Elgin Cooper Realties Ltd. v. Minister of National Revenue, [1969] CTC 426, 69 DTC 5276

JACKETT, P.:—This is an appeal from the appellant’s assessment under Part I of the Income Tax Act for its 1962 taxation year. The sole question to be decided is whether a profit of $78,403.37 realized by the appellant on the sale of a property in Ottawa, known as the Westbury Apartments, was a profit from a business” within the meaning of that word as extended by Section 139(1) (e) of the Act.

The appellant is a company all the shares of which belonged to the children of one J. Harold Shenkman or to another company, Shenkman Properties Limited, the shares of which all belonged to Mr. Shenkman. Four present purposes, it is common ground that the appellant was controlled by Mr. Shenkman and that the appellant’s decisions and intention are the decisions and intention that Mr. Shenkman had for the appellant.

The main facts may be summarized as follows:

1. On August 1, 1958, Mr. Shenkman bought the property known as 141 Cooper i in the name of Shenkman Properties ts. Limited.

2, The appellant was incorporated April 1, 1959.

3. Between December 1958 and the end of 1960, an apartment building was built for the appellant on the property at 141 Cooper, which building was named the Westbury Apartments”.

4. When the Westbury Apartments was completed, and after the apartments had been let to tenants, the appellant started to look for a purchaser for it.

5. On May 11, 1961, after negotiations that took some time, the appellant sold the Westbury Apartments, realizing the profit that is in issue.

On those facts, if they were left without explanation, it would be a fair inference that one reason, if not the sole reason, that motivated the appellant in deciding to build the Westbury Apartments, was its expectation that it could turn it over as a going concern at a profit. If the appellant had, in fact, built the Westbury with such an object in mind, the profit realized from its sale would, in my opinion, have been a profit from an adventure in the nature of trade and, therefore, a profit from a business within the meaning of that word as used in the Income Tax Act.

The conclusion that the profit in question was a profit from a venture in the nature of trade would be strengthened by the fact that the appellant, after selling the Westbury Apartments, bought two properties on McKay Street and re-sold them in 1969 in the state in which it bought them at a profit,* [1] and the further fact that at some other time it acquired a somewhat speculative interest in a company holding land at Kanata, which it subsequently disposed of.

At the hearing of the appeal, Mr. Shenkman gave detailed evidence concerning his activities in connection with real estate in the Ottawa area (such activities being in part in his own name and in part in the name of companies that he controlled) and concerning the construction of the Westbury Apartments, and his reason for selling it. I observed Mr. Shenkman with: care during the whole of his testimony, including that given under searching cross-examination, and I am of opinion that he gave his evidence in a frank and candid way. I accept the substance of his evidence as being truthful and I am of opinion that any discrepancies in point of detail were of the kind that are to be found in the ordinary course when a person is attempting to recall details of what has happened over a substantial period.

Mr. Shenkman, who is now 58 years og age, has been, since his youth, the owner of apartment properties, industrial properties and other real estate, which he has managed for a rental income. In addition, he has acquired many properties for development or speculative purposes. It is common ground that, while many acquisitions of the latter class have resulted, or will result, in profits that are profits from ventures in the nature of trade, the dispositions of apartment blocks or industrial properties that he acquired and held for rental purposes would properly be regarded as changes in, income producing investments even if such dispositions resulted in profits.

The general description of Mr. Shenkman’s activities in connection with real estate, which were explored in considerable detail, is relevant background against which to consider his testimony concerning the Westbury Apartments affair.

Mr. Shenkman’s idea in embarking on the Westbury Apartments project was to build an apartment building, to own it and to manage it as he had done in connection with many other apartment buildings over the years. (In particular, he had in mind creating an income producing property for his children, but I do not think that this is material to the question in issue in this appeal.)

To carry out his idea, Mr. Shenkman sought the aid of an architect who, he thought, would be able to create for him the most modern and advanced apartment building in Ottawa. Under advice, he also decided to adopt a then relatively untried method of construction. As things worked out, however, the project did not go well. From the beginning problems arose out of the structure being out of plumb. Engineering defects occurred and had to be corrected. Some of the cement work was frozen before it set. Much of the complicated electric installations were flooded after they were installed. Subcontractors did not properly protect the plumbing installations from damage during completion of the work. The new type of construction gave rise to special problems in the heating of apartments. Everything was repaired so that it worked satisfactorily but, in Mr. Shenkman’s mind, the result was not what he had planned. Some defects had to be accepted because they could not be corrected at a. reasonable cost and he did not have confidence that the structure or tthe electric installations would stand up over the years in the way that they would have done if they had not had to be repaired and restored as a result of the various things that had happened. Conse- quently, he decided to dispose of the project. Whether or not Mr. Shenkman was justified in his apprehensions about the building, I accept his evidence that they caused him to alter his original intention to keep the property and manage it as an income producing property.

Having reached that conclusion, it follows that, in my view, the sale of the Westbury Apartments was the sale of a property acquired for revenue producing purposes and was not a sale in the course of a venture in the nature of trade.

The appeal will be allowed and the appellent’s assessment for its 1962 taxation year will be referred back to the respondent for re-assessment on the basis that the profit of $78,403.37 arising out of the sale of the Westbury Apartments was not a profit from a business. The appellant will be entitled to be paid by the respondent its costs of the appeal which, by consent, will be fixed at $1,000, which amount will include disbursements.