The Assistant Chairman:
1 This is the appeal of Crusado Estates Limited from an income tax assessment in respect of the 1971 taxation year.
2 By notice of reassessment dated October 6, 1972, the Minister added to the appellant's 1971 income an amount of $153,182.88 (subject to a reserve under subsection 85(6) of the Income Tax Act) considered by the Minister to be profit realized by the appellant from the sale of land, but considered by the appellant to be a non-taxable capital gain. The appellant objected to the Minister's assessment on December 22, 1972, and filed an appeal on February 18, 1974, after the assessment had been confirmed by the Minister on November 22, 1973.
3 From evidence adduced, the appellant company was incorporated for the purpose of purchasing and developing an 84-acre tract of land known as the Fisher-Hoover property and situated at the intersection of the Queen Elizabeth Way and Guelph Line in the Town of Burlington, Ontario. The principal shareholders of the company were Mr Henry H Young and Mr Albert H Ward.
4 Mr Henry Young's principal occupation was that of a developer and builder. He acquired raw land, subdivided the property, installed services, sold the serviced lots, and/or built residential houses for resale.
5 Mr Hemingway, manager of the King and Wentworth Branch of the Toronto- Dominion Bank in Hamilton, who has been with the Toronto-Dominion Bank for some 46 years, testified that he knew Mr Young as a land developer. Because of his own long experience and interest in the development of land in the area, the witness had often been consulted by Mr Young on land development projects and, through the bank, had often granted him the necessary finances for land development. However, Mr Hemingway stated that he would not have authorized the loans had Mr Young been a land speculator.
6 The fact that Mr Young was in the business of acquiring and developing land was also confirmed by the nature of the projects which he had engaged in over the years such as the Cardinal Heights project, the Ellensford Garden project, the Southley Township project, the Stoney Creek project, and the Mount Albion Road project, developments which were carried out by various companies in which Mr Young was a shareholder and which entailed the acquisition and servicing of land, followed by the sale of the serviced land or the building of single family dwellings thereon for resale. I am therefore satisfied from the evidence that Mr H Young was and is a land developer and that the appellant company was engaged in the acquisition and development of land for resale.
7 Since 1965 Mr Young had been interested in the acquisition of the Fisher- Hoover property in question in this appeal, and had made inquiries as to the possibility of acquiring it. On October 7, 1969, Mr Young, as trustee for the company to be incorporated, made an offer to Mr William Fisher and Mr Edward Hoover, to purchase the said property for $840,000, and the offer was accepted by them on October 10, 1969 (Exhibit A-11). Since the evidence was not very clear with regard to the company to be incorporated, it is assumed that the offer was made by Mr Young as trustee for the appellant company and that the property was duly conveyed to the appellant.
8 Mr Peter Lush, a real estate broker and chairman of Peter G Lush & Associates Limited, a firm which offered full real estate services to land developers, testified that, on hearing that the Fisher-Hoover property had been acquired by the appellant company, he offered Mr Young and Mr Ward the services of his company, and the offer was accepted. Although Mr Young's and Mr Ward's original concept seems to have been the servicing of the Fisher- Hoover land and the building of residential housing thereon for resale, Mr Lush suggested that the best use of the land in question would be a “mixed-use” development comprising a commercial complex which would include a hotel, a motel with convention facilities, retail outlets, a service centre, an apartment hotel, a low-intensity residential area, and possibly also an industrial area.
9 The Fisher-Hoover property was at that time zoned as agricultural land but, in the autumn of 1969, a new by-law was to be introduced, and it was contemplated therein that the subject property would be zoned industrial.
10 As part of its services, Peter G Lush & Associates Limited objected to the proposed municipal zoning of the Fisher-Hoover property and, hoping to enter into a dialogue on the question, unofficially filed a preliminary and preparatory block plan of the commercial complex proposed for the land in question, with a view to having the ultimate zoning changed to commercial instead of industrial.
11 I am satisfied from the evidence (Exhibits A-1 to A-9) that some effort was indeed made to have the zoning changed to commercial and that some preliminary work was done to interest participants in the proposed project.
12 An approach was made to Mr William Stevenson, a business associate of a Mr Rubinoff, who, as I understand it, is with the Holiday Inn chain of hotel- motels, a chain which Mr Lush was hoping would agree to be part of the commercial complex. Mr Stevenson visited the property, and although the Holiday Inn people were not interested in participating in the project, Mr Stevenson asked whether the appellant company would be willing to sell the entire property for development by someone else. Messrs Ward and Young were non-committal but they did not make an outright refusal to sell.
13 As a result, Mr Lush presented to Messrs Ward and Young an offer from Interchange Hotels Limited to purchase the property (Exhibit A-10). The offer was duly considered by the appellant company's shareholders. At the time, the appellant had to meet certain financial commitments in respect of the terms of the purchase contract for the Fisher-Hoover property, and although some verbal assurance had been given to Messrs Young and Ward that the property would eventually be zoned commercial, there was no assurance as to when the new zoning by-law would in fact come into effect. The appellant did not have the necessary financial means to wait indefinitely before carrying out the project. After making a counter-offer, demanding an increased purchase price, the appellant sold the property to Interchange Hotels Limited on January 20, 1970, for $1,580,125, realizing thereby a profit of $153,182.88, the amount in issue in this appeal.
14 On examining the facts, I am of the opinion that the appellant acquired the Fisher-Hoover property, as he had acquired other properties, for the purpose of developing and selling it. I believe that the appellant attempted to develop the land as a multi-use complex but was unsuccessful or frustrated in its efforts to do so. I do not believe that the appellant had any intention other than to develop the land. Furthermore, I am satisfied that the land was not listed with real estate brokers and that the sale came about as the result of an unsolicited offer. However, it is also clear from the evidence that at no time did the appellant intend, nor is it alleged that the appellant ever intended, to enter into a long-term investment in any part of the acquired land.
15 We are therefore confronted with a taxpayer which was strictly a land developer and acted as such. Counsel for the appellant made a point of establishing that the appellant was a land developer and not a land speculator. In my view, the difference between the two is not substantive. The land speculator's business is the acquisition of raw land for resale. The land developer's business is to acquire raw land, to service it, and to build on at least part of it, all for the purpose of resale. What the land speculator and the land developer have in common is that there is no long- term investment involved in the acquisition of the land. The serviced land and any buildings erected thereon are for resale on a short-term basis, and there is an element of speculation in both instances.
16 As I see it, the whole purpose of the appellant's business as a land developer is the acquisition and resale of land in one form or another on a short-term basis. Whether or not the land has been serviced and whether or not houses were built on the land and offered for sale to the general public, does not change the nature of the appellant's business.
17 Raw land, serviced land, or land on which houses were built for resale can, in my view, be compared with a commodity for sale in a supermarket, and are part of the appellant's stock-in-trade; their disposition can only give rise to income as part of the appellant's day-to-day business.
18 The rhetorical question asked by counsel for the respondent is, in my view pertinent: ‘How indeed can the profit on the disposition of land by a developer whose business, geared on a short-term basis, is the acquisition, development and sale of land, be considered as a capital gain when the land is an important part of his stock-in-trade and an integral part of the operation of his business?”
19 In support of his contention that the profit made by the appellant in the sale of the Fisher-Hoover property is income, counsel for the respondent cited the decision of Mr Justice Kerr, of the Trial Division of the Federal Court, in the case of The Queen v Fredericton Housing Limited, [1974] C.T.C. 649, 74 D.T.C. 6486.
20 On examining the basic facts and issues of that case, it appears to me that they are quite similar to those in the appeal presently before the Board.
21 Counsel for the appellant, commenting on the Fredericton Housing case, claimed that there were basic differences between the two appeals because, in the Fredericton Housing appeal, very large and vast tracts of land were acquired for development, and the acquisitions were made long before they were ever made use of.
22 I am not at all sure that the differences between the Fredericton Housing case and this appeal are all that great but, in my opinion, even if differences exist, they certainly are not basic. The size of the parcel of land acquired for development, or the length of time for which the land is held, does not, in my view, make the land any less a part of the company's stock-in-trade. Its sale is part of the company's business and the profit derived therefrom is income.
23 My decision in this appeal conforms exactly with Mr. Justice Kerr's decision in the Fredericton Housing case, where he held that the land acquired for development was nevertheless stock-in-trade of the company, and that the sale of the land was made in the course of the operation of the business for profit.
24 I conclude, therefore, that the profit of $153,182.88 received by the appellant in 1971 as the result of the sale of the Fisher-Hoover property is income to the appellant arising from the operation of its business as a land developer and was properly included in the appellant's income for 1971.
25 For these reasons the appeal is dismissed.
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