Forest Lane Holdings Ltd. v. The Queen, 90 DTC 6495, [1990] 2 CTC 305 (FCTD)

Teitelbaum, J.:—The above case was heard on June 13 and continued on August 15, 1990 in Halifax, Nova Scotia. In that both cases are similar in nature and are based on similar facts,a request was made that they be heard together and that the same decision be applicable to both cases.

This is an appeal from a judgment of the Tax Court of Canada dismissing the appeals of plaintiffs from the assessments and reassessment of the Minister of National Revenue for the taxation years 1980, 1981 and 1982.

The issue is to determine whether the activity of the plaintiffs is to be classified as either investing or as an adventure in the nature of trade.

Both Forest Lane Holdings Ltd. (Holdings) and Bonibo Holdings Ltd. (Bonibo) are bodies corporate incorporated under the laws of the Province of Nova Scotia. Holdings and Bonibo made capital dividend elections on the following dates in the following amounts, pursuant to subsection 83(2) of the Canadian Income Tax Act (I.T.A.)

(Paragraph 7 of statement of claim)

During the 1980, 1981 and 1982 taxation years, Holdings and Bonibo reported the following capital gains and losses:

10. By Notices of Reassessment dated March 2, 1984 and February 20, 1984 with respect to Holdings and March 16, 1984 and February 20, 1984 with respect to Bonibo, the Minister of National Revenue assessed each of the Taxpayers with tax under Part III of the Income Tax Act (Canada) alleging excessive dividends out of the capital dividend accounts of each of the Taxpayers as follows:

Taxpayer	Election Date	Excess	Excess	Penalty
Holdings	June 18, 1980		$27,482.75	$20,612.06
	October 6, 1980		$15,900.00	$11,925.00
	October 6, 1981		$15,000.00	$11,250.00
Bonibo	June 18, 1980		$14,040.00	$10,530.00
	October 6, 1980		$ 6,240.00	$ 4,680.00
	April 28,1981		$ 6,630.00	$ 4,972.50

In its statement of claim, Holdings and Bonibo allege in paragraphs 9, 11 and 12:

9. By the following Notices of Reassessment, the Minister of National Revenue adjusted the income and losses for each of the Taxpayers for the following taxation years on the basis that the Taxpayers were traders rather than investors and that income and losses for the said years were business income and on-capital losses rather than capital gains and capital losses;

11. On or about May 14, 1984, each of the Taxpayers filed a Notice of Objection for each of the taxation years 1980, 1981 and 1982. With their Notices of Objection, each of the Taxpayers filed elections under sub-section 184(3) of the Income Tax Act (Canada) to treat all of the assessed excess dividends as separate taxable dividends and asked that such elections be filed without prejudice to Notices of Objection and Notices of Appeal and asked that the assessment on tax on the dividends thereunder be deferred pending final resolution of this Claim.

12. By Notice of Confirmation of Assessment and Reassessment dated January 10, 1985, the Minister of National Revenue confirmed the assessments and reassessments for the taxation years 1980, 1981 and 1982.

These allegations in the statement of claim are admitted by the defendant on a qualified basis.

He admits paragraphs 9, 11 and 12 on the following qualified basis:

that the notice dated February 28, 1984 with respect to the 1982 taxation year was not notice of an assessment or reassessment but only a notification in writing that no tax was payable and, thus, not an assessment or reassessment to which the plaintiff could object.

(Paragraph 4, statement of defence)

At the commencement of the hearing, plaintiffs filed a plaintiffs’ book of exhibits containing 15 exhibits. The exhibits were entered as Exhibits P-1 to P-15, each tab being an exhibit. In addition, plaintiffs entered a separate exhibit as Exhibit P-16.

The defendant filed its book of exhibits containing 12 exhibits. These were entered as defendant's Exhibits D-1 to D-12. In addition, the defendant filed five exhibits as Exhibits D-13, D-14, D-15, D-16 and D-17.

The plaintiffs called two witnesses to give evidence, Mr. David Hennigar and Lome Stuart MacFarlane. The defendant did not call any witnesses.

David Hennigar (Hennigar) first graduated from university with a Bachelor of Commerce degree in 1960. In 1962, he obtained a Master of Business Administration degree and in 1963 became an investment analyst with Burns, Fry & Co. His function, as an investment analyst, was to review various companies to find their relative value in relation to other companies. In 1966, he was transferred from Toronto to Halifax, Nova Scotia to open a branch office for Burns, Fry & Co. He was then assistant manager. In 1967, he became manager of the office in Halifax. As manager, his function was to build a sales force so as to make the office profitable. Hennigar must have been successful as in 1970 he became a director of Burns, Fry & Co. Hennigar sold securities to the late 19705. At this time, his family’s activities expanded and he turned over his clientele to other salespersons so as to spend more time managing the family group of companies.

In 1979-80, Hennigar was involved with the Scotia Investment Group of Companies. This group of companies was of large size, the companies would have a sales volume of over 100 million dollars. Hennigar was a director and was involved in the future planning of the group of companies.

Exhibit P-1 is a list of Hennigar's 1982 directorships. He was, in 1982, a director in many private and public corporations.

Hennigar states he first purchased securities in 1962. In his early years in the "market", for his first two years, he purchased "penny stocks", lost money and, he claims to then have stopped these purchases. He claims to then have become "value" oriented, that is, he would investigate every company in which he was interested in buying its securities before he would make a purchase.

According to Hennigar, during the years 1981, 1982 and 1983, he held marketable securities having a value of approximately $1,000,000 while his family holdings were in the five to six million dollar range.

Exhibit P-7 is a list of Hennigar's holdings as of December 11, 1982, showing its total cost, the unit price and the present value. The list comprises both listed and private securities. In order to purchase the securities, Hennigar always maintained a small line of credit from the banks with whom he was dealing. Exhibit P-2 clearly indicates this fact.

Lines of Credit-Bank of Nova Scotia

David J. Hennigar

Date	Amount
01-Nov-77	100,000 Cdn
	70,000 Cdn
	50,000 US
31-Oct-79	100,000 Cdn
	70,000 Cdn
	50,000 US
01-Mar-80	100,000 Cdn
	70,000 Cdn
	100,000 US
01-Apr-80	200,000 Cdn
	70,000 Cdn
01-Feb-81	200,000 Cdn
	70,000 Cdn
Stable February 1981 to 1986
Forest Lane Holdings Ltd.
Date	Amount
30-Apr-79	100,000 Cdn
	50,000 US
08-Apr-80	200,000 Cdn
	nil US
Stable April 1980 to 1986
Boni bo Holdings Ltd.
28-Jan-80	50,000 Cdn
	50,000 US
26-May-80	100,000 Cdn
	nil US

11-Jun-80	110,000 Cdn
08-Dec-80	150,000 Cdn
20-Feb-81	192,000 Cdn
02-Jun-81	150,000 Cdn

Stable June 1981 to 1986

Hennigar states that the plaintiffs were value-oriented traders as distinguished from being an investment dealer or a trader. He defines an investment dealer as one who operates in the total ambit of financial activity, buying and selling stocks, buying and selling stock options, bonds, debentures, doing research, arranging the underwriting or underwriting of issues of shares and facilitating mergers. A trader is one who buys and sells securities primarily on a short-term time frame to try to make a profit. The trader is primarily in stocks, penny stock or other but primarily for the short time.

A value-oriented trader would not generally deal in penny stock and could keep a stock for a longer period of time as a long-term investment and would not generally purchase options as 85 per cent of these options are never exercised except as regards covered options.

Hennigar states that both plaintiffs were incorporated as a means of building up an equity, in the case of Forest Lane Holdings, for Hennigar and his wife, in the case of Bonibo, for Hennigar's wife and children. He alleges he also incorporated these two companies as a vehicle to purchase Amencan securities. In case of death, if the securities are registered in a personal name, Hennigar alleges that problems may arise in the transfer of the securities.

Hennigar carried out, during the years, all the activities of both companies. He submits that both plaintiffs are not traders. He maintains this position because it was not the intent to be a trader nor did the companies perform as traders since their incorporation. He maintains the companies tended to invest in securities that pay dividends and were all listed on the stock exchange. Plaintiffs would not sell "naked" options, because of the risk nor did plaintiffs engage in other activities that traders would do. As an example, Hennigar states that the volume of trading of plaintiffs can be considered as only moderate, while a trader would have a much higher rate of activity.

In explaining the workings of a related company, Forest Lane Investments Ltd., Hennigar states that the Hennigar family held half the shares of this company and a trader, a Mr. Lee held the other half. Mr. Lee was responsible for all of the activity of this company, it had a $400,000 line of credit, it had a turnover of approximately 30 times and had at least 200 transactions (I assume per year). According to Hennigar many transactions occurred in the same day. Hennigar admits that Forest Lane Investments would be considered a trader in securities. It had a large volume of trades, it purchased non-dividend paying shares, it would trade in securities such as naked options.

In describing the activity in the "market", Hennigar states that for the years 1980, 1981 and 1982, there was a significant increase in the inflation rate, many public companies had their assets valued, on the balance sheet, at historic cost which resulted in the company being much more valuable. This resulted in the fact that investors were interested to buy these companies as these companies were undervalued. This caused an increase in the number of sales of shares. Exhibit P-4 is a graph showing the volume of sales on the Toronto Stock Exchange (T.S.E.). During the same period, the volume of activity of plaintiffs increased. The yellow and red lines on Exhibit P-3 show the activities of plaintiffs. The yellow indicates Forest Lane Holdings and the red line indicates Bonibo Holdings.

(Exhibit P-4) [not reproduced]

Schedule "A" prepared by Hennigar at the request of defendant, attached to the statement of defence filed in the case of Bonibo, is a list of securities held by the company, between February 1, 1979 to January 31, 1982, for a period of less than six months, six months to a year and securities held for more than one year.

Schedule "A" attached to the statement of defendant for Forest Lane shows the same as in Bonibo.

According to Hennigar, referring to the Bonibo securities listed on Schedule "A", for the list of securities held six months to a year, all of the securities are listed on the T.S.E., all had an underlying value, and paid dividends, except natural resource companies. The shares of natural resource companies would only be purchased after careful study and information. The reason for the sale is given on Schedule “A”. In referring to Gibraltar Mines, Hennigar states he sold these shares because metal prices were going up, earnings were up and it was his opinion that the underlying value of the share had reached the market value. The “underlying value" of a share is the net asset value. Power Corporation was sold because Hennigar felt uncomfortable with the market so he decided to sell the shares.

Schedule "A" for Bonibo lists six securities held less than one year and more than six months. There were eight transactions to purchase the shares and 11 transactions to sell the shares. Of these shares, Gibraltar Mines, 2000 shares were purchased on September 12, 1979, 1000 of which were sold in less than six months, 500 on February 13, 1980 and 500 on February 18, 1980. Only 1000 were held to June 3, 1980, a period of approximately 7 /2 months, 500 shares of Transalta Resources were also held for less than six months, albeit, only seven days less than six months.

According to the list prepared by plaintiff Bonibo, it held two securities for a period of over one year. Yet when Schedule "A" for Bonibo is examined, it becomes apparent that even this is not exact. On April 11,1979 Bonibo purchased 1000 shares of Consolidated Bathurst Inc. and purchased another 400 shares on May 22, 1980. Bonibo sold 500 shares of Consolidated Bathurst on February 8, 1980. Therefore, these 500 shares should have been listed in the six months to one year section of Schedule "A".

In the section of shares purchased and sold in less than six months, there are 21 purchases for shares of 19 companies and 29 transactions to sell these shares. Hennigar in preparing Schedule "A" listed these securities under the title "Securities Held Under Six Months". After verifying the list, I am satisfied that most of the shares were held under one month. There were 15 sales of shares which were held by Bonibo for less than one month, four sales of shares held two months and less than six months. This out of a total of 29 transactions or sales. To this list of less than six months, should be added 1000 shares of Gibraltar Mines.

Hennigar gives various reasons for his decision to sell these shares.

In referring to Schedule "A" for Forest Lane Holdings, one cannot help but be struck by the fact that Forest Lane Holdings purchased, during the time in issue, February 1, 1979 to January 31, 1982, the shares of 27 corporations, held these shares from four days to less than six months and sold the shares for various reasons, all because he thought it was time to sell.

When asked by counsel for plaintiffs to comment on why the shares were purchased or sold, in Bonibo and I believe Forest Lane Holdings, Hennigar replied that with regard to the securities held under six months, both Schedules "A" clearly show most shares were held under six months, states that these shares were purchased because of information he received or he would sell because he was satisfied with his profits. As Hennigar states "once one makes a profit I like to leave some to someone else"

I believe this clearly shows Hennigar's intention. I believe his intention was to make a profit and “run”.

After 1982, the number of transactions was reduced. As reason for this, Hennigar states the "market" was no longer as volatile as in 1979, 1980 and 1981.

As a reason for the large number of transactions in the years in issue, Hennigar states that the market was very volatile, there were numerous stories about companies which were undervalued and he was hoping to participate in the profits if someone was to take over a company.

This is a further indication that Hennigar's sole motivation, and therefore plaintiffs’, as he was the only person to make the decision to buy and sell for plaintiffs, was a quick profit. Hennigar states that during the period in issue plaintiffs purchased shares of companies because of rumours in the "market". Examples of these purchases are Hudson Bay, Inco and Texas Instrument. He states in some cases the companies were taken over and in some cases they were not. Hennigar adds that all these companies purchased on "take over" rumour had an underlying value and paid a dividend.

This may be so but I do not accept that these shares were purchased because of their underlying value or the dividend that the share paid. If the share was purchased because of a rumoured takeover, the reason for the purchase was the profit on the increase in the value of the share in a short period of time, not any dividend or its underlying value. Nor do I accept that the shares purchased because of a takeover rumour were all sold because they had reached their underlying value. They were sold, I believe, because Mr. Hennigar was satisfied with the profit.

All Canadian Holdings “B” and Dome Petroleum are shares of two companies purchased by Forest Lane Holdings and held for two and one-half months and three days respectively [and] were not dividend paying shares. Surely, these shares were not purchased for the dividend paid or their underlying value.

In 1980, 1981 and 1982, Hennigar was the Atlantic Region director of Burns, Fry and, at that time, both Burns, Fry and plaintiff companies were dealing with the same information. Kennigar would thus be in a position to know which security to purchase, whether because of an alleged takeover or for some other reason.

In being questioned about takeovers, Hennigar states that from 1978 to the early 1980s there was, what he calls "takeover fever", there were many "takeovers" in the resource industry. He believes that if there is a "takeover" bid, the value of the share would increase. In referring to Schedule "A" attached to the statement of defence for Forest Lane Holdings and with regard to securities held less than six months, he agrees that the Hudson Bay Oil & Gas stock was held for a period of 13 days and that he could not recall why he sold the shares. He states, as the reason for the sale “went up in price, was a takeover candidate, may have been a bid to take the company over". He never mentioned that the share was sold because it reached its underlying value.

It is indeed surprising that Hennigar could not recall the reason for the sale as he himself stated on Schedule "A" that he sold because the company was a "takeover candidate". I.U. International, another resource company, and held for one day was a "takeover candidate”. There was a bid to take over the company the day after Forest Lane (Hennigar) purchased the shares. Norgen Energy Resources is another company purchased by Hennigar (Forest Lane) held 13 days and sold because, as Hennigar states "guess these stocks appreciated in value because of rumours and were sold because of an increase in price". The same would apply to Petrofina Canada which was held for 14, 15 and 32 days and sold before a bid for the company was actually made. The same applies to Texas International, although no bid was made for this company until some years later.

It is obvious that what Hennigar was doing with most of the securities he purchased and sold within a short period was to profit from the rumour of takeover or from an actual takeover. I have great difficulty in accepting that these shares were purchased for "investment" purposes, that is these shares were purchased because of their underlying value and because they paid a dividend. Hennigar himself acknowledges that resource shares seldom pay dividends and at least 15 companies held by Forest Lane for less than six months were resource companies, that is, 15 out of 27 companies, more than half are resource companies. For Bonibo, of those shares held less than six months nine or possibly 11 were resource companies out of a total of 19 companies.

In fact, Hennigar, in cross-examination, states that whenever he saw "a quick price change" he would sell. An example is Aquitaine Canada, a resource company which shares he sold after four days because of a “quick price change”.

Hennigar also admits that he sold the shares of Kidde Inc. because of “partial profit taking”. He states he felt the market was such that the stock could go higher so he sold half “because of market conditions”.

Hennigar acknowledges that both Bonibo and Holdings purchased and sold a number of the shares of the same company. Exhibit D-6, page 3 and Exhibit D-9, page 3 show the identical company shares sold in 1981. Exhibits D-5, page 3 and D-8, page 3 show the same for the year 1980 except that for 1980 there were only two companies Asamara and Brascan. For year ending 1982 both companies sold the shares of Canadian National Resources, Dunkin’ Donuts, Gulf Canada and Seagrams (Exhibits D-7, page 3 and D-10, page 3).

Hennigar acknowledges that his companies, the plaintiffs, bought and sold securities in the years in issue that were securities that were bought and sold by Forest Lane Investments which Hennigar agreed is a trading company.

Mr. Lome Stuart MacFarlane was asked to give evidence on behalf of plaintiffs. Mr. MacFarlane had been employed by Burns, Fry in Toronto and came to Halifax and remained with Burns, Fry to 1981 when he was employed by Scotia Investments and Hennigar's family corporations. He explains that Exhibit P-3 is a chart which he prepared based on various information he received. He states that the sales of Forest Lane and Bonibo for the years 1979 to 1982 inclusively follow the T.S.E. index, that is, plaintiffs’ sales increased when the sales on the T.S.E. increased. He states that Exhibit P-4 is a chart which shows annual volume on the T.S.E. in millions of shares.

Mr. MacFarlane identified Exhibit P-10 as a handwritten summary of a conversation with a Mr. Davey, a representative of the defendant who did the original assessments of plaintiffs companies. Mr. MacFarlane referred to points 5 and 6 which state:

5 —FLI as a trader

— Period of ownership Sheet -

6 -BHL

— FLH marginal

—Scotia Fin.

This witness identified Exhibit P-16, a chart prepared to show interest rates from 1976 to 1988 in Canada and is a comparison of the Canadian inflation rate, the Canadian prime rate and the T.S.E. index and indicates that the inflation rate follows the increase in the interest rate.

This witness is of the belief that most of the stock held by plaintiffs had a greater underlying value than book value. He also states that in “blue chip” shares, the underlying value is much greater than its book value.

Mr. MacFarlane agrees that a resource industry stock did not pay a high dividend. He confirmed, as regards to Bonibo, as per its Schedule "A" that Bonibo owned numerous resource company shares. He did the same for "Holdings" after verifying Schedule “A”.

Discussion and Conclusion

Each case in which the issue is to determine whether the profits are to be income in the nature of trade or as being a capital gain turns on its own facts. As counsel for defendant states ”. . .that other cases are helpful, only in terms of pointing out the indicia of a trading intention, or if there were similar situations in which a trade or investment intention has been found".

In the Tax Court of Canada case of Leonard Reeves Inc. v. M.N.R., [1985] 2 C.T.C. 2054; 85 D.T.C. 419 at 2057-59 (D.T.C. 421-22) Christie, A.C.J.T.C. states, regarding what is to be examined to find the true intention.

In considering the evidence in an appeal of this kind, included in those things that are germane to ascertaining relevant intentions at the time of the purchase of the real estate in question are these:

[Analysis]

1. If the appellant is a corporation, the relevant intentions to be attributed to it are those which the natural person by whom it was managed and controlled had for it. Metropolitan Motels Corporation v MNR, [1966] CTC 246; 66 DTC 5208 per Jackett, P (as he then was) at page 247 (DTC 5209).

2. If the appellant entered into a partnership or a syndicate or some other arrangement with others for the purpose of dealing in land and played a passive role leaving it to another to be the active or dominant member, that member's intentions are attributable to the appellant: MNR v Lane, [1964] CTC 81; 64 DTC 5049 per Noël, J at 91 (DTC 5051) and Wiss v MNR, [1972] CTC; 72 DTC 6231 per Heald, J at page 264 (DTC 6231-2). If the appellant is a corporation and the person by whom it is managed and controlled places it in the passive or subservient role described, the intentions to be attributed to the appellant are those of the active or dominant member.

3. The direct evidence of a person who has an interest in the outcome of an appeal regarding the intention behind a transaction or series of transactions is not determinative of the existence of the stated intention. Generally speaking the intention is to be ascertained from the entire course of conduct and relevant circumstances and the inferences flowing therefrom: Gairdner Securities Limited v MNR, [1952] CTC 371; 52 DTC 1171 per Cameron, J at 381 (DTC 1175) and Racine et al v MNR, [1965] CTC 150; 65 D.T.C. 5098 per Noël, J at 159 (DTC 5103).

4. A consideration of statements in articles of incorporation regarding the objects of the corporation or restrictions on the businesses it may carry on is not helpful. What the company did in fact is paramount: Regal Heights Ltd v MNR, [1960] CTC 384; 60 DTC 1270 per Judson, J at 390 (DTC 1272-3): Glacier Realties Ltd v The Queen, [1980] CTC 308; 80 DTC 6243 per Addy, J at 310 (DTC 6245). The same is true with respect to what may be said in a partnership agreement regarding the nature of the partnership's business.

5. Evidence of transactions of the sale and purchase of real estate by an appellant after the years under review in an appeal is admissible: Os/er Hammond & Nanton Ltd v MNR,[1963] CTC 164; 63 DTC 1119 per Judson, J at 166 (DTC 1120): GW Golden Construction Ltd v MNR, [1967] CTC 111; 67 DTC 5080 per Ritchie, J at 114 (DTC 5082) and Fyke v MNR, [1964] CTC 54; 64 DTC 5032 per Cameron, J at 56 (DTC 5033). The weight to be assigned to evidence of this kind will depend on the circumstances of particular cases. Evidence of an intended sale and purchase that for some reason was not consummated is also admissible. The comment respecting assignability of weight also applies to evidence of this type.

6. The fact that real estate is not advertised for sale and that an offer which results in a sale and purchase is unsolicited is not preclusive of there having been a primary intention on the part of the appellant at the time of purchasing the property to sell it at any time he regarded it as financially favourable to do so. Lack of advertising and the fact of an unsolicited offer are simply matters to be weighed together with the other relevant evidence: Slater et al v MNR, [1966] CTC 53 at 59; 66 DTC 5047 at 5050.

7. If an individual who is an appellant has a history of trading in real estate or if the appellant is a corporation that is controlled by such a person, this is a relevant consideration which points away from the purchase in issue being made with the primary intention of securing an income-producing asset: Vaughan Construction Company Ltd v MNR, [1970] CTC 350; 70 DTC 6268 per Laskin, J (as he then was) at 353 (DTC 6270) and Slater at 60 (DTC 5051).

In the case before me, Hennigar testified that it was he and he alone that made the decisions as to what securities either of the plaintiffs would purchase or sell. It was Hennigar alone who controlled the activities of both plaintiffs and therefore, the relevant intentions to be attributed to both Bonibo and Holdings are the intentions of Hennigar.

Hennigar's evidence is to the effect that it was always his intention to invest in securities, not for the short term, but in securities that paid a dividend and had an underlying value. As is stated by Christie, A.C.J.T.C., the statement alone of the person who has an interest is not determinative of the existence of the stated intention. I am satisfied that the facts of this case clearly indicate an intention opposite to the stated intention of Hennigar.

The strongest evidence of this is to be found in Schedules “A” attached to the statement of defence for Bonibo and Holdings.

Hennigar testified that resource company shares pay little or no dividends. He also stated that he purchased many shares of companies because he had heard rumours of a possible takeover and expected to make a profit.

In examining the purchases and sales of shares by Forest Lane, for the period February 1,1979 to January 31, 1982, and held less than six months, it appears that Forest Lane had purchased, as I have stated, 15 or possibly 16 resource company shares out of a total of 27 company shares. Furthermore, some of these shares were held for as little as four days, e.g., Aquitaine Canada. This fact flies in the face of the statement of intention made by Hennigar that it was his intention to purchase shares for investment and not for the short term.

I believe it necessary to reproduce both Schedules “A”, lists of securities with the dates of purchase and date of sales.

[not reproduced]

For Forest Lane Holdings, for the shares held less than six months, the reasons given for the sale of these shares clearly indicate to me an individual whose intention was to buy the shares and sell these shares as quickly as possible to make a profit. It must be recalled that Hennigar testified he purchased many shares, not for their underlying value or for the dividend it paid, but because he heard a rumour that a takeover was imminent. Some of the shares purchased for the sole purpose of a quick profit, are, in my opinion Alen Industries, Aquitaine Canada, Basic Resources International, Brascan Ltd., Canadian Utilities Ltd., Corron & Black, Dome Petroleum, etc. Simply by looking at Schedule “A” for each plaintiff company, it becomes apparent that many of the securities held by the plaintiff companies were not purchased for investment, that is because of its long-term potential growth and the payment of dividends. As Hennigar states, the market was very volatile, there were numerous stories about undervalued companies and he was hoping to partici pate if someone made a takeover bid. Hennigar acknowledges that, during the period of volatility, he bought shares of companies based solely on rumour and he admits to having purchased Hudson's Bay Resources, Inco and Texas Instrument because of these rumours. Hennigar attempts to qualify his reply by saying that even though he purchased these shares on the basis of rumour, they nevertheless had an underlying value. This may be true but the principal reason for the purchase was a “quick profit" as any trader would normally do.

I give very little weight to the fact that the articles of incorporation of both plaintiffs state as one of their objects the investment in securities. This may be so but this does not preclude either of the plaintiff companies from buying shares on speculation that there will be a rapid increase in its price because of a possible takeover bid.

Hennigar has a long and successful history of dealing in public securities. During the years in issue, he was still employed or was a partner in Burns, Fry. Hennigar was able to use his expertise to carry on the activity of plaintiffs as an expert dealing, buying and selling in securities as any trader in securities. In fact, many of the shares bought and sold by plaintiffs were the shares of companies bought and sold by Forest Lanes Investment Ltd., a company which Hennigar admits is a trader in securities.

Counsel for plaintiffs filed Exhibit P-11, an Interpretation Bulletin issued by Revenue Canada, Taxation. In section 11 of the Bulletin, under the title "Disposition of Securities Income or Capital”, it states:

11. Some of the factors to be considered in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business are as follows:

(a) frequency of transactions—a history of extensive buying and selling of securities or of a quick turnover of properties,

(b) period of ownership—securities are usually owned only for a short period of time,

(c) knowledge of securities markets—the taxpayer has some knowledge of or experience in the securities markets,

(d) security transactions form a part of a taxpayer's ordinary business,

(e) time spent—a substantial part of the taxpayer's time is spent studying the securities markets and investigating potential purchases,

(f) financing—security purchases are financed primarily on margin or by some other form of debt,

(g) advertising—the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

(h) in the case of shares, their nature—normally speculative in nature or of a non-dividend type.

Interpretation Bulletins do not have the force of law. They can only give an indication of the meaning in the event of ambiguity.

In referring to paragraph 11(a), Hennigar suggests that:

. . . in the context of the assets that are held, and the time frame in which we are looking at them, that there wasn't a history of extensive buying and selling of securities, or a quick turnover of profits. In the case of the two companies that we are looking at, during the yearly—these years, because of the volatility in the market, there was a higher frequency of transactions than there would have been before that, or subsequent to that.

(page 72, transcript of hearing)

I cannot agree. Schedules “A” clearly indicate that there was excessive buying and selling of securities. The securities were held in the main for a short period of time and for the purpose of as quick a turnover as possible. The volatility of the market cannot be used as an excuse for constantly buying and selling and then saying my intention was to invest for potential growth and dividends but I simply had to sell because of the increase in price.

In referring to paragraph 11(b) Hennigar states: “Well I tend to hold most securities for significant periods of time. And I hold stocks in my own account, and in these company accounts, which were purchased early in their lives.” (page 73, transcript of hearing)

The evidence does not indicate this to be correct. Schedule "A" for Forest Lane Holdings indicates that Forest Lane's portfolio as of January 31, 1982 owns securities in only nine public companies. If one compares this to the number of securities of companies purchased and sold in the period of February 1, 1979 to January 31, 1982, I cannot conclude that Forest Lane Holdings held its securities for a significant period of time. In fact, the opposite is true.

In referring to paragraph 11(c) Hennigar admits to being very knowledgeable in the security market. There is no doubt of this fact and I need not say any more.

In referring to paragraph 11(d), Hennigar states: "They have not classified me personally as a trader." (page 73, transcript of hearing)

There is no doubt that the Minister of National Revenue has not classified Hennigar personally as a trader but this does not take away from the fact that his activities for and on behalf of the plaintiffs were such that the plaintiffs were acting as a trader. The companies were buying and selling shares, the shares, in the most part were purchased for a quick profit not a long-term investment and not as an investment for the dividends paid, especially with regard to resource companies to which both Hennigar and MacFarlane admit that these companies paid little or no dividends. Both plaintiffs purchased and sold the shares of many resource companies. I am satisfied that Hennigar's activity for and on behalf of the plaintiffs could be different than his activities for his own personal portfolio. I do not have this to decide. I must only decide on the facts before me whether or not plaintiffs’ activities were in the nature of trade.

In speaking of paragraphs 11(d), (e), (f), (g) and (h), Hennigar states:

They have no activity.

With respect to time spent, what part of your time is spent studying the securities market, and investigating potential purchases?

In totality, it would be a relatively small part of my time, because of the other family activities, and the other corporate activities I have, and the duties that I undertake for Burns, Fry.

The next point covered is financing:

Security purchases are financed primarily on margin, or by some other form of debt.

What do you say about the security purchases of Bonibo and Forest Lane being financed primarily on margin?

If you go to the Schedule that we looked at earlier, you'll see that in the initial stages, in the case of Bonibo, it was financed by debt. And over time, that that debt was eliminated. And in the case of Forest Lane, there was a smaller amount of debt in the initial phases. And it was eliminated.

Were any of the purchases of Forest Lane or Bonibo, ever done on margin?

No.

The next point is advertising:

The taxpayer has advertised, or otherwise made it known that he's willing to purchase securities.

Has Forest Lane or Bonibo ever done that?

No.

In the case of shares that were purchased by these two companies, what do you say, generally, about the nature of the shares that have been purchased?

The nature of the shares were that they were shares of major corporations that had substance, and which usually paid dividends.

(pages 74-75, transcript of hearing)

I am satisfied that the evidence shows that plaintiffs had no other activity except the buying and selling of securities. With regard to the time spent at looking after the business, it strikes me that one cannot say "little" time or "much" time. Hennigar's full-time occupation was the purchase and sale of securities, the study of comparatives to see if the shares of the corporation had value and potential. Whether he was doing this for Burns, Fry or for his family corporations or for plaintiffs is not material. What is material is that he spent all of his time doing this work, the evidence is he did nothing else.

Counsel for plaintiffs suggests that to determine “intention” one may look at the years following those in issue. As authority for this, counsel for plaintiffs submits the case of Leonard Reeves, supra.

I am satisfied that one can examine the number of transactions of a taxpayer in the year following the years in issue but, and as was already quoted herein: “The weight to be assigned to evidence of this kind will depend on the circumstances of particular cases."

In examining Exhibit P-12, security sales years ending January 31, 1983 to January 31, 1990 for Forest Lane Holdings Ltd., it appears, that for the year ending January 31,1983 securities for two corporations were bought and sold in a total five transactions. For the year ending January 31, 1984, there are four transactions for securities for four corporations, for year ending January 31, 1985, there are two transactions for shares of two corporations, January 31, 1986, six transactions for shares of six corporations, for year ending January 31, 1987, two transactions for shares of two corporations, for year ending January 31, 1988, 15 transactions for shares of six corporations, for year ending January 31, 1989, one transaction for sale of shares of one corporation and for year ending January 31, 1990, there were six transactions for the sale of shares of four corporations.

I do not believe it necessary to review in detail Exhibit P-13 which refers to the transactions of Bonibo for the years ending January 31,1983 to 1990.

I give very little weight to this evidence. No evidence was made before me as to why each security was held for the length of time that it was. Nor was any evidence made before me as to whether any of these shares were purchased because of a rumoured takeover for a “quick” profit. I am satisfied that generally, with few exceptions, that from year ending January 31, 1983 to January 31, 1990, the shares were held by plaintiffs for a fairly lengthy period. This alone cannot make me conclude that for the years in issue plaintiffs were not dealing with securities as a trader.

It must be remembered that for the years in issue many, if not the majority of the shares purchased and sold within six months were resource companies shares that paid no or very little dividend.

The evidence found in Exhibits P-12 and 13 does not convince me that the shares purchased and sold by plaintiffs in the years in issue were shares purchased for investment purposes rather than to buy and sell and trade in those shares. The volatility of the market during the years in issue only convinced Hennigar that it was a good opportunity to trade shares, buy and sell quickly to make an immediate profit, as any trader in securities would do.

Counsel for plaintiffs suggests that if I were to look at the activity of Hennigar personally, as found in Exhibit P-5, and at the activity of plaintiffs, the plaintiffs’ activities in the years in issue would not be significant.

In examining Exhibit P-5 for the years ending December 31, 1974 to December 31, 1982, I cannot conclude from this that the activity of plaintiffs was not significant. As I have previously stated, most of the shares purchased and sold by the plaintiffs in the years in issue were, I believe from the evidence of Hennigar himself, purchased because of rumours of takeover and he thus believed, as a well experienced and knowledgeable trader, that these shares would be turned over quickly. This in fact happened.

I am satisfied that during the years in issue the purchase and sale of securities by plaintiffs were activities in the nature of trade. The type of security purchased and sold, mainly resource company shares which are generally nondividend paying and purchased because of rumours in the "market" convince me that the purchase of the share was not for investment but for dealing in shares as a trader would ordinarily do.

Appeals dismissed.