Kerr, J:—These appeals were heard together. They are in respect of income tax assessments of the appellants for their 1966 and 1967 years. They concern a profit that was made by the appellants on a parcel of 21 acres of vacant land that was purchased by them in September 1961 and sold in December 1967. The respondent assessed the profit as income of the appellants.
The appellants claim that the land was purchased as an investment and that the profit is not income.
The question for determination is whether the profit was income from a “business” within the meaning of that word as extended by paragraph 139(1)(e) of the Income Tax Act, which includes a “trade, manufacture or undertaking of any kind whatsoever” and “an adventure in the nature of trade”.
The business interests of the appellants in 1961 are very pertinent, for the appellants claim that the land was purchased in that year to ensure that they would have a site on which to operate scrap metal and foundry businesses. The appellant Burnstein is the founder and Operator of Lincoln Foundry Limited, which was operating a foundry in St Catharines in 1961 and for many years prior thereto. The other appellant, Morev investments Limited, is a private holding company formed in 1956 by Morton Revzen, who was operating a scrap metal business in that city in the years concerned.
Mr Revzen, now 70 years of age, carried on the business of a scrap metal dealer for many years prior to 1961 in partnership for some years with his brother-in-law, Samuel Tomarin, and from 1958 with the latter’s son, Harry Tomarin, also as a third partner. By early 1961 a disagreement had come about between Revzen and his partners, mainly because Revzen wanted to bring his son-in-law, Leonard Fenig, into the partnership. The Tomarins objected and a family feud resulted. Each side retained solicitors. In June 1961 Revzen gave written notice to the Tomarins of dissolution of the partnership at the expiration of three months from the date of the notice, which was June 7, 1961, in accordance with the terms of the partnership agreement. The dispute continued through the summer and fall months of that year, and there were discussions respecting the future of the partnership assets. The solicitors for the Tomarins wrote on June 9 to Revzen’s solicitor suggesting that it would be to the advantage of all parties to come to an agreement as to the disposition of the assets rather than let the matter go to court. On November 2 Revzen’s solicitor wrote that it did not seem likely that a settlement acceptable to both parties would be reached, the alternatives were to apply to court for dissolution of the partnership and appointment of a Receiver to dispose of the assets, or sale of the assets by agreement between the parties — and he suggested that the Tomarins set a price for disposal of the assets to third parties. By November progress had been made for the continuation of the partnership and in December full agreement was reached to continue the partnership, which would consist of Revzen, his son-in-law Fenig, and Samuel Tomarin, Harry Tomarin having assigned his interest to Samuel Tomarin and retired from the partnership.
Turning now to the appellant Burnstein. He is 74 years of age. He moved to St Catharines in 1932 and some years later founded Lincoln Foundry Limited, which he thereafter continued to operate at St Paul Crescent in St Catharines at all times material to these appeals.
In the late 1950’s and through 1961 there was planning by highway authorities for extension of a new major highway through St Catharines, and the proposal attracted great public interest and received much newspaper and other publicity. Mr Burnstein testified that highway engineers came on his foundry property in connection with the highway and he understood from them that his property would be taken for the highway. Various announcements as to the route of the highway were made from time to time, which if carried through would make continuation of his foundry business impossible at its existing location.
Thus the situation in September 1961 when the appellants purchased the 21 acres of subject land was, in short, that Revzen was involved in the dispute with the Tomarins with the possibility that his interest in the scrap metal partnership enterprise would be taken over by the Tomarins; and Burnstein was facing the possibility that his foundry site would be taken for the proposed highway. As it subsequently turned out Revzen’s dispute with his partners was settled and he continued in business at the existing site; the proposed highway extension did not take place and Burnstein’s foundry was not interfered with.
There is evidence that as from 1956 Burnstein and his son owned 20% of the shares of each of two other companies, Grapeview Realty and Development Company and Barrydan Company, which between them owned about 200 acres of land in St Catharines. The companies had no other investments. Burnstein and his son were directors of each company. In 1960-61 Grapeview was breaking up its land holdings and selling parcels at up to $1,800 per acre. The directors, including Burnstein, decided to sell the subject 21 acres as one parcel. Burnstein was aware of Revzen’s difficulties with his partners and he proposed to Revzen that they jointly acquire the 21 acres as a future site for their respective foundry and scrap metal operations, with undivided ownership of / to Revzen and ¥% to Burnstein. The land was in an industrial area and suitable for foundry and scrap metal businesses. Burnstein and Revzen did not inquire of the city authorities whether necessary licences for such operations would be granted, but they thought there would be no difficulty in that respect. Revzen agreed to Burnstein’s proposal and the land was accordingly acquired at a price of $1,800 per acre. Title was taken in the name of Burnstein and Morev investments Limited, the latter being a family holding company whose shares were owned by Revzen and members of his family. Burnstein was not able to say why title was taken in his name rather than in the name of Lincoln Foundry. They did not decide what specific portions of the land each would take, but they felt that they would have no difficulty in mutually agreeing in that respect when the time came to divide the land for their operations.
Burnstein testified that he was concerned about the prospective taking of his foundry site for highway purposes and he was keeping his eyes open for a suitable alternative site. Revzen testified that he also was keeping his eyes open for a new site for scrap metal operations, in view of his difficulties with his partners and the possibility that the partnership would break up and that he would have to find a new site, for he intended in that event to continue in the scrap metal business with his son-in-law Fenig.
When the land was purchased there thus was a possibility but not a certainty that the scrap metal and foundry sites would not continue to be available to Revzen and Burnstein, and when asked at the trial as to his intentions concerning the land at the time of its purchase in case he would not subsequently lose his existing foundry site, Burnstein replied: “If we didn’t need the land I figured we could sell and get our money out of it at least.” As I recall Revzen’s evidence on that point it was that he didn’t give much thought to the problem of what to do with the land in the event that his partnership did not break up, the possibility of selling it would be there but he wasn’t thinking about that.
After the purchase of the land nothing was done to develop or use it in any way. Burnstein said that in 1964 a city official phoned him and said that the city was interested in acquiring the land for an industrial site, following which in April the appellants offered to sell the land, with the exception of one corner, to the city at $4,000 per acre; and following a further inquiry, renewed their offer in July. But nothing came of it. Thereafter the land was left idle, no effort was made to sell or offer it for sale. Then in 1967 Burnstein received a call from Mr Walker, a real estate agent, that he had a prospective purchaser. Burnstein and Revzen went to Walker’s office and quoted an asking price of $10,000 per acre, and a sale resulted for $215,000, out of which the appellants paid the real estate agent’s commission of $10,000 on their understanding that it was customary for the commission to come out of the sale price.
Apart from Burnstein’s interest in the Grapeview Realty and Barry- dan companies, there ‘were no significant dealings by either him or Revzen in the buying or selling of real estate. Both had substantial business interests and assets, and the purchase of the 21 acres presented no problem financially for either of them.
Burnstein and Revzen belonged to the same community and were well acquainted with each other and, being in the scrap metal and foundry businesses, had done business with each other, although this was their first joint venture.
The Revzen partnership scrap metal property consisted of about 1 /2 acres at Welland Street and about 3 acres at Oakdale Avenue for warehouse storage purposes. The Lincoln Foundry site was about 31/2 acres at St Paul Crescent.
In the Morev assessment taxes in the sums of $13,618.59 and $14,512.43 were levied for the 1967 and 1968 taxation years, respectively. In the Burnstein assessment taxes of $17,089.77 and $20,075.19 were levied for those same years. There is no dispute as to the amounts. The dispute is as to the assessment of the profit as income.
Mr Goodman made an impressive argument that the land was purchased for the purpose of enabling Mr Revzen and Mr Burnstein to continue the operation of their respective businesses; that the need for the land for such purposes disappeared by 1964 and it was sold in 1967 upon an unsolicited offer; that the actions of the appellants are simply those of persons who have acquired an investment and, after holding it for a period of time, disposed of it at an incretion in value; that they did not engage in an adventure in the nature of trade and the gain realized is not income; that the land was suitable for the purposes of scrap metal and foundry operations and the timing of its purchase was appropriate in the circumstances of that time; that there was no real activity of buying and selling real estate on the part of either Burnstein or Revzen, and their primary subjective intention in purchasing the land was to acquire it as an investment for the purpose of having a site on which they could continue to carry on their businesses; and that their whole course of conduct belies a trading transaction or an adventure in the nature of trade and they have satisfied the onus upon them.
Mr Storrow, for the respondent, argued that the appellants have not discharged the onus of showing that the transaction is to be characterized as an investment; that the purchase of 21 acres was much beyond what the scrap metal and foundry operations would require; that Burnstein purchased in his own name, not in the name of the foundry company; that Morev Investments was not a scrap metal company and the land was not purchased in the name of any scrap metal business; that Revzen and Burnstein were experienced and successful businessmen and had professional help; that Burnstein was a shareholder and director of a land sales company engaged in buying and selling land for profit; and that the purchase was a speculative venture with at least a secondary intention to turn the land over by sale at a profit.
The legal principles to be applied in this case are well known and have been set forth in such cases as Californian Copper Syndicate v Harris (1904), 5 TC 159; MNR v Edgeley Farms Limited, [1969] SCR 603; [1969] CTC 313; 69 DTC 5228; G l/l/ Golden Construction Limited v MNR, [1967] SCR 302; [1967] CTC 111; 67 DTC 5080; Regal Heights Limited v MNR, [1960] SCR 902; [1960] CTC 384; 60 DTC 1270; Irrigation Industries Ltd v MNR, [1962] SCR 346; [1962] CTC 215; 62 DTC 1131, and other cases cited by the counsel in this appeal.
What the Court must endeavour to determine on the evidence is the true nature of the transaction.
Revzen and Burnstein were insistent that the land was acquired as an investment. They held to that explanation throughout their testimony. But their statements as to the acquisition of the land must be considered objectively along with all other relevant evidence.
In my appreciation of the evidence and circumstances one of the motivations of Revzen and Burnstein in acquiring the land was to have a hedge against the possibility that the land would be needed in the event that the existing scrap metal and foundry sites would cease to be available to them. However, the situations of the two men were not related one to the other and they were independent of each other, for the continuation of either business was not dependent upon the continuation of the other. When the land was acquired there was a possi- bility that each business might in the future need a new site, but the possibility flowed from different circumstances and at that time there must have been, in my opinion, a strong element of doubt, uncertainty and speculation as to whether a new site for either business would be necessary, for in the case of the foundry the proposal for a new highway had been a prime topic for some years without any imminent finalization, and in the case of the scrap metal business the only trouble was a family dispute which, although contentious, was still under negotiation looking towards an amicable settlement. However, it may have been prudent for them to not wait until their future needs became more certain.
In my opinion there was also another motivation inducing Revzen and Burnstein to acquire the land, namely, their feeling that they could sell it at a profit if they would not need it for their businesses. Both Revzen and Burnstein were long-time residents of St Catharines and they were experienced and successful businessmen. Of the two, Burnstein appears to have played a more prominent part than Revzen in the purchase and sale of the land, for he was a director of the company that owned the land and that was engaged in the business of buying and selling land, it was he who proposed to Revzen that they purchase it, he was the one who was approached by the city official regarding a sale of the land, and he was also the one who was contacted by Walker respecting its subsequent sale. Burnstein’s proposal was quickly accepted by Revzen. Each said that he had been keeping his eyes open for a new site, but there was little evidence as to what either of them had actually done in that respect. The arrangement between them was extremely broad, for there was undivided ownership of the 21 acres and no arrangements or understanding for a particular division of the land to serve their separate interests, which were susceptible of change with time, death or other circumstances. The foundry business was that of an incorporated company, yet the land, if acquired for that company’s business, was not acquired in the name of the company, but in the name of Burnstein, with co-ownership in the name of Morev Investments Limited.
Burnstein’s directorship in the land sales company does not necessarily preclude a finding that he and Revzen acquired the land as an investment; nor does the presence of a profit motive per se at the time of acquisition of a property prevent it from being an investment. But in the present case I do not think that the circumstances and conduct of Revzen and Burnstein clearly stamp the acquisition of the land as an investment. I think that the possibility of a profitable sale of the land at some future time was as much an operating motivation for its acquisition as was Its potential usefulness should Revzen and/or Burnstein lose their existing sites. Their evidence that they gave little consideration to what disposition would be made of the land if it were not needed for a new site is less than convincing and open to question. Their intentions in acquiring the land were, in my appreciation of the evidence, equivocal and flexible and I am not satisfied that there is a balance of probability that the land was acquired primarily or pre- dominantly for the purpose of providing a site for the scrap iron and/or the foundry business, or that the profit realized by the appellants from the sale of the land was essentially an enhancement of the value of an investment, or was not made in the operation of a speculative business adventure in the nature of trade.
Therefore the appeals will be dismissed with costs.