Collier, J:—This is an appeal by the plaintiff against reassessments by the defendant whereby the defendant brought into taxable income for the years 1965 and 1967 the sums of $1,060 and $529.46 respectively. These amounts were received by the plaintiff on the sale in 1965 of 1,000 shares of McAdam Mining Corporation Limited and in 1967 of 500 shares of the same company.
The plaintiff contends the amounts realized were capital gains and not income or alternatively the amounts were exempt from taxation by virtue of paragraph (a) of subsection (2) or (3) of section 83 of the Income Tax Act, RSC 1952, chapter 148 and amendments. I have stated the alternative contention as it is set out in the plaintiff’s pleadings although in argument, as I understood it, the plaintiff contended that only a portion of the 1,500 shares sold fell within the exempting provisions of section 83.
The plaintiff is a geologist who graduated from McGill University in 1953. He has worked in the mining field both on his own, for others, as a prospector, and in partnership with the witness Terrence Flanagan as a consultant. He met Flanagan in 1953 and in 1955 they started their consulting business. According to the plaintiff and his partner their long-range plan was personally to develop their own mining prospects into active production.
Prior to 1960 they each held a one-fifth interest in a company called Anomaly No 4 Mines Limited. That company was part of a syndicate which held certain mineral claims. It had been incorporated in 1959. The plaintiff had received 60,000 shares for his one-fifth interest in mining properties transferred to that company, and it was common ground at the trial these were what might be termed subsection 83(2) shares. Those properties proved to be of no value.
In 1960 the syndicate in which Anomaly No 4 Mines Limited had been a partner was wound up and the plaintiff and Flanagan, by agreement with the other members of the syndicate, obtained the outstanding shares of the company. This amounted to 540,000 ordinary shares each.
In the same year certain asbestos claims became available and the plaintiff and his partner staked eight of these in the Chibougamau area in Quebec. Two other mining geologists, L F Gauvreau and E J Gauvreau, shared offices in Toronto with the plaintiff and Flanagan. The Gauvreaus became interested in the development of these claims and all four agreed to combine their efforts to that end.
An additional ten claims were then staked in the area. Rather than incur the expense of incorporating a new company to develop the claims, it was agreed Anomaly No 4 Mines Limited, which had never been active and which had never sold any shares for cash, would be used as the development company. Its name was changed to McAdam Mining Corporation Limited by letters patent dated February 21, 1961. The two Gauvreaus became shareholders in that year. The next problem was financing. The Gauvreaus, the plaintiff and his partner (referred to from time to time in the evidence as “the group of 4”) decided to raise money by selling shares to the public. The Ontario Securities Commission ruled that the company had too many vendors’ shares outstanding and directed that 200,000 shares be placed in escrow. The plaintiff owned half of those shares. The Gauvreaus had had some experience in the financing of this type of mining operation and an arrangement was made for a stock underwriter, John Duncan Cameron, to be brought into the picture. An agreement dated February 22, 1961 (Exhibit 2) was entered into between the company, that is McAdam Mining Corporation Limited, and Cameron in which Cameron agreed to buy 250,000 shares for 10c a share, payment to be made on the effective date of the agreement, which was the date on which the Ontario Securities Commission accepted for filing a prospectus of the company. (That date appears to be March 1,1961.)
The agreement went on to give Cameron an option to purchase a further 800,000 shares in blocks of 100,000 shares at various prices ranging from 12 /2C to 500. The first of the options was exercisable within three months from the effective date of the agreement and the balance at three-month intervals. All unexercised options were to expire on February 22, 1963.
The theory, of course, was that Cameron would sell his shares to clients or the public and exercise the various options as they became due. Unfortunately, because of some personal problems, he did not have the confidence of stockbrokers and investors and this very soon became apparent to the group of 4. It was also apparent that Cameron on his own would not be able to do the underwriting. One of the Gauvreaus had some business connections in Michigan, referred to in the evidence as the “Bay City group”, and arrangements were made with that group to obtain a loan of $25,000. I interject at this point that the Bay City group were ultimately repaid $28,675 plus 250,000 shares.
The $25,000 was then given to Cameron who in turn carried out the initial terms of the agreement.
As to the various options which I have referred to, Cameron in theory exercised them but it was done in this way: The group of 4 agreed to sell some of their individual shares which were not in escrow (100,000 shares) and pay the proceeds to Cameron so he could exercise the various options. As shares were sold to the public by Cameron the group of 4 in effect got their money back from their own shares which they had sold. It was admitted at trial that each option, except the last which was not exercised, was handled in the same way.
With the funds obtained, the company, which had done some earlier drilling and surveys, then carried out further such work on the 18 claims. In September of 1961 a further 15 claims were acquired from the group of 4. The consideration was the 200,000 shares which the Ontario Securities Commission had earlier directed be held in escrow.
In 1963 and 1964 further financing was obtained through an underwriter, Dobieco Limited, by the sale of company shares to the public and as a result of that financing, additional drilling was done and a shaft sunk.
From 1965 to the date of trial further work was done. The results appeared to be satisfactory, and as of the date of this hearing financing arrangements were being made with English interests to bring the property into active production. The evidence is that the group of 4 have and had effective control of the company.
I turn now to the argument advanced on behalf of the plaintiff that the sale of the shares in question was the realization of an investment and not income. I cannot agree.
The plaintiff since graduation from university, and even before, has been in the business of mining, and I use that expression in its widest sense. He has done and still does geological consulting work for others, he has prospected on his own and with others, and he has taken an active part in the promotion and affairs of McAdam Mining Corporation Limited. In all of these activities it seems to me the plaintiff’s main objective was to earn income. While he said in evidence, in regard to the shares he holds and has held in the company, that they were in his eyes a long-term investment, I am convinced he also had the intention to sell these shares at any time it became desirable to supplement his other income. In 1961, as I have related, he sold 25,000 shares in order to make sure the underwriting plans were successful. The other members of the group of 4 did likewise. I conclude that the plaintiff (and I am not being critical) was prepared to deal in his shares at any time it became necessary to do so in the interests of the company or of his own affairs.
The remaining issue is whether any portion of the shares sold in 1965 and 1967 ought not to be included in income by reason of subsection 83(2). In my view the plaintiff has not brought himself within the exempting provisions. Counsel, on his behalf, prepared an ingenious breakdown of the plaintiff’s share position from time to time in the company (Exhibit 1). Without going into the details, the end result of the exhibit is to invite the Court to find that 518.18 of the 1,500 shares sold are subsection 83(2) shares. This is accomplished by using arbitrary percentages with respect to shares, both ordinary and so-called prospector’s shares, acquired and sold by the plaintiff since his initial acquisition of the 60,000 subsection 83(2) shares.
I cannot accept the invitation to so find. In my view the onus is on the plaintiff to show that the 1,500 shares he sold were in fact prospector’s shares, but in my view there is nothing in the evidence to distinguish these 1,500 shares or any part of them from the other ordinary shares acquired by the plaintiff since 1960.
The defendant also relied on paragraph (a) of subsection (4) of section 83 which provides that the exempting provisions do not apply “. . . in the case of a person who disposes of the shares while or after carrying on a campaign to sell shares of the corporation to the public, . . .’.
The defendant says the plaintiff and the other three members of the group of 4 in fact, if not in form, carried on a campaign to sell shares (the Cameron underwriting) and, as the disposition of the 1,500 shares by the plaintiff was made after that campaign, the paragraph quoted applies to take the plaintiff out of the exempting provisions of section 83.
There was considerable argument as to the meaning to be given to the word “after” in paragraph (a) of subsection (4). Because of the conclusions I have come to earlier in these reasons, I do not propose to express any opinion on this argument. But as to the facts of the “campaign”, in my view the plaintiff, from a practical and business point of view, participated in the campaign to raise funds by the sale of shares in 1961. The underwriter, Cameron, as it turned out was a liability, rather than an asset. The plaintiff admitted the underwriting would not have succeeded unless the group of 4 had raised the money for Cameron to take up the various options. While it may be true the plaintiff did not personally sell shares to the public, it is my view that Cameron, in the circumstances which developed, became merely a conduit by which the shares reached the public. The group of 4 themselves took the effective steps to ensure the success of the campaign.
The appeal is dismissed with costs.