SHEPPARD, D.J.:—This appeal is by Charles Glassman from the assessment by the Minister of National Revenue for the taxation year 1959 in refusing any allowance based on the capital cost of buildings and equipment on Lot 7, Block 63, DL 185, being 1250-1254 Bidwell Street, Vancouver, B.C.
About June 1, 1959, the appellant and his son, who were partners in equal shares, purchased the corner Lot 7, being 66 feet on Burnaby Street and 131 feet on Bidwell Street, for $90,506, the south half from Dr. and Mrs. A. B. Greenberg for $45,000 and the north half from A. Forbes. The buildings thereon consisted of four old frame houses converted into twelve units then in possession of tenants, the ground floor of one occupied by a grocery.
On February 29, 1960, the appellant and his son purchased Lot 6 adjacent on the east, from S. Gaylie Construction Ltd. for $45,000. In March 1961, they purchased 1643-1664 Burnaby Street, Vancouver, and in the years 1961 and 1962 demolished the buildings thereon and built a 64-suite apartment known as Kevin Manor. In May 1961, they purchased 1370 Harwood Street, Vancouver and in the years 1962 and 1963 demolished the existing buildings thereon and built a 46-suite apartment known as Elliott Towers. On February 1, 1962, they leased Lots 6 and 7 at $575 per month to Mrs. Hellyer, the lessors to pay taxes and insurance, and the lessee to assume other expenses such as janitor service, heat, light, water, fuel and repairs.
In August 1963, the appellant and his son demolished the buildings on Lots 6 and 7 and began the construction thereon of a highrise apartment.
For the taxation year 1959 the appellant had claimed a capital cost allowance on the buildings on Lot 7 at a value of $48,506 and on equipment therein at $2,000 under Section 1100(1) (a) of the Income Tax Regulations, on the ground that they were acquired for the purpose of gaining or producing income. The Minister in 1964 made an assessment which contained some allowance on the basis of capital cost, and on March 26, 1965, gave notice of a re-assessment refusing any allowance for capital cost.
The appellant contends that he and his son purchased the land and buildings as an investment, that is, for the purpose of deriving income from the rental. The Minister contends that they acquired the property not as an investment but as a site for an apartment block and that any deduction from the income was not within Section 1102(1)(c) of the Regulations and also was precluded by the Income Tax Act, Section 12(1) (a).
The relevant sections are Income Tax Act, Section 12(1) (a) :
‘ 12. (1) In computing income, no deduction shall be made in respect of
(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from property or a business of the taxpayer,”
Section 11(1) (a) :
“11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:
(a) such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation;”
and Section 1102(1) (c) of the Regulations:
“1102. (1) The classes of property described in this Part and in Schedule B shall be deemed not to include property
(c) that was not acquired by the taxpayer for the purpose of gaining or producing income,’’
In order to come within Section 1102(1) (ce) of the Regulations the buildings and equipment must have been acquired ‘‘for the purpose of gaining or producing income”. In Ben’s Limited v. M.N.R., [1955] Ex. C.R. 289 at 293-4; [1955] C.T.C. 249 at 253, Cameron, J. held:
“In my opinion, however, the Regulations require a somewhat different approach to the problem. All property which, prima facie at least, is entitled to the capital cost allowances, is broken up into ‘classes’ as set out in Schedule B, and the rate of the applicable allowance for each such class is stated in Section 1100 of the Regulations. Then, by Section 1102(1)
(c) of the Regulations (supra), these ‘classes of property’ are deemed not to include property that was not acquired for the purpose of gaining or producing income. The only applicable item of property in Class 6 is ‘a building of frame’.
In my view, therefore, the question is not whether the appellant’s outlay as a whole was for the purpose of gaining or producing income, but rather this: ‘Was the property referred to in Class 6 as a “building of frame’’ acquired by the appellant for the purpose of gaining or producing income?’ ??
The immediate question is whether or not the appellant purchased the buildings and equipment on Lot 7 for the purpose of gaining or producing income from the rentals.
At the trial the appellant adduced evidence to prove that the land was worth less than the price paid and hence to infer some portion was paid for the buildings and equipment. The appellant testified that the land was worth approximately one-half or $45,000 and the buildings and equipment the balance. The appellant’s estimate of the value of the land of Lot 7 is too low and should not be accepted. In 1960 he purchased Lot 6, an inside lot adjoining to the east, at $45,000, on which the buildings were not important as an investment, and in 1961 he purchased 99' of inside property on the north side of Burnaby Street, the site for Kevin Manor, at $65,000. Also the appraisers fix a higher value than did the appellant, hence his value cannot be accepted. Palmer, an appraiser called by the appellant, testified that the land of Lot 7 was worth $57,000 and the buildings $33,000. On the other hand, the Minister called appraisers who testified that the land was worth the full amount of the purchase price. J. S. Hart testified that the land was of the value of $90,000; D. W. Meakin of $92,500, therefore that the buildings were of no value.
The difference in the evidence of the two groups of appraisers is not to be explained on the ground of credibility, but rather on the selection of the various properties to denote the value of the property in question. That selection has produced a value according to the property selected as characteristic of the property here in question, and that again is a subjective matter of individual opinion which may lead to honest differences. Hence, the evidence of the appraisers does not determine nor assist in determining the purpose for which the buildings on Lot 7 were acquired by the appellant.
The appellant at the trial testified that at the time of acquiring Lot 7, then valuing the buildings and land as of equal value, he and his son had no plan to demolish the buildings; that they purchased the property as an investment, that is, for the income produced by the rentals, and in 1963 decided to build. His son, Leon Glassman, testified that Lot 7 was acquired for the purpose of retaining the buildings to produce an income, and that there was no intention of removing the buildings.
Although the appellant and his son have testified that the buildings thereon were purchased as an investment, nevertheless certain of their statements and actions are inconsistent with an investment in the buildings and equipment, and indicate the purchase of a site for an apartment to be built.
1. The appellant’s statement to the bank manager indicates a site was being acquired. Lot 7 was purchased on monies borrowed from the Toronto-Dominion Bank, and at the time of borrowing such monies the appellant stated to the bank manager that the monies were to purchase what was an ideal site for a luxury apartment building. At the trial the appellant agreed that Lot 7 was a good site for an apartment. The lot has a good view of English Bay, overlooks Alexandra Park so that the view could not be blocked by other property, and it is also near a beach (Chart Ex. R-5, Appraisal Ex. R-1, Appendix I").
2. The terms of purchase of Lot 7 indicate the purpose was not revenue from the buildings but to acquire the site. In acquiring Lot 7 from the Greenbergs and Forbes, the appellant stipulated that there be no outstanding leases. The letter of May 27, 1959, from his solicitors to Forbes stated : We would also like to confirm with you that all tenancies are monthly and there are no leases.’’ The letter of May 28, 1959, from his solicitors to Dr. and Mrs. Greenberg stated: ‘‘We also confirm the information you gave us earlier that there are only monthly tenancies and no leases.”
The buildings on Lot 7 are described as old frame residences kept in good repair for buildings of that age (Ex. A8 and A9) and are situate in the west end of Vancouver where there are a large number of new apartments constructed or being constructed and older apartments (Ex. R-1, Appendixes D, E and F, Ex. A6 and A7). Lot 7 is described as an ideal site for a luxury apartment building, but these old converted frame residences cannot be expected to attract tenants looking for luxury apartments. Under such circumstances a purchaser of these converted houses for an investment would expect written leases whereby the tenants were bound to continue their occupancy at the agreed rental and whereby the purchaser would receive some assurance of a continued income that would not be terminated by the tenants moving to other or newer apartments. The stipulation that there be no leases is therefore significant and denotes the essential purpose of using the site free from any right or occupancy of the suites.
By letter of May 5, 1959, from the appellant’s solicitor to Dr. and Mrs. Greenberg (Ex. A2) he stipulated:
“4. You are to deliver possession, subject to the existing
tenancies as at June 1, 1959.
5. This sale is conditional upon our client being able to consummate a purchase of the N.^ of Lot 7 from Mr. Forbes.”
To complete the purchase the Canadian Bank of Commerce was made the escrow agent and by letter of June 1, 1959 (Ex. A2) appellant’s solicitor stipulated in eserow that the purchase was conditional upon acquiring a title free and clear of all encumbrances from both Dr. and Mrs. Greenberg and Mr. Forbes. If the appellant was purchasing property as a site for an apartment he would require the whole of the property fronting on Bidwell Street and more land than if merely for the purpose of investment. Either parcel, the north half or the south half of Lot 7 would be an investment. As an investment there was no need of such condition.
3. The purchase of Lot 6 indicates the purchase of a site and not an investment in the buildings. The purchase of Lot 6 from 8. Gaylie Construction Ltd. on February 29, 1960, was at the price of $45,000. Gaylie testified that in the summer of 1959 he was approached by the appellant at a luncheon when the appellant suggested that they build on the property, that is on Lot 6 owned by Gaylie Construction Ltd. and Lot 7, which had been acquired by the appellant and his son; also the appellant said that if Gaylie would not sell him Lot 6 he, the appellant, would put up a small building on Lot 7. Gaylie stated that eventually he needed the money and therefore he agreed to sell to the appellant.
The interim receipt of February 29, 1960, states: The Vendor shall deliver possession of the property, vacant possession if any, on or before April 30, 1960.’’ Vacant possession denotes an intention to use the site free from rights of tenants rather than the obtaining of the rentals as a return on investment.
At the trial the appellant was asked why he had so stipulated and he answered that he may have asked vacant possession because the rents were too low. This answer implied that the appellant intended to use the buildings on Lot 6 for revenue. Lot 6 cannot have been acquired for the rentals from the buildings thereon. According to the statement which was prepared by the appellant’s accountant, the return from Lot 6 for 1960 was 0.7%, for 1961, 1.8% for 1962, 1.7%, and for 1963, 0.4% (Ex. A3, Schedule 1).
At the trial the appellant testified :
“Q. I see. Now then, you say you bought this from a builder. Why did you buy this particular lot? A. Well it makes a better parcel. One hundred and thirty-two feet by 131 makes a nicer parcel.”
That plan of the appellant to treat Lots 6 and 7 as one parcel indicates their use as a site for an apartment rather than their several letting to separate tenants.
4. The returns from the property were too small to indicate a purchase of the buildings on Lot 7 as an investment. Lot 6 never did produce an adequate return so as to be regarded as an investment.
The buildings on Lot 7 consist of four old frame houses in good repair but divided into twelve units including a small grocery occupying a ground floor and bringing in small rentals in that the twelve units produced a gross monthly income of $855 or an average of $71.25 with the lowest monthly rental $50 and the highest $90, and out of that amount the owner must pay taxes, licences, operating expenses, heat, repairs and water, and the expense of managing and collecting, quite apart from the danger of losing such tenants to competing apartments in the vicinity. Under such circumstances, on Lot 7 the return (Ex. A3, Schedule 1) for 1959 was 6.9%, for 1960, 4.9%, for 1961, 5.1%, for 1962, 3.8% and for 1963, 2.7%, and the combined income from Lots 6 and 7 was, for 1959, 6.9%, for 1960, 4.2%, for 1961, 4.2%, for 1962, 3.8% and for 1963, 1.9%.
The evidence is that an apartment as an investment would yield between 8.3% and 8.5%. The appellant was an experienced businessman; he had operated a successful men’s furnishing store in Regina and had acquired two apartments in Regina; he had been in the apartment business for 17 years and at the time of the trial he owned several apartments. In purchasing Lot 7 he demanded and received from the vendors a statement of the rentals. As a successful businessman, experienced in operating apartments, he knew the rentals which could be expected from the existing buildings. Knowing the amount of the rentals he could not have purchased the buildings on Lot 7 as an investment.
5. The plottage shows the intention to acquire and combine the three parcels, namely, north half of Lot 7, south half of Lot 7 and Lot 6 as a site for a highrise apartment. The purchases by the appellant and his son and the terms thereof were directed to obtain a site for a highrise apartment to be built at a time suitable to the appellant. Lot 7 is unique and ideally situate as a site for a highrise luxury apartment, being near a beach and having a good view over English Bay towards the inlet, with an adjoining park to maintain the view and to keep street noises distant. The highest use of the site was for the construction of such an apartment. The appellant told the bank manager at the time of borrowing that the property was an ideal site for a luxury apartment. In purchasing Lot 7 from the Greenbergs and from Forbes he stipulated that there be no leases and that he, the appellant, acquire both properties free of encumbrance. To Gaylie in the summer of 1959, and therefore shortly after June 1959, the date of the appellant’s purchases from the Greenbergs and Forbes, the appellant stated his intention to build a small apartment on Lot 7 if Gaylie did not sell Lot 6. Eventually he purchased from Gaylie in February 1960, stipulating for vacant possession which would exclude any tenancy demolition. In August 1963, he combined these three separate parcels into a site for an apartment. The buying of three sites and the building of three apartments follow a common plan. The property in question was bought from various owners in June 1959, Lot 7, half from the Greenbergs and half from Forbes ; in February 1960, Lot 6 from Gaylie’s Company. The site of Kevin Manor was bought from two owners in March 1961, Lot 23 (the same size as Lot 7) at $39,500 and a month later the adjoining 33 feet (the westerly half of Lot 24) at $26,000. The site of Elliott Towers on Harwood Street was bought in May 1961. The demolition of buildings thereon and the building of apartments were as follows: in 1961 and 1962, Kevin Manor; in 1962 and 1963, Elliott Towers; in August 1963, demolition and building on the property in question were begun.
The fact that the appellant did not demolish the buildings on the property in question until 1963, and in the meantime received some rental therefrom may be explained by the fact that the appellant was otherwise involved, as for example with the Kevin Manor and Elliott Towers. The houses on the site for Kevin Manor were rented until demolished. The appellant testifies: ‘‘The people lived in them till we tore them down.’’ He did not remember how long that was. That is what occurred on the property in question.
The onus is on the appellant to establish that he purchased the buildings and equipment on Lot 7 ‘for the purpose of gaining or producing income’’ (Regulations, Section 1102(1) (c)) and in this instance that means for gaining or producing income by the rentals from the building. That onus he has not discharged.
On the evidence the appellant throughout had not the intention of acquiring the buildings on Lot 7 for the purpose of producing income; the rentals were not sufficient to induce the investment in the buildings; rather the appellant was purchasing the site for the purpose of demolishing the buildings and erecting a highrise apartment.
The appellant cannot succeed on the ground of a dual purpose of (1) an investment in the buildings to produce income, and (2) the purchase of a site for a new apartment. The appellant did not prove a dual purpose. Also, the evidence indicates that the basic or primary motive of the appellant, and his real purpose, was to acquire Lots 6 and 7 as a site for a highrise apartment to be built, therefore the appellant does not come within Section 1102(1) (c) as was properly held in the following cases: Burrows Motors Limited v. M.N.R., 12 Tax A.B.C. 294: J. Clark & Son Limited v. M.N.R., 18 Tax A.B.C. 196; William Pitt Hotel Limited v. M.N.R., 19 Tax A.B.C. 78; Phillips v. M.N.R., 28 Tax A.B.C. 81; and Topper v. M.N.R., [1965] C.T.C. 22.
The appeal should be dismissed and the assessment of the Minister of National Revenue affirmed.