure in the nature of trade. In my view these guidelines are not applicable to the facts of these appeals because the intention of the appellants is otherwise evident.

Counsel for the respondent contends that the quick turnover of the appellants’ business tends to point to an adventure in the nature of trade and that the appellants should have waited until their investment matured. This argument would have more weight if doubts were entertained as to the intention of the appellants in buying Star Cleaners (York) Ltd in the first place, but in my opinion the appellants would not only have let their investment mature, they would have operated the business and derived their livelihood from it had they not been faced with a quick, unsolicited, unexpected and exceptionally good offer of purchase which any reasonable man would have accepted in similar circumstances, even though it may not have been his original plan or intention.

I find that the facts of these appeals support the view that the appellants’ intention was to invest in and carry on the business of dry cleaning, that there is no evidence of a secondary intent of disposing of the property at the first reasonable opportunity, and that the sale of the property came about as the result of purely fortuitous circumstances with the result that the gain realized by each of the appellants in the sale of the said property in 1967 is a non-taxable capital accretion.

The appeal is therefore allowed.

Appeal allowed.