Ray D Sader v. Minister of National Revenue, [1978] CTC 2668, [1978] DTC 1487

The Chairman:—The appeal of Ray R Sader is from an assessment in respect of the 1974 taxation year by which the Minister of National Revenue added to the appellant’s income for that year the full amount of the appellant’s share of profit derived from the sale of certain lands less the reserve claimed by the appellant. It is the respondent’s contention that the appellant was engaged in an adventure in the nature of trade and that the gain realized by the appellant from the disposition of the said lands is income. The appellant, on the other hand, claims that the gain was capital in nature and considered it as such in his income tax return.

Facts:

There is little dispute as to the facts which can be summarized as follows:

The appellant, an insurance broker, was approached by a Mr Lasner, the beneficial owner of Lasner Construction Co Ltd, with a view of acquiring 115.5 acres of raw land situated 12 miles southeast of Edmonton, Alberta. In July of 1973, the appellant, Lasner Construction Co Ltd, and a Mr Leslie Fritz acquired, for a price of $60,680, the said land on a /3- /3- /3 basis.

The appellant having contributed /3 of the cost of the land, his interest was a /3 undivided share in the land. Lasner Construction Co Ltd was primarily engaged in the development of land. Mr Fritz, from the evidence given, was a silent partner and his only participation in the transaction was his monetary contribution. The appellant, however, alleges that his intention in acquiring interest in the land was to build a home there. The purchase of the land was done in a matter of days and the appellant testified that he had no idea what the intention of Lasner Construction Co Ltd or Mr Fritz was in acquiring the land. From the appellants’ testimony Mr Lasner was the motivating force of the transactions. The appellant admitted that very little discussion was had between the joint owners as to how the land was to be divided. No partnership agreement or joint venture agreement was signed by the interested parties. The rental income from the house situated on the farm and from the use of the farm was placed in a joint bank account.

Shortly after acquiring the land, the appellant testified that there was found to be a water problem on the land in that the 40-foot well did not produce sufficient water and that the water itself was tainted with minerals. Having had water problems on another property before, the appellant testified that he would not build a house there without an adequate supply of good water and stated that the lack of good water was the main reason he subsequently agreed to sell the property. The appellant, however, in cross-examination, stated that of course there was water on the land but it would require a deeper well and a stronger pump to tap the good water.

In July of 1974, the land was sold for $105,000 and the appellant’s share of the profit was $13,270 which the appellant treated as a capital gain after claiming a reserve of $4,928.

One of the appellant’s submissions is that the assessor could not know what his intention was because no one from the Department of National Revenue had consulted with the appellant prior to his assessment.

Be that as it may, at the hearing of his appeal the appellant did have the opportunity not only of declaring what his intention was at the time of purchase but more importantly of substantiating his declared intention with evidence and facts. which were in keeping with the appellant’s declared intention of building a home on the acquired land.

In my opinion, the appellant failed to do so.

At the hearing the appellant stated that the subject land was perfect for a country home, not too far from Edmonton and it had all the characteristics which the appellant wanted for himself and his children. However, no specific plans for the construction of a home were made. The manner in which the land was to be divided among the joint owners had never been discussed nor was the land ever subdivided and no choice was effectively made as to which section of the land would be used by the appellant to build his home: In fact, there is no evidence whatever to support the appellant’s declared intention of building a home on some part of the acquired land. Although the taxpayer’s declared intention must be taken into account, it is of little probative value when there is no evidence of any effort made or steps taken to carry out the project.

The reason given by the appellant for agreeing to sell the land one year after its acquisition is, in my view, very weak. If the land; as claimed by the appellant, was ideal for his intended purposes surely the digging of a deeper well was not an insurmountable obstacle which aborted the appellant’s project. The subsequent purchaser of the subject property subdivided the land into 30-40-acre lots and apparently solved the water problem.

On the basis of these facts alone, I am not satisfied that the appellant had established that his intention in acquiring his share of the land was to build a home thereon.

This conclusion is further supported by the circumstances and the facts surrounding the acquisition of the land. Mr Lasner of Lasner Construction Co Ltd who was the instigator of the transactions was primarily engaged in the development of land. The. appellant held 29% of the shares of Lasner Construction Co Ltd and also held shares in Sader Investment Ltd which owned land in the western section of Edmonton. The appellant’s claim that he did not know what Lasner Construction Co Ltd or what Mr Fritz’s intention was in buying the subject land, in my view, taxes the appellant’s credibility. It was Mr Lasner who brought the purchase of the land as well as the offer of sale to the appellant and to Mr Fritz who were in fact both silent partners in both transactions. In the absence of any other evidence it is reasonable to suppose that Lasner Construction Co Ltd acquired the land as part of its business activities. It would, however, be unreasonable to accept the appellant’s statement that he was unaware of the nature of Lasner Construction Co Ltd’s principal business and did not know the purpose for which Lasner Construction Co Ltd acquired the land when the appellant owned 29% of Lasner Construction Co Ltd’s shares.

The courts have held that under such circumstances all parties interested in the transaction are associated and are deemed to have shared in the active member’s intention.

The appellant was knowledgeable of the land market in and around Edmonton and aware of the land development that was taking place in the vicinity of the subject land.

On the basis of evidence adduced I must conclude that the appellant’s intention in acquiring the subject land was not to build a home thereon but that he shared with his partners the intention of reselling the property at a profit at the first opportunity. The entire gain, therefore, (less reserve claimed) from the sale of the subject property was properly included in the appellant’s 1974 income.

The appeal is dismissed.

Appeal dismissed.