Roland St-Onge:—This appeal was heard at Victoria, BC on November 3, 1971, by the Tax Appeal Board as it was then constituted, and is from a reassessment dated July 30, 1970 wherein the sum of $25,677.98 was added to the appellant’s income in respect of its taxation year 1968.
The appellant was incorporated in the year 1955 to take part in the management, supervision and control of the operations of Hickman Tye Hardware Co Ltd, a subsidiary company incorporated in 1933 to carry on business as a distributor of general hardware and electrical merchandise from warehouses in Victoria and Vancouver. About the year 1955 the shares of Hickman Tye Hardware Co Ltd were owned by a number of shareholders who were not active in the conduct of its business.
In mid-1964 the appellant purchased a lot on the corner of Clover- dale and Oak Streets from the Municipality of Saanich for the alleged purpose of erecting a warehouse in Victoria. After the*purchase of said lot, which alone would not have been large enough for the erection of a warehouse, the appellant purchased two adjoining parcels of land
— one on September 9, 1964 and the other on October 21 of the same year. The total cost of the three parcels was $64,322.02. When the property was sold, the Minister included the profit of $25,677.98 in the taxpayer’s income for the 1968 taxation year on the ground that it was income from a business or adventure in the nature of trade.
At the time the three parcels were purchased by the appellant the zoning regulations did not permit the construction of a warehouse on the property, and there is no evidence to show that the appellant made any application to erect a warehouse or to have the by-laws changed.
At the hearing, Mr L H Noble, president of the appellant company, testified that the zoning was in good order — which explained why the appellant did not make any application to have the by-laws changed. However, it appears that such was not the case because Miss Brownell, the real estate agent involved in these transactions, explained that some discussion with respect to zoning regulations had taken place with the representative of the municipality, but she did not know whether or not the appellant had made application to have the by-laws changed. Mr Noble also testified that no architectural building plans, blue prints, feasibility studies or cost estimates were ever prepared for the erection of a warehouse — apparently because they knew what they wanted and felt that such preparations were not necessary for the building of a one-storey warehouse. There were only a few sketches prepared at that time and they were not filed at the hearing.
Miss Brownell testified that one of the conditions of the sale was that the appellant would undertake to complete the tiling of a watercourse on the property and also grant to the municipality an easement over this watercourse. She stated that she had discussed this problem with another official of the municipality and learned that it would cost between $7,000 and $10,000 to do this construction work. She also stated that, prior to the purchase, the municipality was ready to allow the construction of a warehouse but that after the sale of the land the authorities changed their minds.
It is also in evidence that the appellant was involved in a similar situation in 1962 when it realized an untaxed gain in excess of $10,000 on the sale of two adjoining lots which it had purchased in 1953 and 1958 respectively for the alleged purpose of building a warehouse, which was never erected either. Also in 1962 Hickman Tye Hardware Co Ltd realized an untaxed gain of $20,000 on the sale of a parking lot in the city. Similarly, Mr A V Lea, a shareholder, officer and director of the appellant company, had been involved in the development and sale of an apartment block.
With respect to the transaction under discussion, Messrs Lea and Noble personally received the sums of $2,500 and $5,000 respectively, but Mr Noble explained that this money was paid to them personally because for a while they operated the company without pay and re- ceived the money only when the funds from the sale became available. He also explained that in 1958 they ceased the retail business to operate as a wholesale business only, and that this change necessitated the acquisition of a one-storey warehouse in order to operate more efficiently. However, the warehouse was never constructed because in 1964 or 1965 the appellant obtained a franchise from Pro Hardware which permitted it to carry on business in accordance with new methods of selling. Apparently this new system afforded a better display and turnover of the appellant’s merchandise and a more efficient Operation.
The evidence does not convince me that the appellant purchased the lots with the intention of erecting a warehouse thereon. Its shareholders and directors — especially Mr Lea who had been involved in real estate transactions before — knew the area very well and were not unaware of the fact that the actual zoning of the lots was a deterrent to the appellant’s project. Apparently, the appellant made no attempt to have the regulations changed, although the real estate agent who dealt with this matter testified that some discussion did take place with the municipality in respect of zoning.
Admittedly, this corner lot was a prime commercial site and the appellant purchased it without knowing whether or not it could acquire the other lots in order to assemble enough land to realize its project. Furthermore, the appellant and its directors had been involved in so many real estate transactions of one kind and another, that it is difficult for the Board to conclude that the subject property was acquired by the companny for the express purpose of building warehouse facilities. The alleged need to erect a warehouse was used in the past by the appellant as an excuse for purchasing property and I do not see why it should succeed again. The fact that not only did Messrs Noble and Lea fall back on this worn-out excuse for purchasing the property but also received personally and directly from the purchaser of the lots moneys rightfully due to the company is more than enough to cast doubt upon the real purpose for which the appellant company purchased the subject lots.
Consequently, for the above reasons, the appeal is dismissed.
Appeal dismissed.