Maurice
Boisvert:—This
appeal
is
from
assessments
dated
June
27,
1968
involving
profits
realized
during
1966
and
1967.
The
appeal
was
heard
at
Quebec
City,
Province
of
Quebec
on
February
8,
1971
by
the
undersigned,
at
the
time
Assistant
Chairman
of
the
Tax
Appeal
Board
as
it
was
then
constituted,
and
in
accordance
with
the
provisions
of
the
Income
Tax
Act
then
applicable
(RSC
1952,
c
148).
The
appellant
is
a
company
incorporated
on
May
21,
1963
under
the
Quebec
Companies
Act.
Its
capital
stock
was
$400,000
divided
into
6,000
common
shares
with
a
face
value
of
$10
each,
and
3,400
preferred
shares
with
a
face
value
of
$100
each.
Four
Quebec
businessmen,
each
with
an
annual
income
of
$100,000,
subscribed
respectively
500
common
shares
and
50
preferred
shares
which
they
paid;
in
addition,
each
of
them
agreed
to
advance
the
appellant
$15,000.
The
four
shareholders
had
therefore
invested
the
sum
of
$100,000
in
the
company’s
capital
stock,
and
had
advanced
the
sum
of
$60,000.
On
June
25,
1963
the
appellant
bought
466,000
square
feet
of
land
in
Charlesbourg
parish,
in
the
Quebec
City
suburbs,
for
$160,000
in
cash.
This
land
had
been
detached
from
a
larger
piece
of
land
on
which
Steinberg’s
grocery
stores
were
carrying
on
their
large-scale
business.
The
land
that
had
been
purchased
had
been
bought
with
the
set
intention
of
building
a
large
housing
complex;
this
would
not
have
been
detrimental
to
Steinberg’s
operations
—
rather
the
contrary.
The
appellant’s
representatives
set
to
work,
first
to
obtain
a
loan
from
the
Central
Mortgage
and
Housing
Corporation,
which
viewed
the
planned
housing
development
favourably;
second,
to
enter
into
negotiations
with
the
Saint-Rodrigue
school
board
for
the
purpose
of
setting
up
a
school
and
playground,
as
required
by
the
CMHC;
third,
to
have
the
Municipality
of
Charlesbourg
plan
the
streets
and
necessary
services;
and
fourth,
to
have
a
surveyor
peg
the
boundaries
of
another
tract
of
land
with
which
to
extend
the
project.
Accordingly,
plans
were
drawn
up
for
the
construction
of
dwellings,
the
laying
of
water
mains
and
sewers
and
the
grading
of
the
land.
Finally,
there
was
a
detailed
study
of
construction
costs,
income,
profits
from
rents,
and
everything
proved
satisfactory.
The
appellant
had
the
means
for
carrying
the
project
through
but
for
a
problem
of
surface
water,
which
required
the
participation
of
the
cities
of
Charlesbourg
and
Quebec,
and
the
Quebec
government.
This
put
a
stop
to
the
project.
Over
a
million
dollars
would
have
had
to
be
spent
to
solve
the
problem.
As
it
was
becoming
clear
that
the
project
was
falling
through
because
of
the
surface
water
problem,
the
appellant
signed
a
promise
to
sell
on
August
21,
1964.
The
sale
was
concluded
on
February
6,
1965,
for
the
price
of
$257,000.
The
net
profit
realized
was
$85,649.20.
This
profit
was
taxed
and
is
the
subject
of
the
present
appeal.
The
appellant
claims
that
the
sum
is
a
capital
gain
and
consequently
non-
taxable,
while
the
respondent
adamantly
contends
that
it
is
a
business
profit,
the
appellant
having
engaged
in
a
business
as
defined
by
paragraph
139(1
)(e)
of
the
Income
Tax
Act
(RSC
1952,
c
148).
There
may
seem
to
be
some
grounds
for
the
respondent’s
claim,
since
from
the
date
of
the
appellant’s
incorporation
up
to
March
18,
1966
two
sites
were
bought
and
sold,
and
one
building,
known
as
Edifice
Ferland,
was
also
bought
in
April
1964
and
sold
in
October
1965.
The
three
transactions,
with
the
necessary
details,
are
set
out
in
the
table
below:
(TRANSLATION)
Statement
of
real
estate
transactions
Place
Louisbourg
June
25/63—Purchase
of
land
$160,529.20
Project
plans
2,500.00
Surveying
90.00
Notarial
costs
231.60
$163,350.80
Feb.
6/65
—Selling
price
257,000.00
Less:
Commission
8,000,00
249,000.00
Profit
on
sale
of
land
$85,649.20
Terms
of
sale
Selling
price
257,000.00
Cash
10,000.00
Balance
247,000.00
payable
in
4
annual
instalments
of
90,000.00
(200,000.00)
payable
in
1
annual
payment
of
47,000.00
(
47,000.00)
P.S.
Promise
of
sale
signed
August
21,
1964
Calculation
of
reserve
according
to
section
85-B
May
31/65—
85,649.20
x
247,000.00
=
82,316.54
257,000.00
=====
May
31/66
85,649.20
x
181,565.80
=
60,505.70
257,000.00
=====
May
31/67
85,649.20
x
150,000.00
49,989.80
257,000.00
==
Confederation
Life
mortgage
assumed
|
Un-
|
|
Initial
Cost
|
Accumulated
depreciated
|
|
Edifice
Ferland
|
Land
|
Building
Depreciation
Balance
|
|
April
3/64—Purchase
|
$8,500.00
$239,000.00
|
|
$239,000.00
|
|
Additions
|
|
877.90
|
|
877.90
|
|
239,877.90
|
|
239,877.90
|
|
May
31/64—C.C.A.
|
|
11,950.00
|
11,950.00
|
|
Balance
|
$8,500.00
$239,877.90
$11,950.00
$227,927.90
|
|
May
31/65—C.C.A.
|
|
11,396.40
|
11,396.40
|
|
Balance
|
8,500.00
|
239,877.90
|
23,346.40
|
216,531.50
|
|
Additions
|
|
25,439.10
|
|
25,439.10
|
|
$8,500.00
$265,317.00
$23,346.40
$241,970.60
|
|
Oct.
5/65—Sale
|
|
|
Selling
price
450,000.00
|
|
|
Less:
|
|
|
Commission
|
15,000.00
|
|
|
$435,000.00
|
8,500.00
|
|
426,500.00
|
|
Total
profit
|
|
$184,529.40
|
|
Recovered
in
C.C.A.
|
|
23,346.40
|
|
Surplus
over
initial
cost
|
|
161,183.00
|
|
$184,529.40
|
|
Terms
of
sale
|
|
|
Selling
price
|
|
$450,000.00
|
|
|
Cash
|
|
100,000.00
|
|
|
Balance
|
|
$350,000.00
|
by
the
purchaser
350,000.00
Place
des
Chênes
Shopping
Centre
|
Un
|
Un-
|
|
Initial
Cost
|
Accumulated
depreciated
|
|
Land
|
Building
Depreciation
Balance
|
|
Aug.
9/63
Purchase
|
$45,543.00
|
|
|
Construction
|
3,037.40
$305,007.65
|
|
305,007.65
|
|
48,580.40
|
305,007.65
|
|
305,007.65
|
|
May
31/64
C.C.A.
|
|
$15,250.38
|
|
15,250.38
|
|
Balance
|
48,580.40
|
305,007.65
|
15,250.38
|
289,757.27
|
|
Additions
|
|
30,881.31
|
|
30,881.31
|
|
$335,888.96
$15,250.38
$320,638.58
|
|
May
31/65
C.C.A.
|
|
16,031.93
|
|
16,031.93
|
|
Balance
|
48,580.40
|
335,888.96
|
31,282.31
|
304,606.65
|
|
Mar.
18/66
Sale
|
|
|
Selling
price
$375,000.00
|
48,580.40
|
|
326,419.60
|
|
Recovered
in
C.C.A.
|
|
$21,812.95
|
If
we
analyse
the
statements
made
by
the
witnesses
before
the
Board,
we
can
see
that
no
reliance
can
be
put
on
appearances.
The
witnesses
have
all
said
what
their
intentions
were
and
there
is
no
reason
to
doubt
their
testimony.
Very
active
in
business,
they
were
deriving,
from
their
occupations
and
investments,
considerable
incomes
which
they
used
to
turn
their
original
plans
to
good
account.
Their
actions
are
not
those
of
real
estate
speculators.
Moreover,
sale
of
the
properties
was
not
part
of
the
appellant’s
original
intentions
when
the
purchases
were
made.
First,
at
the
time
of
the
purchases
the
properties
and
their
surroundings
did
not
lend
themselves
to
speculation.
There
was
no
likelihood
of
rapid
development.
A
person
does
not
throw
his
money
away
just
for
the
pleasure
of
doing
so.
Furthermore,
nothing
obliges
a
person
who
wants
to
invest
in
real
estate,
to
buy
more
than
one
property
or
one
building.
The
fact
that
the
appel-
lant
bought
more
than
one
property
does
not
change
the
nature
of
the
transactions,
unless
there
is
proof
that
the
properties
were
bought
to
be
resold.
Again,
a
person
who
speculates
in
real
estate
does
not
invest
hundreds
of
thousands
of
dollars
in
construction
for
the
mere
pleasure
of
spending
money.
A
person
buys
real
estate
either
to
resell
with
a
profit,
or
for
future
rents
and
income.
Place
Louisbourg
was
purchased
on
June
25,
1963.
It
was
a
well-planned
project.
Everything
was
done
to
put
it
into
effect.
Because
of
unforeseen
circumstances,
the
appellant
was
unable
to
pursue
it.
Was
the
appellant
obliged
to
wait
for
years
before
seeing
its
project
bear
fruit?
Once
it
became
clear
to
the
investors
that
they
would
have
to
wait
for
years
Or
pump
a
million
or
more
dollars
into
the
venture,
the
prospects
of
a
profitable
investment
had
vanished.
The
appellant
had
invested
$265,-
317
in
the
Ferland
building.
After
a
period
of
operation
this
building
also
proved
not
very
profitable
because
of
the
difficulty
of
finding
tenants
and
because
of
a
deterioration
of
the
area
where
it
was
built.
The
money
invested
was
largely
becoming
dormant,
with
the
result
that
the
appellant
lost
any
hope
of
obtaining
a
return
on
its
investment.
Moreover,
when
the
insurmountable
obstacles
facing
the
Place
Louisbourg
project
were
discovered,
the
appellant
had
begun
to
build
Place
des
Chênes.
To
convert
the
property
into
an
income-yielding
concern
it
spent
$305,007.65
in
order
to
purchase
the
land
and
build
a
shopping
centre.
The
appellant
kept
this
property
for
almost
three
years
at
a
loss.
In
these
circumstances,
what
was
the
appellant
to
do
with
his
properties?
Refuse
to
sell
them
and
let
the
invested
capital
stagnate
from
fear
of
the
Tax
Department?
Offers
for
sale
were
not
solicited
ana
there
was
no
advertising
campaign.
Furthermore,
the
Place
Louisbourg
land
was
not
subdivided
with
a
view
to
sale
or
to
attract
development
other
than
that
envisaged
by
the
promoters.
I
am
of
the
opinion
that
Place
Louisbourg
and
Edifice
Ferland
were
sold
to
realize
capital
which
had
been
invested
by
the
appellant
with
a
specific
end
in
view
that
had
proved
impractical.
If
the
purchasers
intended
to
use
the
properties
purchased
from
the
appellant
for
other
purposes
and
using
other
means
than
those
available
to
the
appellant,
that
was
not
its
concern.
To
be
caught
between
losing
one’s
money
and
recovering
it
at
a
profit
does
not
constitute
speculation,
any
more
than
the
hope
of
profit
cannot
presuppose
a
venture
in
the
nature
of
trade.
It
should
be
kept
in
mind
that
the
investments
continued
in
the
form
of
sales
on
credit,
the
interest
on
which
was
still
a
return
on
the
capital
originally
invested.
Before
concluding
and
allowing
the
appeal,
I
would
like
to
cite
Wheatcroft,
in
The
Law
of
Income
Tax,
Surtax
and
Profits
Tax,
on
page
1204,
number
1-422:
It
is,
however,
well
established
that
a
company
is
as
capable
as
an
individual
of
owning
property
without
becoming
a
trader
and
it
is
the
nature
of
its
operations,
and
not
its
capacity,
which
finally
determines
whether
it
carries
on
a
trade.
Its
capacity,
as
expressed
in
its
memorandum,
may,
however
throw
light
on
the
nature
of
its
operations
and
it
is
therefore
usual
for
a
company,
whose
promoters
do
not
desire
it
to
be
treated
as
a
trade,
to
be
formed
with
a
memorandum
which
makes
it
clear
that
profits
made
on
changes
of
investments
are
to
be
treated
as
capital
and
that
capital
profits
may
not
be
distributed.
.
.
.
The
form
of
the
memorandum
is
not,
however,
conclusive
because
the
question
is
not
what
business
the
taxpayer
professes
to
carry
on
but
what
business
does
he
actually
carry
on.
The
application
of
the
principles
set
forth
above
has
been
recognized
by
Canadian
courts.
It
will
suffice
to
cite
Regal
Heights
Ltd
v
MNR
[1960]
SCR
902;
[1960]
CTC
384;
60
DTC
1270,
in
which
on
page
907
[390,
1272]
Mr
Justice
Judson
stated:
Throughout
the
existence
of
the
appellant
company
its
interest
and
intentions
were
identical
with
those
of
the
promoters
of
this
scheme.
One
of
the
objects
stated
in
the
memorandum
of
association
of
the
company
was
“To
construct
and
operate
apartment
houses,
blocks,
shopping
centres
and
to
otherwise
carry
on
any
business
which
may
be
conveniently
carried
on
in
a
shopping
centre.”
Nothing
turns
upon
such
a
statement
in
such
a
document.
The
question
to
be
determined
is
not
what
business
or
trade
the
company
might
have
carried
on
but
rather
what
business,
if
any,
it
did
in
fact
engage
in.
In
the
present
appeal
all
the
promoters
were
heard
as
witnesses
and
all
swore
as
to
their
intentions,
which
were
clearly
defined
and
fully
motivated.
None
of
their
intentions
or
motives
suggest
that
they
planned
to
engage
in
a
business
or
undertake
a
venture
of
a
commercial
or
speculative
nature.
For
the
above
reasons,
I
am
of
the
opinion
to
allow
the
appeal.
Appeal
allowed.
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