Rudolph P. Cohen, Liquidator or G.M.G. Building Corporation Limited(in Voluntary Liquidation) v. Minister of National Revenue, [1970] CTC 386, 70 DTC 6244

GIBSON, J.:—This is an appeal from a re-assessment for the taxation year 1964 by which the respondent added to the income of the appellant the amount of $16,734.84, described in the form T7W-C accompanying the re-assessment as profit on the sale of 2.021 acres of land’’; and from a re-assessment for the taxation year 1967 by which the respondent added to the income of the appellant the amount of $12,151.50 described in the form T7W-C accompanying the re-assessment as follows :

The subject transactions arising out of which a profit was made which prompted the respondent to make these two re-assessments were the purchase of a parcel of industrial land in Toronto in April 1962 and the subsequent resale of it in two parcels, one in October 1963 and the other in July 1966.

In 1949 three men, Maximilian Gottlieb, Walter Weihs and Walter Kohn, all of whom had immigrated to Canada from Vienna, Austria during or after World War II and who for some years had been employed in a shoe manufacturing plant in Toronto, became associated in partnership in a shoe manufacturing business. Later they caused the business to be incorporated under the name of Alpha Shoe Manufacturing Co. Limited (hereinafter sometimes referred to as Alfa’’).

In 1962 Alpha was operating in leased premises at 53 Fraser Street, Toronto (which is located in an old industrial area). These premises were just. off King Street near Dufferin Street. Then, Alpha had about a hundred employees and was prospering. Then, the premises were inadequate for the business that was being done. As a consequence, the shareholders in Alpha, these three men, commenced to look for new premises. Such new premises sought for their type of operation had to be in an industrial area but, also near a residential area, because most of their employees were in a wage group which could not afford substantial transportation costs each day. They found such a parcel of industrial land in 1962, consisting of 3.913 of land fronting on the south side of Alliance Avenue near Rockcliffe Boulevard in the Township of York in the County of York. The vendor of this parcel of land would only sell the whole parcel. The requirement of Alpha was only for a parcel of land about half that size, namely, about two acres. Accordingly, the whole of this property was purchased on May 17, 1962 for $63,288.95.

The property was purchased from Toronto Industrial Leaseholds Limited and title was taken in the name of a new corporation incorporated by letters patent under the Ontario Corporations Act by the name of G.M.G. Building Corporation Limited. The purpose for the incorporation of this company was to permit it to acquire this parcel of land and build a factory on it.

These three men caused (through loans to them) their respective wives to be the owners of all the shares in G.M.G. Building Corporation Limited.

The portion of the purchased land excess to the requirements of this corporation was sold in November 1963 to one Louis David Craig and the net proceeds from such sale was $50,528.70.

On October 23, 1965 Walter Weihs committed suicide. He was the younger of the three men who operated Alpha and he in the main was the driving force, so to speak, who convinced the other two men to go along and as a result caused G.M.G. Building Corporation Limited to be incorporated and to acquire the said parcel of land.

He was the production manager at the shoe factory and the person who attended to all the details in respect to this proposed new factory. At the time of his death, he was 44 years of age.

At that time also, the profits of Alpha had substantially lessened from what had obtained for some years prior.

From the time of acquisition in 1962 until the death of Walter Weihs some preliminary work had been done by him, in the main, with the concurrence of the other two men, with a view to establishing this new factory. Some preliminary drawings had been obtained, some estimates of costs of building and equipment had been obtained, but the evidence is, according to Mr. Gottlieb, that the substantial records evidencing this were those of Mr. Walter Weihs and were not available. In any event, from a a general view of the evidence, it is apparent that most of these arrangements were done, and records made and kept of same, as might be expected in an organization of this kind, on an informal basis.

After the death of Walter Weihs his widow was entitled to obtain a liquidation of his estate’s share in the shoe business by reason of an agreement among the shareholders (see page 10 and following of Exhibit 1) ; and she also wished to liquidate the interest of his estate in G.M.G. Building Corporation Limited. The two remaining shareholders of Alpha, Mr. Gottlieb and Mr. Kohn, accordingly took steps to accomplish both these things for the widow of Walter Weihs. They also decided to abandon any idea of causing a shoe factory to be built on the remaining parcel of land originally purchased in 1962. Their decision to abandon was made for several reasons, among them, the absence of Walter Weihs, the requirement to liquidate the said two interests of his estate for the widow, and a general decline (during the general period these said two events occurred) in the net profit of Alfa.

In consequence, this remaining parcel of land was sold to Artiss Industrial Developments in July 1966 for $84,643. Part of the purchase price was a first mortgage back to G.M.G. Building Corporation Limited in the sum of $65,000.

Considering the whole of the evidence, the decision of fact I make in this case is that G.M.G. Building Corporation Limited was not in the business of buying and selling land and did not purchase the subject land for resale at a profit.

The sale of the first parcel of this land to Craig of approximately one-half of the purchased. parcel, was a sale of the part that was excess to G.M.G. Building Corporation Limited’s requirements and constituted a recouping of part of the capital cost of the acquisition of this asset and therefore was not part of a transaction that should be characterized as an adventure in the nature of trade.

As to the remaining part, in my view at all material times, there was a bona fide intention on the part of G.M.G. Building Corporation Limited through these three men and, through them, their wives, to build a shoe factory on the site and to cause G.M.G. Building Corporation Limited to rent it to Alpha Shoe Manufacturing Co. Limited. The most critical fact in this case which caused this intention to be changed was the suicide of Walter Weihs. This caused the whole program to be changed for the other two men.

While in this case there are only some of the indicia that often obtain in cases of this character, nevertheless, from a view of the whole of the evidence and a proper weighing of it, such in my view is the correct conclusion.

In the result, therefore, the profits of $16,734.84 and $52,360.50 in 1964 and 1967 respectively, did not constitute and result from an adventure in the nature of trade within the meaning of Section 139(1) (e) of the Income Tax Act, so that the profits realized by the appellant in the sales of these said lands were not income from a business of the appellant within the meaning of Sections 3 and 4 of the said Act.

The appeal is allowed with costs and the matter is referred back to the respondent for re-assessment not inconsistent with these Reasons.