Louis Holker v. Minister of National Revenue, [1972] CTC 2315, 72 DTC 1265

Roland St-Onge:—These appeals were heard at Victoria, British Columbia on November 2, 1971 by the Tax Appeal Board as it was then constituted, and deals with profits realized on real estate and timber sales which took place in the 1966, 1967 and 1968 taxation years.

The appellant, who resides in Victoria, purchased, together with one Mr Hanson and a company known as Blackburn Rentals (BC) Ltd in which Mr Hanson, his wife and a partner are shareholders (hereinafter referred to as “Blackburn”), three parcels of land in the Malahat District about 19 miles from Victoria and acquired therein a 50% interest. The three parcels consisted of:

(1) a large tract of land of approximately 308 acres;

(2) a small parcel of 3 acres situated across the road from the main tract of land; and

(3) another parcel of 17 acres down by the water.

In July 1965 they listed the said land for sale and a year later sold 28.8 acres to a Mrs Blanchard, 50 acres to one Mr Barr; and in December 1966 sold another parcel of 2.6 acres to Erik and Kjell Hoel. Then in March 1967 the property was actually divided into four parcels as follows:

(1) 50 acres went to Mr Barr:

(2) 2.6 acres near the water and not included in the 308 acres went to Mr Hoel;

(3) one third of the balance of the 308 acres plus the three acres across the road together with the 17 acres near the water were transferred in the name of the appellant;

(4) Mr Hanson, his wife and Blackburn received the other two- thirds of the balance of the 308 acres.

Upon disposing of land to Mrs Blanchard and Mr and Mrs Hoel, the appellant realized a small profit, but he did not sell his own parcel to anyone and when Mr Hanson and his company sold their total acreage at a profit and paid taxes thereon, the appellant did not take part in the said transactions.

At the hearing Mr Hanson testified: that he was a real estate salesman for Island Homes in 1965; that there was no partnership between him and the appellant for selling land; that the vendor, Mr Harrison, was only willing to sell his land as a whole and not piecemeal; that after he bought the land he realized that his associate (the appellant) did not want to sell, was very reluctant to agree to the above-mentioned sales and insisted on having his portion in his own name; that the appellant never listed his portion of the land nor did he subdivide it for sale; that the appellant finally consented to sell to Mrs Blanchard because she had been born and brought up on the property and, for sentimental reasons, was very persistent in her efforts to obtain it; that the sale to Mr Barr was effectuated by one of his (Mr Hanson’s) agents and the appellant had to sign; that the transfer of land to Mr and Mrs Hoel was not a sale but was given to them as payment for some work they had done, and no money changed hands; that his own name appeared as owner on the listing of property for sale and the appellant had not signed it.

With respect to the selling of timber, he explained that one day he met a logging trucker in the Malahat Chalet and asked him if he would be interested in selling timber. Subsequently, a Mr Rolls obtained a written contract which was filed as Exhibit A-4, the relevant clauses of which are set out hereunder:

2. The vendors hereby authorize the Purchaser to enter upon the said lands, to cut, fell and remove therefrom timber standing thereon.

3. The Purchaser shall pay to the Vendors for all timber cut and felled the sum of TWENTY DOLLARS ($20.00) per THOUSAND (1,000) board feet.

Mr Holker testified: that he is retired and owns a number of properties for rental purposes only, some of which he has had for 25 or 30 years; that he has never been a dealer in real estate transactions; that he had been in the automotive business all his life; that he purchased the land with Mr Hanson to satisfy his love for the country and thought that they could easily divide it between them and that he could obtain title for the land he needed on which to build a summer cottage; that when he bought the whole parcel of land, he knew that it was economically unsound for him to keep all of it, and for this reason he asked another person to buy with him on a joint basis; that he became the registered owner of Lot 1, District Lot 130, Malahat District, Plan 20556, which he wants to keep for the rest of his life. Following the sale to Mrs Blanchard, he spent $4,000 on a new well and $2,500 for a power supply to operate it. He cleared a site on which to build a home and rent lots for mobile homes. He admitted: that the whole parcel of land was listed for sale by Mr Hanson within a couple of months after it was purchased, but he claimed that this course of conduct was followed in order to permit Mr Hanson to sell his share; that at no time did he agree to sell his own lot nor did he sign any listing either for the whole tract of land or a part thereof; that when he realized that Mr Hanson wanted to sell land he took the necessary steps to get his share in his own name; that he tried in vain to convince Mr Hanson to keep the land jointly with him.

According to the evidence adduced, the appellant’s course of conduct shows that for 25 or 30 years he bought houses for rental income only and did not sell them. Although he acquired the land with a real estate dealer, he did not do anything that would brand him as a trader in the real estate business. What he did was merely to obtain a parcel of land in his own name on which to erect a summer cottage for his own use. He did not sign the listing to sell the land purchased or the part thereof which he later obtained in his own name. He is still the owner of his parcel, whereas Mr Hanson sold his total acreage.

When he agreed with great reluctance to sell to Mrs Blanchard and Mr Barr, his motives and reasons were far from being those of a trader in the real estate business, and his behaviour. could in no way be construed as an adventure in the nature of trade. He tried in vain to convince Mr Hanson not to sell and when he realized that the latter did not wish to keep the land, he took the necessary steps to settle this joint ownership and obtain legal title for his portion of the land.

The evidence shows without a doubt that the appellant had no intention of reselling the property at a profit. He did not enter into any partnership with Mr Hanson nor did he sign any listing to sell either the whole parcel or his own acreage. He was not a silent partner and his course of conduct was consistent with what he wanted and what he achieved. In short, his course of conduct before and after the transaction was not that of a trader in real estate and, consequently, the appeal is allowed on that issue.

As for the profits earned from the sale of timber, I would like to reproduce hereunder paragraph 6(1 )(j) of the Income Tax Act which reads as follows:

6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year

(j) amounts received by the taxpayer in the year that were dependent upon use of or production from property whether or not they were instalments of the sale price of the property, but instalments of the sale price of agricultural land shall not be included by virtue of this paragraph;

After reading this section, I have no hesitation in saying that the proceeds from the sale of timber are taxable. No matter what. the intention of the appellant was when he bought the property, and no matter in what manner he sold the timber, if the proceeds depend upon use of or production from the property within the meaning of the above section, they are taxable. In my opinion, the proceeds came from the use of and production from the property within the meaning of the above section and, consequently, the appeal on that issue should be dismissed.

The appeal is allowed in part and the matter referred back to the Minister of National Revenue for reconsideration and reassessment for the above-mentioned reasons.

Appeal allowed in part.