Mould v. The Queen, 86 DTC 6087, [1986] 1 CTC 271 (FCTD)

Collier, J.:—This is an appeal by the plaintiff from a decision, against him, by the then Tax Review Board.

In 1972, the plaintiff acquired a share interest in a private company. In 1976, he sold that interest to another shareholder of the company. The transaction will ultimately yield a gain of $184,090.

The plaintiff took the view it was a capital gain. The Minister of National Revenue took the view the whole of the gain was taxable as income. He assessed the plaintiff accordingly, but allowed an appropriate reserve.

The plaintiff appealed to the Board. That tribunal confirmed the Minister's assessment. This appeal, to this Court, in the form of a trial de novo, followed.

As always, in litigation, but especially in cases concerned with this problem of “capital gain versus income" the facts are paramount.

These cases must all depend on their particular facts” per Judson, J in Regal Heights Ltd v. MNR, [1960] SCR 902 at 907. Cartwright, J made a similar observation in MNR v Foreign Power Securities Corporation Limited, [1967] SCR 295 at 297: “The question is essentially one of fact depending on the intention with which the respondent acquired the shares.” See also the remarks of Cartwright, J.'s dissenting reasons in Irrigation Industries Ltd v MNR, [1962] SCR 346 at 360, citing the statement of Kerwin, CJ in McIntosh v MNR, [1958] SCR 119 at 121, “It is impossible to lay down a test that will meet the multifarious circumstances, that may arise in all fields of human endeavour ... it is a question of fact in each case.”

The plaintiff is now a planning consultant. He specializes in dealing with municipalities on behalf of clients who hold or develop lands. Following the Second World War, he was in business with his father, buying lots and building houses. In 1952, he went into municipal politics in the Borough of North York, Ontario. He held various positions, including that of mayor. He ended his political carreer in 1969. Since then, he has carried on, partly though a company, his present occupation.

During his 17 years in politics, the plaintiff did not engage in any real estate transactions.

In 1971 or 1972, the plaintiff had dealings with a client, Samuel Meister, in respect of the latter’s real estate transactions. During the course of that association, Meister told the plaintiff about a property, of approximately 106 acres, in the Town of Richmond Hill, Ontario. The land had been purchased in 1972 by a private company, Beaufort Hills Limited (“Beaufort Hill”). The company later acquired an adjoining 50 acres. The property was, for practical purposes, the company’s only asset.

The plaintiff loaned the company $30,000. He was given a 12 /2 per cent interest in it.

The other holdings were as follows:

One Rosenburg, controlled the Ricenburg company. Rosenburg and Meister were described by the plaintiff as “partners”, who had developed and sold lots in other real estate transactions.

The plan, in respect of Beaufort Hills, was to develop the land, subdivide, service, then sell the lots for building purposes.

According to the plaintiff, the other participants, at some stage, decided to go further: to build houses on the lots, and sell. The plaintiff felt they had no expertise in building houses.

In 1976, none of the lots had been sold. The plaintiff thought it would be a good time to get out. He negotiated with Meister and Rosenburg to sell his interest in the company. A price of $215,000 was agreed upon. The interest was sold to Meister. As part of the transaction, the plaintiff assigned his shareholder's loan to Meister.

The plaintiff contended the resulting gain of $185,000 (actually $184,090) was a Capital one. He testified his involvement with Beaufort Hills was as an investment; when the company altered its development plans, he decided to leave.

I do not accept the contention the plaintiff's participation in Beaufort Hills was an investment. His involvement, in my opinion, was an adventure in the nature of trade. His whole course of action was in respect of the land, not in the company. That he obtained an interest, and realized on it, by means of shares in the company owning the land, does not assist. The acquisition of the shares was merely a method of obtaining an interest in the land. The motivation was to develop the lots and sell them to produce income and a profit.

Those conclusions are, as I see it, borne out by the evidence. That evidence comes essentially from the plaintiff himself. He gave or loaned Beaufort Hills $30,000. He was to acquire a one-eighth interest. The only asset was the Richmond Hill property. The plaintiff was never given a promissory note or other evidence of indebtedness. There were no terms for repayment. He was never allotted shares. He did not know if shares, or in what number, had been allotted.

He frankly stated he was not interested in the company, other than the land it held; he said he was buying a one-eighth interest in the land, not in the operations of the company. He further testified he expected to receive a profit from the sale of the lots.

The plaintiff obviously had little experience with, or knowledge of, private companies and shareholdings in them. Counsel for the plaintiff, in argument, contended the plaintiff was investing in a company by acquiring a share interest; the selling of his shares, in the particular circumstances, was a realization of the investment. That may be a legal approach. But it was not in accordance with the plaintiffs own evidence, and intentions, as I have outlined.

The plaintiff said that at the time of the negotiations resulting in the sale to Meister, he knew the value of the Richmond Hill land had increased considerably; he negotiated on that basis. In answer to a question from the Court as to whether he would have sold his interest for $30,000, he said he would not: his interest was worth much more.

I am satisfied the plaintiff deliberately engaged in a venture in the nature of trade — an income-producing transaction. He intended to acquire an interest in the land, and to be paid profits as lots were developed and sold. The use of a company, as a vehicle to that end, was, to him, immaterial.

The assessment by the Minister of National Revenue is confirmed. The plaintiff’s action is dismissed. The defendant is entitled to the costs of this action.

Appeal dismissed.