Roland St-Onge:—This appeal was heard in the City of Calgary in the Province of Alberta by the Tax Review Board on March 16, 1972 and involves the 1965 and 1967 taxation years.
The main shareholder of the appellant company, Mr E P Morasch, a carpenter residing in Calgary, testified that in his youth he had lived on a farm and ever since 1942 had had in mind the purchase of the farm which he eventually bought in the year 1957. About the year 1947 he sold hardware for a while and then began buying lots from the city on which to erect houses to sell at a profit. In 1952 he caused the appellant company to be incorporated to carry on the construction business. In 1957 Mr Morasch personally purchased a quarter section of land approximately 20 miles from the City of Calgary, and the company began to curtail its construction activities. On May 18, 1959 Mr Morasch sold personally 25 acres to a Mr Kvicala for $7,000, and on April 19, 1960 his company sold 25 acres to a Mr Selinger for $12,500, and tax was paid on the gains in both cases.
Approximately three years after he purchased the land the witness decided to move onto the farm and built a house thereon. His first farming endeavour was the raising of poultry but this did not turn out to be very profitable. He then tried raising horses. He purchased a horse at a price of $4,000 and two mares for about $2,000 or $3,000 for breeding purposes. He also sowed grass seed on a 10-acre piece of land and erected some fences on the property. However, he knew nothing about raising horses and, consequently, this last endeavour was no more profitable than the first. He carried on this unsuccessful farming operation for a period of about 18 months in 1961-62, and according to his own testimony he went deeper into debt to the extent that when he received a summons for a plumbing account he decided to quit farming and sell his land. At the time he made that decision, the real estate business was on the decline in the area.
In the year 1960 the remainder of the land was transferred to the company. In 1965 the company advertised and sold this remainder in three different parcels: 25 acres to a Mr Wathen for $11,000; 25 acres to a Mr Rurar for $24,900; and 35 acres to Kouitz & Golden for $39,000
— realizing a gain of $49,674.
Upon cross-examination, Mr Morasch stated that the land was surveyed before it was transferred to his company; that during his 18 months on the farm the appellant company did not carry out any construction activities; that almost immediately after the acquisition of the farm he sold the two lots because he did not need them for his farming operation; that when he acquired the farm his intention was to live on it; and that one of the reasons for selling was his illness.
Mrs Morasch corroborated her husband’s testimony and added that she was not very capable of working on a farm. During that period she obtained permanent employment in order to help pay the debts and explained that both she and her husband had worked very hard to make a nice place out of their new residence. She enjoyed the farm except for the horse-breeding operation but said they had to quit because of her husband’s illness and also on account of the debts.
Counsel for the appellant argued that the remaining land was inventory for the appellant company which was a genuine investment business. Although Mr Morasch disposed of two unneeded parcels of land it did not prevent the appellant company from realizing capital gain because the land was not acquired for the purpose of turning it to account but for the purpose of raising poultry and breeding horses. Unfortunately, Mr Morasch’s illness forced them to give up.
Counsel for the respondent argued that, as soon as Mr Morasch acquired the land near Calgary, he sold two parcels thereof and paid tax thereon, and that this was an adventure in the nature of trade. He gave up his practice as a real estate dealer, transferred the land to his company which was not very active for a while but which became active again about a year or so later, and occupied the farm for a brief period of time.
According to the evidence adduced, the land was transferred to a construction company which took the necessary steps to sell it at a profit. The company did not hold the land very long; it did the neces- cary advertising and sold it at a substantial profit. Mr Morasch had been personally buying and selling land and houses for himself as well as for others, and the transferring of the land to his company to be sold at a profit — a company, part of whose business had also been the buying and selling of properties — does not constitute a means of preventing taxation of the gains.
In my opinion, because of the course of conduct of the appellant company and that of its main shareholder, the gain under discussion should be considered taxable and, consequently, the appeal is dismissed.
Appeal dismissed.