A W Prociuk (orally: March 20, 1975):
1 The appellant Flynn Development Limited appeals from the respondent's reassessment of its income for the taxation years 1969 and 1970 wherein a certain sum of money payable to the appellant in the year 1969 was deemed to include profit from the sale of raw land, and the net amount of that profit in the sum of $47,236 was added to the appellant's income and taxed accordingly. For the year 1970 the respondent took the other portion of the contract, that is, for the servicing of the raw land and, treating that as a separate item, added the net gain on that portion of the contract to the year 1970. It turns out that in the taxation year 1970 the appellant, as a result of the respondent's reassessment, ended up with a nil assessment.
2 At the commencement of the hearing of this appeal, counsel for the respondent moved, by notice of motion duly served on and accepted by counsel for the appellant, that the appeal in respect of the taxation year 1970 be quashed on the ground that no appeal lies from a nil assessment. Since the year of commencement of the contract and the commencement of the operations herein is 1969, I feel that I should deal first with that year and, having concluded that, deal with the motion as it will then appear for the taxation year 1970. I should say at the moment that the notice of motion is based on the recent decision of the Federal Court of Appeal in Her Majesty the Queen v Garry Bowl Limited, [1974] 2 F.C. 146, [1974] C.T.C. 457, 74 D.T.C. 6401, that, if in fact there is no tax to pay in the year 1970, then the motion should be granted because in that case the appellant would have no cause to appeal.
3 The matter starts on January 17, 1969, when the appellant entered into a contract with the Ontario Housing Corporation for the sale to Ontario Housing Corporation of 158 fully serviced lots. The said lots are described in the contract entered into and filed as Exhibit A-5. I shall refer to paragraph 1 of the said Exhibit A-5:
The Vendor agrees to sell and the purchaser agrees to purchase absolutely clear of all encumbrances, taxes, rates, assessments, impost and local improvement or other like charges one hundred and fifty-eight (158) fully-serviced building lots being Lots 1-158 inclusive, as shown on the proposed Plan of Subdivision which is Schedule “A” hereto, which lots are sometimes hereinafter referred to as “the lots” at and for the total price of six hundred and five thousand, nine hundred and thirty dollars ($605,930.00) being one hundred and eighteen thousand, five hundred dollars ($118,500.00) for the cost of the lots before installation of services, which latter sum is sometimes hereinafter referred to as the “cost of the lots” and four hundred and eighty-seven thousand, four hundred and thirty dollars ($487,430.00) for the installation of the services for same, which latter sum is sometimes hereinafter referred to as the “cost of services”.
4 Stopping there for the moment it is clear that the respondent took the position that here, in effect, were two separate and distinct contracts which should be assessed separately in the years when the respective sections of the agreement were performed. Without spending a great deal of time going into the remainder of the contract to see whether or not there is any justification for taking the position that the respondent has in fact taken, I must say that I am fully in agreement with the appellant. From the evidence of the appellant's president, and the evidence given by the representative of the Ontario Housing Corporation, both parties to the agreement, I am completely satisfied that the parties were ad idem as to the nature of the contract and that this was one sale of 158 fully serviced building lots. The land at the date of Exhibit A-5 was of course raw land and, as explained in the evidence, the purchaser, that is, Ontario Housing Corporation, required clear title to raw land registered in its name, in order to raise the necessary funds to make the payments on the remainder of the contract. There is no question in my mind that this contract is one contract, and one contract only. No question has ever arisen between the parties to the contract to suggest that the same is separable and should be regarded as two distinct legal documents.
5 When the sum of $118,500 was paid to the appellant, the Minister, the respondent herein, took the position that this constituted completion of a sale of raw land in respect of which the appellant made a profit of some $47,236, and he assessed and taxed the appellant accordingly. The respondent went further, and stated that his position was that the servicing of the said raw land was done in the year 1970 and that the profit on the servicing having been earned in that year should be taxed separately, also.
6 I am of the opinion that the respondent erred in his method of assessing the appellant by dividing the contract into two parts, because the contract clearly states that this is a sale of 158 fully serviced lots, and the remainder of the contract, which runs into some 15 or 16 pages, sets out the details of the work to be done in this major undertaking and these clauses cannot be construed as separate items of a second contract. It is one whole undertaking that was to be completed in one piece in accordance with the terms and specifications and the local requirements of the Public Utilities Commission and of the municipality within whose boundaries this land was situated.
7 Accordingly I hold that the contract was one contract and that the appellant made no profit on the separate items of the transaction as contended by the respondent. Accordingly, the appeal with regard to the taxation year 1969 is allowed.
8 It appears to me from the evidence that the contract was not completed until after the fiscal period of the appellant that ended in the calendar year 1970, and the appellant could not be held to account for profits, if there weren't any, until the completion of this contract and until it had received the money that was due to it or the money that was held in trust by it.
9 As to the notice of motion, having decided that in the taxation year 1969 the appellant made no profit on the sale of raw land and that Exhibit A-5 constitutes one contract only, I allow the motion because there, in fact, is a nil assessment for the year 1970.
10 In the result the appeal of the appellant in respect of the year 1969 is allowed and the matter referred back to the respondent for reassessment accordingly.
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