Real Estate


Indicia of "adventure"/significance of intention

A disposition of real property will be on income account (rather than on capital account thereby potentially giving rise to a capital gain), if the real property is inventory of a business, or if it was acquired (and continued to be held to the time of disposition) as an adventure in the nature of trade. As there generally will be no uncertainty that real estate property sold in the ordinary course of a real estate development business, such as that carried on by a developer of housing subdivisions, is inventory, most of the jurisprudence has turned on the question as to whether a real estate property was acquired by the taxpayer as an adventure in the nature of trade, rather than as inventory in the ordinary sense of the word. (The Friesen case found that the effect of the extended definition of business in s. 248(1) was to extend inventory treatment to properties held as adventures in the nature of trade.)

In Friesen, Major J stated (at p. 5554):

The concept of an adventure in the nature of trade is a judicial creation designed to determine which purchase and sale transactions are of a business nature and which are of a capital nature....The question was succinctly stated by Clerk, L.J. in Californian Copper Syndicate v. Harris (1904), 5 T.C. 159 (Ex., Scot.), at p. 166:

"Is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in the operation of business in carrying out a scheme for profit-making?"

The first requirement for an adventure in the nature of trade is that it involve[s] a "scheme for profit-making". The taxpayer must have a legitimate intention of gaining a profit from the transaction. Other requirements are conveniently summarized in...IT-218R, which... lists a number of factors which have been used by the courts to determine whether a transaction involving real estate is an adventure in the nature of trade creating business income or a capital transaction involving the sale of an investment. Particular attention is paid to:

(i) The taxpayer's intention with respect to the real estate at the time of purchase and the feasibility of that intention and the extent to which it was carried out. An intention to sell the property for a profit will make it more likely to be characterized as an adventure in the nature of trade.

(ii) The nature of the business, profession, calling or trade of the taxpayer and associates. The more closely a taxpayer's business or occupation is related to real estate transactions, the more likely it is that the income will be considered business income rather than capital gain.

(iii) The nature of the property and the use made of it by the taxpayer.

(iv) The extent to which borrowed money was used to finance the transaction and the length of time that the real estate was held by the taxpayer. Transactions involving borrowed money and rapid resale are more likely to be adventures in the nature of trade.

Various other cases (e.g., Reeves) have also listed relevant factors. In Happy Valley, Rouleau J provided the following, generally similar, list (at pp. 6423-6424):

1. The nature of the property sold. Although virtually any form of property may be acquired to be dealt in, those forms of property, such as manufactured articles, which are generally the subject of trading only are rarely the subject of investment. Property which does not yield to its owner an income or personal enjoyment simply by virtue of its ownership is more likely to have been acquired for the purpose of sale than property that does.

2. The length of period of ownership. Generally, property meant to be dealt in is realized within a short time after acquisition. Nevertheless, there are many exceptions to this general rule.

3. The frequency or number of other similar transactions by the taxpayer. If the same sort of property has been sold in succession over a period of years or there are several sales at about the same date, a presumption arises that there has been dealing in respect of the property.

4. Work expended on or in connection with the property realized. If effort is put into bringing the property into a more marketable condition during the ownership of the taxpayer or if special efforts are made to find or attract purchasers (such as the opening of an office or advertising) there is some evidence of dealing in the property.

5. The circumstances that were responsible for the sale of the property. There may exist some explanation, such as a sudden emergency or an opportunity calling for ready money, that will preclude a finding that the plan of dealing in the property was what caused the original purchase.

6. Motive. The motive of the taxpayer is never irrelevant in any of these cases. The intention at the time of acquiring an asset as inferred from surrounding circumstances and direct evidence is one of the most important elements in determining whether a gain is of a capital or income nature.

He then went on to say (at p. 6424):

While all of the above factors have been considered by the Courts, it is the last one, the question of motive or intention which has been most developed. That, in addition to consideration of the taxpayer's whole course of conduct while in possession of the asset, is what in the end generally influences the finding of the Court.

In Leasehold Construction, Tremblay-Lamer J was more emphatic in emphasizing (at p. 5472) the primacy of intention:

The Courts have consistently stated that if the intention of the taxpayer in creating the asset is to sell it at a profit, the asset cannot be capital property.

Similarly, in the passage quoted above from Friesen, Major J stated that "the first requirement" for finding an adventure in the nature of trade (namely, a "scheme for profit-making") is that "the taxpayer must have a legitimate intention of gaining a profit from the transaction." Accordingly, if at the time of acquisition of the property, it would be apparent that a subsequent sale of the property would be unlikely to generate a profit, such acquisition likely would not have been made as part of an adventure in the nature of trade (318806).

Feasibility of intention

As noted in the passage quoted above from Friesen, reference should also be made to the feasibility of the taxpayer's intention. Accordingly, the presence of a significant barrier to being able to resell the property (e.g., a requirement in a limited partnership agreement that there be approval by a super-majority before the property can be resold - see Cardella) may indicate that the property is acquired as capital property. Conversely, where the arrangements governing the holding of the property would render it difficult for the property to be held as a long-term investment, e.g., where any partner of a partnership holding the property may cause the property to be sold, this may be inconsistent with the property having been acquired as capital property (Gamble).

Lack of adequate financing to develop a property for rental or other investment purposes also may be indicative of its acquisition on income account (see under "Financing of property" below.)

Personal use intention

The acquisition of a property for personal use with the property (typically, a home or recreational property) in fact being so used likely will occur on capital account (Niemi, Montford Lakes). However, where the taxpayer intended to subdivide the property and sell the subdivided lots which were not required for personal use, the sale of those lots will occur on income account (Johnstone). Moreover, a practice of regularly acquiring homes, renovating them and reselling them at a gain likely will be characterized as a business or as a series of adventures in the nature of trade even if there is some use of the homes as personal residences prior to their sale (see Schlamp).

Rental income investment (or operating business) intention

Whereas an intention to resell at a profit is indicative of an acquisition of the property as part of an adventure in the nature of trade (or, depending on the extent and degree of organization of the taxpayer's activities, as inventory of a business), the acquisition of a property for the sole purpose of earning rental income (Iula, Leasehold Construction, Hebert, Woodbine, Colville-Reeves), utilizing the property in an operating business of the taxpayers or a corporation owned by them, such as a dealership (Racine), hotel (Carsons), farm (Demeter) or logging operation (Twin Islands), or holding the property for prospective expansion of an operating business (Fine), is indicative of the property being acquired as capital property. However, the fact that the property generates rental income or annual crops is not necessarily inconsistent with the property having been acquired as an adventure in the nature of trade, e.g., where it is acquired on the outskirts of an expanding metropolitan area at a price substantially in excess of that which would be justified alone by the annual income return (Breakell, Bodine, Hertel, cf. Borinsky), especially where there is an absence of any effort to develop the property's income potential and the leases are deliberately made terminable on short notice (Birmount Holdings) - or where the level of farming or rental income generated or to be generated is minimal (Happy Valley, Horvath, Hummel) or substantially below the property expenses (Giannakos, see also Walton) -or where the informal arrangements for holding the farm and its debt financing do not suggest an intention to operate it on a long-term basis (Van Anrep, see also McDonald ).

Furthermore, a consistent pattern of acquiring, developing and selling rental real estate is indicative of the rental properties being disposed of on income account (Rudolph Construction, Kensington, Rudelier Ranch). Accordingly, even if the main focus of a company is to hold a portfolio of rental properties, the sale of a rental property at a gain may very well occur on income account if the taxpayer has made a series of such dispositions (Marsted). Where the taxpayers acquired a portfolio of farms from an affiliate with a view to selling then to the tenant farmers, such sales were on income account even though the selling programme occurred over the course of more than a decade and the farms generated substantial rents in the interim (First Torland).

A regulatory requirement that the taxpayer dispose of a property within a stipulated number of years of the property's acquisition very well may be inconsistent with the property having been acquired as an income-producing investment (First Investors).

Conversely, raw land which is suitable for resale and unsuitable as an income-producing investment or for personal enjoyment, likely will be held on income account (Friesen, see also Marois). However, a British case suggested that in an inflationary era, raw land may be acquired as an inflation hedge and, thus, as an investment (Marson v. Morton).

Where a taxpayer who is in the business of developing and selling homes also rents some of its homes to customers with a purchase option which likely will ultimately be exercised, the receipt of the exercise price likely will be on income account notwithstanding the interim receipt of rental income on the optioned properties (Algonquin).

Secondary intention doctrine

This brings us to the doctrine of secondary intention. A taxpayer may acquire a property with a view to developing it as a rental property, but with knowledge that this may not prove to be feasible because of the difficulties in attracting an anchor tenant (in the case of a shopping centre - for example, Regal Heights or Regina Shoppers) or in obtaining the desired zoning for the lands ( Fraser). The taxpayer in the face of risks such as these nonetheless may proceed with the acquisition because the lands would lend themselves readily to resale at a profit even if such risks materialize. In circumstances such as these, the taxpayer will be considered to have acquired the property with a secondary intention of reselling at a gain, so that the property was acquired on income account (see Dumas).

In Racine, Noel J noted that in order for a purchaser to be considered to have secondary intention of reselling at a gain:

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.

Accordingly, knowledge of the potential to resell at a gain is not sufficient to ground a finding of such secondary intention - such prospect must be an operating motivation in the acquisition of the property (Crystal Glass, Kit-Win, Borinsky, see also Sivasubramaniam, CIR v. Reinhold) - or, as stated in Sharon Mills, "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." Before noting the "operating motivation" requirement, Jackett J.A. stated in Hiwako that:

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."

Similarly, the fact that the taxpayer's intention of developing a property as a rental property was frustrated due to failure to obtain timely land use approval from a regulatory authority does not by itself invoke the secondary intention doctrine (Riznek, South Shore, Choice Realty). (See also Witten, Snell, Desrocher.)

If the Crown does not expressly plead that the taxpayer had a secondary intention, the onus is on the Crown to establish that the taxpayer had such intention (Kit-Win, Bassani).


In determining whether a gain from the disposition of a property, which was acquired on the exercise of an option, was realized on capital or income account, it generally will be appropriate to have regard to the taxpayer's intention at the time at which the taxpayer acquired the option, rather than to have regard to the fact that at the time of exercise of the option, the taxpayer's intention was to immediately dispose of the property at a gain over the exercise price (Snell, Options).

Connection to taxpayer's business

As is noted above and below, a taxpayer is more likely to be considered to have acquired real property as an adventure in the nature of trade (or as inventory) if it has experience and expertise in real estate development or trading activities (Friesen, O&M, Lee, Rivermede, Happy Valley). Professional knowledge, e.g., that of a town planner (Walton), building inspector (Dubé) or a real estate broker (Leduc), may also be indicative of an intent to enjoy a trading gain even where the taxpayer has no prior history as a trader in real estate.

A taxpayer which is a speculator or trader in real estate, may be able to establish that the property in question was acquired by it in connection with a separate business (e.g., farming) so that the property was acquired as a non-trading asset to be use in that business (Mintenko). Even where the taxpayer's regular business includes the construction or development and sale of the same type of property as the one in question, the sale of that property nonetheless may be on capital account where there is evidence that it was constructed to be held as a rental-producing investment (Leasehold Construction, see also Toolsie).

Numerous real estate transactions of the taxpayer generally will suggest that the business of the taxpayer includes dealing in real estate (Rudelier Ranch, O&M). Conversely, the very first development and sale of a rental property by the taxpayer may be on income account where there is sufficient evidence that the property was not acquired as an investment (Iula).

Imputed intention of dominant co-venturer, general partner or shareholder

Where the taxpayer who does not have such experience and experience has acquired real estate in co-ownership or partnership with other taxpayers who have such experience and expertise, and it is reasonable to infer that the other taxpayers will take the lead role in developing or managing the real property, then the intentions of those "dominant or directing minds" likely will be imputed to the taxpayer (Sardo, see also Bell, Van Anrep, cf. Grouchy). However, where the taxpayer is a co-owner who is free to deal separately with the taxpayer's co-ownership interest in a property and there is no evidence that the taxpayer has expressly or implicitly acquiesced in decisions made by the alleged dominant co-owners, no imputation the others' intentions to the taxpayer should occur (Bassani, Bell). There potentially also may be no imputation of intention where there is evidence that the taxpayer exercised independent judgment with respect to his interest in the property (Grouchy). However, the taxpayer need not be ad idem with a co-venturer in order to realize a gain on income account (McIntosh).

Furthermore, the intentions of the controlling shareholder of a corporate taxpayer may be imputed to the taxpayer, so that if such shareholder trades in property of the same type as that sold by the taxpayer, the latter transaction very well may occur on income account (Vaughan Construction, King Edward).

Also somewhat similarly, if the intentions of a partnership as a whole are to develop land as land inventory, the taxpayer's share, as a member of the partnerships, in a resulting gain will be on income account even where the taxpayer's role in the partnership was passive (Homes Development, see also Allocation of partnership capital gains).

Where a property is acquired by a limited partnership, the relevant intention likely is that of the general partner (or a dominant shareholder or co-venturer thereof) rather than that of the limited partners (see Alexandroff).

Relevant time of intention

Although it has been stated that the relevant time, for determining whether the taxpayer's intentions were such as to make a real estate property a trading asset or capital property, is the time at which the taxpayer acquired ownership of the property (Greenington, see also Hazeldean Farm), a more precise pinpointing of this relevant time may point to the time at which the taxpayer entered into a binding commitment to acquire the property, i.e., typically, the time at which the taxpayer entered into the purchase agreement (Caponecchia, Alexandroff), provided the offer whose acceptance gave rise to the agreement was not conditional (Horvath). See also Western Wholesale ("the moment that the purchaser becomes firmly committed to the essential terms of the purchase.")

Where the taxpayer acquired an option on a property, the relevant time for determining the taxpayer's intention is the time the option was acquired rather than the time of its exercise (Snell).

Conversion through change of intention

If a taxpayer, which has a real estate development business, acquires land as inventory with a view to its resale at a gain, but later determines to start holding the land as an investment in order to construct a rental property thereon, the portion of the gain subsequently realized on the land that accrued while the land was held as an investment will be received on capital account, with only the appreciation that occurred up to the time of that change in use being received on income account (Kaneff, see also Edmund Peachey, Schneider/Mohawk). However, where there was a change in intention of the person (with the dominant intent) to develop a property as an investment (an apartment building) rather than as inventory (a condominium development) a short time after the acquisition of the property, all of the subsequent gain was on capital account (Hanley).

Frustration of the taxpayer's plan to develop real estate inventory (e.g., failure to receive subdivision approval), resulting in the taxpayer's determination to sell the property, will not be itself sufficient to convert the inventory to capital property (Randall Park). Temporary use for the recreational use of family members of lands acquired for speculative purposes generally will be 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" (Jacobson).

Conversely, where land acquired as an investment is subsequently converted to inventory as evidenced by a clear and unequivocal positive act such as application for approval of a plan for development of a property as a housing subdivision (Roos), a subsequent sale for proceeds in excess of the property's value at the time of such change of intention will give rise to an income account gain (see IT-218R, Schneider/Mohawk). However, where no evidence is adduced as to the value at the time of such conversion, all of the gain on the subsequent disposition may be treated as an income account gain (Homes Development). CRA's view is that the conversion of real estate capital property (such as vacant land held for business purposes) that was used for the purpose of gaining or producing income from a business or property (as contrasted to personal use) to inventory will not be governed by s. 45(1) or 13(7)(b), so that generally no gain will be recognized until the property is sold (or otherwise disposed of): IT-218R, para. 10, 12, 15.

Preliminary overtures by the controlling shareholder of the corporation (and one of its directors) to have a capital property of the corporation developed for resale will not be sufficient to convert that property into inventory - in part because such an individual's acts would not represent a corporate decision of the corporation's board (Magilb). A decision to sell land initially acquired as a protective greenbelt to a principal residence likely would not have been regarded as sufficient to transform such greenbelt properties into inventory (Willis). Protracted efforts to try to sell a personal residence after it has been vacated due to a change in employment do not convert the residence to inventory (Fecteau).

Where at the time of the transfer of property between related entities, there has been a change of intention of the business principals from development and resale to an investment intention, the property generally will be a capital property to the transferee entity (Jodare).

Where a real estate development company transfers its business to an affiliate, but retains some of the undeveloped land which it had been holding as inventory, that land likely will continue to be held on income account (Fredericton Housing).

Financing of property

Where the acquisition of a property has been financed with third-party debt that the taxpayer likely would have difficulty servicing on a long-term basis, this will typically suggest that the taxpayer did not have the intention of acquiring the property as a long-term investment (Roseland, Campeau, see also Lee, Future Investments, Bosa Bros, Marshall, Van Anrep). However, no such inference is likely to arise where the debt is in the form of loans from shareholders of the taxpayer or the taxpayer otherwise has the practical ability to defer payments under the loans (Roseland).

If the acquisition of a property has been financed mostly with debt, this greatly multiplies the potential return (or loss) of the taxpayer on any resale. Accordingly, highly leveraged purchases of rental real estate arguably are at least somewhat indicative of a trading intention even where the rental income may be sufficient to largely service the debt payments (see Rudelier Ranches).

Length of holding

A sale of a property by a taxpayer at a gain shortly after having developed the property or shortly after its acquisition while still holding the property as undeveloped land typically will give rise to an inference that the property was not acquired as an investment (see Hertel, Gameroff). A similar inference may arise with respect to a resale of farming land after a short holding period where the taxpayer did not have arrangements in place to have the property farmed on a long-term basis (see McDonald).

Although this is far from being a decisive factor (see McDonald ), the reader may note in the cases summarized below that taxpayers who have held a property as an income-producing property for five years or more usually will realize subsequent sale proceeds on capital account. (However, a total period of holding of a property that is disposed of on income account may be much longer than this if there is a lengthy development period - see, for example, Regina Shoppers).

If the holding period is much shorter, the taxpayer may need to demonstrate that the circumstances giving rise to the sale were unexpected and would not reasonably have been anticipated, for example, the introduction of rent controls (Hanley), financial difficulties experienced during a recession (Bosa Bros.) or arising for other reasons (Reicher), the need to raise cash for an acquisition (Sharon Mills), the receipt of a threat to use expropriation powers (Desrocher), inability to find a good replacement manager for the property (a hotel) (Carsons), the failure of the tenant to pay rent (Robbie Holdings), a realization that the market was about to be flooded with competitive rental properties (Sikler) or the unexpected receipt of an attractive offer (Biffis).

A short holding period is not relevant if the disposition was accidental destruction by fire (9067-9051).

Reason for receipt of sales proceeds

A disposition of a property pursuant to an unsolicited offer is more likely to be regarded as consistent with the taxpayer having acquired the property as an investment than in the case where the taxpayer actively solicited offers or otherwise actively marketed the property (Woodbine). However, in one case (Iula) the court accepted evidence that the property (which was held to have been disposed of on capital account) was advertised merely to gain some sense of its market value!

In some cases, the courts have accepted evidence that a property which was acquired as a long-term investment was only offered for sale because of unanticipated financial difficulties (Bosa Bros.).

A disposition of a property on its expropriation is not inconsistent with the property being held on capital account Witten). However, if on other grounds the property should be considered to be land inventory, the expropriation proceeds will be received on income account (Vaughan Construction, Bellingham).

Non-trading/reorganization transactions

Although the disposition of a business as a whole is viewed in various contexts as a capital transaction (Accounts Receivable), this proposition does not apply to the disposition of inventory, including real estate inventory. Accordingly, profits realized on real estate inventory occurring on the winding-up of a real estate venture will be income account gains (Landes). Having said that, it is quite likely that when a business, other than a real estate trading or development business, is sold, the real estate which was used in the operations of that business will be considered to be disposed of on capital account (Independent Gaz).

A property acquired by a creditor on default very well may be acquired by it on capital account if on such acquisition it did not have any expectation of disposing of the property at a gain (Greenbranch, Farmer Construction) but, rather, acquired the property in order to cut its losses (Greenington). However, if in fact the land was acquired by the taxpayer in order to realize a commercial gain on its resale, the deeming of such resale to give rise to a loss for purposes of the Act (because the property was deemed to have a high cost under the foreclosure rule in s. 79.1) will likely not detract from the property having been acquired on income account (Saskatchewan Wheat Pool).

The intentions of the various members of an affiliated group may be attributed to the same executives or shareholders who direct the group (see "Imputed intention of dominant co-venturer, general partner or shareholder.") Perhaps on this basis or on the basis that the transfer of a property to an affiliate in consideration for securities of the affiliate may be characterized merely as a change in the form of ownership by the taxpayer of the transferred property (see Krauss), properties transferred (perhaps on a rollover basis) to an affiliate often may retain their character as such in the hands of the transferee as capital property or inventory (see "Reorganization transactions", 2000 Ruling, Mara Properties), and with disposition occurring on capital account to the transferor. However, capital property transferred to an affiliate likely will not retain its character as capital property where the property is real estate which the transferee affiliate acquires for the purposes of development and ultimate sale to arm's length purchasers (see 8 January 1993 T.I., Balstone, see also First Torland).

Property held by the taxpayer as inventory will be transferred by it on income account even if the transferee is a subsidiary or other affiliate (Dalron).

Sale of excess lands

Where a taxpayer acquires a larger parcel of lands than is required for use in its (non-real estate) operating business with a view to selling the surplus acreage as soon as possible in undeveloped form, such sale should not be indicative of a trading transaction if the taxpayer had no expectation that such sale would be at a profit (Jarvie Holding).

Conversely, where the excess lands are developed with a view to their resale at a profit (Canada Safeway), or the excess lands are sold pursuant to an extended selling programme, e.g., one lasting a decade or more (Cohen), such resale(s) will occur on income account . Similarly, where a large wilderness tract is acquired with a view to selling off lots in order to raise money to service the rest of the tract with power and a road, their sale will be on income account even though the remainder may be held as capital property (Montford Lakes). The fact that a portion of a property is acquired with a view to its sale of inventory over a course of years may not detract from the balance of the property having been acquired as capital property (Hazeldean Farm).

Where the taxpayer acquires the whole parcel for development as a rental property and only discovers subsequently that a portion of the parcel is not needed for such purposes, the sale of the excess land is more likely to be on capital account (see Froese, see also Willis).

Standing timber

A sale of land with standing timber on it should be characterized as a sale of real property rather than as a sale of real property and a commodity, with the result that all of the gain may be a capital gain (Glassford).


6610048 Canada Inc. v. The Queen, 2021 CAF 229

a quick exit from a development project at a gain was on income account

The taxpayer acquired an assembly of lots between 2006 and 2008 for development as a mixed use (commercial and residential) project close to a proposed train station that would link the site (in the downtown of the City of Masouche) by train to Montreal. Prior to acquiring a portion of the lands, the taxpayer entered into a written agreement with the City in which each made various commitments regarding the proposed development.

The Court found no reversible error in the Tax Court judgment confirming that gains (realized mostly in 2009) from various dispositions of the lots were on income account. The taxpayer submitted that such decision erred in stating that real property acquired for a purpose other than to produce income from property (as was the case here) is not capital property. LeBlanc JA found that even if this statement was erroneous, it did not have any incidence on the ultimate decision, which was grounded in the jurisprudence.

LeBlanc JA quoted Canada Safeway, at para. 61, including the statements that “for the transaction to constitute an adventure in the nature of trade, the possibility of resale, as an operating motivation for the purchase, must have been in the mind of the taxpayer,” “with respect to ’secondary intention’… [it] must have been an operating motivation in the acquisition of the property” and “the fact that the taxpayer contemplated the possibility of resale of his or her property is not, in itself, sufficient to conclude in the existence of an adventure in the nature of trade.” He then stated (at paras. 15-17, TaxInterpretations translation):

[T]he TCC scrupulously followed the approach … required of it under Safeway. In particular, it concluded from the evidence before it that the appellant's sole motivation at the time of the acquisition of the land in question was clearly to resell it at a profit, noting in this regard that the appellant had never intended to carry out the development project desired by the City of Mascouche. …

With respect to the geographic location and zoning of the lands in question, the TCC noted that they were located in close proximity to the future train station … [and] that the City of Mascouche had undertaken, in order to facilitate the implementation of the development project on the axis of such station, to modify its urban plan and by-laws, to achieve, before the end of 2007, free circulation on the land and to complete certain infrastructure work. All of this, in the opinion of the TCC, made it objectively foreseeable that the value of the land would increase significantly and rapidly.

The TCC also found from the evidence before it that the true nature of the appellant's business was the acquisition of land for resale, noting in this regard that its true officers and shareholders were, with the exception of two shareholders whom it found to be nominees, "business people with significant and complementary collective experience in the real estate business", with a specialization "in real estate development and construction, commercial law, finance, taxation and accounting" … . Finally, the Court emphasized that the acquisition of the lands in question involved a significant commercial risk to the appellant, since the consolidation of the lots required to carry out the development desired by the City of Mascouche depended, among other things, on the expropriation of land owned by third parties … .

Paletta International Corporation v. Canada, 2021 FCA 182

potential to resell under secondary intention doctrine must be an operating motivation to the acquisition

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).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham no requirement for the Crown to explicitly plead “sham” 255
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose essential certainty that a film would be resold under an “option” before it generated any revenue established that s. 18(1)(a) not satisfied 202

Bodine v. Canada, 2011 DTC 5084 [at 5840], 2011 FCA 157

citrus farm converted into inventory on s. 97(1) drop-down

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).

Canada Safeway Limited v. Canada, 2008 FCA 24

taxpayer intended from the outset to sell its interest in the project while remaining as a tenant

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.

318806 B.C. Ltd. v. Canada, 2006 DTC 7403, 2002 FCA 353 (FCA)

reacquisition by the taxpayer on default and resale

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.

Bell v. Canada, 2002 DTC 6780, 2002 FCA 7

dominant mind doctrine applies to co-tenants

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 53

Cardella c. Canada, 2001 DTC 5251, 2001 FCA 39

barrier to resale of rental properties

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.

Roseland Farms Ltd. v. Canada, 99 DTC 5704, [1999] 4 CTC 348 (FCTD), aff'd 2001 DTC 5392 (FCA), 2001 FCA 167

high leverage not significant if shareholder loans

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Purpose/Intention 94

Bosa Bros. Construction Ltd. v. The Queen, 96 DTC 6193 (FCTD)

sale of stratified title property 1 year later on capital account/ secondary intention re ill-affordable property

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.

Friesen v. Canada, 95 DTC 5551, [1995] 3 S.C.R. 103

undeveloped land held in speculative venture

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 10 - Subsection 10(1) loss recognized on decline in value of land held as an adventure 142
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Inventory property held in an adventure was inventory 83
Tax Topics - Statutory Interpretation - Certainty 97
Tax Topics - Statutory Interpretation - Drafting Style 95
Tax Topics - Statutory Interpretation - Inserting Words 104
Tax Topics - Statutory Interpretation - Ordinary Meaning 80
Tax Topics - Statutory Interpretation - Resolving Ambiguity 97
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business s. 10(1) applied to an adventure in the nature of trade even if that deemed business was not “carried on” 75
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) property not generating income does not convert to capital property unless s. 13(7) or 45(1) applies 209

Leasehold Construction Corp. v. The Queen, 95 DTC 5470, [1995] 2 CTC 188 (FCTD)

land speculator acquired a particular income property on capital account

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.

Kaneff Properties Ltd. v. The Queen, 95 DTC 5345, [1995] 2 CTC 177 (FCTD)

residential land developer had change of use of parcel from income to capital account after 6 years

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit gain from when commenced developing as commercial office tower was capital gain 164

Iula v. The Queen, 94 DTC 6614, [1994] 2 CTC 328 (FCTD)

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.

Bellingham v. The Queen, 94 DTC 6564, [1994] 2 CTC 290 (FCTD)

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.

Rivermede Developments Ltd. v. The Queen, 93 DTC 5365, [1993] 2 CTC 220 (FCTD)

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.

Lee v. The Queen, 92 DTC 6067, [1992] 1 CTC 64 (FCTD)

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.

Breakell v. The Queen, 91 DTC 5419, [1991] 2 CTC 77 (FCTD)

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.

Witten v. The Queen, 91 DTC 5041 (FCTD)

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".

Snell Farms Limited v. Her Majesty the Queen, 90 DTC 6693, [1991] 1 CTC 5 (FCTD)

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).

Homes Development Ltd. v. The Queen, 90 DTC 6654, [1990] 2 CTC 496 (FCTD)

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.

King Edward Hotel (Calgary) Ltd. v. The Queen, 90 DTC 6468, [1990] 2 CTC 214 (FCTD)

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.

W. Hanley & Co. Ltd. v. The Queen, 90 DTC 6354, [1990] 2 CTC 71 (FCTD)

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus 150

Hertel v. The Queen, 90 DTC 6341 (FCTD)

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.

Grouchy v. The Queen, 90 DTC 6267, [1990] 1 CTC 375 (FCTD)

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.

O&M Investments Ltd. v. The Queen, 90 DTC 6150, [1990] 1 CTC 16 (FCTD)

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

Rudelier Ranches & Livestock Co. Ltd. v. The Queen, 89 DTC 5180, [1989] 1 CTC 417 (FCTD)

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).

Crystal Glass Canada Ltd. v. The Queen, 89 DTC 5143, [1989] 1 CTC 330 (FCA)

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."

Mintenko v. The Queen, 88 DTC 6537, [1989] 1 CTC 40 (FCTD)

"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."

Sardo v. The Queen, 88 DTC 6464, [1988] 2 CTC 290 (FCTD)

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.

R. v. Landes, [1988] 1 CTC 124 (Queb. Ct. S.P.)

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."

Independent Gaz Service Inc. v. The Queen, 88 DTC 6230, [1988] 1 CTC 309 (FCTD)

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.

Johnstone v. The Queen, 88 DTC 6032, [1988] 1 CTC 48 (FCTD)

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.

Desrocher Development Corp. v. The Queen, 87 DTC 5363, [1987] 2 CTC 124, [1987] 2 CTC 118 (FCTD)

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."

Magilb Development Corp. Ltd. v. The Queen, 87 DTC 5012, [1987] 1 CTC 66 (FCTD)

tentative overtures for subdivision did not effect a change in use

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 39
Tax Topics - Income Tax Act - Section 9 - Computation of Profit preliminary overtures for approval of housing development of farm did not convert to inventory 208

Hebert v. The Queen, 86 DTC 6543, [1986] 2 CTC 123, [1987] 1 CTC 6 (FCTD)

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.

Happy Valley Farms Ltd. v. The Queen, 86 DTC 6421, [1986] 2 CTC 259 (FCTD)

farmland gain of real estate developer

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.

Biffis and Cappuccitti v. The Queen, 86 DTC 6403, [1986] 2 CTC 184 (FCTD)

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.

Algonquin Enterprises Ltd. v. The Queen, 86 DTC 6233, [1986] 1 CTC 493 (FCTD), aff'd 90 DTC 6377 (FCA)

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.

Future Investments Ltd. v. The Queen, 86 DTC 6224, [1986] 1 CTC 458 (FCTD)

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.

Marsted Holdings Ltd. v. The Queen, 86 DTC 6200, [1986] 1 CTC 436 (FCTD)

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."

Giannakos v. The Queen, 86 DTC 6145, [1986] 1 CTC 325 (FCTD)

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.

Regina Shoppers Mall Ltd. v. The Queen, 86 DTC 6091, [1986] 1 CTC 261 (FCTD), aff'd 89 DTC 5482 (FCA)

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.

Toolsie v. The Queen, 86 DTC 6117, [1986] 1 CTC 216 (FCTD)

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.

Jodare Ltd. v. The Queen, 86 DTC 6054, [1986] 1 CTC 250 (FCTD)

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.

Jacobson Holdings Ltd. v. The Queen, 85 DTC 5634, [1986] 1 CTC 87 (FCTD)

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."

Zen v. The Queen, 85 DTC 5531, [1985] 2 CTC 313 (FCTD)

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.

First Investors Corp. Ltd. v. The Queen, 85 DTC 5343, [1985] 2 CTC 96 (FCTD), aff'd 87 DTC 5175 (FCA)

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 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 Queen v. Bassani, 85 DTC 5232, [1985] 1 CTC 314 (FCTD)

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."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus 25

Woodbine Developments Ltd. v. The Queen, 84 DTC 6556, [1984] CTC 616 (FCTD)

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): 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.

H. Fine and Sons Ltd. v. The Queen, 84 DTC 6520, [1984] CTC 500 (FCTD)

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."

W. Rudolph Construction Ltd. v. The Queen, 84 DTC 6454, [1984] CTC 457 (FCTD)

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."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 39

Farmer Construction Ltd. v. The Queen, 84 DTC 6331, [1984] CTC 370 (FCTD)

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.

Schneider v. The Queen, 84 DTC 6286, [1984] CTC 264 (FCTD), aff'd 86 DTC 6297, [1986] 2 CTC 89 (FCA) (sub nomine Mohawk Horning Ltd. v. The Queen)

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.

Niemi v. The Queen, 84 DTC 6189, [1984] CTC 181, 84 DTC 6194 (FCTD)

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.

Carsons Camps Ltd. v. The Queen, 84 DTC 6070, [1984] CTC 46 (FCTD)

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.

Marois v. The Queen, 83 DTC 5344, 84 DTC 6157, [1983] CTC 304 (FCTD)

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.

Sharon Mills Developments Ltd. v. The Queen, 83 DTC 5420, [1983] CTC 384 (FCTD)

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".

McDonald v. The Queen, 83 DTC 5264, [1983] CTC 211 (FCTD), aff'd 87 DTC 5276 (FCA)

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.

Belvedere Park Development Co. Ltd. v. The Queen, 83 DTC 5214, [1983] CTC 171 (FCTD)

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.

Van Anrep v. The Queen, 81 DTC 5278, [1981] CTC 358 (FCTD), aff'd 83 DTC 5100, [1983] CTC 84 (FCA)

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.

Gameroff v. The Queen, 83 DTC 5013, [1982] CTC 411 (FCTD), rev'd 86 DTC 6023, [1986] 1 CTC 169 (FCA)

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.

Schlamp v. The Queen, 82 DTC 6274, [1982] CTC 304 (FCTD)

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.

Walton v. The Queen, 82 DTC 6220, [1982] CTC, [1982] CTC 228 (FCTD)

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".

Colville-Reeves v. The Queen, 82 DTC 6005, [1981] CTC 512 (FCTD)

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.

South Shore Estates (Saltfleet) Ltd. v. The Queen, 81 DTC 5181, [1981] CTC 252 (FCTD)

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".

Kit-Win Holdings (1973) Ltd. v. The Queen, 81 DTC 5030, [1981] CTC 43 (FCTD)

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.

Leduc v. The Queen, 81 DTC 5017, [1981] CTC 21 (FCTD)

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.

The Queen v. Dumas, 80 D.T.C 6398, [1981] CTC (FCTD), rev'd 89 DTC 5004 (FCA)

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.

Jarvie Holdings Ltd. v. The Queen, 80 DTC 6395, [1980] CTC 525 (FCTD)

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.

Greenbranch Investments Ltd. v. The Queen, 80 DTC 6384, [1980] CTC 514 (FCTD)

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.

Marshall v. The Queen, 80 DTC 6357, [1980] CTC 475 (FCTD)

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.

Horvath v. The Queen, 80 DTC 6350, [1980] CTC 467 (FCTD)

original capital intention frustrated by time of closing of conditional purchase

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.

Robbie Holdings Ltd. v. The Queen, 80 DTC 6336, [1980] CTC 422 (FCTD)

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Purpose/Intention 86

Glacier Realties Ltd. v. The Queen, 80 DTC 6243, [1980] CTC 308 (FCTD)

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.

Montford Lakes Estates Inc. v. The Queen, 79 DTC 5467, [1980] CTC 27 (FCTD)

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.

Hummel Corp. of Quebec Ltd. v. The Queen, 79 DTC 5426, [1979] CTC 483 (FCTD)

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 50

Gamble v. The Queen, 79 DTC 5397, [1979] CTC 463 (FCTD)

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.

Caponecchia v. The Queen, 79 DTC 5364, [1979] CTC 445 (FCTD)

relevant intention established at time of siging purchase agreement

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.

Kensington Land Developments Ltd. v. The Queen, 79 DTC 5283, [1979] CTC 367 (FCA)

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.

Demeter Equity Ltd. v. The Queen, 79 DTC 5230, [1979] CTC 311 (FCTD)

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.

Riznek Construction Ltd. v. The Queen, 79 DTC 5131, [1979] CTC 197 (FCTD)

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.

Edmund Peachey Ltd. v. The Queen, 79 DTC 5064, [1979] CTC 51 (FCA)

no unequivocal act to convert land inventory to capital property

[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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 23 - Subsection 23(1) 68

The Queen v. Greenington Group Ltd., 79 DTC 5026, [1979] CTC 31 (FCTD)

no profit-making intention at time of acquistion of property on debtor default

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.

Cohen v. The Queen, 78 DTC 6099, [1978] CTC 63 (FCTD), aff'd 80 DTC 6250, [1980] CTC 318 (FCA)

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 Queen v. Randall Park Development Ltd., 78 DTC 6545, [1978] CTC 826 (FCTD)

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.

Choice Realty Corp. v. The Queen, 78 DTC 6415, [1978] CTC 613 (FCTD)

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) s. 20(1)(n) reserve not claimed in alternative until subsequent years was statute-barred 140
Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition - Paragraph (d) 75

Hiwako Investments Ltd. v. The Queen, 78 DTC 6281, [1978] CTC 378 (FCA)

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."

Birmount Holdings Ltd. v. The Queen, 78 DTC 6254, [1978] CTC 358 (FCA)

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 Queen v. Borinsky, 77 DTC 5389, [1977] CTC 570 (FCTD)

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.

The Queen v. Froese, 77 DTC 5364, [1977] CTC 526 (FCTD)

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.

Reicher v. The Queen, 76 DTC 6001, [1976] CTC 659 (FCA)

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).

Fredericton Housing Ltd. v. The Queen, 75 DTC 5367, [1975] CTC 537 (FCA)

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.

McDonald v. The Queen, 74 DTC 6644, [1974] CTC 836 (FCA)

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."

Sikler v. The Queen, 73 DTC 5553, [1973] CTC 736 (FCTD)

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.

Vaughan Construction Co. v. Minister of National Revenue, 70 DTC 6268, [1971] S.C.R. 55

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.

First Torland Investments Ltd. v. MNR, 69 DTC 5109, [1969] CTC 134 (Ex Ct), briefly aff'd 70 DTC 6354, [1970] CTC 634 (SCC)

drop-down of rental farms followed by sales over 10 years

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.

Words and Phrases

Balstone Farms Limited v. Minister of National Revenue, 68 DTC 5018, [1968] CTC 38, [1968] S.C.R. 205

intragroup outright sale followed by third party sales

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 ... .

Moluch v. Minister of National Revenue, 66 DTC 5463 (Ex Ct)

conversion of bush lot into fully serviced housing lots was a business – cf. if merely subdivided

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.

Hazeldean Farm v. MNR, 66 DTC 5397, [1967] 1 Ex CR 245

lots acquired both as inventory and rental properties

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.

Racine v. MNR, 65 DTC 5098 (Ex Ct)

potential resale at a gain must be an operating motivation

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.

Fraser v. Minister of National Revenue, 64 DTC 5224, [1964] CTC 372, [1964] S.C.R. 657

sale of shares was alternative method of effecting secondary intention re land

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).)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Shares sale of shares was alternate means to realize gain from real estate dealing 135

Regal Heights Ltd. v. Minister of National Revenue, 60 DTC 1270, [1960] CTC 384, [1960] S.C.R. 902

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.

McIntosh v. Minister of National Revenue, 58 DTC 1021, [1958] CTC 18, [1958] S.C.R. 119

no intention to retain vacant subdivision as an investment

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.

See Also

Investissements 3,38 inc. v. Agence du revenu du Québec, 2022 QCCQ 2534

a lender’s gain from selling a foreclosed home was a business profit

The taxpayer (“3.38”), which was a closely-held corporation run by a retired notary (Blouin), that had made two previous loans, lent money to an individual (in two advances separated by a year) to an individual on the security of a hypothec on her home. A further year later, the borrower defaulted, and 3.38 exercised its rights under the hypothec to obtain a court order for a transfer of the property ownership to it. Five months later (after having done some minor work on the home) it sold the home at a gain, representing 32% of the sales proceeds.

In finding that 3.38 had not failed to establish that it had not been carrying on a money-lending business, notwithstanding the low number of loans made, Davignon JCQ noted inter alia the rebuttable presumption in Marconi that a corporation’s activities constitute a business, the high level of risk evidenced by the 15% interest rate charged on this loan and the commercial experience of Blouin. Before further concluding (at para. 72, TaxInterpretations translation) that “3.38 clearly acquired the Building in the ordinary course of its business of lending money,” so that its gain was income from that business, Davignon JCQ stated (at para. 71):

The price received was more than sufficient to satisfy Mrs. Duboscq's unpaid debt. Thus, the objective targeted at the time of [seizure] was fully achieved. The very short period of time during which the taxpayer owned the Building clearly testifies to the animating intention at the time of its acquisition. It was never its intention to hold it as an investment, but simply to use it to recover its debt, seeing in it a business opportunity to make a profit.

Wall v. Canada, 2021 FCA 132

three successive sales of newly-constructed homes over a period of under 5 years were made in the course of a business or adventures

The taxpayer purchased three homes in Vancouver in succession between 2004 and 2009, demolished each one, constructed a new house and sold it less than two years after the purchase date. His position was that he had not sold in the course of a business or an adventure in the nature of trade, but had instead constructed each home for the purpose of personal occupancy, so that his sales were exempt under Sched. V, Pt. I, s. 2 rather than being taxable supplies for GST purposes made as a builder.

In dismissing the appeal, Webb JA noted (at para. 31):

[W]ith the guidance of the Supreme Court of Canada [in MacDonald], Mr. Wall’s “ex-post facto testimony regarding his intentions cannot overwhelm the manifestations of a different purpose objectively ascertainable from the record”. …

Evidence contradicting the taxpayer’s arguments included:

  • Each house was listed for sale before the occupancy permit was obtained.
  • His incurring more debt with each successive purchase contradicted his testimony that he sold to eliminate debt.
  • The maximum period that he could have occupied each property before its sale (even assuming he moved in before obtaining the occupancy permit) was a matter of months rather than years.
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Builder - Paragraph (f) 3 successive demolish, build and sell transactions in new homes over 5 years were not excluded under (f) 258
Tax Topics - Excise Tax Act - Section 191 - Subsection 191(5) exception in s. 191(5) not established 250
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 3 residential use by the builder not established 267

Polonovski v. Agence du revenu du Québec, 2020 QCCQ 8943

partition of property was consistent with its sale generating business profits

The two taxpayers acquired a rental property (the “Garnier” property), consisting of a duplex and triplex, in 2004. In 2009, they decided to enlarge the duplex and convert it to an open-plan “cottage.” After receiving the required approval from the City of Montreal, in April, 2010, a declaration of co-ownership was registered, permitting the effective severance (pursuant to a co-ownership, or “indivision,” agreement) of the future cottage and the triplex. In November 2010, the cottage was listed for sale, and sold in 2011.

A second rental property (the “Mentana” property, consisting of two duplexes) was acquired in March 2010, in June 2010 the City of Montreal approved the horizontal severance of the two duplexes pursuant to an indivision agreement and in December 2011, the indivision agreement took effect and one of the duplexes was sold subject to that agreement.

The “Roy/Mentana” property, consisting of various units was acquired in 2010 and effectively partitioned in 2011 through indivision agreements, with the result that one of the Mentana duplexes was separately sold in 2011 at a gain, and four of the Roy/Mentana units were separately sold in 2011.

A third rental property (the “Roy/Mentana” property, consisting of various units) was acquired in April, 2010 and effectively through an indivision arrangement four units were severed and then sold in April, May, June and November 2012.

Quenneville JCQ confirmed the ARQ assessments of the gains on the Mentana and Roy/Mentana sales as being inventory gains in light inter alia of the business acumen of the taxpayers, the number of transactions (including some not described above) occurring over a short period, and the significant sums spent on renovating the units. She also found that in light of these circumstances, and in contrast to Latulippe, the application for division of the Garnier property (which was made around the time of the acquisition of the other two properties) evinced a conversion of the Garnier property from capital property to inventory, stating (at para. 196, TaxInterpretations translation):

From the date of conversion of the Garnier Building and upon purchase of the Mentana and Roy/Mentana Buildings, there was a clear intention to convert the capital assets to inventory.

In assessing the gain on the Garnier duplex, the ARQ had applied the methodology in IT-218R, para. 15, which was to calculate a notional capital gain at the time of seeking approval from the City for the indivision, based on the estimated FMV of the duplex at that time, and treating the excess of the gain in 2011 over that capital gain as being a business property. However, consistently with IT-218R, the resulting taxable capital gain was not recognized until the year of the actual sale in 2011. In the course of rejecting the taxpayers’ submission that the CAE decision should instead be applied to treat the taxable capital gain as only being includible in the taxpayers’ income in 2010, Quenneville JCQ stated (at paras. 206-207, 210):

[T]hat case … dealt with the change of use of property considered to be inventory that had been transferred in the course of a refinancing, but which had continued to be used by the plaintiff for the same purposes as before the transfer.

That decision must therefore be distinguished from the present case, since here there was no change in the use of the building. The plaintiffs' intention was to acquire and hold the building in order to earn rental income and then to generate a profit at the time of sale. In both cases, the income is derived from the building … .

It can be seen that this argument is attractive to the plaintiffs, allowing them to argue that the capital gain should have been taxed in 2010 and to argue that this is a statute-barred year. However, in all other cases, mainly where the sale of the property occurs years later, the taxpayer would be at a distinct disadvantage in the scenario proposed by the plaintiffs.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit IT-218R preferred over CAE 330

Ouellette v. Agence du revenu du Québec, 2020 QCCQ 8765

the quick (re)building and sale of three successive residences was eligible for the principal residence exemption

A couple (one of them, a carpenter) who successively substantially renovated or built and (after living in each) sold three homes, with the sales occurring in 2012, 2014 and 2015, realized capital gains eligible for the principal residence exemption on such sales, rather than fully taxable business profits (as assessed by the ARQ). Lachapelle JCQ found that

  • the first residence (acquired in highly dilapidated condition in 2009 for $45,000) was sold in 2012 (for $287,000, after substantial renovation and reconditioning work) as a result of the increasing noise and congestion from increased trucking traffic to a nearby quarry and the effects of expansion of an adjoining campsite
  • the second residence (which they constructed on one of three adjoining lots they purchased in 2012 for $35,000, and whose idiosyncratic design suggested that it was not built for resale) was sold by them in 2014 (at a gain of $186,000) because they determined that it was too small to host family members
  • the third residence (built on a lot adjoining the second residence) was sold in 2015 for $350,000 as a result of their decision to purchase (and convert from a one-storey to two-storey dwelling) a fourth residence closer to the family of one of them in Montreal

Hansen v. The Queen, 2020 TCC 102

annual purchase, improvement and sale of homes following their occupation was on income account

The taxpayer had a grade 9 education, and operated first a concrete pouring business and then a foundation repair business. He and his wife sold a house in the Ottawa region, which they had occupied, in each of 2007, 2008, 2009, 2011 and 2012. Significant upgrades, some done by Mr. Hansen, were made to each of the properties before selling. On his accountant’s advice, Mr. Hansen claimed the principal residence exemption for each disposition.

After finding that reassessment of the gains for the 2007, 2008 and 2009 taxation years were statute-barred, D’Auray J went on to find that the gains for 2011 and 2012 were on income account, stating (at paras 101, 103):

… I am of the view that Mr. Hansen’s primary intention at the time of purchase of both the Cedardown and Kilbirnie houses was to resell them at a profit. If it was not his primary intention, then the possibility of reselling them at profit was certainly a secondary intention motivating him to purchase both houses.

… Mr. Hansen dealt with the Cedardown and Kilbirnie houses in a business-like way: he selected newly built homes that would be easier to sell, leveraged his construction industry experience to make improvements that would attract future buyers and picked homes in desirable markets. Mr. Hansen also used a HELOC because it allowed him to close while avoiding the payment of penalties.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) no carelessness given bona fide belief that principal residence exemption applied 178
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) benefit of doubt should be given to taxpayer 252

Chevalier v. Agence du revenu du Québec, 2020 QCCQ 2220

subdivision of a residential land into around 30 serviced building lots by the purchaser-developer did not scupper capital gains treatment

After the taxpayer had held a property for 15 years on which she had resided and initially had used to run a day care, she was approached by the owner of the neighbouring property, which happened to be a company controlled by her ex-spouse, about selling her property to it, so that it could be developed into a housing subdivision. Accordingly, the purchaser arranged for her to subdivide her property into two lots and to sell those two lots to it and another company. Furthermore, the sale agreement contemplated that the purchaser would pay the costs (up to a specified maximum) of getting the properties serviced before the sales closed. The purchaser then arranged for one of the lots to be subdivided into 28 lots, and the sale of these serviced lots closed seriatim over a five-month period. The ARQ assessed on the basis that there had been a deemed conversion of the taxpayer’s property into inventory shortly after she was approached, and that her gain (being appreciation that occurred after this conversion) was from an adventure in the nature of trade.

In finding that the taxpayer had realized capital gains, Lewis JCQ stated (at paras. 68-71, TaxInterpretations translation):

[68] Although Ms. Chevalier's land was ultimately used to develop a housing project, she herself did not express a desire to sell her land or to participate in the development plan for the project, and in fact never did.

[69] The project was that of Mr. Fournier [her ex-spouse], his spouse and the companies with which he did business. He and his spouse controlled the steps relating to the development necessary for the sale. He and his partners, excluding Ms. Chevalier, were responsible for the project. The invoices relating to the implementation of the infrastructures were made out in his name, his spouse's name or their company's name.

[70] In addition to not having had the secondary intention of selling her building at a profit when she bought it, Ms. Chevalier did not take any financial risk in the project since she did not invest any money. She only participated in the sales when she was asked to sign the documents. If Mr. Fournier had not solicited Ms. Chevalier to sell her land in lots, and had not assured that he would see to the subdivision and development of the land, she would not have sold her land, or would have sold it as is, in a single transaction.

[71] The Tribunal finds, as in Latulippe ..., that Ms. Chevalier reversed the presumption of validity of the notices of assessment

Immeubles Zamora ltée v. Agence du revenu du Québec, 2020 QCCA 894

an LP sold a seniors' residence shortly after construction to an unsolicited purchaser on income account

The two taxpayers owned the general partner of, and each had a 10% limited partnership interest in, a limited partnership that constructed a seniors' residence. In the fall of 2008, when the seniors' residence opened its doors. Ms. Gervais, a friend of the majority shareholder (Mr. Bolduc) of one of the two taxpayers and former partner of the taxpayers in another project, visited the residence, told Mr. Bolduc of her interest in acquiring the residence in case he was interested in selling it, with Mr. Bolduc coming back to her and telling her that if she wanted to buy, the price would be $26 million. Ms. Gervais did not negotiate and, on March 6, 2009, she made a formal offer for that amount, which was accepted immediately.

The taxpayers appealed the judgement below that the gain allocated to them was realized on income account. In dismissing their appeal, Bouchard JCA indicated that the fact that this was an isolated transaction and that they were not “flippers” was not decisive, the judge had not erred in noting the complete absence of any business plan or other documentary proof of their lack of motivating intention to sell (although, he noted, at para. 34, TaxInterpretations translation, and before referring to Hickman Motors in this regard) that “it is true that there are exceptional situations where the taxpayer manages to demolish the ARQ's assumptions of fact despite the taxpayer’s evidence being limited to the taxpayer’s testimony”) and (at para. 44) that “the judge did not commit a reviewable error … by holding that the appellants had a secondary intention to divest themselves of their project in the event of an interesting offer being made to them.”

Bishara v. Agence du revenu du Québec, 2020 QCCA 854

Court of Quebec reversed: taxpayer realized gains on three condo sales in quick succession on capital account

The taxpayer purchased a condo in April 2008, for him and his girlfriend and two children to live in, sold it a year later to purchase and move into a less cramped condo - but then, due to their separation, purchased in December 2011 a loft for him to live in. He sold both the second and third residences in May 2011.

The Court found that the trial judge had committed palpable and overriding errors in accepting allegations of the ARC that were not supported by the evidence, which contributed to a finding that the taxpayer had realized his gains on income account, and allowed the taxpayer’s appeal. After quoting from Canada Safeway as to the scope of the secondary intention doctrine, the Court stated (at para. 15, TaxInterpretations translation):

The appellant provided a consistent explanation for his multiple moves that did not include any motivation to make a short-term profit. In contrast to the respondent’s vague and ambiguous allegations, the appellant's explanations have the necessary degree of particularity and likelihood, duly supported by convincing evidence presented at trial.

Piché v. Agence du revenu du Québec, 2020 QCCQ 1283

a family realized capital gains from the sale of 3 newly-constructed residences in 3 years

The three taxpayers were a mother (Suzanne) and father (Serge), and their son (Yves), and at issue was whether their gains (which they had not reported in their returns) from the sale, between 2004 and 2007 of three single-family homes that they had constructed, were from adventures in the nature of trade. Residence 3 was built, commencing in the fall of 2004, to be the personal residence of Yves, who needed a place to stay, and was financed by his entrepreneur friend (Binette). He moved in when the construction was sufficiently advanced, but due to his personal financial difficulties, was unable to obtain permanent financing to take out Binette’s construction financing, and Residence 3 was sold in the spring of 2005.

Still needing a place to stay, Yves agreed with Binette for the construction of Residence 1 on a neighbouring property, to be financed by Yves’ sister, who was to stay in an apartment in the basement. Construction commenced in May 2005, and Yves and his sister moved into the partly constructed residence (which they ended up holding in co-ownership) when the sale of Residence 1 closed in July 2005.

In May 2005, Suzanne and Serge, who wished to move to a smaller residence for health reasons, agreed to purchase a lot from Binette (Address 2) on which Residence 2 was to be constructed. However, in the summer of 2005, they identified a better prospect, and agreed to purchase a further lot on which Residence 4 would be constructed once the municipal approvals for the required severance were secured. In order to spare Suzanne and Serge the burden of managing the construction of both Residence 2 and 4, Yves purchased Residence 2 to which he and his sister moved, and completed a sale of Residence 1 in June, 2006. Residence 2 was sold in May 2007 due to the posting of the soldier beau of Yves’ sister to Germany.

Before finding that the taxpayers had realized their gains on capital account (and without discussing any availability of the principal residence exemption), Tremblay JCQ cited the tests as to what constituted an adventure or concern in the nature of trade in Canada Safeway, IT-218R and IT-459 and stated (at paras. 73-75, TaxInterpretations translation):

The Court finds it difficult to conceive that Suzanne, newly retired and struggling with serious health problems, could have intended to commence and carry on a construction business when she had no experience in this area.

Yves' bankruptcy, his separation combined with other personal problems can explain the three relocations that occurred between 2004 and 2007. Although these moves may have raised questions, the ARQ did not succeed in establishing, by a preponderance of evidence, that Yves had an intention to make a profit.

As regards Serge, the same finding applies.

Furthermore, there was no evidence to connect the three taxpayers with the other real estate transactions of Binette (paras. 117-120) and the fact that Serge and Yves had an excavation business did not render them “builder entrepreneurs” (para. 128).

Latulippe v. Agence du revenu du Québec, 2019 QCCA 2177

subdivision of rental property prior to sale of individual units did not detract from capital account treatment

Three individuals who had purchased an eight-unit rental property in co-ownership, determined around 4 ½ years later to sell the property due to a change in personal circumstances of one of them. A real estate broker advised that they could achieve a higher price if they instead sold the eight units separately. This was accomplished by entering into an “indivision agreement,” which meant that each purchaser purchased as a co-owner but with rights of exclusive access to a particular unit. As a result of effectively subdividing the property, they increased their aggregate proceeds by around 25%.

They reported capital gains. The ARQ (but not CRA) reassessed on the basis that the gain that arose after the indivision agreement was business income (i.e., on the basis that the property at that time had been converted to inventory).

In finding that the taxpayers realized capital gains, Rochette JCA noted the absence of any connection between the taxpayers’ employment and real estate or of prior dealings in real estate, their initial intention of generating additional income on retirement and the decision to sell being brought on by changed circumstances, the low cost in dividing into co-ownership units and the low commercial risk associated with this step, and the sale of all the units occurring within the same year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) subdividing a rental property to substantially enhance the sales proceeds did not entail conversion to inventory 305

Cristofaro v. Agence du revenu du Québec, 2019 QCCQ 6242

a resale of a house by a renovator within one year gave rise to a capital gain

The three taxpayers involved in these two appeals were Diane Cristofaro (Mrs. Cristofaro) and her sons Dean and Jaysen Cristofaro. On April 26, 2010, Jaysen and a friend (Michael Stephan) purchased a property (the Laird Property) for $1,050,000 with the intention to renovate it and rent it out. Renovation expenses escalated to $492,000. Unable to rent it out and with expenses beyond what they could handle, they sold the property for $1,700,000 on May 20, 2011.

In April 2011, Mrs. Cristofaro bought a single-family home (the Cornwall property) for $649,000, with the intention of renovating and moving in with her aging mother. The property turned out to be quite dilapidated. By June 2011, the combination of a sudden steep decline in her mother’s health and skyrocketing renovation costs lead to her deciding to complete the renovations and rent it out. In June 2011, Jaysen and Dean (who owned six other properties) signed a counter letter to help their mother out of her financial difficulties, with each of the three parties sharing equally in the purchase, renovation, future rental income and resale. Approximately $312,000 was spent on renovations over 20 months, completed by the end of 2012. In November 2012, Mrs. Cristofaro decided to put the property on the market for sale or potential rental, rather than move in, in light of her mother’s health and her finances. And the property was sold for $1,710,000 in June 2013.

In finding that Jaysen realized a capital gain on the Laird property, Forlini, JCQ stated (at paras. 62, 72-74):

Neither Mr. Jaysen Cristofaro nor Mr. Stephan are habitual or sophisticated real estate investors.

If the intention of Jaysen Cristofaro and Mr. Stephan changed after the purchase, this is attributable to the skyrocketing renovation costs and the difficulty in finding a tenant, and not because they were motivated by realizing a profit through a quick flip.

… The evidence does not establish that in the minds of Jaysen Cristofaro and Mr. Stephan, the possibility of resale was an operating motivation for the purchase.

While the taxpayers’ intention was not carried out, the reason it was thwarted is reasonably explained and plausible.

In also finding for capital gains treatment on the Cornwall property, Forlini, JCQ stated (at paras 93, 102, 125, and 128):

Mrs. Cristofaro is not in the real estate trade by profession. …

Dean and Jaysen’s occupations in the auto sales and leasing businesses are not related to real estate transactions. Jaysen has not dealt extensively in real estate. Dean’s experience is broader that his brother’s, but it does not reveal a pattern of purchases and sales within a short time frame.

… Diane Cristofaro’s purchase of the Cornwall Property was made with the intent of living in it. She was fulfilling a lifelong goal by purchasing a single family home where she would reside with her mother. … [T]his was not a speculative purchase aimed at renovating the property and reselling it at a profit. The possibility of a resale was not on her mind at the outset.

The Cristofaros signed the Counter letter as a family, not as a business transaction. Jaysen and Dean’s motivation in signing this agreement was motivated by their desire to help their mother, and not because they were interested in realizing a profit. …

Paletta v. The Queen, 2019 TCC 205, aff'd 2021 FCA 182

rental revenues were incidental to secondary intention save for land with 25-year hold

Before finding that most of the dispositions (mostly in 2007) of nine properties (seven of them, vacant land) in the Golden Horseshoe area, by a company whose total real estate holdings had a value of $1B to $2B occurred on income account, Hogan J stated (at paras. 281-283 and 286):

Testimony established that the Palettas have a reputation as a large developer in the Golden Horseshoe area. …

The Appellant, Paletta International, claims that all of the properties were acquired either to farm or to develop for rental revenue. …

I struggle to accept the implication that the Palettas rarely had a secondary intention to profit from the sale of their lands if the retail or industrial opportunities did not pan out. …

The Respondent demonstrated a pattern of real estate holdings in the Paletta companies whereby the Palettas accumulate properties outside urban boundaries and hold them for long periods of time. They undertake activities such as farming, parking rental and sign rental to defray the carrying costs of the land and then sell the lands at profit when the urban boundaries are expanded. The Respondent also demonstrated that the Appellants actively lobby for those boundaries to be expanded to include their lands.

In accepting that two of the dispositions were on capital account, Hogan J stated (at para. 316):

I accept the claim that Pat Paletta [the father of the current chief executive] purchased these lands for use in the feedlot and agri-services business. The timing of the acquisition, in 1979, is consequential – I accept that at that point in time, farming was of greater significance to the family business than it is currently. I also accept that at that time real estate development was a more minor aspect of the Palettas’ operations than it is currently.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham film marketing partnership loss denied on the basis that an alleged option was a sham 415
Tax Topics - Income Tax Regulations - Regulation 231 - Subsection 231(6) expectation of repurchase option being exercised generated a prescribed benefit 207
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose expenses non-deductible because partnership expected to be repurchased before any income generated 127
Tax Topics - General Concepts - Evidence TCC not bound by admission contrary to facts where benefiting party has adduced evidence on point 50

Rochefort v. Agence du revenu du Québec, 2019 QCCQ 2660 (Court of Quebec)

quick flip of a development property occurred on capital account

The taxpayer (Ms. Rochefort) wished to invest her ½ of the sales proceeds received by her and her significant other (Mr. Cleary, subsequently her husband, who had a background in the construction industry), and she relied on Mr. Cleary in finding and negotiating such an acquisition. On January 28, 2004, her offer to purchase a property on St. Laurent Blvd. in Montreal for a price of $1.7M (subsequently reduced to $1.45M) was accepted. The property was currently rented out to a restaurant in financial difficulties. Mr. Cleary had started planning for the development of the site in the fall of 2003, had drawings prepared, and in April 2004, Mr. Cleary approached a construction firm (“Groupe Legacé”) for an estimate as to constructing a mixed-used complex at the site comprising 44 residential condo units, to be rented out, and 6 commercial condo units (for retail stores), also to be rented out. Groupe Legacé offered to purchase the property for $3.75M (later reduced to $3.5M), and Mr. Cleary accepted the offer on behalf of Ms. Rochefort on April 29, 2004. As the purchase by Ms. Rochefort had not yet been notarized, title was transferred directly from the current owner to Groupe Legacé, which occurred on October 5, 2004. An office was installed for the pre-sale of condo units by Groupe Legacé, and 10 offers were accepted. However, Groupe Legacé defaulted, and Ms. Rochefort received only a down-payment of $1.275M, and a further $0.3M.

In finding that Ms. Rochefort disposed of the property on capital account, Dortélus JCQ stated (at paras. 168, 182, TaxInterpretations translation):

The Court concludes from the evidence that she did not envisage, at the time of investing in the project, the resale of the St-Laurent Property in its entirety. It was not until she had received a completely unexpected and unsolicited offer from Groupe Legacé, whom she had approach to make a bid as construction contractor on the project, and by reason of the amount that was offered by Groupe Legacé, that she changed her view and decided to sell the St-Laurent Property.

The Court considers the argument - that if this expression [adventure or concern in the nature of trade] is interpreted literally and broadly as suggested by the ARQ, it would be very rarely that capital gains and the provisions of tax law bearing on capital gains would become quasi-inoperative, since any acquisition of a property, even respecting personal property, would entail an inherent risk – is not without foundation.

Les Développements Iberville Ltée v. Agence du Revenu du Québec, 2018 QCCA 1886 (Quebec Court of Appeal)

property bifurcated between capital and income portion on acquisition

The taxpayer’s intention was to build a shopping center on 10 million square feet. The other 20 million square feet was purchased on the vendor's insistence of "all or nothing". Albeit not finalized, the zoning for at least a substantial portion of the 20 million square feet would be, to the knowledge of the principal, residential.

Schrager JA confirmed the finding below that although the 10 million square feet was capital property intended for development to generate revenue, the 20 million square feet was inventory meant for resale. The gain on the resale of the latter was income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) abuse to use rollover provisions to avoid rather than defer tax 683
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) abuse of Quebec equivalents of ss. 85(1) and 97(2) to avoid (rather than defer) tax 420
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense improvements to leased retail premises were not demonstrated to be made only at tenants’ requests 106
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(6) purpose of inter-provincial allocation rules is for 109% of income to be allocated and taxed 558
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(1) no policy of permitting differing Quebec and federal year ends 196

Francoeur v. Agence du revenu du Québec, 2016 QCCQ 11906

somewhat quick flip by a builder was eligible for the principal residence exemption

The taxpayer was an entrepreneur who built and sold rental homes as well as having sold two personal residences that had been constructed by him after a holding period of around 3.5 years each. In 2005 (after the second such residence sale), he and his spouse acquired a vacant lot in Sherbrooke, Québec, and built a house to live in with their children. Several extended family members participated in the construction of the house without pay, and many upgrades were chosen to satisfy his wife’s requirements for her “dream home”, such as concrete heated floors, stone façade, and commercial cooktop. They sold the house in 2008. CRA assessed on the basis that the capital gain from the sale was business income, maintaining that the taxpayer had purchased and sold residential properties in the same geographic area in a repetitive and planned manner for the purpose of earning income.

Aubé JCQ found (at paras 69.1, 69.5, 69.6, 70, 71, and 72, Tax Interpretations translation):

… [T]he whole family was involved in the project. …

The profit realized on the sale was used to reimburse the lines of credit.

The financial situation motivated the sale of the property. Mr. R. F. stated that… his lines of credit had reached their limit.

The Court concludes, like the Court of Appeal in Hardy v. Agence du revenu du Québec, [2015 QCCA 564], that the taxpayers' intention was to house their family and not to make a profit, Mr. R. and his spouse built the building to meet their needs and consequently the proceeds from the sale did not constitute business income.

Although Mr. RF works in the construction industry, this does not deprive him of the right to acquire and sell his principal residence if circumstances make it unavoidable or desirable, even if the transactions occur over a relatively short period of time.

The evidence demonstrates that the sale subject to the assessment was justified on the basis of personal and family considerations of Mr. R.F.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) gain of builder eligible for exemption 128

Staltari v. The Queen, 2015 DTC 1130 [at 818], 2015 TCC 123

secondary intention to develop land irrelevant if land donated instead

The taxpayer, a commercial real estate broker, donated land in 2009 to the City of Ottawa, received a charitable receipt for its appraised value of $1,935,000 and claimed that his gain resulting under s. 69(1)(b) from the donation was exempted under s. 38(a.2) (respecting donations of capital property described in the "total ecological gifts" definition in s. 118.1(1)). The Minister assessed the gain as being from the disposition of land held as inventory or as an adventure in the nature of trade (so that the taxpayer's claimed and unclaimed donation credits were largely offset by tax on this inventory gain).

Before consideration of the "adventure" concept, the land was not inventory of a business. The taxpayer had acquired it from his father for $70,000 in 2000 in order to provide him with needed cash. Owen J noted (at para. 78) that there were none "of the typical indicia of a business, such as a business plan or strategy, a marketing plan, financial records, an office, furniture, office supplies, a telephone listing, an e-mail address, a computer, stationery, business cards, one or more employees, actual or prospective customers, advertising, marketing, a website, banking arrangements, solicitations of business, business-related documents, etc." and (at para. 80) that "the commercial activities of [his] corporations cannot be attributed to Mr. Staltari personally without evidence that he, and not the corporations, was conducting those activities."

Respecting whether the land was held as an adventure in the nature of trade, although the taxpayer applied for subdivision approval, this apparently was done in order to crystallize grandfathering from a City proposal to freeze estate lot development, and "any prudent individual could be expected to take steps to preserve the value of an asset" (para. 89). (The taxpayer testified that he spent $104,719 to install a gravel road for ¾ of the property length in order to free up a pick-up truck that had become stuck in peat.) When it transpired that the land might be designated as having ecologically sensitive wetlands (thus jeopardizing subdivision approval), he donated it to the City.

Although the subdivision application suggested that he believed the property had development potential, it was not clear whether such potential was an operating motivation in its purchase. However, as per Zelinski (at para. 35), "a secondary intention to resell at a profit only acquires importance where a taxpayer follows through on that intention," whereas the property was donated instead: "any secondary intention to profit that he may have had became irrelevant once he chose to donate the Land" (para. 98). Furthermore, "a bona fide gift of land is not a transaction that can be described as being ‘in the nature of trade' if it is otherwise unconnected with a business" (para. 95), the deemed proceeds under s. 69(1)(c) could not be treated as consideration for this purpose (para. 103) and "the nature of the gift as a transfer of property for no consideration is not changed simply because there are favourable income tax consequences" (para. 101).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence uncorroborated testimony 99
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business no business where no business organization 167
Tax Topics - Income Tax Act - Section 38 - Paragraph 38(a.2) land donated in order to achieve tax benefit was still a gift to a qualified donee 133
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) exclusion of gains that are ordinary income 149

Belcourt Properties Inc. v. The Queen, 2014 DTC 1182 [at 3678], 2014 TCC 208

commercial ground-floor rental units in a condo building were capital assets, notwithstanding that they were sold just a few years after being acquired

The taxpayer acquired an office building in 2002 that was unoccupied except for the ground floor (which was leased to Videotron), developed and sold the second floor and above as condominiums, and sold the remainder of this "Park Avenue" property in 2005 (shortly after the final condo sale) pursuant to an unsolicited offer (and for lower than the market price as the buyer promised to reciprocate with access to similar investments in Israel). In December 2000, it and a co-investor each acquired a 50% co-ownership interest in a gas station which they developed as residential condominiums (which were sold), but with the first floor leased to three tenants. After concern about the viability of the tenants, they sold the property in April 2005.

In finding that the gains on both such sales were on capital account, Lamarre J accepted (at para. 33) that the taxpayer's "course of conduct with regard to the rental-income-producing properties is consistent with an investment purpose that is distinct from the real estate trading activities," and characterized work performed on the commercial portion of Park Avenue as resulting in higher rents being negotiated (para. 40) rather than as development work. Buy-sell clauses in the joint venture agreement for the second property did not mean there was an intention to sell the property. Moreover, as the Minister had not "assumed in making the assessment that a motivating reason for the purchase of the property was an expectation that, in the event that the investment did not prove to be profitable, it could be sold at a profit, and that this expectation was one of the factors that induced the taxpayer to make the purchase" (para. 38), the taxpayer did not have to lead evidence that there was no such intention.

Zielinski v. The Queen, 2014 DTC 1023 [at 2635], 2013 TCC 384 (Informal Procedure)

intention to subdivide and sell at time of purchase

The taxpayer spouses purchased two adjacent parcels of land in 1993. They had the parcels subdivided and sold most of the land at a profit by 2007. VA Miller J found that the gain was profit from an adventure in the nature of trade, as it was clear that the taxpayers intended from the outset to buy the land for resale at a profit - for example, the taxpayers actively campaigned to amend local bylaws to permit the subdivision, and the husband even got elected to the municipal council to bring these amendments into effect. Their appeal was dismissed, save for allowing the deduction of some expenses.

The purchase and sale of a nearby duplex was likewise an adventure in the nature of trade. The taxpayers were in the process of building their principal residence at the same time as they were improving the duplex to sell at a profit.

Bélanger v. The Queen, 2012 DTC 1235 [at 3651], 2012 TCC 93

Favreau J. dismissed the taxpayer's claim that his gain on five properties was capital in nature. The taxpayer operated a business in which his corporation would construct apartment buildings, which he would purchase on completion and then resell once they had 75% occupancy. Thirty six properties were sold from 2001 to 2007. Favreau J. found that the sale of the five properties was consistent with the taxpayer's business plan and modus operandi. The taxpayer's alternative explanation, that his decision to sell the five properties related to his separating from his wife, was implausible because, inter alia, the properties were sold in April 2005 and he did not tell his wife he wanted to separate until February 2006.

Peluso v. The Queen, 2012 DTC 1166 [at 3408], 2012 TCC 153

decision to sell rather than develop did not effect conversion from inventory to capital property

The taxpayer ran into difficulties in one of its land development projects and sold it before completing its development plans. Although the land was clearly inventory at the time it was obtained, the taxpayer argued that it became a capital asset at the time it was sold.

Jorré J. found that the gain was ordinary income and not a capital gain. Although it is possible for land acquired as inventory to subsequently be converted into a capital asset, the taxpayer's mere decision to sell the land before development was finished fell well short of the "clear and unequivocal positive act," contemplated in Peachey, to effect such conversion.

9067-9051 Québec Inc., Vincent v. The Queen, 2012 DTC 1073 [at 2842], 2011 TCC 456

The individual taxpayer ("Vincent") was the sole shareholder and director of the corporate taxpayer ("9067"). The corporate taxpayer acquired a building ("the Immovable") on 1 April 1999, which became the taxpayer's principal residence as well as lodgings for the taxpayers' visiting European customers in the taxpayers' auto and aircraft resale business. The Immovable burned down on 24 August 1999, and 9067 was paid $1,170,800 in insurance. The Minister assessed the taxpayers on the basis that their net proceeds in respect of the Immovable, including the insurance benefits, were profits realized on income account rather than capital gains.

Hogan J. granted the taxpayer's appeal. The Minister's position was based chiefly on the disparity between the Immovable's purchase price of $180,000 and its value (which was ostensibly $2,000,000, and was at least equal to the $1,170,800 in insurance benefits). However, the evidence demonstrated that the taxpayers had not acquired the property with an intention to resell: the resale of immovables was outside Vincent's expertise; the taxpayers were aware of the previous owner's difficulties in reselling the property; the property was not put up for sale after it was acquired; and Vincent and his wife moved into the Immovable after it was acquired.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) taxpayer unaware of factual basis for shareholder benefit 200
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 152(4)(a)(i) is lesser threshold 75

Von Realty Limited v. The Queen, 2011 DTC 1264 [at 1500], 2011 TCC 345

A group of investors acquired, through holding corporations, co-ownership interests in a property on which to construct and sell houses. The construction was never completed, and the property was sold off for a gain.

Pizzitelli J. found that the investors' activities generally had the indicia of an adventure in the nature of trade. However, the taxpayer's initial acquisition of a 6.7% interest in the property originally was intended to provide security for a loan made to one of the other investors (so that the loan would have been repaid through set-off against the sale price for a repurchase of the 6.7% interest), and the gain realized from that portion of the taxpayer's interest (which it instead retained) was on capital account.

The taxpayer's motivation for subsequently acquiring further interests (so as to increase its co-ownership interest to 33%) was to share in the profit from the venture itself. The taxpayer's director's evidence that he only meant to protect the initial investment was not compelling given that less extreme measures were available. Therefore, the remainder of the gain was on income account.

Palardy v. The Queen, 2011 DTC 1188 [at 1050], 2011 TCC 108

The taxpayer sold a residence eight months after the point at which she had completed its construction and moved in. The Minister characterized the sale as a commercial transaction, and reassessed the taxpayer beyond the normal reassessment period on the basis that the proceeds were income from business. In so doing, the Minister had relied in part on the taxpayer's experience as a real estate agent, but in fact the taxpayer had left the real estate business more than 25 years before the sale in issue.

In concluding that the reassessment was not statute-barred, Hogan J. found that the taxpayer's position (that she had realized a capital gain that was eligible for the principal residence exemption) was not unreasonable.

Krauss v. The Queen, 2009 DTC 1394 [at 2155], 2009 TCC 597

The taxpayer disposed of a development property to a wholly-owned corporation on capital account rather than as inventory given that her practice had been to hold properties indefinitely as rental properties, and such transaction represented only a change in the form of her ownership of the property.

Dalron Construction Limited v. The Queen, 2008 DTC 4733, 2008 TCC 476

Land transferred by the taxpayer (whose business was the purchase and development of land through the construction of residential and commercial buildings) to a subsidiary that was 80% owned by it occurred on income account (so that the joint election made under s. 85 was invalid) given that at its previous year ends it had treated the land as inventory and given that there was no evidence that it had used the land for any commercial purpose.

Sivasubramaniam v. The Queen, 2008 DTC 3886, 2008 TCC 261 (Informal Procedure)

Before finding that rental condominium units of the taxpayer were capital property to him notwithstanding his professed intention of reselling them at a gain, Bowman C.J. stated (at para. 12):

"Most investments are bought in the hope that they will be disposed of at some time at a profit. That does not make them inventory or trading assets."

Dubé v. The Queen, 2007 DTC 468, 2005 TCC 779 (Informal Procedure)

The taxpayer, who was a building inspector, bought and sold three housing properties at a gain over the space of approximately two years before investing the proceeds from the sale of the third property in a fourth property which he held on a longer term basis. Angers J. found, in light of the frequency of the transactions and the expertise of the taxpayer in evaluating properties, that it had been the intention of the taxpayer to purchase the second and third properties (whose gains were reassessed as on income account) primarily for sale for profit with a view to obtaining the funds to purchase the property that would meet his real needs.

Canada Safeway Limited v. The Queen, 2006 DTC 3144, 2006 TCC 345, aff'd 2008 FCA 24

The taxpayer entered into a joint venture agreement with a developer for the development of a shopping centre because it wished to build a store at the shopping centre, which it expected to be profitable, and it wished to prevent a competitor from building on or near the site. Beaubier J. found that the taxpayer acquired its interest in the joint venture as an adventure in nature of trade, so that a gain ultimately realized by it when it sold its interest in the joint venture was on income account, in light of a clause in the joint venture agreement which provided that the taxpayer had a right to sell its co-ownership interest to the developer at a profit of $2 million upon rezoning being achieved. It did not do so, because it projected realizing a greater profit upon sale to a third party.

Twin Islands Estates Ltd v. The Queen, 2004 DTC 2515, 2004 TCC 141

A corporation owned equally by a corporation whose principal business was operating a veneer mill and by a corporation that engaged on various occasions in the purchase and sale of land was found to have realized a capital gain when, following the purchase of a parcel of land and the sale of timber therefrom, it sold the land. The most significant aspect of the purchase was a proposed logging operation rather than the sale of the "residue".

Willis v. The Queen, 2003 DTC 1081, 2003 TCC 575 (Informal Procedure)

The taxpayer had acquired seven lots adjacent to their principal residence as a protective greenbelt. Due to a change in their personal circumstances, they later sold five of the lots at a rate of approximately one every two years. Bowman A.C.J. indicated that if the taxpayer had argued that the properties had never lost their quality of capital properties, he would have been hard put to refuse to give effect to that argument. However, the Crown's assumption of fact that there had been a change of use in 1986 had been thoroughly demolished, and the alternative that the property remained capital throughout had not been advanced by either party, so he considered himself bound to accept the admission made by counsel for the taxpayers that there had been a change of use on January 1, 1992 giving rise to a deemed disposition at fair market value.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) gradual disposition program not indicative of change of use 147

Fecteau v. The Queen, 2003 DTC 146 (TCC)

After the taxpayer lost his employment in Toronto and purchased a new residence in Quebec, he was unsuccessful in efforts to sell his Toronto residence and eventually rented it to a tenant. A loss realized five years later on a sale of the residence was on capital account.

Lamarre Proulx TCJ, in rejecting a submission that the residence had been converted to inventory when the taxpayer vacated it, stated (at p. 151) that:

The circumstances of the purchase, the offering for sale and the renting of the appellant's family residence do not reflect an intention to trade. [There are] many taxpayers who want to acquire and protect an investment. A taxpayer may be concerned with the resale value of his principal residence. Depending on the market circumstances, he may also wait a few years before reselling the main residence he has ceased to occupy. All this is normal and does not convert the gain from the sale of the house to a business gain.

Glassford v. The Queen, 2000 DTC 2531 (TCC)

The sale by the taxpayer of 320 acres of land on which there was standing timber to a corporation gave rise to a capital gain notwithstanding that the agreement of purchase and sale allocated $292,500 of the $357,500 purchase price to the standing timber and notwithstanding that the taxpayer's spouse subsequently purchased the land from the corporation for $65,000. O'Connor T.C.J. found that as the trees still standing formed part of the real property, consequently what occurred was the sale of real property.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date land transaction not effective until reduced to writing 69

Alexandroff v. The Queen, 95 DTC 767, [1995] 1 CTC 2434 (TCC)

rental-producing intention established when GP of LP entered into purchase agreement

The only motivating intention of a numbered company (which subsequently became the general partner of a limited partnership) was to acquire a shopping centre as an income-producing investment. Furthermore, there was nothing to suggest that the intention of that company, in its capacity as the general partner of the limited partnership (which actually closed the acquisition, although Christie A.C.J. noted that it appeared to be the time when the purchase agreement was signed, rather than the time that legal title was acquired, that was relevant), and the intention of the individual initial limited partner, was different. Accordingly, the acquisition of the shopping centre by the limited partnership was on capital account. The intention of the taxpayers upon acquiring their individual interests in the limited partnership (as limited partners) was not germane.

Campeau v. MNR, 93 DTC 92, [1992] 2 CTC 2208, [1992] 2 CTC 2673 (TCC)

The taxpayer realized gains on income account from the disposition of two real estate properties which he had acquired on a highly-leveraged basis (i.e., he had no capital whatsoever and covered operating deficits with money borrowed using an unorthodox financing technique) and which he was forced to sell by his bank.

Marson v. Morton, [1986] BTC 377 (Ch. D.)

The Vice-Chancellor, Sir Nicolas Browne-Wilkinson declined to reverse a finding of the Commissioners that four brothers who had no history of dealings in land had realized a gain on capital account from the disposition of raw land which they had acquired three months previously. With respect to a submission of the Crown that it was a critical factor that the land was not producing income, the Vice-Chancellor stated (p. 387):

"In 1986 it is not any longer self-evident that unless land is producing income it cannot be an investment. ... Since the arrival of inflation and high rates of tax on income new approaches to investment have emerged putting the emphasis in investment on the making of capital profit at the expense of income yield ... [T]he mere fact that land is not income-producing should not be decisive or even virtually decisive on the question whether it was bought as an investment."

Reeves Inc. v. MNR, 85 DTC 419 (TCC)

Christie A.C.J. lists the factors which are germane to ascertaining the relevant intention at the time of purchase of real estate.

C.I.R. v. Reinhold (1953), 34 TC 389 (C.S. (1st. Div.))

The Court upheld the finding of the Commissioner that the resale of four rental houses three years after their acquisition by an individual who was not in the business of the purchase and sale of estates was realized on capital account, notwithstanding the taxpayer's admission that he bought the properties not as residences for himself but for sale, and had instructed his agents to sell whenever a suitable opportunity arose. Lord Carmont stated (p. 393):

"If the commodity could not produce an annual return by retention in the hands of the purchaser, then the conclusion may easily be reached that the venture was a trading one. If, however, the subject of the transaction is normally used for investment - land, houses, stocks and shares - the inference is not so readily to be drawn from an admitted intention in regard to a single transaction to sell on the arrival of the suitable preselected time or circumstance and does not warrant the same definite conclusion as regards trading or even that the transaction is in the nature of trade."

Administrative Policy

1 June 2021 GST/HST Ruling 192033r2 - Assignment of an agreement of purchase and sale of a condominium unit

presumption that the flip of a new condo purchase agreement is a taxable supply

A non-resident individual entered into an agreement to purchase a condo to be constructed in Canada for occupancy by the individual’s daughter while the latter attended a post-secondary institution, which had granted a conditional acceptance. However, the exam results of the daughter at the secondary school she was attending did not meet the standards of the post-secondary institution, and it revoked its conditional acceptance. This resulted in the individual assigning her purchase agreement to another purchaser at a gain.

The Directorate ruled that this assignment was a taxable supply for GST/HST purposes on the basis that the individual had acquired her real estate interest “in the course of a business or an adventure or concern in the nature of trade.” (under para. (f) of the definition of “builder”).

The Directorate found that in order to satisfy this test, she was required to inter alia “prove” that her stated primary intention of acquiring the condo for use as a residence for her daughter “was a firm, fixed and settled intention that was not likely to change.” Instead, it viewed the stated purpose as “a tentative, provisional or exploratory contemplation that was conditional or dependent on future events occurring (that is, the … daughter being accepted and attending [the post-secondary institution]).” It also applied the following position:

Generally, if an individual acquires an interest in a residential complex (that is, acquires the interest in the complex before it has been occupied by an individual as a place of residence or lodging) and sells the interest before or while the complex is under construction, then the action of selling the interest is viewed strongly as evidence that the individual acquired the interest in the complex for the primary purpose of selling the interest in the course of a business or an adventure or concern in the nature of trade.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Builder - Paragraph (f) assignment of a condo purchase agreement at a gain when plans for personal occupancy by purchaser’s daughter fell through was pursuant to an adventure in trade 501

30 March 2016 External T.I. 2016-0629701E5 F - bump-up 88(1)(d)

land developer accesses capital property status of land held in acquired subsidiary

Where a corporation engaged in a land development business acquired a corporation holding a parcel of land as capital property, CRA accepted that the cost of the land could be bumped under s. 88(1)(d) if the target corporation was wound-up, even if the land would thereby bei acquired by the developer as inventory and even if the wind-up occured several years later.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) land developer can bump the cost amount of land (for use by it as land inventory) which was held by a target as capital property when its control was acquired 257

10 March 2015 External T.I. 2014-0552551E5 F - Vente du droit d'exploiter une sablière

application of capital gains criteria on woodlots to sale of rights to extract sand

A partnership which owns a "qualified farm or fishing property" sells the right to operate the sand pit to a municipality for a fixed sum. Does a capital gain or business income result? CRA responded that the analogous criteria in IT-373R2, para. 12 on Woodlots applied to this question.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) sale of rights to extract sand generally not caught unless a profit à prendre 128
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Farm or Fishing Property sale of rights to extract sand could be considered sale of qualified farm or fishing property 180

20 January 2015 External T.I. 2014-0560961E5 - Treatment of creditor that has seized property

general principles apply to gain on sale of foreclosed property

A taxpayer realized on its first lien on a house (which had secured an interest-free loan to an arm’s length third party) and seized the property. The fair market value of the property at the time of the seizure apparently was higher than its adjusted cost base as determined under s. 79.1(6). The taxpayer wishes to sell the property. CRA stated:

Section 79.1 does not contain any rules to determine whether a property seized by a creditor is held on income or on capital account to the creditor. Whether any gain arising on the disposition of seized property by a creditor is on income or on capital account will depend on the relevant facts and circumstances in a particular situation.

25 April 2013 Internal T.I. 2013-0478511I7 F - Distribution à un commanditaire

real estate capital gains flowed through to limited partner retained character

A limited partnership ("SEC") engaged principally in identifying and acquiring commercial real estate realized a capital gain from the disposition of real estate and distributed the gains to its partners including the taxpayer, who was a limited partner. In response to an inquiry as to whether the capital gains retained their character as such when allocated to the taxpayer (the "Limited Partner"), CRA stated (TaxInterpretations translation):

Since the partner is deemed to itself realize its share of the partnership income, it thereby benefits from all the associated advantages tied to the character of the income generated, which retains its characteristics at the level of the partner. Since the partnership serves only as a conduit for its partners, the income which is allocated to the latter retains its character. ….

If, in the case described, there in fact is an allocation of capital gains of the SEC to its partners, we believe it would be difficult to maintain that they do not retain their character in the hands of the latter, including the Limited Partner.

The Directorate went on to indicate that if the distributions were in fact consideraton for services rendered in the course of a services business carried on by the limited partner, they instead would be included as fee income in computing its business inc

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f) allocated capital gains retained their character unless re services performed by partner in course of separate business 397
Tax Topics - Excise Tax Act - Section 272.1 - Subsection 272.1(1) distinction between return on partnership investment and services rendered by partner in the course of a separate business 295
Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(iv) services rendered by limited partner to LP gave rise to ACB increase if no s. 9 income inclusion for fee income 133

29 November 2012 External T.I. 012-0467841E5

The correspondent asked whether a taxpayer selling a property above its assessed (i.e. property tax) value could treat the excess above assessed value as a capital gain and the balance as income. CRA provided general comments about how a gain might be split between income and capital (for example, a capital property might be converted at some point to inventory).

CRA concluded that, given that fair market value is "generally considered to mean the highest price available in an open and unrestricted market", the assessed value of a property is irrelevant for the purpose of determining fair market value and should not impact how the taxpayer's gain should be treated for the purposes of the Act.

11 February 2011 External T.I. 2010-0377171E5 F - Dépenses engagées à l'égard d'un immeuble locatif

purchase of rental building with intention to resell within a few years generally on income account

The correspondent will purchase an income property, renovate the two existing housing units, and add a third unit in the basement if the necessary authorizations are received, and then resell the property within a year or two of the purchase.

If the property is sold within one or two years of its acquisition, will the proceeds of disposition constitute a capital gain? The Directorate responded:

The taxpayer's intention at the time of purchase of the immovable is an important factor to consider in determining whether a gain from its sale will be treated as business income or a capital gain. At the time of acquisition of the immovable, the taxpayer may have a secondary intention to resell it at a profit if the taxpayer’s original intention is abandoned. If the secondary intention is realized, any gain realized on the sale will usually be taxed as income from business.

Thus, if you purchase an immovable with the intention of reselling it at a profit within a few years, the gain from the disposition of the immovable will generally be considered to be income from a business.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense renovation expenses to rental unit on capital account if lasting benefit for rental activities generated or an improvement over existing housing units is created 177

2000 Ruling 2000-0028423 - partnership dissolution under 98(3)

capital property retained that character on s. 98(3) wind-up

Lands and buildings of a partnership that were distributed to its partners on a winding-up under s. 98(3) would be capital properties in their hands notwithstanding that they immediately disposed of those properties to a subsidiary of one of the former partners.

Income Tax Technical News, No. 7, 21 February 1996 (cancelled)

After stating that:

At previous conferences, Revenue Canada has indicated that, in situations where a corporate taxpayer has acquired, on a section 85 "rollover," property that was non-depreciable capital property of a controlling shareholder or a "sister" corporation, it was ordinarily prepared to accept that the nature of the transferred property would not have changed solely because the taxpayer resold the property soon after the rollover.

Revenue Canada stated:

Revenue Canada does not consider the decision in Mara to have affected its position with respect to the nature of non-depreciable capital property following a rollover within a corporate group.

20 December 1995 External T.I. 9526825 - ENTRY FEE PAYMENTS & WITHHOLDING TAX

Discussion of factors bearing on whether surface lease payments are on account of capital (e.g., lump sum payments received as compensation for injurious affection of land that are treated as proceeds of disposition for purposes of s. 115(1)(b)(i)) or on account of income (subject to withholding tax under s. 212(1)(d)).

In RC's view, an entry fee payable pursuant to s. 19(1) of the Surface Rights Act (Alberta) would represent compensation for capital property (if the land was held on account of capital) which would be considered to be proceeds of disposition.

4 March 1994 Internal T.I. 9321217 - SALE OF BURIAL PLOTS

Although a cemetery operator is considered to deal in rights of interments as inventory, and RC regards the granting of such easements as representing a partial disposition of the ownership rights associated with land, the land that is held for direct use in the cemetery operations nonetheless would be capital property of the business.

8 January 1993 External T.I. 5-910367

property rolled to sub for development

Where a corporation transfers land that is capital property to a subsidiary utilizing the s. 85(1) rollover and the subsidiary acquires the real estate for the purpose of development and ultimate sale to arm's length third parties, there will be a strong presumption that it acquired the real estate on income account. This contrasts with the situation where the property is acquired by the subsidiary for the purpose of immediate resale, i.e., "the fact that the property had been so transferred and sold would not in and by itself preclude the gain from being considered to have been on account of capital" by the subsidiary.

8 January 1992 T.I. (Tax Window, No. 27, p. 19, ¶2359)

Where a corporation transfers land as capital property on a rollover basis to a subsidiary which acquires the land to develop for resale, the entire difference between the subsidiary's proceeds of sale and its adjusted cost base (inherited from its parent) will be treated as business income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit 49

1992 A.P.F.F. Annual Conference, Q. 18 (January - February 1993 Access Letter, p. 57)

It is a question of fact whether vacant land which produces no income constitutes capital property, or property that is held in an adventure or concern in the nature of trade.

6 September 89 T.I. (February 1990 Access Letter, ¶1117)

Where a farmer transfers his farm on a rollover basis to his adult children who immediately thereafter sell the farm property in an arm's length transaction, the capital gains exemption will be available to them provided they have no history of real estate trading.

89 C.R. - Q.26

In determining the nature of the gain realized by a creditor on the disposition of real estate which have been acquired by it in full or partial satisfaction of a debt owing to the creditor, whether the original disposition of the property gave rise to a capital or income gain to the creditor or whether the debt giving rise to the taxpayer's claim was held on income or capital account, may be relevant factors.

Robert Read, "Technical Matters," 1983 Annual CTF Conference Report, 783 at 785 under "Section 85 Rolls"

roll and immediate sale

A taxpayer transfer appreciated capital property on a rollover basis under s. 85(1) to a corporation and the acquiring corporation immediately thereafter sells the property at a profit. In clarifying its response at the 1980 Revenue Canada Roundtable, Revenue Canada stated that it "would accept that the profit would still be a capital gain, despite the short holding period, where the roll was between two sister corporations or a parent and its controlled subsidiary and the ultimate sale was to an arm's length third party…and we are now prepared to rule in those specific circumstances."

IT-459 "Adventure or Concern in the Nature of Trade"

IT-218R "Profit, Capital Gains and Losses from the Sale of Real Estate, including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa".


Sandler, "Character Roles: Property Transfers and Characterization Issues", 1996 Canadian Tax Journal, Vol. 44, No. 3, p. 605.

Warnock, "Income or Capital Gains on Dispositions of Property", 1990 Conference Report, c. 48.