SHEPPARD,
D.J.:—The
issue
is
whether
the
profit
derived
from
property
in
the
Van
Bow
District
in
the
City
of
Prince
George,
and
expropriated
by
the
School
Board
of
Prince
George,
is
taxable
income
as
the
Minister
contends
or
is
not
taxable
as
income
as
the
respondent
company
contends.
That
issue
is
defined
in
Californian
Copper
Syndicate
v.
Harris
(1904),
13
T.C.
159
at
165
as
follows:
Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realizing
a
security
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit
making?
and
approved
in
7’.
Campbell
v.
M.N.R.,
[1953]
1
S.C.R.
3;
[1952]
C.T.C.
334,
per
Locke,
J.
at
page
5
[337],
and
in
Tougas
v.
M.N.R.,
[1955]
Ex.
C.R.
124;
[1955]
C.T.C.
66,
per
Cameron,
J.
at
page
128
[69].
The
respondent
company
contends
that
the
profit
was
not
realized
in
the
carrying
on
of
a
business
and
was
a
capital
gain,
whereas
the
Minister
contends
that
the
profit
was
derived
from
carrying
on
of
a
business
within
Section
139(1)
(e)
of
the
Income
Tax
Act,
as
defined
by
M.N.R.
v.
J.
À.
Taylor,
[1956-60]
Ex.
C.R.
3;
[1956]
C.T.C.
189.
The
facts
follow.
The
property
consisted
of
lots
vested
initially
in
the
Crown
in
the
right
of
the
Province;
an
Order
in
Council
of
November
13,
1963
(Exhibit
.A3)
provided
for
a
conveyance
to
the
City
of
Prince
George
‘‘for
the
development
of
a
multiple
dwelling
housing
project’’.
After
that
conveyance
had
been
made
to
the
City
of
Prince
George,
the
City
advertised
in
the
Prince
George
newspaper
(Exhibit
Al)
on
January
28
and
February
3,
1964
an
auction
sale
of
the
property
consisting
in
area
of
about
4.37
acres,
to
be
held
on
February
6,
1964
subject
to
an
upset
price
of
$15,000,
with
a
right
to
the
purchaser
to
acquire
streets
and
lanes
at
the
same
price,
and
subject
to
conditions
1
to
6
inclusive,
which
stipulated
that
the
City
would
provide
only
municipal
services
and
the
property
was
sold
‘‘for
the
purpose
of
a
multiple
dwelling
housing
project’’,
that
a
building
permit
was
to
be
obtained.
within
six
months,
and
the
completion
to
be
within
two
years,
with
a
right
to
the
City
to
foreclose
and
repossess
for.
default.
Four
persons,
consisting
of
Buchanan,
Benson,
Flynn
and
Lloyd,
held
a
meeting
two
days
before
the
auction
sale.
After
the
meeting,
lasting
two
hours
according
to
Benson,
the
four
decided
that
Buchanan
would
bid
at
the
auction
for
the
four
and
that
he
would
pay
the
upset
price
of
$15,000
and
if
needed,
bid
up
to
$25,000.
All
four
attended
the
auction.
The
property
was
bid
in
for
the
four
at
$15,000
and
the
purchase
signed
by
Buchanan
but
Pine
Ridge
Property
Ltd.
(the
respondent
company)
was
designated
as
grantee
for
the
conveyance
(Exhibit
A4).
That
company
was
incorporated
(Exhibit
R6)
with
power
to
‘
‘
purchase,
lease,
construct,—and
assist
in
improving
lands—
and
to
sell,
mortgage
or
otherwise
dispose
of
the
same’’
and
each
of
the
four
held
25%
of
the
shares
in
the
company.
Benson
stated
the
property
was
worth
$60,000
(Exhibit
R8,
p.
10).
Buchanan
was
engaged
in
the
real
estate
business
in
Prince
George
and
his
experience
covered
all
phases
of
that
business,
including
the
purchase
of
land
for
the
construction
of
multiple
dwelling
housing
projects
with
the
units
to
be
occupied
by
tenants
(Examination
for
Discovery
of
Buchanan,
Questions
2
to
112).
In
1963
to
1968,
Buchanan
was
employed
by
the
B.C.
Land
and
Agency
Company
and
thereafter
was
in
the
real
estate
business
with
Benson
under
the
name
of
Buchanan
Benson
Company
Ltd.
(Examination
for
Discovery
of
Buchanan,
Questions
34
and
35).
Buchanan
stated
that
he
had
had
discussions
with
Bond,
the
manager
of
Central
Mortgage
and
Housing
Corporation
in
Prince
George,
for.
a
loan
on
the
property
(Exhibit
A22,
p.
47,
Q.
203
to
207)
but
that
was
denied
by
Bond
who
stated
that
his
company
had
refused
to
lend
in
the
Van
Bow
area
and
that
in
any
event
the
loan
to
a
speculator
company
to
build
on
property
to
be
occupied
by
a
tenant
would
be
in
the
lowest
category
of
security.
.
In
April
or
May
of.
1964,
the
company
had
an
architect
in
Prince
George
prepare
a
sketch
for
a
multiple
dwelling
housing
project
of
about
140
suites
(TAB
pp.
TP
21
and
22,
Exhibit
A6)
and
this
sketch
would
require
the
closing
of
some
streets
and
lanes
(TAB
p.
23).
The
company
was
not
formed
with
any
money
to
construct
the
multiple
dwelling
housing
project
and
the
company
intended
to
borrow
from
Central
Mortgage
and
Housing
Corporation
(TAB
pp.
41
and
55)
which
did
most
of
the
lending
in
Prince
George
(TAB
p.
56).
Buchanan
stated
that
he
had
discussed
the
matter
with
Bond,
the
manager
of
Central
Mortgage
and
Housing
Corporation
(Tab
p.
57)
and
that
Bond
had
assured
him
that
there
was
no
difficulty
about
the
loan.
The
company
would
require
a
loan
of
about
$10,500
per
unit
(TAB,
p.
58).
Bond,
however,
denies
ever
meeting
Buchanan
to
discuss
or
that
he,
Bond,
had
promised
a
loan
in
the
Van
Bow
area;
that
the
company,
Central
Mortgage
and
Housing
Corporation,
would
not
lend
in
the
Van
Bow
area
and
also
lending
to
a
speculative
builder
for
occupation
by
tenants
would
be
highly
objectionable.
In
considering
the
builders
equity
for
the
purpose
of
making
a
loan,
Central
Mortgage
and
Housing
Corporation
considered
three
appraisals:
1.
Cost
of
construction.
2.
Capitalized
cost;
that
would
be
a
capitalization
of
the
rents,
less
the
interest
on
the
mortgages
and
cost
of
construction
that
is
the
capitalized
value.
3.
The
owner’s
estimated
cost;
that
is
they
would
allow
the
owner
owning
land
an
allowance
of
approximately
$1,000
per
unit
and
would
make
a
loan
of
90%
of
the
lowest
of
these
three
figures.
Generally,
the
lowest
was
the
capitalized
cost.
Mr.
Bond
had
no
recollection
of
promising
to
consider
any
loan
for
the
respondent
company,
or
any
loan
in
the
Van
Bow
area.
On
February
5,1965,
Parker,
a
town
planner,
made
his
report
to
the
City
of
Prince
George
(Exhibit
A48),
as
he
had
been
employed
to
consider
an
urban
renewal
under
the
National
Housing
Act,
under
which
Canada
would
pay
50%
of
the
cost
and
the
Province
and
the
City
would
share
the
remaining
50%.
Regarding
the
Van
Bow
area,
the
report
stated
at
page
45:
The
Van
Bow
area
was
deliberately
reserved
for
urban
development
action
to
the
extent
that
Central
Mortgage
and
Housing
Corporation
loans
were
withheld
from
the
area
until
very
recently.
at
page
46
:
(h)
The
area
was
low
lying
and
had
a
low
standard
of
municipal
services.
at
page
47
:
Mortgage
companies
have
been
reluctant
to
lend
for
multiple
dwelling
development
in
the
area,
due
to
its
backwash
nature.
It
is
yet
to
be
seen
whether
private
developers
can
successfully
finance,
build,
rent
and
operate
rental
housing
in
this
area.
It
is
very
doubtful
whether
the
total
area
will
ameliorate
to
even
average
neighbourhood
standards
for
Prince
George,
without
the
assistance
of
some
public
planning
and
action.
Much
can
be
done
to
improve
the
road
pattern.
It
is
anticipated
that
the
Van
Bow
area
despite
the
attempts
of
private
developers
to
introduce
rental
housing
into
the
area,
will
not
be
substantially
improved
without
some
public
action.
It
is
recommended
that
if
private
developers
are
unable
to
develop
substantial
rental
housing
on
land
that
has
been
acquired
recently
from
the
city
and
the
province,
that
the
area
be
treated
as
a
redevelopment
area.
at
page
48
:
It
would
be
socially
and
economically
wrong
to
ignore
the
opportunity
to
create
in
the
Van
Bow
area,
a
much
higher
density
and
therefore
higher
yield
of
housing
of
rental
type
since
it
enjoys
as
an
area,
so
many
advantages
for
this
type
of
housing
and
it
is
so
obviously
going
to
remain
a
depressed
area
without
some
public
action.
If
privately
sponsored
rental
housing
does
not
vastly
improve
the
conditions
of
the
area
in
the
next
year
or
two,
application
should
be
made
to
the
Central
Mortgage
and
Housing
Corporation
to
establish
a
publicly
sponsored
redevelopment
scheme
under
the
National
Housing
Act.
The
report
was
paid
for
by
Central
Mortgage
and
Housing
Corporation
to
75%
or
$9,000
and
by
the
City
to
25%
or
$3,000.
Under
letter
of
October
5,
1965
(Exhibit
R9),
the
City
wrote
to
the
Montreal
Trust,
and
a
copy
to
Central
Mortgage
and
Housing
Corporation,
for
a
meeting
with
the
City.
However,
that
led
to
nothing.
On
April
5,
1966
(Exhibit
R7
),
part
of
the
property
held
by
the
respondent
company
was
expropriated
for
a
school
site
by
the
School
Board
under
Section
174
of
the
Public
Schools
Act,
R.S.B.C.
1960,
c.
319.
The
Board
offered
$16,000.
Letter
of
July
7,
1966
(Exhibit
R3),
from
the
City
to
Wascan
Appraisers
Ltd.,
stated
that
the
respondent
company
had
not
applied
for
closure
of
any
roads
or
lanes
and
in
paragraph
3
‘
not
performed
in
any
way,
shape
or
form
in
accordance
with
the
conditions
of
sale
agreement’’;
the
respondent
company
had
paid
the
purchase
price
of
$15,000.
Under
letter
of
January
6,
1966
(Exhibit
A9),
from
Thomson,
City
Manager,
to
Jones,
the
Work
Superintendent
of
the
City
of
Prince
George,
Thomson
stated
that
the
respondent
company
remained
in
the
Van
Bow
area
and
that
the
City
was
unable
to
impress
upon
the
company
that
it
should
release
mortgage
funds
for
multiple
dwelling
in
the
area.
The
respondent
company
and
the
School
Board
were
not
able
to
agree
upon
the
value
of
the
property
expropriated
(Exhibits
A13
and
A14,
A24
and
A25)
and
the
respondent
company
employed
L.
P.
Benoit,
an
engineer,
to
compile
the
cost
of
servicing
the
Van
Bow
area
and
that
cost
of
servicing
was
computed
at
$33,618
(Exhibit
Rl).
The
respondent
company
paid
Penny
&
Keenleyside
Appraisals
Ltd.
$541.15
(Exhibit
A25).
Under
memo
of
May
16,
1966
in
the
handwriting
of
the
hand
of
the
respondent
company’s
solicitor,
one
Wilson,
states
that
the
respondent
company
does
not
want
to
sell
(Exhibit
A26).
Subsequently,
Wilson
offered
the
School
Board
the
property
at
$96,000
(Exhibit
A27).
This
appears
to
depart
from
the
instructions
contained
in
the
memorandum
(Exhibit
A26),
however,
Wilson
continued
to
act
for
the
respondent
company
and
appeared
for
it
on
the
expropriation
proceedings.
On
August
3
and
4,
1966,
expropriation
proceedings
(Exhibit
A12)
were
held
to
fix
the
value
of
the
land
expropriated
and
on
September
22,
1966,
the
arbitrators
awarded
$104,658
(Exhibit
A17).
By
notice
of
motion
of
November
21,
1966
(Exhibit
A18)
the
School
Board
appealed
from
the
award
and
on
November
28,
1966
the
appeal
was
dismissed.
In
the
letter
of
January
17,
1967
(Exhibit
A19)
from
the
respondent
company’s
agents
to
the
School
Board
agents,
states
the
payment
due
to
the
company
with
interest
and
costs
was
$109,542.72
and
stated
“we
confirm
your
advice
to
the
writer
that
you
are
holding
in
trust
the
Deed
which
was
sent
to
you
by
Mr.
J.
Galt
Wilson’’.
After
the
expropriation,
the
respondent
company
held
in
the
Van
Bow
area
three
scattered
parcels
and
these
were
consolidated
by
exchange
with
the
City
of
Prince
George,
as
indicated
in
the
following
letters:
Letter
of
August
11,
1969
(Exhibit
A29)
Letter
of
December
10,
1969
(Exhibit
A30)
Letter
of
December
16,
1969
(Exhibit
A31)
Letter
of
December
18,
1969
(Exhibit
A32)
Letter
of
December
24,
1969
(Exhibit
A33)
Plan
‘‘A’’
(Exhibit
A34)
Plan
“B”
(Exhibit
A35)
Letter
of
July
16,
1970
(Exhibit
A36)—enclosed
Plan
of
the
Replot.
On
February
8,
1971,
Buchanan
Benson
Company
Ltd.
wrote
to
Trelle
A.
Morrow:
I
would
like
to
approach
the
banks
and
trust
companies
before
too
long
to
see
what
financing
might
be
available
for
this
year.
The
respondent
company
then
offered
the
compensation
awarded
for
the
site
expropriated
but
that
was
refused
as
the
site
expropriated
included
lands
other
than
those
acquired
from
the
respondent
company,
particularly
the
lanes
and
streets,
and
also
the
company
wished
certain
costs
and
the
result
was
the
parties
were
not
in
agreement
and
nothing
came
of
this.
(Letters
of
April
23,
1971
(Exhibit
A38),
May
6,
1971
(Exhibit
A39)
and
May
7,
1971
(Exhibit
A40).)
By
letter
of
July
27,
1971
(Exhibit
A45),
T.
A.
Morrow
wrote
the
respondent
company
enclosing
the
layout
of
a
multiple
dwelling
housing
project,
for
the
consolidated
area
and
pointed
out
that
the
masonry
bearing
would
cost
$12,800
per
unit
and
structural
steel
frame
$20,600
per
unit.
The
project
would
cost
on
the
average
$15,000
per
unit.
In
the
meantime,
the
respondent
company
went
into
voluntary
liquidation
and
the
profits
from
the
sale
of
the
Van
Bow
property
were
distributed
to
the
shareholders
of
the
company.
By
order
of
August
27,
1971
(Exhibit
A47),
Verchere,
J.
ordered
that
the
winding-up
be
stayed,
the
directors
to
resume
office
and
the
company
to
resume
and
continue
business.
The
company
thereupon
applied
to
the
Canada
Permanent
Mortgage
Corporation
for
a
loan
in
the
amount
of
$318,510
to
build
upon
the
consolidated
property
(Exhibit
A43),
for
which
loan
Central
Mortgage
and
Housing
Corporation
guaranteed
(Exhibit
A44)
for
an
additional
2%.
The
respondent
company
was
assessed
by
the
Minister
in
the
amount
of
the
profit
as
income
tax
and
from
that
assessment
appealed
to
the
Tax
Appeal
Board
and
succeeded
on
the
appeal.
From
the
decision
of
the
Tax
Appeal
Board
(reported
[1970]
Tax
A.B.C.
449)
the
Minister
has
now
appealed
to
this
Court.
The
issue
turns
upon
the
question
of
fact,
whether
or
not
the
respondent
company
acquired
the
lands
in
the
Van
Bow
area
for
one
of
the
purposes
of
reselling
at
a
profit
as
the
Minister
contends,
or
on
the
other
hand,
and
as
the
respondent
company
contends,
solely
for
the
purpose
of
development
of
a
multiple
dwelling
housing
project
and
a
return
by
way
of
rental.
The
respondent
company
contends
that
the
sole
purpose
of
purchasing
the
lands
was
to
construct
a
multiple
dwelling
housing
project
and
to
receive
therefrom
the
rentals
which
would
be
collected
by
the
respondent
company’s
real
estate
agent;
thereby
presenting
a
perpetual
return
to
the
real
estate
company
for
collecting
such
rentals;
that
that
purpose
was
the
sole.
purpose.
The
onus
is
on
the
respondent
company,
as
taxpayer,
to
establish
that
the
assessment
was
in.
error:
Rk.
W.
S.
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195,
Rand,
J.
at
489
[202]
;.
Mulholland
v:
M.N.R.,
[1952]
Ex.
C.R.
233,
Cameron,
J.
at
238;
Tougas
v.
M.N.R.
(supra),
Cameron,
J.
at
page
128.
The
proper
time
to
consider
the
intention
is
at
the
time
that
the
property
was
acquired.
In
Racine,
Demers
and
Nolin
v.
M.N.
k.,
65
DTC
5098,
Noël,
J.
at
page
9103
stated
:
In
examining
this
question
whether
the
appellants
had,
at
the
time
of
the
purchase,
what
has
sometimes
been
called
a
“secondary
intention”
of
reselling
the
commercial
enterprise
if
circumstances
made
that
desirable,
it
is
important
to
consider
what
this
idea
involves.
It
is
not,
in
fact,
sufficient
to
find
merely
that
if
a
purchaser
had
stopped
to
think
at
the
moment
of
the
purchase,
he
would
be
obliged
to
admit
that
if
at
the
conclusion
of
the
purchase
an
attractive
offer
were
made
to
him
he
would
resell
it,
for
every
person
buying
a
house
for
his
family,
a
painting
for
his
house,
machinery
for
his
business
or
a
building
for
his
factory
would
be
obliged
to
admit,
if
this
person
were
honest
and
if
the
transaction
were
not
based
exclusively
on
a
sentimental
attachment,
that
if
he
were
offered
a
sufficiently
high
price
a
moment
after
the
purchase,
he
would
resell.
Thus,
it
appears
that
the
fact
alone
that
a
person
buying
a
property
with
the
aim
of
using
it
as
capital
could
be
induced
to
resell
it
if
a
sufficiently
high
price
were
offered
to
him,
is
not
sufficient
to
change
an
acquisition
of
capital
into
an
adventure
in
the
nature
of
trade.
In
fact,
this
is
not
what
must
be
understood
by
a
“secondary
intention”
if
one
wants
to
utilize
this
term.
To
give
to
a
transaction
which
involves
the
acquisition
of
capital
the
double
character
of
also
being
at
the
same
time
an
adventure
in
the
nature
of
trade,
the
purchaser
must
have
in
his
mind,
at
the
moment
of
the
purchase,
the
possibility
of
reselling
as
an
operating
motivation
for
the
acquisition;
that
is
to
say
that
he
must
have
had
in
mind
that
upon
a
certain
type
of
circumstances
arising
he
had
hopes
of
being
able
to
resell
it
at
a
profit
instead
of
using
the
thing
purchased
for
purposes
of
capital.
Generally
speaking,
a
decision
that
such
a
motivation
exists
will
have
to
be
based
on
inferences
flowing
from
circumstances
surrounding
the
transaction
rather
than
on
direct
evidence
of
what
the
purchaser
had
in
mind.
The
respondent
company
has
not
established
that
its
sole
intention
at
the
time
of
the
auction
w
as
to
construct
a
multiple
dwelling
housing
project,
but
on
the
contrary
the
evidence
does
establish
that
before
the
auction
the
buyers
did
consider,
as
a
secondary
intention;
the
possibility
of
selling
at
a
profit.
The
sole
intention
of
the
buyers,
being
the
construction
of
a
multiple
dwelling
housing
project,
was
excluded
as
follows:
1.
It
would
be
important
for
the
buyer
of
the
lands
at
the
time
of
the
auction
to
know
the
number
of
permits
which
the
construction
would
include
because
it
was
intended
to
borrow
sufficient
moneys
to
construct
at
the
cost.
of
$10,000
or
$10,500
per
unit
(TAB
p.
28).
The
respondent
company,
as
borrower,
would
want
to
know
that
it
had
sufficient
funds
to
complete
such
construction
which
would
require
knowledge
of
the
number
of
units,
or
Buchanan
and
Benson,
for
the
purpose
of
collecting
the
rentals,
would
want
to
know
the
number
of
units
on
which
they
would
share
a
percentage
of
the
rentals.
Similarly,
the
mortgage
company
would
want
to
know
the
number
of
units
contemplated
so
that
the
mortgage
company
would
know
whether
or
not
it
was
prepared
to
make
the
amount
of
such
advance.
Buchanan,
who
bid
at
the
auction
and
purchased
the
property,
never
did
know
the
number
of
units
but
that
number
varied
in
his
evidence,
from
time
to
time,
from
100
to
120
units
(Exhibit
A22,
p.
25),
approximately
130
units
(Exhibit
A22,
p.
33),
149
units
(Exhibit
A12,
the
Density
Diagram),
120
units
(Exhibit
A8,
Contour
Map),
that
Buchanan
contemplated
living
on
the
rentals
from
115
units
(Exhibit
A26,
memo
May
6,
1966).
Benson
testified
that
there
would
be
75
to
100
units.
The
other
two,
who
are
members
of
the
respondent
company,
gave
no
evidence.
It
seems
impossible
that
either
the
four
buyers
or
the
respondent
company
could
have
intended
to
borrow
at
the
date
of
the
auction
as
they
did
not
know
how
much
would
be
needed
for
the
construction;
that
would
depend
necessarily
on
the
number
of
units.
2.
The
only
meeting
of
the
four
who
intended
buying
was
two
days
before
the
auction,
and
then
for
a
period
of
two
hours
according
to
Benson’s
evidence.
There
was,
therefore,
no
time
in
which
to
prepare
plans
or
to
determine
the
number
of
units
in
the
construction.
3.
Plans
were
later
produced,
but
they
were
first
produced
at
the
expropriation
proceedings
for
the
purpose
of
fixing
the
price
of
the
lands
in
the
Van
Bow
area
(Exhibit
A22,
pp.
5
to
23).
4.
There
could
have
been
no
time
before
the
auction
or
at
any
time
to
determine
if
sufficient
money
could
be
borrowed
to
make
the
construction
of
the
multiple
dwelling
housing
project.
The
mortgagor
would
have
to
know
the
amount
which
he
sought
to
borrow
which
would
require
knowledge
of
the
number
of
units
and
the
cost
per
unit
and
would
also
require
to
have
submitted
to
the
mortgagee
the
specifications
for
the
construction,
such
as
were
produced
for
the
consolidation
(Exhibit
A45).
5.
There
was
no
discussion
between
Buchanan
and
any
official
of
the
Central
Mortgage
and
Housing
Corporation
as
to
the
amount
which
would
be
required
for
construction.
The
evidence
of
Bond
is
accepted
that
at
the
time
of
the
auction,
on
Febru-
ary
6,
1964,
that
Central
Mortgage
and
Housing
Corporation
would
not
lend
on
the
lands
in
the
Van
Bow
area
and
in
any
event
Central
Mortgage
and
Housing
Corporation
did
not
regard
a
loan
to
the
respondent
company
for
the
purpose
of
renting
to
be
a
good
security.
Parker’s
report
(Exhibit
A48)
corroborates
Bond
in
stating
that
the
mortgagees
would
not
lend
upon
the
Van
Bow
area.
No
formal
application
for
a
loan
from
Central
Mortgage
and
Housing
Corporation
to
the
respondent
company
was
put
in
evidence.
Thomson’s
letter
(Exhibit
A9)
stated
that
no
application
for
construction
had
been
made
by
the
respondent
company
as
late
as
the
date
of
that
letter,
which
was
January
6,
1966.
There
is
further
evidence
that
there
was
the
intention
to
resell
the
lots
at
a
profit.
Benson,
who
had
a
quarter
interest,
stated
that
the
value
of
the
lots
was
$60,000
(Exhibit
R8,
p.
10),
and
Buchanan
was
authorized
to
bid
up
to
$25,000.
Therefore,
the
value
must
have
been
considered.
In
the
letter
of
January
17,
1967
(Exhibit
A19),
Sutton,
Braidwood
and
Company,
as
agents
for
the
respondent
company,
stipulated
that
the
transfer
then
delivered
to
Cummings
and
Company,
as
solicitors
for
the
School
Trustees,
would
be
used
only
against
payment
of
the
stated
amount,
that
indicated
a
willingness
to
sell
by
delivery
of
transfer
against
payment
of
the
sum
stipulated.
By
implication
the
conveyance
then
conditionally
delivered,
might
be
used
if
the
purchase
price
were
paid:
that
was
a
sale
and
confirms
the
view
that
resale
at
a
profit
was
agreed
upon
as
one
of
the
purposes
of
buying.
When
the
School
Trustees
had
paid
the
amount
of
the
purchase
price,
the
respondent
company
went
into
voluntary
liquidation
which
would
require
the
consent
of
the
majority
of
the
shareholders
and
there
was
paid
out
to
the
shareholders
their
respective
shares
of
the
profits
realized
from
the
sale
of
the
land.
Further,
the
liquidator
appointed
under
the
voluntary
liquidation
could
only
sell
at
the
price
to
be
obtained
on
the
market
the
three
parcels
which
remained
to
the
respondent
company
in
the
Van
Bow
area.
The
order
of
Verchere,
J.
(Exhibit
A47)
did
restore
the
company,
but
under
the
circumstances
of
the
expropriation,
the
restoring
of
the
company
would
permit
the
company
to
borrow
only
on
the
consolidated
parcel
then
held
by
the
company.
There
is
no
evidence
that
the
company
did
use
the
purchase
price
paid
for
the
lots
expropriated
as
a
basis
for
purchasing
other
property
on
which
to
be
constructed
a
multiple
dwelling
housing
project.
It
therefore
follows
that
the
evidence
is
rather
consistent
with
purchasing
with
a
view
to
sale
at
an
appropriate
price
and
that
the
profit
was
made
on
the
operation
of
a
business.
Californian
Copper
Syndicate
v.
Harris
(supra)
;
Campbell
v.
M.N.R.
(supra);
Tougas
v.
M.N.R.
{supra).
The
profits
were
realized
under
a
business
within
Section
139(1)
(e)
of
the
Income
Tax
Act
(M.N.R.
v.
J.
A.
Taylor
(supra))
and
within
Sections
3
and
4
of
the
Income
Tax
Act,
as
the
company
had
the
assistance
of
Buchanan
and
Benson
who
were
real
estate
agents
familiar
with
purchasing,
building
and
the
rental
of
units
in
multiple
dwelling
housing
projects.
The
respondent
company
also
contends
that
as
its
fiscal
year
ended
on
September
30,
1966,
therefore
the
amount
of
profit
was
not
settled
until
the
motion
by
way
of
appeal
was
dismissed,
that
is
on
November
28,
1966,
by
order
of
Verchere,
J.
(Exhibit
A18).
On
the
contrary
the
award
of
the
arbitrator
determines
the
amount
of
compensation
to
be
paid
for
the
land
and
improvements
expropriated,
Section
174(4)
of
the
Public
Schools
Act,
R.S.B.C.
1960,
c.
319,
and
the
award
is
title
to
the
land,
Section
174(14).
In
Lechter
v.
M.N.R.,
[1964]
C.T.C.
510,
Dumoulin,
J.
stated
at
page
516
:
The
relevant
taxation
year
must
coincide
with
that
during
which
a
debt
or
an
obligation
to
pay,
legally
enforceable,
originated
between
respondent
and
appellant.
.
.
.
The
respondent
appears
to
confuse
two
completely
different
components
of
all
transactions:
the
creation
of
a
debt
receivable
and
a
payment
ultimately
received.
and
in
the
Supreme
Court
of
Canada
([1966]
C.T.C.
434)
Abbott,
J.
stated
(at
438)
:
It
follows,
that
respondent,
operating
on
an
accrual
basis,
was
bound
to
treat
the
profit
of
$234,506.51
on
the
disposition
of
part
of
lot
507,
as
having
been
earned
prior
to
January
31,
1955,
and
that
it
was
not
taxable
income
in
his
taxation
year
ending
January
31,
1956.
In
the
case
at
bar,
the
notice
of
expropriation
and
the
finding
of
the
arbitrators
on
September
22,
1966
(Exhibit
A17)
created
the
liability
and
was
properly
assessed
to
income
in
the
year
1966,
under
Section
85B(1)
(b).
Benaby
Realties
Limited
v.
M.N.R.,
[1965]
C.T.C.
273,
is
distinguishable
on
the
facts
as
there
the
property
was
bought
as
an
investment
and
the
secondary
intention
was
found
against.
Noël,
J.
at
pages
278
and
279
stated:
The
sole
issue,
as
far
as
these
profits
are
concerned,
is
whether
the
lands
in
question
were
acquired
for
the
purpose
of
resale
at
a
profit.
The
only
evidence
adduced
by
the
appellant
with
reference
to
that
question
is
the
evidence
of
the
person
who
was
presi-
dent
of
the
appellant
at
the
time
of
the
trial
and
who,
according
to
his
own
evidence,
had
no
personal
knowledge
of
what
was
in
the
mind
of
those
who
were
guiding
the
fortunes
of
the
company
at
the
time
that
the
land
was
purchased.
The
relevant
part
of
his
evidence
reads
as
follows
(p.
97
of
transcript)
:
.
.
.
In
my
opinion,
this
evidence
is
not
sufficient
to
rebut
the
obvious
inference
from
all
the
circumstances
that
at
least
one
of
the
motivating
reasons
for
the
appellant
to
acquire
the
vacant
land
in
question
was
its
hope
and
expectation
that
it
would
be
able
to
dispose
of
it
at
a
profit.
If
that
was
one
of
the
motivating
reasons,
profits
made
upon
subsequent
disposition
of
the
property
are
taxable
in
accordance
with
Regal
Heights
Ltd.
v.
M.N.R.,
[1960]
S.C.R.
902;
[1960]
C.T.C.
384.
It
also
follows,
as
decided
in
Byron
B.
Kennedy
v.
M.N.R.,
[1952]
Ex.
C.R.
258;
[1952]
C.T.C.
59,
that
a
profit
real-
ized
upon
the
expropriation
of
properties
so
acquired
is
taxable.
(An
appeal
to
the
Supreme
Court
of
Canada
from
this
decision
was
dismissed
without
reasons.
Cf.
viii
of
[1953]
1
S.C.R.)
.
.
.
Having
regard
to
the
principle
laid
down
by
the
House
of
Lords
in
C.I.R.
v.
Newcastle
Breweries
Limited
(1925),
12
T.C.
927,
and
Section
85B(l)(b)
of
the
Income
Tax
Act
which
sets
down
that
for
taxpayers
keeping
accounts
on
an
accrual
basis
(which
is
the
case
of
the
present
appellant)
every
amount
receivable
in
respect
of
property
sold
or
services
rendered
in
the
course
of
the
business
in
the
year
must
be
included
in
computing
their
income,
I
am
of
opinion
that,
if
the
issue
that
the
assessment
had
been
made
in
the
wrong
year
had
been
properly
raised,
the
appellant
would
be
entitled
to
succeed
with
regard
thereto.
In
Ben
Lechter
v.
M.N.R.,
[1964]
C.T.C.
510,
my
brother
Dumoulin
rendered
a
decision
to
the
effect
that
a
profit
from
an
expropriation
under
the
Expropriation
Act
(R.S.C.
1952,
c.
106)
for
a
taxpayer
who
is
on
an
accrual
basis
is
taxable
in
the
year
in
which
the
expropriation
took
place
and
not
in
the
year
in
which
the
compensation
was
received
on
the
basis
that
“the
relevant
taxation
year
must
coincide
with
that
during
which
a
debt
or
an
obligation
to
pay
legally
enforceable
originated
between
respondent
and
appellant”
as
a
result
of
Section
9
of
the
Expropriation
Act
whereby
the
land
covered
by
the
notice
of
expropriation
is
expressly
vested
in
Her
Majesty
from
the
day
a
plan
and
description
are
deposited
on
record
in
the
Registration
office
and
the
expropriated
party,
because
of
such
deposit
and
in
view
of
Section
23
of
the
Expropriation
Act,
loses
the
ownership
of
the
land
so
expropriated
which
passes
to
the
Crown,
and
is
then
left
with
a
claim
to
whatever
compensation
money
is
agreed
upon
or
is
adjudged.
and
in
the
Supreme
Court
of
Canada
([1967]
C.T.C.
418)
Judson,
J.
(at
421)
stated:
My
opinion
is
that
the
Canadian
Income
Tax
Act
required
that
profits
be
taken
into
account
or
assessed
in
the
year
in
which
the
amount
is
ascertained.
In
Vaughan
Construction
Company
Limited
v.
M.N.R.,
[1968]
C.T.C.
165,
Thurlow,
J.
at
page
171
stated:
Finally
the
property
was
dealt
with
by
the
appellant
company
in
the
same
way
that
a
speculative
dealer
in
land
might
be
expected
to
deal
with
it;
acquiring
it,
holding
it
for
a
comparatively
short
time,
during
which
it
served
no
purpose
in
the
appellant
company’s
hands,
until
an
interested
party
came
along
and
then
making
it
the
subject
of
a
profitable
trade
for
a
substantial
sum
in
cash
and
another
valuable
and
readily
saleable
piece
of
property.
Both
of
the
positive
guides
enunciated
by
the
former
President
of
this
Court
in
Taylor
v.
M.N.R.,
[1956-60]
Ex.
C.R.
3;
[1956]
C.T.C.
189,
which
were
cited
with
approval
by
the
Supreme
Court
of
Canada
in
Irrigation
Industries
Limited
v.
M.N.R.,
[1962]
S.C.R.
346;
[1962]
C.T.C.
215,
thus
indicate
that
the
transaction
from
which
the
profit
here
in
question
arose
was
an
adventure
in
the
nature
of
trade
in
addition
to
which
the
intention
of
Mr.
Vaughan
in
acquiring
an
interest
in
the
property
and
of
his
company
in
acquiring
the
property
itself
serve
to
confirm
this
conclusion.
The
appeal
in
respect
of
the
1954
re-assessment
accordingly
fails.
and
at
page
172
stated:
I
turn
now
to
the
contention
that
in
any
event
profit
from
the
Bellevue
property
was
not
realized
in
the
appellant
company’s
1957
taxation
year.
In
the
appellant
company’s
reply
this
point
was
based
on
the
contention
that
the
year
in
which
the
profit
must
be
taken
to
have
been
realized
was
the
year
in
which
the
expropriation
occurred,
that
is
to
say,
1955,
but
in
argument
the
point
was
based
on
the
contention
that
the
compensation
to
be
paid
to
the
appellant
company,
whose
financial
statements
were
compiled
on
an
accrual
basis,
was
not
ascertained
in
the
1957
year
since
the
company’s
entitlement
to
compensation
for
the
property
was
not
finally
determined
until
1961
when
the
judgment
of
the
Supreme
Court
of
Canada
was
rendered.
The
contention
was
based
on
the
judgment
of
that
Court
in
M.N.R.
v.
Benaby
Realties
Limited,
[1967]
C.T.C.
418,
which
was
rendered
after
the
filing
of
the
appellant
company’s
reply.
In
the
Supreme
Court
of
Canada
([1970]
C.T.C.
350)
Laskin,
J.
(at
3855)
stated:
The
appellant
ordered
its
financial
affairs
on
an
accrual
basis,
and
its
argument
in
sum
was
that
whatever
be
the
proper
year
to
assess
to
tax
the
gain
reflected
in
the
receipt
of
$96,415.27
(be
it
1955,
when
the
expropriation
occurred,
or
1956,
when
the
total
compensation
was
assessed,
or
1961,
when
the
final
apportionment
was
made
by
this
Court,
or
1962,
when
the
order
of
this
Court
was
entered),
it
was
not
1957.
The
significance
of
the
matter
lies
in
the
fact
that
the
Minister,
in
addition
to
re-assessing
for
the
1957
taxation
year,
re-assessed
for
the
1961
taxation
year
by
adding
as
income
the
sum
of
$86,140
as
being
the
balance
of
the
profit
realized
on
the
expropriation.
Both
of
the
re-assessments
were
made
after
the
judgment
of
this
Court
on
the
apportionment
of
the
compensation
was
settled
and
entered.
Applying
the
principle
of
M.N.R.
v.
Benaby
Realties
Ltd.,
[1968]
S.C.R.
12;
[1967]
C.T.C.
418,
to
the
different
facts
in
the
present
case,
I
am
of
the
opinion
that
no
amount
of
the
compensation
became
receivable
until
the
order
of
Judge
Pottier
of
June
4,
1957.
What
was
then
directed
to
be
paid
(and
which
was
in
fact
paid
in
that
year)
was,
so
far
as
it
represented
in
any
portion
thereof
a
gain
arising
out
of
the
appellant’s
business,
properly
assessable
to
tax
in
1957.
Since
the
sum
in
question
remained
undisturbed
in
the
final
disposition
by
this
Court
in
1961,
I
need
not
be
concerned
with
a
situation
where
there
was
such
a
variation
as
to
reduce
what
had
been
ordered
to
be
paid
in
1957.
The
1961
re-assessment
is
not
before
this
Court,
and
I
say
nothing
about
it.
I
would
dismiss
the
appeal
with
costs.
In
the
Vaughan
Construction
case
(supra)
Judge
Pottier
(referred
to
by
Laskin,
J.
at
page
355)
was
the
arbitrator
and
the
appeals
from
his
judgment
were
unsuccessful.
In
the
present
case,
the
finding
of
the
arbitrators
was
on
September
22,
1966
(Exhibit
A17)
and
within
the
taxation
year
of
the
respondent
company.
The
unsuccessful
appeal
to
Verchere,
J.
does
not
extend
the
date
when
the
moneys
are
receivable.
The
following
cases
depend
upon
their
particular
facts
and
therefore
are
distinguishable
on
the
facts.
There
is
no
departure
from
the
common
principle.
Normac
Investments
Ltd.
v.
M.N.R.,
[1969]
C.T.C.
468;
[1970]
C.T.C.
325
(Can.
8.C.);
Bestpipe
Limited
v.
M.N.R.,
[1970]
C.T.C.
310;
Balstone
Farms
Ltd.
v.
M.N.R.,
[1966]
C.T.C.
738;
M.N.R.
v.
Valclair
Investment
Company
Limited,
[1964]
C.T.C.
22.
It
therefore
follows
that
the
profit
was
realized
:
(a)
through
purchase
with
intention
to
resell
at
a
profit;
and
(b)
through
the
employment
of
Buchanan
Benson
Company
Ltd.,
real
estate
agents;
and
(c)
the
expropriation
which
was,
in
effect,
a
sale
of
the
property.
The
profit
was
receivable
in
the
course
of
the
business
within
Section
85B(l)(b)
during
the
year
1966.
Therefore
the
assessment
by
the
Minister
should
be
restored.
The
respondent
company
has
also
contended
that
there
should
be
a
reserve
set
up
under
Section
85B(l)(d).
Subsection
(d)
does
not
apply
in
that
the
property
sold
was
land
and
no
part
of
the
purchase
price
was
made
receivable
after
the
end
of
the
taxation
year,
that
is
after
September
30,
1966,
by
reason
that
the
amount
was
payable
at
the
time
of
the
award
of
the
arbitrators,
namely,
on
September
22,
1966
(Exhibit
A17).
It
therefore
follows:
(a)
that
the
profit
was
properly
assessed
as
income
of
the
respondent
company
in
the
year
1966;
and
(b)
that
the
assessment
of
the
Minister
is
within
the
statute.
The
appeal
of
the
Minister
is
therefore
allowed
with
costs
payable
by
the
respondent
company
throughout.
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