The Chairman (orally: May 13, 1975):
1 This is an appeal by Hugo Deuschle against reassessments of the Minister of National Revenue for the 1969, 1970 and 1971 taxation years.
2 The case is one of those that fall under the trading case heading and involves several transactions in the City of Penticton commencing in or about 1969.
3 The appellant immigrated to this country and settled in the Alberta area where he was obliged, as a term of his entering the country, to work off his fare, paid by the Lutheran Church, on a farm. He did this in some nine months, then became a carpenter, and is a man of obvious industry, foresight and ability.
4 In 1964 he visited Penticton and found it to be very much like the Black Forest area of Germany from which he had emigrated, and decided, after discussions with local people, that there was a future in Penticton in the motel business.
5 In 1966 he entered into a contract to purchase a site upon which a hotel or motel was subsequently built. He returned to Alberta, where he finished the construction of a house, and the sale of some land plus the newly- constructed house gave him sufficient cash to complete the Penticton transaction and to build the Empire Motel, as well as to pay for another lot upon which he subsequently built the Townley Apartments. He started the Empire Motel in 1966 or 1967, and built it either himself or through a construction company which he held as a proprietorship, either sole or with his brother for a period. In December of 1968, he sold the Empire Motel at a substantial profit and in the latter half of 1968 he had also started construction on the Townley Apartments, which were completed in 1969. I think this was an eight-unit suite that was sold in 1970, again at a substantial profit. He then purchased another motel and again sold it after a short period of time, and took as part of the purchase price another motel, the Quadra, which had a house behind it. He did nothing to enlarge the Quadra Motel, which had only eight or nine units, because he decided the house at the rear was worth more standing than it would be if he tore it down and constructed a swimming pool in its place. In 1970, which was perhaps prior to his acquisition of the Quadra, as all of this happened in a rather short span of time, he had, with a man by the name of Francis, purchased three and a half acres of land, subdivided about a quarter of it and constructed the Telstar Motor Inn. However, even before the motel was opened, which I think was in May of 1970, the “partnership” with Francis in Telstar Motor Inn Ltd had proven to be a failure and he purchased Francis's shares for some $40,000, payable in monthly instalments of some $400. He then said that he found the payments on the money he had borrowed from the bank plus the payments to Francis were too much for him to carry, and this situation, as well as the fact that his family was not able to live in the hotel with him, led him to sell the Telstar, again at a substantial profit, after only three months of operation. Then in 1971 he also acquired the Tradewind Edgewater Motor Hotel, and my recollection is that he paid $75,000 for it with $10,000 down, but it did not prove to be a successful operation and it too was sold.
6 I should say that, in all these transactions, the only evidence of a loss was in connection with the sale of the Quadra Motel, I believe it was, where he lost some $130, approximately.
7 The appellant has given evidence, has stated under oath, that his sole intention was to build the Empire Motel and the Townley Apartments for long-term investment, and that, in effect, his intention was frustrated by the fact that the Empire was too small and he was unable to purchase the land next door because it was part of an estate in which all the beneficiaries were not amenable to selling.
8 It is urged upon me by counsel for the appellant that I should accept this evidence of intention because the Crown has not seen fit to adduce any evidence to refute the intention alleged by the appellant and the appellant is supported by two character witnesses who have given evidence to the effect that he is a man of integrity and one to be believed.
9 In all these cases, it is very difficult to know what the intention is, because one cannot get into the mind of the witness and one must apply his evidence to the facts that are adduced before the Board in order to determine if there is some extraneous corroboration for the alleged intent.
10 There is no question in my mind that a witness such as this appellant is telling the truth as he sees it, and there is no attempt by the appellants in any of these cases, really, to try to mislead the Board or the Court. I am certain that some four or five years after the event there is no doubt whatsoever in an appellant's mind that his intention at the time of the purchase was as he is describing it today. However, one must, as I say, look at what was done, draw what inferences one can from that evidence, and then see whether, in the result, it supports the testimony of the appellant. I think it is fair to say that it is almost impossible for the Crown to call witnesses to prove otherwise, because they are in no better position than the person deciding such a case to know what the intention of any appellant in a trading case was at the material time.
11 On all the evidence, I cannot accept the intention of investment as alleged by the appellant herein, as there is just too much coincidence and too many transfers of units of a similar type to allow me to come to the conclusion that Mr Deuschle was a serious investor on a long-term basis in these units that he built. On his own testimony, he knew that ten- or twelve-unit motels were not profitable. Yet he ended up buying motels with less than that number of units. He was the proprietor of a construction company that was building ten to twelve houses on the side and turning a substantial profit. I think that the man was experienced and very well aware of the fact that the building of these hotels, motels or apartments would leave him in a position to sell them, because it is obvious from the evidence that he never had any difficulty in selling them. As I say, in the case of Telstar it was only a matter of three months from the time he was able to rent the first unit until he sold the entire enterprise at a substantial profit. I think, on all the evidence, I must come to the conclusion that there was not only a secondary intention as described by Noël, J, now the Associate Chief Justice of the Federal Court, in the case of Paul Racine et al v Minister of National Revenue, [1965] 2 Ex. C.R. 338, [1965] C.T.C. 150, 65 D.T.C. 5098, but also a primary intention to sell, and that this appellant was engaged actively in building and selling motels and apartment buildings. I therefore cannot find that he has discharged the onus cast upon him by the Act and the appeal must be dismissed.
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