Addy, J:
1 This appeal concerns the acquisition and disposal of four contiguous properties located on the south side of Spring Garden Road in the City of Halifax. The plaintiff moved into a house on one of the properties (hereinafter referred to as the “Power Property”) in 1947 and lived there until September 1971, although the property was disposed of by sale in 1969. It had been purchased from a religious order known as the Ladies of the Sacred Heart by the plaintiff's father, since deceased, and was registered at all relevant times in the name of the plaintiff's mother. The plaintiff however, because of his close relationship with his mother, was able to effectively control the disposal, sale and development of the property.
2 The religious order of the Ladies of the Sacred Heart continued to occupy for their convent a large piece of land in the same block to the west of the Power Property and separated from the Power Property by another property (hereinafter referred to as the “Armitage Property”). The Sisters also owned and occupied, as part of their convent grounds, a lot of approximately one acre of land known as “Paradise Lands”. These lands were situated on the south side of College Street which was the first street south of Spring Garden Road.
3 The evidence establishes that the plaintiff first became interested in the development of property in the area of his family home in 1960 and also clearly establishes, in my view, the fact that his interest in doing so was to produce a source of revenue for himself after he had retired as well as a permanent home. At about that date, he conceived the idea of acquiring adjacent properties for development along with the Power Property since the latter was much too small for further development.
4 In 1965, the plaintiff obtained and exercised an option to purchase another property known as the Roue Property and obtained final title to it in July 1966. During 1966 he acquired two further immediately adjacent properties, namely, the Armitage Property to which I have referred and the Wootton Property situated between the Power Property and the Roue Property. It has been also clearly established that, throughout the years, several tentative offers were made to purchase the Power Property from the plaintiff or his mother either by itself or, subsequently, along with one or more of the other three above-mentioned properties and that all offers were refused. Several schemes were discussed by the plaintiff with one Herrington, an architect friend of the plaintiff, but no formal or definite plans or specifications were ever drawn. At his request, however, a very rough sketch was prepared by the architect in July 1966. No definite cost estimates were ever made. The plaintiff stated, and I accept his evidence on this, that he was contemplating at that particular time erecting an apartment building of approximately 15 storeys at a total cost of between one million and one and a half million dollars. The plaintiff was intending to use the land as his equity in the project and to finance the building by mortgage loans.
5 In order to purchase the three last-mentioned properties, the plaintiff was obliged to make extensive financial commitments which led to the mortgaging of his cottage, the pledging of his credit and of his securities and also the stocks and securities belonging to his mother. In August 1966 he incorporated a company with the ultimate object of holding and administering the project when developed. Although the company's powers included the right to sell and to dispose of lands, I accept the plaintiff's evidence to the effect that, at the time of the incorporation, he had no intention of disposing of the lands and did not give any specific instructions to his solicitor to include these powers.
6 The zoning in that area which was originally quite favourable to the proposed development was changed in 1965, effective July 1966, to become considerably more restrictive as to density, set-back, etc. The plaintiff stated, and I accept his evidence to that effect, that he did not become aware of the change in the zoning by-law until late 1965 or early 1966. Previously, the city had been granting, as a matter of course, exemptions from the height requirements of the former building by-law. The new by-law did not permit this type of exemption. Knowledgeable developers were aware of this radical change of policy but the general public was not and I find that the plaintiff was not aware of this until sometime late 1966 or early 1967. When the plaintiff discovered that he would not have enough of the four properties to construct the proposed building, he did not attempt to sell the lands but set about to try to devise a scheme by which he could increase his land holdings in some way, and eventually attain his original objective of establishing a revenue-producing property in that area, for his retirement years.
7 During the course of his tentative planning, a possible exchange of lands between the Ladies of the Sacred Heart and himself was discussed and he obtained an option on the above-mentioned Paradise Lands on College Street. This attempt at exchange with the Sisters was conceived after the plaintiff discovered that, because of the rigid by-law requirements, the four properties would not contain sufficient area to permit the proposed development and after an attempt to purchase an additional property, immediately to the east of his four properties, had proved abortive for the time being at least. The option provided for the exchange of the four parcels which he owned plus $40,000 in return for the Paradise Lands. During the time that the option with the Sisters was still in effect, he managed to have certain restrictive covenants on the Paradise Lands removed by act of the Legislature of the Province of Nova Scotia and, for this purpose, managed to enlist the support of the municipal authorities. Due to the fact that financing became most difficult and that he had stretched his credit to the limit and that the mortgage market had greatly deteriorated in the meantime, the plaintiff was unable to exercise the option and, although renewed once, it eventually lapsed. About that time, the plaintiff was also considering as a possible alternative the feasibility of establishing in the immediate area a public parking building together with a para-medical centre or a public parking building by itself to service a rehabilitation centre and other hospitals in the immediate vicinity. These plans also, because of the fact that it became impossible to obtain mortgage financing, did not materialize.
8 Because of his interest in the work of the Nova Scotia Rehabilitation Council, with which he had been associated until April 1966, he agreed with one Mr Caldwell, president of that institution, that he would convey to it the Armitage Property at cost and also that he would convey to it the Roue Property with only a modest mark-up over the actual purchase price but, when advised in July 1966 that the money would not be available for that institution, he returned to his original plans for an apartment house building. It was at that time that he contacted his solicitor to have the holding company incorporated.
9 The mortgage market rapidly deteriorated and it soon became evident that the plaintiff would not be able to obtain the financing he required; he was unable to meet the payments due on the purchase mortgage and the mortgage instituted foreclosure proceedings. The plaintiff succeeded in temporarily postponing the crisis by borrowing at the bank and pledging securities which he owned together with those of his mother. As time went on, the bank finally notified him and his mother that it intended to declare the debt due and would be realizing on the securities pledged. Further foreclosure proceedings were also instituted. He decided then to accept an offer for the lands from the University of Dalhousie, made late in 1969, and immediately sold them to the University, realizing a net profit of $165,746.20 which resulted in an increase in tax for 1969 of $102,118.68 plus interest in the amount of $12,815.59 as of the date of reassessment. The Minister of National Revenue confirmed the reassessment and his decision was upheld by the Tax Review Board on June 24, 1974. The plaintiff appeals that decision.
10 The relevant portions of the sections of the Income Tax Act, RSC 1952, c 148, in effect at the time, read as follows:
4. Subject to the other provisions of this Part, income for a taxation year from a business or property is the profit therefrom for the year.
139. (1) In this Act,
11 There can be no doubt that, at the time he commenced assembling lands and for several years previously that is from 1960, the taxpayer's main goal and intention were to guarantee a permanent source of income for himself after retirement and, at the same time, provide a permanent home for himself, his mother and his family in an area near the Gardens in Halifax where he had resided for so long. I find that this was not only his original intention at the time of the purchases by him but that it continued throughout the period until the sale in 1969 with the following exceptions: at one time he contemplated, as an alternative method of obtaining the required income, the possibility of erecting a public parking garage or a public parking garage in conjunction with a para-medical services building, and at another time in 1966, because of his continued interest in the work in the Nova Scotia Rehabilitation Council and its apparent need for land in order to enlarge its services, he would have been prepared to convey to that in stitution the Armitage Property at cost and the Roue Property at a modest profit to compensate for his time and trouble. As in most trading cases, the much more difficult issue is to determine whether he also had a secondary intention of selling at a profit should the main plan fall through.
12 In the case of Racine et al v Minister of National Revenue, [1965] C.T.C. 150, 65 D.T.C. 5098, Noël, J (as he then was) explained what he considered to be the essence of or the essential requirement of a secondary intention and also gave his view as to what evidence is to be considered in order to decide whether or not such an intention does in fact exist in any particular case. The passage in question at page 5103 reads as follows:
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.
13 This statement, both as to the substantive law and as to the evidence which must be considered in determining the issue of intention, was quoted with approval by my brother Heald, J in the case of Sherman v Minister of National Revenueet al, [1973] C.T.C. 192 at 199, 73 D.T.C. 5164 at 5169, and again in the case of The Suburban Restaurant Brandon Ltd v Her Majesty the Queen, [1973] C.T.C. 289, 73 D.T.C. 5260. I agree fully with that statement in so far as it purports to define the nature of a secondary intention to engage in an adventure or concern in the nature of trade, but if, in so far as it relates to the evidence required to either establish or negate the existence of any such intention, it purports to state a general rule of evidence to the effect that surrounding circumstances, whatever they may be, must be preferred to direct evidence of intention, then I must express reservations. The only direct evidence of what a person has in mind at any given time must necessarily come from a statement by that person either at the trial or orally or in writing to another person and any such expression of intention is most relevant and important, especially when given under oath at the trial by the person whose intention is at issue and after the statement of such intention has been thoroughly tested by cross-examination in the light of his actions both before and after the event in question. Conversely, it would be most difficult for me to find in favour of a taxpayer, whatever the surrounding circumstances might be, who, without any justifiable excuse, failed to testify personally at the trial as to what his intention actually was. It is such important and vital evidence that its absence would, in my view, almost invariably destroy the taxpayer's case unless there was some good explanation offered as to its absence. Furthermore, it is evidence which has the added characteristic of being solely within the knowledge and control of the taxpayer himself. If a judge were to charge the jury to the effect that the law requires that circumstantial evidence of intention be given preference over direct evidence then I have no doubt that any such direction would constitute a mistrial. A judge should therefore refrain from charging himself in that manner.
14 All issues must be determined by a careful consideration of all of the relevant evidence both direct and circumstantial. In any particular case, a specific piece of evidence might, by reason of the surrounding circumstances of that case, necessarily possess great probative value while, in another case, evidence to the same effect might carry little or no weight. The Court must also bear in mind that facts often speak louder than words and that free acts are very good indication of what a person really intends and overt acts and their results constitute an excellent means of deciding what the intention actually was. In the same manner, other circumstances, which are not the result of any particular action of the person at the time and place in question, might also be of considerable help in deciding the issue of intention. I have in mind, for instance, the circumstance of a taxpayer, whose intention is being scrutinized, being by profession a land developer (see Bel-Conn Limited v Minister of National Revenue, [1973] C.T.C. 2009, 73 D.T.C. 17). This is undoubtedly a very important circumstance. Yet one cannot say that, as a matter of law, every land developer is precluded from establishing that in a particular case there was no primary or secondary intention to speculate, anymore than in a case such as the one at bar where a mature man has never previously resold a piece of real estate at a profit, is one precluded from finding that, on his very first venture in this sphere, he did in fact have the intention of reselling at a profit when he originally purchased the lands. The issue of intention must therefore be resolved by a careful weighing of all of the admissible evidence which is in any way relevant to that issue and the person or body charged with finding the facts must refrain from considering each piece of evidence independently but must examine it in the light of all the other evidence both direct and circumstantial. Unless there is a specific statutory provision to the contrary, this general rule of evidence must be applied in all cases including taxation cases. It follows that little help can be obtained from former decisions regarding what weight should be attributed to any particular circumstance in so far as it may prove or disprove an intention to engage in an adventure in the nature of trade, except in so far as any such decision might make one aware of a particular area or circumstance which should be considered or taken into account.
15 All of the circumstantial evidence surrounding the purchases, with the exception of one piece of evidence, namely Exhibit 12, on which I shall be commenting, was either completely consistent with a lack of a secondary intention to purchase for possible future resale at a profit or as equally consistent with the existence as with the nonexistence of such intention.
16 There were no detailed plans of development produced but, having regard to the uncertainty as to what lands would have to be eventually acquired, the changes in the municipal by-law and their direct result on the planning, the steadily deteriorating mortgage situation and the plaintiff's own increasingly precarious financial position, he would have been ill-advised to incur that additional expense under these special circumstances, over which he had no control. At that stage, although the plaintiff's ultimate goal seems clear, he was uncertain as to the exact manner which his intention would be implemented, that is, he was uncertain as to the type of building which would best meet his ultimate goal, having regard to his financial means.
17 Even, when under the immediate threat of foreclosure, after action had been instituted by the mortgagee, far from attempting to find the buyer, he avoided selling the property and only decided to do so when he was faced with the imminent probability of losing his own and his mother's securities and his cottage, which he had put up as collateral, as well as with the foreclosure of his rights in the properties purchased.
18 Coming now to Exhibit 12. On February 1, 1967 the plaintiff wrote a letter to one Ralph M Medjuck. The letter was in reply to a letter from Medjuck of January 26, 1967. The relevant paragraph in the plaintiff's letter reads as follows:
I am presently formulating a development scheme involving these lands, and should you have any interest in acquiring this property, I would suggest you make your interest known to me no later than the end of February. Development arrangements are progressing rapidly and any propositions would have to be of considerable substance to influence a change in this planning.
19 In his examination-in-chief, the plaintiff explained that Mr Medjuck had formerly attempted to purchase and that he was turned down by the plaintiff. Under a rather searching cross-examination by counsel for the defendant, the plaintiff explained that, although he did not intend to sell, he believed that under the circumstances no useful purpose would be served by finally closing the door on Mr Medjuck. The fact was that, at the time, the plaintiff's financial position was becoming precarious and he was already in arrears of two instalments on the $30,000 mortgage which he and his mother had executed to finance the purchase of the properties. These arrears led to the foreclosure actions being instituted in June of that same year. It must also be borne in mind that by that time the plaintiff was fully aware that the four lots, which he had acquired, were no longer sufficient for erecting the building which he had intended to build and that further lands would have to be acquired. He had attempted without success to secure the property to the east and had just signed (on December 26, 1966) the above referred to option with the Ladies of the Sacred Heart and did not know whether financing could be obtained for that purpose or whether the Legislature would remove the restrictive covenants. He would have been, under the circumstances, acting very rashly and have nothing to gain in slamming the door in the face of an interested purchaser. I accept the plaintiff's explanation as to that passage in the letter (Exhibit 12) which passage would appear to constitute at first examination a rather convincing piece of evidence that, at least in February 1967, in other words, some six months after he had acquired the last property, he might have had the intention to sell. There was no evidence that, at a later date, when he was under intense pressure from the mortgagee and from the bank, he ever contacted Mr Medjuck again. It is to be noted also that the letter does not contradict the evidence of the plaintiff as it is not evidence of what the plaintiff's intention was at the time of the purchases.
20 Finally, as to direct evidence of intention, I was impressed by the straightforward manner in which the plaintiff conducted himself and replied to the questions put to him not only during examination-in-chief but especially during cross-examination and I remain convinced that he was telling the truth. I am therefore satisfied on a balance of probabilities that the possibility of selling the property was not an operating motivation of the plaintiff.
21 His view of what could be done might have been somewhat optimistic and his method of proceeding was certainly not that of a knowledgeable developer, yet, this does not indicate that his sole governing intention at the time of the purchases was not to develop the property. In conclusion, since the purchases did not constitute a venture in the nature of trade, the appeal will be allowed with costs and the matter will be referred back for reassessment on the basis that the sum of $165,746.20 is not to be added to the taxpayer's income for the year 1969.
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