Ritchie, J. (all concur) :—This is an appeal from a judgment of Kearney, J. of the Exchequer Court of Canada directing that an order of the Tax Appeal Board be set aside and restoring the assessment of the Minister of National Revenue for the appellant’s taxation year 1958, whereby income tax was levied on a net gain of $23,384 realized by the appellant in a series of real estate transactions which are hereinafter described.
The appellant is and always has been engaged in the business of general contracting, and the objects expressed in its Memorandum of Association read, in part, as follows:
3. The objects for which the Company is established are:
(a) To purchase, take on lease or in exchange, or otherwise acquire any lands and buildings, and any estate or interest in, and any rights connected with, any such lands and buildings.
(b) To develop and turn to account any land acquired by the Company or in which the Company is interested, . . .
Nothing turns on the language of this Memorandum of Association standing alone but it is apparent to me from the evidence that in conformity with these objects the appellant in fact engaged in the business of purchasing land in the Province of Alberta and elsewhere primarily for the purpose of building houses thereon for sale, but also with a view to constructing apartment blocks for renting. The appellant’s course of conduct indicates to me that the lands alone were also available for resale if ‘‘somebody came along’’ who was prepared to offer a sufficiently high price.
In the course of its business in the year 1953, the appellant purchased a number of parcels of land in the west end of the City of Edmonton which it later assembled into a block with the approval of the city. This land came to be known as the Parkview Subdivision’’ and the company there built approximately 300 houses which were later sold. It was one of the conditions of the city’s approval of this scheme that the appellant should provide the necessary land for public services including schools, and when the city decided to construct a large high school in this subdivision the appellant was required to transfer to it about 100 small lots in exchange for which in the month of April 1955 the city transferred to the appellant a number of city lots which the appellant itself selected and which included a property of about 2.85 acres at the corner of 86th Avenue and 83rd Street, then described as lot 42 and sometimes referred to as the “Bonnie Doon’’ property. A further property of approximately 9 acres which was transferred to the appellant was located on the west side of 85th Street. There was also included in the exchange a lot of a little more than 2 acres which was in another area and which is hereinafter referred to as property ‘‘x’’.
The profit of $23,384 which the Minister of National Revenue has assessed as part of the appellant’s income for the year 1958 arose as the result of a replotting of lot 42, hereinbefore referred to. The effect of this replotting was that lot 42 was subdivided into lots 43, 44 and 46, and the appellant transferred the new lot 44 to the Imperial Oil Company Limited in exchange for which Imperial Oil transferred lot 48 to the appellant and paid the sum of $20,000. The appellant then transferred the newly acquired lot 48 to the Lutheran Church for $18,000. It is agreed that this series of transactions gave rise to the profit now sought to be taxed.
The contention advanced on behalf of the appellant, which found favour with the Tax Appeal Board, was that at the time when the city lots were transferred to it in exchange for the Parkview School property the appellant had already determined that, apart from property ‘‘x’’, all the lands were to be used for the construction of apartment buildings which would be held as capital assets so as to provide a permanent source of income for the appellant’s controlling shareholder and his family. On this assumption, it was argued that when the properties were sold without any apartment buildings having been built the sales were sales of capital assets and that any profit realized by the appellant as a result thereof was a capital gain and not income.
In the course of delivering the reasons for judgment of the Tax Appeal Board, the learned Assistant Chairman observed that apartment buildings built by the appellant had always been retained by it for the rental income to be had and he went on to Say :
The plan was that any apartment building put up should be treated as for investment purposes only. On this account, the appellant has never disposed of or parted with any apartment building erected by it. Having been through a heavy housebuilding programme over a period of years and achieved a position of financial independence, the appellant’s controlling shareholder, Mr. G. W. Golden, became more interested in creating and enlarging a permanent source of income for himself and family than in money-making through further building operations.
Although plans and a model of an apartment building to be erected on lots 43, 44 and 46 were prepared for the appellant, none was ever constructed on any part of the property acquired from the city. This was chiefly due to the fact that a very large shopping centre was constructed on adjacent property which, it was felt, would interfere with the value of the appellant’s lands as an attractive site for the apartment building, and negotiations were conducted with the builder of the proposed shopping centre with a view to erecting a large screen to block the view of the back of the shopping centre from the proposed apartments but nothing came of this and the project was abandoned
The evidence of Mr. G. W. Golden, the president and controlling shareholder of the appellant, was clearly to the effect that when it acquired these lands from the city its primary purpose and intention was to use them for the construction of apartment buildings, and steps were undoubtedly taken to this end, but when it became apparent that the sites were not as desirable for this purpose as they had originally appeared to be, the appellant was willing and ready to turn them to account if a sufficiently profitable sale offered itself.
In this latter regard, I am of the opinion, for the reasons stated by Kearney, J., that the evidence which was tendered as to the sale in 1959 of the balance of the property which the appellant had acquired from the city is admissible. (See Osler, Hammond & Nanton Limited v. M.N.R., [1963] S.C.R. 432 at 484; [1963] C.T.C. 164 at 166, per Judson, J.) When questioned about this sale, Mr. Golden said:
I couldn’t afford to build apartments on land that I could get $20,000.00 an acre for. I thought it was a windfall myself. So that the sale was something over $200,000.00.
Q. Let us put it this way, Mr. Golden, you finally reach a point, you may intend to build an apartment or houses on property, and that may be your intention all along. A. I didn’t go looking for it. It was not for sale.
Q. If you were offered enough money or it is a good deal and you are willing to sell, you are willing to sell? A. Well, it was not economical for me to build if somebody came along like this.
Q. In other words with a price like that it didn’t pay you to keep it for apartments no matter what your original intention had been? A. No.
I think this evidence is relevant to show a course of conduct on the part of the appellant, and when it is remembered that all of the property which the city transferred to it in exchange for the Parkview School site, amounting in all to about 12 acres, was sold off within four years after the appellant had acquired it, I think it is only reasonable to infer that, at least after the abandonment of the apartment project, these lands were being held for resale as a part of the appellant’s inventory. It is of some significance to note in this connection that the lands were entered in the books of the company in an account under the heading ‘‘ Land for Resale’’.
Notwithstanding the fact that the appellant may originally have intended to build apartments on this land, I think the evidence disclosed that it had the secondary intention of selling the lands at a profit if it were unable to carry out its primary objective.
In this regard, I find it difficult to distinguish this case in principle from the situation which was considered by Judson, J. in Regal Heights Ltd. v. M.N.R., [1960] S.C.R. 902 at 907; [1960] C.T.C. 384 at 389, although that was a case in which the profit to the promoters arose out of a single transaction for the carrying out of which Regal Heights Ltd. had been expressly incorporated, whereas in the present case the taxpayer is an experienced real estate operator of long standing.
An even closer analogy to the situation here in question is, in my opinion, to be found in the case of Fraser v. M.N.R., [1964] S.C.R. 657; [1964] C.T.C. 372, where the appellant and his associate were found to be experienced operators in the field of real estate and where Judson, J., giving the unanimous decision of this Court, reviewed the situation in the following passage at pp. 660-1, 375:
Cameron, J. accepted the evidence of the appellant that when the two associates acquired the property, they did intend to attempt to develop the property for rental purposes. He calls this their dominant intention and he says that he is far from satisfied that it was their sole intention at any time. He also finds that they intended to sell at least part of the property if they were unsuccessful in developing it as they planned. His conclusion is contained in the following extract from his reasons:
“In my view, the whole scheme was of a speculative nature in which the promoters envisaged the possibility that if they could not complete their plans to build and retain as investments a shopping centre and apartments, a profitable sale would be made as soon as it could be arranged.”
In spite of the Judge’s emphasis on primary and secondary intention, when applied to the facts of this case it amounts to no more than this. He was saying that two active and skilled real estate promoters made a profit in the ordinary course of their business, and this they obviously did. They were carrying on a business; they intended to make a profit, and if they could not make it one way, then they made it another way.
This language appears to me to have direct application to the present case.
I regard the property originally described as lot 42 as having been acquired by the appellant as part of the inventory of its business and as being so held by it when the profit which is here in question was realized. I therefore agree with Kearney, J. that the profit was a profit from the appellant’s business within the meaning of Sections 3 and 4 of the Income Tax Act.
For these reasons, as well as for those contained in the reasons of Kearney, J., I would dismiss the appeal with costs.