A J Frost:—This is an appeal from an income tax reassessment dated July 28, 1970 varying an earlier assessment dated May 14, 1969 in respect of the appellant’s 1967 taxation year, wherein the Minister of National Revenue levied an additional tax on the gain realized on the sale of 4 acres of land in the sum of $72,830.93. The appeal was heard at Toronto, Ontario on October 28, 1971 by the Tax Appeal Board as it was then constituted.
Mr John G Young acquired a glass supply business in 1946 which went through a period of remarkable growth coinciding with the growth of the construction business following World War li. Mr Young caused the appellant company to be incorporated in 1954, which company later acquired two subsidiaries through the transfer of shares. The subsidiary companies were called Service Glass and Mirror Limited (hereinafter referred to as “Service Glass”) and Service Glass Store Fronts Limited (hereinafter referred to as “Store Fronts”). The businesses of the subsidiaries were later consolidated and Store Fronts was wound up.
In 1954 the appellant company acquired a building at 1185 Roselawn Avenue, Toronto for occupancy by both the appellant and its subsidiaries. As the businesses expanded they outgrew the premises. Mr Young envisaged considerably more growth and planned for an expansion of existing facilities as his son had indicated a desire to enter the glass business with his father on completion of his university training in Business and Engineering.
After a search for a new and larger location to accommodate its expanding business, the appellant company in 1956 acquired 92 acres of land on Highway 400 at a cost of $378,000 with a down payment of $100,000. The cost was very high and that parcel of land was larger than needed for a plant and office site. Mr Young, on behalf of the appellant company, decided to sell 82 acres retaining 10 acres for company uses.
In October 1958 the appellant granted a 5-year option to a partnership known as Signet Developments for the purchase of 82 acres of land at $4,500 per acre. The agreement provided that the appellant company would have the right to retain 10 acres out of the 92-acre parcel. In July 1963 Signet Developments exercised its option and the appellant kept 10 acres.
In 1963 Mr Young’s son decided not to enter the glass business, and Mr Young after a long and successful career decided to sell his business. In 1967 he accepted an offer for approximately 4 acres of land realizing a gain of $72,830.93,
After careful consideration, it is not necessary in my opinion to review all the assumptions and all the factual details established in evidence. Suffice it is to deal with two basic questions in issue:
1. Did the appellant have a secondary intention?
2. Was the appellant a trader or the transaction one in the nature of trade?
To establish a primary and secondary intention, the facts of the case must speak for themselves giving a double character to the acquisition of the land. At the very moment of purchase it must be apparent that the appellant not only had a plan in mind for the development of the property, but was also motivated to buy it because an attractive alternative existed, namely, that he could sell it at a profit in the foreseeable future if events took an unexpected twist and he was unable to proceed as planned. The motivation must be double-barrelled providing an obvious escape hatch.
In the case at bar, the testimony of Mr Young was clear and unequivocal despite merciless cross-examination. The facts of the appeal came out clear as crystal. There was nothing devious or sinister in anything Mr Young did and he proved himself an excellent witness. The evidence of Mr J G Corn, CA, was also clear and to the point. The Board attaches some significance to the fact that Mr Corn, as auditor, viewed the 10 acres as a Capital asset, and added back to income for tax purposes those outlays relating to the site which he regarded as being of a capital nature.
The evidence adduced indicated that the appellant had no intention of disposing of its 10-acre parcel or any part of it until 1965. I find it held the said parcel as a capital asset for the proposed plant and office site for a period of approximately 11 years. There is no evidence of a secondary intention, and on objective criteria it cannot be inferred.
The second question in issue relates to trade. Was the appellant a trader or was the transaction in the nature of trade?
As I see it, an essential condition for that qualification is trade. It is not secondary intention, profit, motivation, isolation or association with others, it is simply trade. In MNR v J A Taylor, [1956-60] Ex CR 3; [1956] CTC 189; 56 DTC 1125, a leading authority on the subject, the appellant was an expert in the lead business and familiar with world markets and domestic demands. The company of which he was chief executive officer was a subsidiary of National Lead Company of New York. When he could not get authority to buy on behalf of his company (the price of lead had dropped about 50% on world markets) or to deal in futures he obtained permission to act on his own. He brought 1,500 tons of lead, requiring 22 carloads to carry it, and then proceeded to sell it back to his company through brokers. He took a deep plunge into the waters of trade and made a handsome profit. The main point in the case was that, having acquired all that amount of lead, he could not do anything with it except sell it thus making the transaction a “trading transaction”. The character of the transaction from beginning to end was that of a short-term trade. The appellant was forced to treat the lead as “stock-in-trade” and subsequently sell it as a trader.
Although each case has its own specific character based on its own facts, no evidence was adduced in the present case to even remotely suggest that the 10-acre parcel of land held for 11 years was by its nature “stock-in-trade” and anything other than a capital asset of the appellant.
The appeal is hereby allowed.
Appeal allowed.