A W Prociuk (orally: September 17, 1974):
1 This is the appeal of Karmel Apartments Ltd. The issue in this appeal is whether or not the net profit in the sum of $46,041.21 on the sale in December 1969 of a 20-suite apartment block, located at 70 East Sixth Avenue, Vancouver, British Columbia, and owned by the appellant company, is taxable.
2 Karmel Apartments Ltd was incorporated, pursuant to the laws of British Columbia, on January 22, 1969. Two shareholders each holding one common share, are Heathcote Holdings Ltd, represented by John Heathcote, and Hardy Enterprises Ltd, represented by Allan Hardy. Prior to that point, Heathcote was a painting contractor and Hardy was engaged in the family business of hardwood milling and flooring. Both testified at the hearing of this appeal that late in 1968 they agreed to find a suitable parcel of land and to construct an apartment building thereon on a 50-50 basis. Early in 1969, each put $25,000 into the newly incorporated appellant company. Heathcote was to look after the construction and Hardy to look after the financial end of the project. Both testified that this was to be a revenue-bearing investment, and that they intended to build more apartments if all went well. Land was purchased for $46,500 inclusive of adjustments. The long-term financing was arranged with Canada Permanent Trust Company. Construction was completed by July 1969 and in August of that year the suites were fully occupied. So great was the demand for suites that several suites were occupied before construction was fully completed. Both principals were well satisfied with their success. The cost of construction was approximately $10,000 less than the total mortgage and, from an investment point of view, the project more than met their expectations.
3 Heathcote located another parcel of land in Coquitlam, where one 70- suite apartment building or two 35-suite units could be constructed. In the late summer, in or about the month of September of 1969, the two principals discussed this next project. Heathcote told Hardy that he had no more cash to put in but would look after the construction if Hardy would look after the financial end, which required an immediate outlay of between $150,000 to $160,000, which Hardy was not prepared to invest as his companies required funds for their own purposes.
4 Failing to reach agreement on this next project, the matter stood dormant for the next two or three months. On December 9, 1969, Canada Permanent Trust Company (hereinafter referred to as “Canada Permanent”) through its real estate officer, R Barr, who was familiar with the Karmel apartments as he had assisted the appellant to obtain the mortgage, brought in an offer, on behalf of R Wollen, of $240,000 for the apartment building. The appellant accepted a parcel of land valued at $20,000, and the balance in cash with a mortgage. The offer was accepted on December 10, 1969 (see Exhibit A-3). Both testified that the offer was unsolicited and too good to turn down. Heathcote, for his part, added that he needed the cash to invest in another apartment project on his own, since the partnership was not going forward and Hardy was not willing to carry on, as stated earlier. Hardy stated that accepting this offer was a good way to terminate the partnership, which was not proceeding any further, and this one apartment building was too small to hold on to as an investment. He also stated that the demand for apartment blocks was already decreasing.
5 In cross-examination, counsel for the respondent produced a copy of the application for a mortgage loan in the sum of $146,000, signed by Heathcote and Hardy, dated February 28, 1969, and filed as Exhibit R-1. In the space provided for “Particulars of Security” appears an item in brackets “Listed for Sale at” and the figure typed in is $230,000. It is perhaps a coincidence that the price the appellant actually received, after the parcel of land taken in trade and initially valued at $20,000 was sold, was almost precisely the sum of $230,000. While both witnesses were closely questioned on this item, that is to say, “Listed for Sale at $230,000”, each denied any knowledge as to why this was put in. Each suggested it may have been put in by R Barr, Canada Permanent's real estate officer, to indicate the value the building would have on completion. Each stated emphatically that no listing was ever given to Canada Permanent, nor to anyone else, and the sale was not even contemplated until the offer, Exhibit A-3, was received on December 9, 1969. Construction had not commenced when the application for the loan was signed.
6 As already stated, the respondent called no evidence and there was no evidence of any trading in real estate by either principal, either personally or through a corporate structure.
7 On the face of it, this sale would appear to have the characteristics of a taxable transaction. Each principal was engaged in a business closely associated with construction, and it can be logically inferred that they had substantial knowledge in that area. The length of time that elapsed between commencement of the construction and the sale of the fully occupied apartment block was less than one year. There was a great demand for apartment blocks, at least early in 1969, in this area, a fact that was well known to the principals of the appellant. However, I cannot disregard the evidence of both witnesses, who were ably cross-examined by counsel for the respondent. Their evidence as outlined earlier and their explanation of Exhibit R-1 remain uncontradicted.
8 Viewing the evidence in its totality, I have concluded that the appellant has established its case on the balance of probabilities that this was not a venture in the nature of trade. The appeal accordingly is allowed, and the matter is referred back to the respondent for reassessment.
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