Real Estate

Woods JA rejected (e.g., at para.32) the taxpayer’s submission that, in applying the secondary intention doctrine, the Tax Court (Hogan J) had erred “because it ignored the requirement that the possibility of reselling at a profit must have been an operating motivation for the acquisition of the properties” (para. 28).

Around 1980, the taxpayer and his wife divorced, and a citrus farm located outside Phoenix, Arizona which the taxpayer owned was transferred by him to a revocable living trust in which he and his wife had respective beneficial interests of 80% and 20%. In 1994 (at a time that the suburban development of Phoenix had reached the area of the farm), 20 acres of the farm ("Parcel 6") were transferred by the trust to a partnership between the taxpayer, his wife and a corporation (having a 1% interest). Parcel 6 was sold at a gain in 2000. Immediately before the closing of the sale, the property was distributed to the partners (thereby realizing gain under s. 98(2)), with the partners conveying to the purchaser.

There was no reviewable error by the Tax Court when it found that there had been a clear intention to convert Parcel 6 from a capital asset used in the production of farm income to an item of inventory (notwithstanding that Parcel 6 continued to be used for citrus production) on the drop-down of the parcel in 1994, so that the sale of the parcel six years later gave rise to a gain on income account based on its cost as had been established under s. 97(1).

The taxpayer, which operated a retail grocery chain in Canada, was approached by a developer (“Schroeder”) to be the anchor tenant in a shopping centre (“Peninsula Village“) to be developed on a 20.5-acre parcel of land in South Surrey, B.C., but which required rezoning. Because it wanted to have a grocery store on the proposed site, the taxpayer agreed to assist in the project’s financing by entering into a co-ownership agreement with Schroeder, which also provided for a lease of premises for the store to the taxpayer. Regarding the scenario in which the rezoning could not be secured, Schroeder presented a fall-back scenario under which the land would be sold to a residential developer for the building of condominiums and townhouses, generating a profit in the range of $1.5 to $3.0 million. Rezoning was secured, Peninsula Village was completed in 1991, the lese-up period completed in November 1994 and the taxpayer sold its 54% co-ownership interest in the property (while retaining its lease of the store) at a $4/6 million gain in 1996.

In affirming the finding below that the taxpayer realized its gain on income account, Nadon JA stated (at para. 70):

It is clear from the jurisprudence that the fact that a taxpayer eventually intended to sell his or her interest in a property and thereby expected to sell it at a profit is not, in and of itself, sufficient to lead to the conclusion that there is an adventure in the nature of trade. However, in the present matter, the evidence clearly supports the view that the appellant did not simply view its acquisition of an interest in Peninsula Village as an investment that it would eventually sell at a profit. The evidence supports the inference that, from the beginning, the appellant did not want to keep its interest in the joint venture for a long period and that it intended to resell it at a profit.

The taxpayer had sold a gas station in 1990 to a third party ("Soni"). As a result of contamination found when Soni tried to resell the gas station in 1995, the asset substantially decreased in value and Soni failed to make the final balloon payment due under the purchase agreement. The taxpayer then reacquired the property, with a view to reselling it, for consideration that included the extinguishment of Soni's payment obligation to it.

The Tax Court Judge had not erred in finding that the taxpayer had not reacquired the gas station from Soni as inventory in light of such facts as the motivation of the taxpayer to protect its investment in the property and the absence of evidence that the subsequent sale of the property by the taxpayer could generate a profit.

The Court rejected a submission on behalf of the taxpayers that their losses with respect to interests in a real estate project that they acquired as tenants in common should be found to be on income account because the projects had been promoted by two other co-tenants who had been found in Grant v. The Queen, 2002 DTC 1985 (TCC) to be the dominant minds with respect to some other real estate projects. Sharlow J.A. stated (at p. 6782):

"Where property is owned by tenants in common and there is no bar to the separate disposition of the interest of a co-tenant, it is a question of fact whether there is a dominant or directing mind for the group. Where a dominant party is found to exist, it is because there is evidence that some co-owners have expressly or implicitly acquiesced in decisions made by the dominant co-owner with respect to the property."

There was no such evidence in this case, and the taxpayers held their interest on capital account.

The Minister had assessed the taxpayer (a practising physician) on the basis that his investment in a limited partnership that held a condominium project, which was used to generate rental income, did not represent a source of income (having a reasonable expectation of profit). These rental properties were found not to be held by the partnership as an adventure in the nature of trade rather than as capital property given that the partnership agreement required a special resolution of the limited partners before there could be any sale of the rental property, and there was no evidence that this onerous requirement could be met.

Before going on to find that the taxpayer did not realize a capital gain from the disposition of a farm property, Sharlow J. noted (at p. 5706) that although "the method of financing the purchase of property may be important in distinguishing capital from income if, as a practical matter, the property is so burdened with debt that the owner is unlikely to recover its costs without selling it", here this was not as important a consideration because, although there was 100% debt financing, this was provided by way of shareholder loans of which over 30% did not bear interest and had no fixed repayment terms.

The taxpayer, which owned five revenue-producing properties, entered into an agreement to purchase a property comprising two apartment towers (the Talbot property), but was unable to complete the purchase at the originally agreed closing date because of cash flow difficulty, and ultimately settled the ensuing litigation by agreeing to purchase the property at the originally-agreed price.

In finding that a gain realized by the taxpayer less than three years later, pursuant to an offer that it did not actively seek out, was realized on income account, Nadon J. stated (at p. 6200) that:

"the fact that the Plaintiff could not afford and did not want the property points to a secondary intention at the time of acquisition of disposing of the property if the right offer came along."

A residential and commercial complex (Boundaryview) owned by the same taxpayer was found to have been acquired on capital account in light of evidence that it was intended to be its "crown jewel" and was sold approximately a year following the completion of construction only because of financial difficulties. Although title to the building was stratified, it was the industry practice at the time to do so in order to satisfy financing requirements.

Major J., after noting that both parties to the appeal accepted that the taxpayer's interest in a piece of undeveloped land was held in connection with an adventure or concern in the nature of trade ("a legitimate "scheme for profit-making',") indicated his agreement with this characterization, finding (at para. 18) that the critieria in IT-218R as to what is a real estate adventure in the nature of trade were satisfied:

The apellant and his associates purchased the Styles Proprty with the intention of reselling it at a profit. ... The persons involved in this venture were experienced business people who treated the transaction as a business venture. The land involved was undeveloped real estate which was suitable for resale but unsuitable as an income producing investment or for the personal enjoyment of the appellant or his associates.

Tremblay-Lamer J. accepted that the taxpayer (whose business entailed the construction and sale of shopping centres and commercial buildings) had acquired the shopping centre in question as an investment rather than on income account. "Even a land speculator can occasionally buy an investment property" (p. 5473), the evidence indicated that the taxpayer intended to hold the property as an investment because of the attractive rate of return that the net rents would represent (a 27% return on its investment), and the decision to accept a largely unsolicited offer approximately five years after the acquisition time was attributable to the taxpayer sensing that local market conditions were starting to deteriorate (an assessment that proved to be correct), thereby making such offer attractive.

Rothstein J. accepted evidence that it was the policy of the taxpayer (which dealt in raw land and developed residential properties for sale, as well as developing and holding rental properties) to retain, as an investment, office buildings that were constructed by it. Accordingly, although the appreciation in the value of land between 1970 (when it was acquired with a view to possibly reselling it at a gain) and 1976 was on income account, the appreciation from 1976 (when the taxpayer along with an affiliated company commenced to develop the land for use in connection with the construction of twin office towers) and 1983 (when the two buildings were sold pursuant to the acceptance of unsolicited offers at a price substantially in excess of the properties' fair market value) occurred on capital account.

The four taxpayers bought a house in Saskatoon with a large lot in October 1977, began putting the property in shape for renting, heard that the City was to change the zoning of the property so that it could not be developed as a multi-unit apartment block, applied to the City for permission to build an apartment block on the land before such zoning change was to occur, obtained such permission, constructed a 17-unit apartment block on the land from May to September 1978, rented out all the units, and in December 1978 sold the property at a gain following the placing of an advertisement in a local newspaper. Following the sale, they formed a real estate company that engaged in the construction of houses and apartment buildings.

In finding that they realized a capital gain on the transaction, MacKay J. accepted their testimony that their sole intention in acquiring the property was to earn rental income and that the property was advertised merely to gain some sense of its market value. It was their satisfactory experience with the development and sale of this property that led them into that activity as a business (through the corporation), and they were not engaged in a development business prior to the sale of the property.

Because land of the taxpayer that had been expropriated was held by her on income account (as was admitted by her), the expropriation proceeds (exclusive of interest) gave rise to a gain on income account.

A gain realized by the taxpayer from the sale of vacant land by the taxpayer to the province of Ontario following the province's designation of the property as part of a greenbelt area gave rise to a gain in income account given inter alia that the taxpayer was a land developer which had never made investments on a long-term basis and given that the disposition was not involuntary.

A gain realized by the taxpayer from the sale of a 1/2 interest in an apartment building two years after its acquisition was fully taxable given his past dealings in other real estate properties, the status of his co-owners as traders in real estate and the financing of his acquisition solely with borrowed money.

A partnership comprising the four individual taxpayers acquired a land assembly over the course of over a year, and sold the assembly approximately two years later at a 400% profit. A submission that the land had originally been acquired for use in connection with an exotic cattle operation was rejected given that the land was known to be in the path of development, the price paid for the land greatly exceeded what one would expect from a purchaser looking for farming land, the partnership agreement among the taxpayers described them as "land developers", and not all the participants in the cattle operation were invited to participate in the land venture.

Ten young couples, who in 1956 formed a partnership to "gather for a social evening as often as is decided by a majority" and "to accumulate funds for profitable investments" were held to have realized a capital gain when in 1977 and 1979 a farm which they had purchased in 1959 was expropriated. Jerome A.C.J. stated (p. 5044) that "there is nothing in the evidence to persuade me that resale at a profit was ever more than one of several possibilities neither more likely nor less likely than any of the others".

The taxpayer acquired options to acquire farmland at a distance of approximately 20 miles from the lands currently farmed by the taxpayer with the intention that title eventually would be transferred to the son of the taxpayer's principal shareholder. Gains realized when the options were exercised and the land sold accordingly were realized on capital account. Cullen J. noted that "in the past two years ... there has been a gradual retreat away from the secondary intention doctrine" (p. 6696) and noted that "the relevant time for determining the intention of the taxpayer was at the time the option was acquired, not exercised" (p. 6696).

The taxpayer, which in partnership with three other corporate partners, acquired farmland outside Metropolitan Toronto in 1967 and resold the land at a substantial gain in 1982, was able to establish that its initial intention in acquiring the land was to develop it for rental purposes. However, it was established that the intentions of the partnership (as a whole) with respect to the property changed in 1972 when a plan of subdivision was submitted to the municipality. Accordingly, the gain was realized on income account notwithstanding the relatively passive role of the taxpayer in this process.

It was found that the controlling shareholder of the taxpayer regularly bought hotels, built up the revenues and then sold at a profit. Gains from such hotel transactions accordingly gave rise to ordinary income.

The taxpayer was entitled to a fee for services rendered to the owner of a property in connection with the finding of a purchaser of a part interest in the property. The taxpayer elected to receive a small percentage (7%) in possible future net profits in the project in lieu of three-quarters of the fee. The developer of the property elected to develop the property as a long-term rental investment rather than as a condominium project contrary to the hopes of the taxpayer, who likely would have earned commissions on the sale of condominium units. When the apartment buildings were sold in response to the introduction of rent controls, the gain realized by the taxpayer was on capital account. The fact that the developer reported the gain on income account was irrelevant.

The taxpayer testified that he acquired a piece of undeveloped property some distance from his home farm in order to provide additional grazing acreage for his herd. It was found that he had acquired the property with the intention of changing the zoning and selling it at a profit (which he in fact did shortly after the time of its acquisition) in light of the fact that he already had ample grazing acreage for his herd and the fact that the property was heavily surrounded by subdivided land which was already in use for permanent homes. His profit was fully taxable.

The appellant, who was the owner-manager of an automobile parts and tire supply business, entered into partnership with an individual (his brother-in-law) in the construction business in order to hold rental properties. Two weeks after the closing of the partnership's first acquisition (14 townhouses) the acquired properties were sold at a substantial gain pursuant to an unsolicited offer.

Martin J. accepted the appellant's testimony - that he acquired the property as a rental-income investment and that the partnership sold due to the high offered price - in light of the appellant's lack of real estate experience and the absence of sales of further real estate acquisitions made by the partnership. Martin J. rejected a submission that the intentions of the appellant's partner should be attributed to the appellant, noted that the taxpayer exercised independent judgment, and implicitly assumed that the relevant taxpayer was the appellant rather than the partnership.

A professional real estate trader was unable to establish that it had not acquired revenue properties as part of its general real estate enterprise.

Two individuals were held to have realized (directly or, in the case of the second individual, through his company) a taxable profit on the disposition of an apartment building ("Brookland Court") which they had acquired four years previously on a highly leveraged basis (7.5% equity). Within the same approximate period of time they had engaged in approximately 15 similar transactions under which, typically, "properties were purchased with very small down payments and heavy financing...[and] were renovated and sold at a profit within a very short period" (p. 5181). Here as well, the taxpayers "purchased the Brookland Court with the primary intention to renovate it and to re-sell it at a profit" (p. 5182).

The misstatement by the trial judge of the secondary intention test plus his failure to find that prospect of resale of the property at a profit had, in fact, been an operating motivation in its acquisition, led the Court of Appeal to allow the appeal. "Secondary intention requires not only the thought of sale at a profit but that the prospect of such a sale be an operating motivation in the acquisition of the capital property."

"I can see no reason why the plaintiff could not be a speculator or trader in real estate and also be a farmer who acquires real estate with the sole intention of employing it in his farming operations. It is true that he runs the risk of an up-hill fight in having to convince a court that the two operations are separate and that his intention in acquiring farm land is completely different from his intention in acquiring land for re-sale particularly where the farm lands are acquired and re-sold several times. Although that is quite a risk to take, the plaintiff has satisfied me that he did keep his farming operations separate and apart from his real estate trading."

The taxpayer was a member of a nine person syndicate which purchased two pieces of farm property, made an unsuccessful attempt to subdivide the property and realized a gain on the sale of 7 1/2 acres to the Town of Stoney Creek under the threat of expropriation. The intention of the leader of the syndicate, a real estate agent, was attributable to the taxpayer. Accordingly, he realized a taxable profit.

The taxpayers through a corporation ("Village International") leased land in the fall of 1966 near the site of Expo 67 and contributed the land to a joint venture whose other parties were to construct 25 temporary chalets on the leased land in order to lodge visitors to Expo 67. The profits realized by the accused on the completion of the venture in 1968 were fully taxable. With respect to a submission that their profit was from the winding-up of an enterprise, and therefore was on capital account, it was held that "the winding-up of the whole operation was clearly foreseen and anticipated, including the disposal and sale of the chalets."

The group sale by the taxpayer of service stations pursuant to an unsolicited offer resulted in a capital gain. The controlling shareholder had intended to build up a chain of service stations and operate it at a profit. After noting (at p. 6231) that "a fundamental principle of taxation is that the disposition of a business results in a capital gain, a fortiori for a business which requires care and labour to operate." Dube J found that the shareholder had the taxpayer sell because of the offer of an attractive price, his weariness and wish to retire, and the imminent adoption of capital gains tax.

The taxpayer bought a large house with the intention of tearing it down and selling a half interest in the property in order to finance the construction of his principal residence on the other half. The gain from the sale of a strata-title unit on the first half accordingly was taxable.

A real estate joint venture acquired land in downtown Saskatoon for development as office and commercial space and sold the land shortly after its acquisition to the City as a result of an unexpected offer (made under the threat of using the City's expropriation powers, if necessary). Although the joint venture (through its principal, the taxpayer) had considered the possibility of resale, this was not a motivating factor for the acquisition. "I would find it strange that anyone purchasing property for a long-term investment would not consider the possibility of selling it if the offered price was sufficiently high."

Some overtures made by the controlling shareholder and director of a family corporation in 1971 to the City of Red Deer respecting development of the farm land held by the corporation did not change the character of the land from capital property into inventory. Corporate decisions were made by consensus of the corporation's directors and there had been no such corporate decision to subdivide and develop the property. The fact that the corporate objects included "the holding or exchange of real property" was largely irrelevant.

A change of use did not occur until 1976, when a final applicatin for subdivision approval was made and approved.

Between 1976 and 1978 a carpenter sold 7 apartment buildings which he had constructed during the period 1971 to 1974 in order to finance the construction of more costly apartment buildings. His evidence that he had "intended to create a bank of rentable apartments to support himself and his family" was accepted, and he accordingly realized capital gains.

The gain of a real estate development company from its acceptance of an unsolicited offer to purchase 400 acres of farm land gave rise to a taxable profit in light of such factors as the minimal income generated by the property, the minimal farming activity carried out on the property and numerous other real estate trading activities which the company carried out respecting the land of which the 400 acres formed a part.

The purchase and resale of a shopping centre within a 5-week period gave rise to a capital gain in light of evidence that the taxpayers had been seeking only to acquire an income property, and that the lucrative offer which they accepted was quite unexpected.

The taxpayer, which was in the business of assembling and selling residential housing lots, leased approximately 1/3 of its lots with an option to purchase at any time during the 50 year term at the market price of the lot when the lease was entered into. It was held that "the leasing scheme was merely a mechanism for postponing the date of the ultimate purchase of the land" and that gains realized when the lease purchase options were exercised were taxable profits.

The taxpayer realized a taxable profit when it sold 3 out of 10 building lots in order to pay off a loan. Particularly damaging was the fact that all 10 lots had been offered for sale.

A company whose business consisted of acquiring (at a rate of one or two per year), holding, and sometimes disposing, of rental properties realized a taxable profit on the resale of such a property a year after its acquisition. Joyal, J. said that cases in which it was indicated "that the expectation that the value of real estate investments will increase over the long haul is not conclusive of a secondary intention" dealt only with "one-shot deals" or frustration by uncontrollable events, whereas in the case of this property, the "transaction was but one of a series of purchases and sales, its disposition did not represent the planned liquidation of the plaintiffs' portfolio and its sale ... was not provoked by fortuitous circumstances."

When the taxpayer and his wife acquired two adjacent residential houses they knew, or should have known, that there would be a substantial shortfall between the rental revenues being generated and expenses, and that property values in the area were rising. Resale over a year later gave rise to a taxable profit.

The effecting of the taxpayer's avowed intention of developing a 27.5 acre parcel of land into a regional shopping centre was dependent upon the highly speculative prospect of attracting a major department store, which in fact the taxpayer was unable to do. Pinard, J. accordingly found that a secondary intention effectively motivated the taxpayer at the time of the land's acquisition, and resale of the land 15 years later, after the taxpayer had succeeded in having it rezoned as residential, gave rise to a taxable profit.

A lawyer with some history of dealing in small real estate properties was held to have acquired the two properties in question with the intention of holding them as rental properties until a reasonable opportunity to turn them to account arose (which, in the case of the second property, occurred only 4 days after the closing of its purchase.) The gains on resale were taxable profits.

Two brothers with a history of dealings in real estate transferred a parcel of vacant land from a corporation which was owned by them ("Rice Construction") to a related partnership of the two taxpayer corporations ("Rice Holdings"). Although the land was acquired by Rice Construction for the purpose of development and resale to a particular manufacturing corporation, by the time of the conveyance of the land to Rice Holdings those plans had fallen through and the taxpayers were able to establish that Rice Holdings acquired the land for long-term investment. When the plans of Rice Holdings for multi-residential development of the lands were ultimately frustrated by regulatory delays and adverse economic trends it realized a capital gain following its acceptance of an unsolicited offer.

A real estate company which admittedly had bought land for speculative purposes was unable to establish that the lands later had been converted from inventory to capital property as a consequence of an unequivocal intention or act on its part to dedicate the lands indefinitely to farming or recreation. Temporary use of the lands for the recreational use of the shareholder's family was insufficient to overcome the "strong presumption that land acquired for such a purpose retains the character of inventory in the absence of very clear evidence of dedication to another purpose."

The taxpayer, who at all relevant times was associated with his brother in land acquisition, construction and development and sales transactions, bought vacant land from his brother, erected a small shopping centre thereon, and sold it 15 months from the time of its acquisition for what was held to be a taxable gain. Since it would have been apparent to the taxpayer from the outset that operating profits from the property would be minimal, it was inferred that he acquired and developed the property with the intention of selling it as soon as it was occupied by tenants.

The taxpayer company was an investment contract company which issued investment contracts to investors and invested in income-generating assets which it was permitted to acquire under the Investment Contracts Act (Alberta). The assets permitted under this Act included "real property acquired...in satisfaction of a debt and held for a period of less than 7 years." Through some contrived transactions, the taxpayer purported to acquire a racetrack in satisfaction of debts owing to it, in order that it now could hold that asset in replacement of other debts whose holding could cause it to be de-registered as an investment contract company and about which the regulatory authority had expressed concerns.

The taxpayer were held to have acquired the property with the intention of selling them when the time was propitious, in light of (1) its awareness of the lands' potential for appreciation and of (2) regulatory requirements which prohibited the property for more than 7 years and which restricted its ability to increase the revenue-producing capabilities of the property. Although the acquisition itself was made in order to placate the regulatory authorities, the authorities did not exact the choice of the acquisition. The gain from sale of the property 4 years later was fully taxable.

The court accepted the evidence of the taxpayer (whose business had not included speculating in real esate) that his intention in purchasing along with four other individuals an undivided 1/5 interest in vacant land was to accommodate the expansion of his towing service at some undefined time in the future, notwithstanding that he did not discuss the potential subdivision of the land with the other four participants (in order to accommodate use of a specific parcel by his towing business) before purchasing the property. As the primary intention of the taxpayer was to acquire his interest in the land for purposes of his towing buinsess, and the burden was on the Crown to establish secondary intention (which it had not done) as it had failed to include secondary intention in its pleadings of the Minister's assumptions, the taxpayer realized a capital gain on the sale of the property five years later (at close to four-times cost) pursuant to an unsolicited offer. Reed, J. stated:

"It is clear that a gain made by one taxpayer in a group purchase of property may not be taxable as business income while the profits of the other members may be."

The plaintiff constructed or acquired for renovation seven rent-producing properties over the period 1973 to 1976, disposed of one property in its 1978 taxation year and the others in its 1980 taxation year. It also sold an undeveloped property in its 1977 taxation year, within one year of the property's acquisition, due to a change of plans.

It was found that the intention of the plaintiff to hold the properties as long term investments was evidenced by the length of the leases that were obtained and the high quality of the buildings' construction. The decision to accept an offer to purchase the bulk of the properties in the 1980 taxation year was a response to the announcement by the government of plans to construct a major office building complex in the area, which would have an adverse effect on the taxpayer's rental properties. Cullen J also stated (at p. 6562):

...it is necessary to look at the fact that in no instance were any of the properties ever offered for sale and the two offers which were accepted...were unsolicited.

All the gains were capital gains.

It was held that a company in the fruit and produce business had bought parcels of land that were in excess of its current business needs because of the desire of its management to eventually expand, and that the sale of the westerly parcel 10 years later at a gain was the result of financial pressures on the business. The gain was on capital account.

It was stated that "secondary intention can only serve to support an inferential finding of an adventure or concern in the nature of trade when the operating motivation at the time of acquisition of the property was the prospect of sale at a profit."

The taxpayer company's transactions, which "follow[ed] a generally similar sequence of land acquisition, followed by construction [of apartment buildings] commencing between one and three years later, and sale being effected between one and four years after commencement of construction", was held to have realized a fully taxable gain with respect to the last such sale of apartment buildings, notwithstanding testimony of the company's three shareholders that they intended that those apartment buildings "be retained for long term investment to provide them a living ... for their retirement years."

A construction company acquired the property of its bankrupt customer in settlement of the debt owed to it for the work it had done in partially constructing a building on the property. It was found that "in taking over the property, there [was] not the slightest evidence that it had any hope of disposing of it at all, much less at a profit," and that it was "miraculous" that a later disposition of the property at a profit in fact occurred. The gain was on capital account.

The taxpayer failed to establish that a consortium which had admittedly purchased 73 acres of land with the intention of developing it as a housing and commercial subdivision and selling off the developed land in parcels, had later changed its intention to that of building apartment and townhouse complexes to be held and operated for the purpose of producing rental income.

The taxpayer established that he purchased a farm as a permanent residence and without knowledge that Texas Gulf Sulphur would be assembling land in the area and thus driving up land values.

It was found that the taxpayer company had acquired a hotel because its shareholder was looking for a revenue-generating business to supplement his income from his criminal-law practice, and that the hotel was sold 11 months later primarily because he was unable to find a good replacement manager for the hotel. Therefore, the gain was a capital gain. Also relevant were restrictions in the company's articles.

The gain of an electrical contractor from the disposition of vacant land was held to be taxable in the light inter alia of the following factors: (a) the participation by him in similar transactions in the past; (b) his shareholdings in private real estate companies; (c) a clause in the purchase contract which would allow the land to be broken up according to a developer's financial capacity; and (d) the fact that he took no steps to derive income from the property.

A gain from the sale of a shopping centre approximately two years after its acquisition was held to be a capital gain in light of findings that: (1) the main reason for the taxpayer company's decision to sell the shopping centre was the need of its principal shareholder to obtain the necessary cash to establish a trust company, that decision being reinforced by adverse business trends such as municipal approval of the plan of a competitor to construct a nearby shopping centre; (2) significant renovations to the centre and an earlier refusal of a request to grant an option to purchase the centre indicated that the taxpayer was not primarily concerned with making a quick profit; and (3) at the time of acquiring the centre (unlike an earlier period) the taxpayer was not engaged in speculation in commercial real estate. Strayer J stated (at p. 5423), following Hiwako, that "it is quite consistent with an intention to purchase for the purposes of investment that the purchaser should have in mind the potential value of the property for resale purposes".

Gains from the sale of parcels of farm land were held to be fully taxable, notwithstanding that the parcels had been purchased by the taxpayer with the intention that various relatives would farm the properties and thereby benefit from his assistance, in light of: (1) the quick resale of the properties (within one or two years of their purchase) when the relatives proved unsuccessful at, or unable to, farm them; (2) the absence of any option to the relatives to purchase the properties, and the absence of any financial means on their part to purchase the properties; (3) the expertise of the taxpayer respecting the buying and selling of farm land; and (4) the financing of the land purchases through short-term loans.

Three lots which were sold by the taxpayer after it was unable, after persistent efforts lasting eight years, to obtain a favourable rezoning for development as a commercial and rental property, and after a deterioration in the local market, were held to have given rise to capital gains.

A partnership between the taxpayer and another lawyer (who also was a partner in the taxpayer's legal practice) sold a grape farm as a going concern in response to an unsolicited offer after having experienced operating losses for the three years since the purchase of the two lots comprising the farm. The taxpayer's share of the gain was held to be fully taxable in light of: (1) some knowledge by the taxpayer that his partner was a trader in real estate; and (2) the taxpayer's lack of familiarity with grape farming, the debt financing of the initial purchases, and the informality of the partnership arrangements, all of which suggested that they did not expect to operate the farm in partnership for a long time.

Real property which was resold by the purchaser on the same day that he entered into the agreement of purchase and sale gave rise to a fully taxable gain. Additional factors, were that the taxpayer who effected the 'flip' was a lawyer with prior dealings in real estate who lacked the financial resources to carry the property for an extended period.

A building contractor who built and sold, in relatively quick succession, two homes which he and his family occupied, had the full amount of the gains included in his income as ordinary income.

Two houses, which were adjacent to a house which a town planner initially occupied, were found not to have been acquired by him as an investment to produce rental income - the rental income net of cash outlays being in fact negligible - but as a "means to make his fortune". The gain from the sale of those two houses, which were purchased along with the third house by an apartment-building developer, was fully taxable. Although "the plaintiff had no prior history as a trader in real estate ... one dip in the waters of trade is sufficient".

It was found that virtually all of the non-personal use real estate acquisitions of the taxpayer (who also was the employee of a real estate broker) had been of a character and had been dealt with by him in a manner entirely consistent with his avowed objective of investing, rather than trading or dealing in those interests. Most of the properties were revenue-producing and were held for over five years. His gain on the sale of his interest in an apartment building which was sold after acceptance of an unsolicited offer accordingly was a capital gain.

The lands which were resold six years after their acquisition by the taxpayer at a gain were acquired with the intention "that the development of such lands should be to high rise rental apartments and that the same should be retained by the plaintiff company to provide rental income for the shareholders". That intention was eventually frustrated by delays resulting from the demands of the local municipality and planning board. The fact that an agreement among the shareholders contained a right of first refusal respecting the subject lands was not evidence of a secondary intention to sell, but only indicated that an attempt was made "to make some provision for all possible situations that may arise".

The plaintiff's intention at the time of acquiring land was to build (10 years later) and then operate an industrial park thereon for profit or, if that was not its exclusive intention, then also with the possibility being present as a motivating factor in the plaintiff's mind that the land might be resold at a profit. Since the presence of the latter, secondary intention was not pleaded as an assumption by the Minister, the plaintiff's appeal was allowed.

Although "a person knowledgeable in real estate, such as a broker, may under certain circumstances complete a capital gain transaction", such was not the case here. A broker re-acquired land, which a company of which he was president had previously owned, at a time when there was "a known intention of several parties to assemble lots in the area for a shopping centre", and resold the land shortly thereafter at a profit.

A corporation owned by the taxpayer ("Villeneuve") acquired lands with a view to erecting a shopping centre. The taxpayer sold his shares approximately a year later after he was unsccussful in obtaining a major tenant for the proposed shopping centre. Before going on to find that the gain was taxable, Dube J referred to the Racine case, and stated (at p. 6401):

"When a businessman buys a large expanse of land for the avowed purpose of building a shopping centre on it, but at the time of the purchase he makes no arrangements to obtain permanent financing for the project, has no assurance that he can obatin a major tenant, and the land in question is located in the middle of a rapidly developing sector, and the purchaser possesses experience in the realm of real estate allowing him to anticipate the commercial future of such a sector, it follows almost by irresistable inference that the purchaser already had the idea, when he made the purchase, that if he did not succeed in creating his centre he would have no difficulty reselling the land at a profit [as occurred here]."

The Court of Appeal reversed on the basis that the taxpayer at the time of acquiring the shares of Villeeuve had no intention of selling them.

The taxpayer bought a larger parcel of land than was required for the purpose of expanding and centralizing its equipment sale and servicing business because the vendor was only willing to sell the entire parcel. Although the taxpayer, at the time of acquisition, intended to sell the surplus acreage as soon as possible in order to reduce its debt load, it was found that there was no expectation that such sale(s) would be at a profit. The later sale of the surplus acreage accordingly was on capital account.

It was found that when a mortgagee acquired a rental property by foreclosure it did not have the intention of dealing in the property at a profit and it was only later, after the health of a key manager had deteriorated, structural defects in the building had been discovered and other problems had emerged, that a decision to sell was made. The gain was capital account.

It was held that at the time the taxpayer acquired an undivided 1/4 interest in farm lands on the outskirts of the City of Woodstock "he knew the other co-owners had acquired the lands for a speculative purpose and at all times intended to sell the same or parts thereof at a profit when such opportunity arose." Although the professed purpose of the co-owners in acquiring the lands was to construct an industrial site and rent the land and new buildings to industrial users, they did not consult any planners, surveyors or engineers with a view to planning such a development of the lands nor, for the most part, did they have the funds to carry out such development. The gain from resale was fully taxable.

The taxpayer's gains from the sale of two properties which had been acquired six and eight years, previously were on income account. Although his primary business was that of a caterer, he also had a pattern of buying run-down properties (often yielding only minimal net rental income) and later selling them at gains (albeit, often modest ones). Although at the time he made a conditional offer to purchase the first property, he intended to use it in his catering business, this plan had been frustrated by the time he closed its purchase.

It was found that a real estate lawyer purchased (through his wholly-owned company) a farm as a long-term rental-earning investment. He was receptive to an unsolicited offer, which he accepted on behalf of the company two months after the acquisition had been closed, to sell the farm for over twice its purchase price because of the failure of the farm tenant to make his rental payments. The gain was on capital account.

It was admitted on examination for discovery that at the time of acquisition of non-revenue producing lands, the acquiring company considered development of the lands as revenue-producing real estate (as opposed to reselling it at a profit, as in fact occurred) as unlikely in view of the capital and expertise required for such development. The gain was fully taxable.

The taxpayer purchased a 2,000 acre wilderness estate and resold it 17 years later, after having sold about 200 lots, representing 7% to 8% of the acreage, to prospective cottagers. Although the taxpayer was admittedly a trader in selling the cottage lots, it was not a trader with reference to the sale of the undeveloped remainder, which gave rise to a capital gain. The estate was purchased to provide long-term financial security to the family owning the taxpayer, and the cottage lots were sold to raise money in order to service the rest of the estate with power and a road.

A gain which was realized when farm land was expropriated between 7 and 10 years after its acquisition, was fully taxable. The individual retired watch-maker, who acquired the land through the taxpayer company, did not experience aesthetic enjoyment from the land, which produced negligible revenues. The land was held for resale.

It was held that a lawyer with a history of real estate dealings had been motivated in acquiring a 1/30 interest in a partnership engaged in the construction of an 80-suite apartment building by the prospect of an early sale at a profit, partly in light of the ability of any of the partners to force a sale of the property at any time. A gain realized 4 years after the acquisition of his interest was a fully-taxable profit.

The taxpayer established that at the time of signing the purchase agreement (as opposed to the time of closing) his only intention in acquiring the land was to erect a home for his family thereon and to farm much of the remaining land. A gain from the disposition of the land 4-1/2 years later, following unsuccessful efforts to obtain a building permit, was a capital gain.

The taxpayer company realized a gain from the sale of a shopping centre 10 years after acquiring some of the raw land and 5 years after constructing the centre. Since a scrutiny of the subsequent activities of the owner of the taxpayer company indicated that at all relevant times commercial properties were held for revenue purposes only until such time as it was convenient to turn them to account, the gain was a taxable profit.

The appellant, which acquired land in 1965 with the intention of farming it, decided in 1967 to dispose of the land as advantageously as possible when farming proved to be unprofitable. It was held that when the land was finally disposed of in 1973, the resultant gain was a capital gain, because the appellant initially had acquired the land only with the intention of farming it and notwithstanding that its shareholder was alos engaged in a land development business.

It was found that the taxpayer company acquired land with the intention of erecting a shopping centre thereon and leasing it to the tenants, and that this intention was frustrated when the Planning Board in effect required the taxpayer to acquire a neighbouring strip of land which the owner thereof was unwilling to sell to the taxpayer. There was no evidence of secondary intention, and a gain realized from selling the land following the acceptance of an unsolicited offer, was a capital gain.

[A] clear and unequivocal positive act implementing a change of intention would be necessary to change the character of the land in question from a trading asset to a capital asset. (p. 5067)

Here, the only evidence that raw land - which admittedly had originally been acquired for future subdivision and sale following the building of a housing subdivision - had been later transformed from a trading asset to a capital asset, was the statement of the appellant at trial that the land after a given point in time was held as a capital asset.

A large scale contractor in 1964 and 1965 lent monies secured by second mortgages on lands including an area being developed as a golf course, and in 1968, after the loans had gone into default, had an "alter ego" company ("Ontra-Desar") purchase the lands from the mortgagor, with the result that amounts owing to the contractor were discharged. It was found (at p. 5036) that at the time of the acquisition of ownership of the property in 1968, which was the relevant time for ascertaining intention, the intention of the owner of the contractor (and of Ontra-Desar) "was not to make a profit by acquiring the property but rather to cut his losses and recover amounts due on the loans and interest if possible". A gain realized in 1970 from the sale of part of the property accordingly was a capital gain.

In order to acquire lands to erect rental properties thereon (four apartment buildings at a Montreal location) the taxpayer and his partner were required to buy more land than was necessary for that purpose. Their programme of selling off the excess lands (representing 85% of the total lands) over the following 13 years had the effect of converting those excess lands from capital assets to inventory, and the gains which they realized accordingly were taxable profits.

The taxpayer corporation, which admittedly acquired land for the purpose of subdividing it and selling it as residential building lots, unsuccessfully argued that because of the frustration of these plans due to an unforeseeable change in the municipal designation of the land, the land had lost its character as a trading asset and become a capital investment. The sale of the land following an unsolicited offer was analogized to "any large or small sale of raw material which, for whatever reason, has become unusable or unsuitable for use in the ordinary course of a taxpayer's business". A trading gain was realized.

The intention of the taxpayer, which was a corporation controlled by real estate developers, to develop lands as commercial rental properties was frustrated with respect to the portion of the lands in question, firstly, when it was zoned for apartment development only and, secondly, when the taxpayer's revised plan to lease the lands in question on an emphyteutic basis for development as an apartment complex fell through indirectly as a result of unexpected conditions imposed by CMHC with respect to insuring a loan. There was no vestige of secondary intention as the taxpayer clearly wanted to develop all the property for revenue producing purposes, and only sold it as a last resort. The taxpayer realized a capital gain from the disposition.

It was found (reversing the Court below) that the purchase of eight residential apartment buildings by a company controlled by an individual with a previous history of holding and selling real estate, followed by their sale 11 months later, gave rise to a capital gain. The fact that the taxpayer, in making the purchases, had in mind the prospect of inflation in land values was not evidence that the purchase was the launching of an adventure or concern in the nature of trade. Jackett J.A. stated (at p. 6284):

An intention, at the time of purchase, to re-sell at a profit does not ... necessarily give the purchase and a subsequent sale the character of "an adventure or concern in the nature of trade."

Unimproved farm land within Metropolitan Toronto was acquired as an adventure or concern in the nature of trade by a company which was owned by a non-resident ("Mentzelopoulos"). Although Mentzelopoulos stated that (1) his intention was to acquire a permanent investment in a stable country in order to benefit his children, and (2) that he sold the lands 11 years later as a result of the international monetary crisis of 1971 and the need, if he retained the land any further, to make representations to Scarborough planning authorities, the trial judge was entitled to take into account the minimal revenues from the property, the absence of any effort to improve the property so as to generate income, a clause in the purchase agreement stipulating that the property be suitable for residential development, and the insistence of Metzelopoulos that leases of the property be terminable on no more than six months' notice.

The testimony of the taxpayers, that they purchased farm land just outside Toronto with the intention of, some day, using it for the purpose of generating rental income from industrial use, was accepted. The sale of the land, still in undeveloped form, 14 years later gave rise to a capital gain. It was noted that knowledge of the possibility of resale at a profit was not tantamount to secondary intention.

A building contractor through his testimony convinced Cattanach J. that "he had no other intention in mind when he bought the property [9 acres of raw land] other than to retain the whole as a shopping centre for investment and income purposes", and that he sold 7 of the 9 acres a year later only as a result of his discovery that he had bought more land than could be productively used for a shopping centre and as a result of becoming financially through committing to too many other projects.

A professional engineer, his partner in his engineering practice and an architect erected an office building in order that the second floor would be used to house their respective professional operations and the balance rented to others. A sale and lease-back of the building 9 months after its completion was prompted by the financial difficulties of the taxpayer (including as a result of a guarantee given on a performance bond). This sale gave rise to a capital gain (contrary to the finding of the Trial Division and the Board).

The taxpayer, which since 1954 had been engaged in the building of houses for sale, in 1969 sold a substantial portion of its assets to an affiliated company and thereupon ceased to have houses for sale or under construction. The 1969 transaction did not affect the inventory character of undeveloped land which the taxpayer retained. A 1970 sale of part of the retained land was taxable.

The taxpayer acquired an interest, as tenant-in-common with other purchasers, in farm land producing negligible revenue. They sold the land 5 years later under the threat of expropriation, and he realized a taxable profit. "[T]he character of the transaction and the taxability of the profit arising therefrom is in no way changed simply because the Appellant's intention was to retain his interest in the land for a substantially longer period of time than, in fact, he did. Since his intention from the beginning was to sell at a profit from then on its characterization as a venture remained and thus the validity of the taxation of his gain on the sale also remained."

The taxpayer, which held interests in various operating companies and directly owned various hotels and other properties in the Saskatoon, purchased a 57-year old four-storey office building, made major renovations and sold the building two years later following an active leasing program. It was found that it accepted the attractive offer because of its realization that the Saskatoon office-rental market was about to be flooded with newly-constructed first-class office space, resulting in a change in its original investment intention, and that its gain was a capital gain.

The taxpayer was found to have realized a gain on income account as a result of the expropriation of a 2.2 acre property with a favourable location in the Halifax area, given that its sole shareholder was a trader in real estate and given the absence of any actions taken by it, during the short period (approximately five months) before the province announced its intention to expropriate the property, to give effect to its stated intention to develop the property as a rental property.

The parent corporation of the three taxpayers (The Trust and Loan Company of Canada) transferred approximately 156 Manitoba farms (which it had acquired on foreclosure during the depression) to the taxpayers. It was found that the sale of the bulk of the farms by the taxpayers over the following period of over a decade occurred pursuant to a policy of the taxpayers to do so at maximum gain from the moment they acquired the farms. Accordingly, the resulting gains were on income account notwithstanding that the farms generated a significant return by way of rental income in the interim and notwithstanding that the farms were almost invariably sold to the tenant farmers who occupied them. Cattanach J. noted that the taxpayers were "investing" in the sense of purchasing properties with a view to their resale at a profit, rather than purchasing properties for the income that could be obtained therefrom.

A husband and wife sold five farm properties in consideration for promissory notes and debentures to a newly-incorporated corporation owned beneficially by family members and certain charities, which then disposed of part of the lands at a gain four years later after having in the meantime earned significant forfeited option premiums with respect to various option agreements granted to third parties other than the ultimate purchasers. In rejecting a submission of the company that "the lands were acquired [by it] as a capital asset for the ultimate purpose of orderly and advantageous liquidation and that the receipts were capital gains" (p. 5020), and in distinguishing Rand v. Alberni Land Co. , Ltd. (1920), 7 T.C. 629 where, on somewhat similar facts, Rowlatt J had found (at 639) that "the company has done no more than to provide the machinery by which the private landowners were enabled ... to properly realise the capital of the property they held in the lands," Judson J. stated (p. 5020):

In none of these realization cases was there an out and out transfer by former owners for a cash consideration. ... The company was not "realizing" or selling these properties for the benefit of prior owners or the creditors of prior owners. ... The company was selling on its own behalf to make a profit... . The company was in business for this purpose ... .

The taxpayer (Moluch) acquired 55 acres of bushland in 1937, part of which he cleared and farmed. Because of his wife’s ill health, he was forced to cease farming the property in 1956, and pursued selling off subdivided lots. To that end, Moluch had the land subdivided, roads built, sewers and necessary utilities installed. He then advertised and disposed of fully-serviced lots between 1956 to 1962 at significant gains. In the course of finding that the gains were realized on income account, Cattanach J stated (at pp. 5467-8):

Merely putting the article into a more suitable condition for favourable sale would not necessarily have this effect, as for example, having a house repainted or jewels cleaned and the like. I am disposed to think that the matter is one of degree depending upon the business-like enterprise and activity displayed….

This is what I think the appellant did. He took the raw land which he owned and by the expenditure of money and effort he ended up possessing a number of fully serviced residential lots for sale. …

The facts in the McGuire case [56 DTC 1042] are distinguishable … in that there the effect of filing a plan of subdivision was merely to divide the land into a number of smaller parcels which were sold piecemeal without effecting any physical change in the land, whereas in the present appeal, the character of the raw land was changed to that of serviced lots by the expenditure of considerable effort and money, in addition to the land being divided into a number of smaller parcels.

Three promoters bought a 619-acre farm on the outskirts of Ottawa, which they immediately transferred to a corporation (the taxpayer). The corporation subdivided 67 acres of river frontage into 187 lots, which were sold over the course of 14 years, but the remaining property was leased successively to two farmers for annual rentals until 15 years after the date of the original purchase, when it was sold to the National Capital Commission.

After noting (at p. 257, Ex CR) that "to give a capital acquisition transaction the dual character of being at the same time a venture in the nature of trade, the purchaser must have had at the time of the acquisition, the possibility of resale in mind as an operating motivation for the acquisition", Jackett C.J. went on to find that the evidence supported the taxpayer's assertion that its intent at the time of acquisition was to use the land for farming purposes, and that there were no surrounding circumstances from which an inference could be drawn that at the time of acquisition, the taxpayer had a secondary motivation, i.e., an intent to purchase the property for the purpose of reselling at a profit.

The taxpayers, who were experienced businessmen, acquired the assets of an insolvent corporation engaged in buying and selling machinery, using mostly borrowed money. They acquired the real estate directly, and the other assets through a newly-incorporated corporation. A few months later, after they were starting to lose confidence in the former management of the insolvent company, whom they had retained to manage the acquired enterprise, they sold both the real estate and the new company at a gain.

Before accepting the testimony of the taxpayers that (similar to their other enterprises) they acquired the business for the purpose of operating it definitely, so that their gain was on capital account (non-taxable), Noel J stated (at p. 5100) that "a profit resulting from the sale of a business is not a profit from a business" and further stated (at p. 5103):

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 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.

Before the acquisition of lands, the taxapayers had been advised that a shopping centre would not be economically feasible without an adjoining apartment dwelling project. However, zoning changes to permit the latter were not forthcoming.

Judson J. upheld the finding of the trial judge that the taxpayers, who were active and skilled real estate promoters, had their companies acquire the lands with a view to realizing a profit therefrom either from developing them as rental property (the shopping centre and apartment buildings) or, if that failed, by a sale of the lands (which latter event occurred at a profit). The fact that this alternative result was accomplished through a sale of shares rather than a direct sale of the land was irrelevant to the characterization of the gain (as "that this was merely an alternative method that they chose to adopt in putting through their real estate transactions" (p. 661).)

The taxpayer, whose shareholders devoted a significant but ultimately unsuccessful efforts to interest a major department store in becoming a tenant in a proposed shopping centre which would have been developed on a significant acreage of land which the shareholders acquired and transferred to the taxpayer, disposed of the land at a profit after the most likely such tenant publicly announced that it intended to locate a department store in the neighbourhood but on another site. Judson J. upheld the finding of the trial judge but although the primary aim of the shareholders was the establishment of a shopping centre, their intention from the beginning was to sell at a profit if they are unable to carry out their primary aim, in light of the fact that they had no assurance when they entered upon their venture that they could interest a major department store as a tenant.

A retired individual who agreed to participate with a relative in the purchase of building lots realized a taxable profit from the disposition of his portion of the lots notwithstanding that the disposition followed a difference of opinion with his associate rather than occurring pursuant to the original plan. The Court stated (at p. 1022):

[A]s stated by Jessel M.R. in Smith v. Anderson, (1880), 15 Ch. D. 247 at 261...

So in the ordinary case of investments, a man who has money to invest, invests his money and he may occasionally sell the investments and buy others, but he is not carrying on a business.

However, it is also true, as well in the case of an individual as of a company, that the profits of an isolated venture may be taxed: Edwards (Inspector of Taxes) v. Bairstow et al., [1956] A.C. 14, [1955] 3 All E.R. 48. It is impossible to lay down a test that will meet multifarious circumstances that may arise in all fields of human endeavour. As is pointed out in Noak v. Minister of National Revenue, [1953] 2 S.C.R. 136, 53 DTC 1212, [1954] C.T.C. 6, it is a question of fact in each case....

In the present case I agree with Mr. Justice Hyndman’s findings...that: -

Having acquired the said property there was no intention in his mind to retain it as an investment, but to dispose of the lots, if and when suitable prices could be obtained.