A W Prociuk (orally):—The appellant, formerly known as Radatzhe Brown Developments Ltd, appeals from an assessment for the taxation year 1967 wherein the Minister disallowed the use of the provisions of subsection 85E(4) in the determination of the quantum of tax payable for that year.
The appellant’s principal activity was the acquiring of raw land, developing it for construction and then selling the same by lots to building contractors. In 1967 it had 67 unserviced lots remaining out of an area of some 34 acres purchased years earlier. By reason of financial difficulties it decided in the spring of 1967 to sell the said lots as quickly as possible and to terminate its business as a land developer. A portion of these lots were sold under an agreement for sale dated May 31, 1967. The terms of payment were on a monthly basis and the last payment was received in April of 1968 at which time title to the land was transferred to the purchasers. The remaining lots were sold in the summer of 1967 but one of the terms of the agreement for sale was that the appellant would complete paving and curbing of said lots. This was done in September of that year and the appellant was able to collect the amount then owing and transferred title to the said lands at that time.
In filing its 1967 return the appellant declared a net income of $233,112, from which it claimed, and was allowed, a reserve of $114,028.97 under paragraph 85B(1)(d), arriving at a taxable income of $119,083.
The appellant then sought to apply the provisions of subsection 85E(4) which the Minister disallowed for the following reasons:
1. the appellant had not gone out of business because it continued to collect payments on the purchase price until April 1968, on a portion of its inventory; and
2. the appellant continued to pave and curb the remaining lots after its sale in the early summer of 1967, thus continuing in business.
The Minister relies on the decision of Mr Justice Cattanach in Sorbara v MNR, [1964] CTC 536; 64 DTC 5324, when he stated at pages 543 and 5330 respectively:
In my view, the business of acquiring land for disposition at a profit includes all operations essential to the successful completion of the project, including not only sale or other disposition, but collection of the proceeds of disposition.
Having perused the above-noted case, I am satisfied that the facts there were substantially different from those in the instant case. In that case the appellant did not cease to carry on business, and in fact a portion of the land appropriated by the federal government was returned to him. Under those circumstances, it is clear that he could not avail himself of the provisions of subsection 85E(4).
In the instant case the appellant disposed of all its inventory in 1967. Completion of street paving and curbing was a term of the sale. Failure on its part to carry out the terms of the agreement for sale would undoubtedly have resulted in legal proceedings being commenced at the instance of the purchaser. This, in my opinion, is not carrying on the business of land developing, but merely complying with the terms of the sale of a business.
Similarly collecting moneys due as a result of the sale of a business is not in the instant case a carrying on of a business.
Accordingly, I find that the appellant ceased its operations as a land developer in 1967 and was therefore entitled to the benefit of the provisions of subsection 85E(4). The appeal is allowed and the matter referred back to the Minister for reassessment accordingly.
Appeal allowed.