Heald, J:—This is an appeal from the judgment of the Tax Appeal Board dated May 27, 1966 confirming an assessment by the respondent dated June 19, 1961 wherein the following amounts of income tax in respect of income were assessed against the appellant:
for the taxation year 1956 — $172,265.32
for the taxation year 1957 — $ 35,923.35
for the taxation year 1960 — $631,353.39
The appellant, now 67 years of age, was born in Rumania where he lived until 1944. In Rumania, he was the president of a bank and had a number of other commercial activities. In 1944 he moved to Israel where he became involved in a diamond factory, a bank and a textile company. In 1946 he moved to Milan, Italy where he has lived ever since. In Italy he became involved in a project to process and supply cotton yarn. He also became involved in a very large chocolate manufacturing business and by 1948 he had acquired total ownership of this business. By the early 1950’s appellant became interested in Canada as a place to invest his money and acquired several cold water flat apartment houses (without central heating) in Montreal. The demand for this type of apartment decreased considerably in the middle and late 1950’s because of a demand for higher quality housing and central heating. Thus, appellant sold these apartment houses at a loss after only owning them a few years. Notwithstanding this first experience, appellant was favourably impressed with the economic conditions prevailing in Canada, seeing great possibilities in real estate investment. Commencing in 1953, he began to acquire very substantial parcels of land in the Montreal area. There are, essentially, two blocks of property giving rise to the assessments that are the subjectmatter of this appeal. They were referred to at trial as the St Laurent property and the Sault-au-Recollet property.
I will deal first with the St Laurent property. Commencing in 1953, appellant proceeded to acquire a substantial area of vacant farm land in the community of Ville St Laurent on the Island of Montreal (now part of the City of St Laurent). By 1956 his total property acquisitions in this area amounted to over 12 million square feet of property. His evidence is that he intended to eventually develop the area as a large- scale housing development, borrowing from the Central Mortgage and Housing Corporation by way of building mortgages up to 80% or more of the cost of construction. To this end, he instructed a real estate firm known as Crosstown Realties (as represented by agents Gaty and Farcas) to procure for him suitable and available vacant land in the vicinity of Ville St Laurent. The St Laurent property can be further broken down into three distinct parcels:
(a) Part lots 94, 95, 96, 97, 98, 106 (containing approximately 4.3 million square feet)
This property was acquired in July of 1953, was in line with the main runway of Cartierville Airport and abuts on the north-west corner of the airport property. Appellant bought this property subject to a servitude granted on January 39, 1952 to the Quebec Hydro Electric Commission and to a further servitude by the federal Department of Transport for a period expiring in 1955 and affecting a portion of the area on which no buildings could be erected. The notice of this servitude from the Department of Transport was entitled “Expropriation of land and Easement for the operation of Cartierville Airport”. In August of 1957 appellant was notified by the federal Department of Transport of their intention to expropriate parts of Lots 96, 97 and 106 for the purpose of enlarging the Cartierville Airport and lengthening the main runway. Correspondence ensued dealing mainly with the price negotiations, the expropriation went through and in 1960 the appellant received as compensation for the land so taken the sum of $430,000 of which amount the sum of $401,680.09 has been computed by the respondent as profit. In March of 1960 the appellant sold the remainder of the above described property remaining after expropriation to a construction company with a resulting profit of $560,377.44.
(b) Lots 107 and 108 (approximately 5.25 million square feet)
In May and September of 1953 appellant purchased this property fronting on Chemin de Bois-Franc. In September of 1956 he sold about one-third of this property at a profit of $119,131.64, retaining about two-thirds of his original purchase.
(c) Lots 109 and 113 (approximately 2.5 million square feet)
This property was purchased by appellant in July of 1956 and in February of the following year he sold slightly more than one-third of this property for a realized profit of $71,286.
Dealing now with the Sault-au-Recollet property. The appellant’s evidence is that as he proceeded to acquire his St Laurent holdings in 1953, he decided to discontinue his chocolate manufacturing business in Milan, Italy and to re-establish it in Canada. He knew that his former associates in the Italian chocolate business had incorporated a Canadian company under the name of Elite (Canada) Limited and that said company had acquired a 50% interest in an established candy-making company in Montreal known as Mary Lee Candies of Canada Limited. Appellant acquired a 22% equity in Elite (Canada) Limited and, immediately, ambitious plans were made for greatly expanding the Mary Lee candy operation by constructing a new and much larger factory, the intention being to create an ultra modern and completely integrated candy manufacturing business. Appellant says that he originally thought some of his St Laurent land would be satisfactory for the factory, however, in the course of discussions with his partners, it was decided that the necessary manpower to staff the factory would not be available in St Laurent, that a better pool of the necessary workers would be available in the north-east end of the Island of Montreal in what is now known as Ville St Michel and that, accordingly he delegated his agent, Mr Gaty, of Crosstown Realties, to acquire the necessary land. Mr Gaty found the Sault-au-Recollet property which appellant purchased sight unseen for a purchase price of $148,267, the total area being some 728,821 square feet. A short time later, the appellant came to Canada and himself saw the property for the first time. Further discussions as to the suitability of the site for the factory took place and disagreement arose amongst some of the partners. One of the Mary Lee partners (Weinberg) felt the land was too close to an existing quarry and that, because of the dust therefrom, it would not be possible to produce a good candy product. The other Mary Lee partner (Waid) began to feel that he was too advanced in years to participate in such an ambitious and costly product. The result was that by 1956 the proposed new chocolate factory had fallen through. The 50% interest of Elite (Canada) Limited in Mary Lee Candies of Canada Limited was reacquired by the two original Mary Lee partners, the plans for the new factory were abandoned and the appellant was left with the Sault-au- Recollet property on his hands. The appellant sold this land in 1956 at an overall profit of $105,262.75.
So far as the St Laurent property is concerned, appellant submits that his sole original intention was to acquire and assemble a large parcel of property for the purpose of constructing a large-scale housing development for leasing on a long-term rental basis. His position is that this project was frustrated and prevented by the expropriation of a large part of this property by the Department of Transport and thereafter he sold the remaining portion. He says that he had no intention of abandoning the project and only did so when faced with expropriation by the Department of Transport which could not be resisted. This is his explanation for disposition of that portion of the St Laurent property described in (a) above.
However, with regard to that portion of the St Laurent property described in (b) above, his explanation is that when he purchased the farms described in (a) above, the vendors insisted upon selling their entire farms which included the property described in (b) above. The property in (b) was in the Village of Saraguay which adjoined the parish of St Laurent. In this village there were building regulations requiring four or five arpents for a villa and thus, said area was not suitable for his housing development. He says he only bought this property because he had to buy it in order to get the St Laurent property he desired. He said he intended to sell the land in Saraguay and the evidence is, as set out in (b) above, that he did sell about one-third of said property at a substantial profit.
Concerning that portion of the St Laurent property described in (c) above, in 1957 one-third of this property was, in effect, expropriated by Quebec Hydro for the purpose of constructing a transformer station. As stated in (c) (supra), this sale resulted in a substantial profit for the appellant.
The respondent tendered in evidence at the trial considerable correspondence between the appellant and others relating to his land acquisition program.
On August 27, 1953 the appellant wrote to Gaty (Exhibit R-12), his real estate agent in Montreal, and instructed the purchase on his behalf of parts of Lot 108. This letter was written about six weeks after appellant had purchased the property described in (a) (supra). Said letter contains the following paragraph:
With reference to your information about the firmness in the plots market, please note that we are ready to sell some land if we can get a good profit, because you understand very well that we cannot continue to buy indefinitely without selling.
(Italics mine.)
On September 4, 1953 the appellant wrote again to Gaty (Exhibit R-17). In that letter there appears the following paragraph:
Selling of lots:
I wrote you some time ago that I am disposed to sell a part of my plots and I wish to have some offers in the price line you informed me with your last letters.
On February 22, 1954 the appellant wrote again to Gaty (Exhibit R-13). This letter refers to the portion of plots 107 and 108 owned by the appellant and apparently refers to a letter he received from Gaty communicating to him a firm offer to purchase said property for $370,000. The appellant says in Exhibit R-13:
I received your letter dated 17th inst. and am very sorry, but to confess you the truth, I don’t believe you have a firm offer at $370,000 for the plot 107/8, because otherwise I am sure that you would have cabled me.
You asked me only to give to Haicken the authorisation to make a firm offer, but never he informed me that you have someone ready to pay the above amount.
I have a too high opinion on your behalf so that I cannot believe on your assertion when you knew very well that I wish absolutely to sell this plot.
(Italics mine.) Later on in the letter he added:
As I explained to Mr. Hackin, I wish to sell a part of my holdings in Montreal because it is not sound to possess so much land.
On October 19, 1956 Crosstown Realties wrote to the appellant (Exhibit R-15) expressing the opinion that the time was ripe to do something with Lots 96 and 97, Ville St Laurent and recommending a plan of subdivision and a promotional campaign designed to sell the land piece by piece.
On February 22, 1960 the appellant wrote to the Real Estate Section of the Department of Transport (Exhibit R-16) expressing his dissatisfaction with the amount offered to him as compensation for the expropriation of Lots 96, 97, 106 Ville St Laurent. In that letter he made the following comments:
For your information, I have refused long before your expropriation sums far in excess of the amount offered and in due course I shall furnish you with all details of such offers.
Shortly before your expropriation, I was negotiating for the sale of the whole property for a price of .65^ per square foot, and the sale could not go through on account of your expropriation.
Recently I sold a part of the property adjoining the expropriated part, containing approximately one million square feet at almost double the price per foot offered you.
It seems to me that this correspondence is most revealing indeed as to the true intentions of the appellant at the time he acquired subject property. Only a few weeks after he acquired the first of the St Laurent property, he was ready to resell it provided he could get a good profit. He instructed his agent to get some offers in a price range which would ensure such a profit. Early in 1954, while he was still in the process of acquiring the St Laurent property, he reminded his agent again ‘that I wish absolutely to sell this lot”. There is no question but that his agent understood that he would sell if the price was right. They would hardly write the kind of letter they did on October 19, 1956 to someone who was not in the business of selling land. Then, appellant’s letter to the Department of Transport on February 22, 1960 is completely consistent with appellant’s trading pattern because it refers to many offers received by the appellant and makes reference to current negotiations for the sale of the expropriated property at a price of 65C per square foot and refers to the sale of the property adjoining the expropriated part.
The appellant’s evidence in this action was taken on commission at Paris on May 27, 1970. Appellant was cross-examined on this correspondence and came up with a rather ingenious explanation of it. He said that his references to selling in the letters in question were a tactic used by him to disguise his true intention which was, he says, not to sell but to continue to buy. His explanation is that if it became known that he was going to continue to buy notwithstanding the price, this would resuft in the price going up. To prevent this, he says he used the tactic of making it appear that he wanted to sell as much as he wanted to buy. This evidence was given by the appellant some seven years after these letters were written and after the Tax Appeal Board had held that the profits from his real estate transactions were taxable as being trading transactions. I am not prepared to accept appellant’s explanation. This explanation is a post facto statement made many years after the fact, after the profit had been made and held to be taxable. In my view, this explanation runs contrary to the clear intention expressed in the letters themselves which intention is clearly confirmed by the resulting sales.
Appellant also submits that the fact he instructed an architect to prepare plans for a housing development was corroborative of his intention to utilize subject lands as a housing development. The architect, Max W Roth, gave evidence at trial. He said that he was commissioned by appellant in the fall of 1957 to prepare a plan showing a proposed utilization of Lots 96 and 97. The plan was only a preliminary one, took only one or two weeks to prepare, it was similar to other limited dividend scheme plans that his firm had prepared for other developers. This is a very sketchy plan, obviously prepared from a more or less standard form of plan used by the architect for similar schemes for other clients. The plan was not prepared taking into consideration any existing or possible future servitudes for the Cartierville Airport. At best, it was a very preliminary step. I think it quite likely that the main reason for its preparation was to encourage the municipal authorities to extend local improvements to the area which would, of course, make the property more valuable from a resale point of view.
The appellant admitted, in cross-examination, that he wrote a letter to the City of St Laurent on April 17, 1956 in which he applied for building permits for 500 split-level cottages and bungalows to be built on Lots 96, 97, 106, 107, 108 and in which he said that he intended to start construction on August 1, 1956. He further admitted that he had no intention of building small houses such as this, that his intention was rather to build apartments but that he wrote the letter this way because he had been advised that there was a better chance of getting services if he said he was going to build small houses. He said at page 28 of the commission evidence:
My interest was to have the services and he suggested to me not to write about apartments but about small houses, there was a shortage, as Government wanted to help certain housing to give mortgages for this kind of thing.
and again at page 29:
Yes. This is making part of the tactics. My intention was and my need was for sewers and water, to have services.
This evidence is quite revealing as to the “tactics” of the appellant. It is clear that he did not hesitate to make untrue statements of his intention, if, by so doing, it would serve his ultimate goal, which, in this case, was to make the property as valuable as he could, and then to resell at a substantial profit if the opportunity presented itself. I am convinced that the preparation of the preliminary plans by Roth was just another “tactic” used by the appellant to hasten the servicing of his property, thus making it more valuable for resale.
Turning now to the Sauit-au-Recollet property, I am equally convinced that this also was a trading transaction for the appellant. The evidence is that the proposed chocolate factory would have required, at the most, 300,000 square feet of property (including parking), less than one-half of the total area of subject property. The appellant purchased this property while the discussions were going on between the Elite group and the Mary Lee group; no cost estimates had been projected; no details on the percentage of contribution by the various partners had been worked out; no agreement had been reached on rent; there was absolutely nothing in writing to ensure that the project would proceed and of course, it did not proceed. The appellant bought the property for himself as a commercial risk (transcript—page 45) while at the same time expressing his opinion that to buy the land was not a risk (transcript—page 44). I interpret this evidence to mean that the appellant, as a shrewd and successful businessman of many years standing, was convinced that raw land purchases, at this point in time, in this area of Montreal, were a good buy, having regard to the possibility of future appreciation in value and to the likelihood of substantial profits on resale. I think the appellant acquired this property as inventory, in much the same manner as a merchant buys stock- in-trade, in the expectation of resale at a profit. His expectations were, of course, realized in the form of substantial profits after holding the land for only two and one-half years.
In summary, my appreciation of the evidence in this case leads me to conclude that, in respect of all the subject transactions, the appellant, at the time of purchase, had the intention to buy this land, keep it for a while and then resell it at a profit. In the case of St Laurent, he took some very preliminary steps indicative of commencing a housing development but, as I said earlier, these steps were just as consistent with resale as they were with development.
In the case of Sault-au-Recollet, the projected chocolate factory was certainly in his mind as a possible use for a portion of the land but I think he bought the property with the ‘intention of either using part of it for the factory or for resale at a profit. When he bought the land, he was not in any position to ensure that the factory be built there (11% equity in the chocolate company) and he went ahead anyway.
Because I have concluded that the transactions in question were trading transactions, the appeal is dismissed on the principal issue.
At the trial, counsel filed “An Agreement Between Counsel to Limit Evidence” dated January 18, 1973 which provides as follows:
With a view to limiting the length of the enquiry and its scope to the basic issue, and in order to avoid unnecessary technical evidence, the parties, through their respective counsel, agree that in the event this appeal is not allowed on the principal issue, the appeal will be allowed to the extent it be referred to the Minister for reassessment on the understanding that Appellant will be permitted to establish any allowable deductions.
In accordance with this agreement, the appeal is allowed to the extent it be referred to the Minister. for reassessment on the understanding that appellant will be permitted to establish any allowable deductions.
The respondent is entitled to his costs of appeal.