236 EXCHEQUER COURT OF CANADA [1960] 1959 BETWEEN: Nov 4 LEON ADLER APPELLANT 1960 AND Ja11.29 THE MINISTER OF NATIONAL RESPONDENT. REVENUE j Revenue—Income—Income Tax Act, R.S.C. 1952, c. 148, ss. 3 and 4-Capital or income—Purchase of land in excess of requirement—Profit on sale of excess land held to be income—Appeal dismissed. 1 [19.rî51 Ex.C.R. 1 2 [1913] P. 130
Ex. C.R. EXCHEQUER' COURT OF CANADA 237 Appellant, a successful general building contractor, purchased a large tract 1960 of unoccupied land for the purpose of providing himself with â long ' A,LER term home for his business. The area purchased far exceeded his needs and after 'utilizing or retaining ,a portion , of it at the rear . of the MINISTER OF property the remainder was disposed of by him at prices which NATIONAL netted him a profit. REVENUE This profit was added to appellant's income for taxation purposes for the year 1954. An appeal from that assessment was dismissed by the Income Tax Appeal Board and a further appeal was taken to this Court. Held: That the appellant having entered into the business of a subdivider in exactly the same way as one engaged in that business would do and having retained a qualified surveyor to subdivide four lots the profit from the sale of the excess land constitutes income to the appellant for the taxation year in question, and was not the realization of a capital asset. APPEAL from . a decision of the Income Tax Appeal Board. The appeal was heard before the Honourable Mr. Justice Dumoulin at Montreal. Philip F. Vineberg for appellant. B. Robinson, Q.C. and Paul Boivin, Q.C. for respondent. The facts and questions of law raised are stated in the reasons for judgment: DUMOULIN J. now (January 29, 1960) delivered the following judgment: This is an appeal from a decision of the Income. Tax Appeal Board, dated August 22, 19571 , dismissing appellant's prior appeal in respect of his income tax assessment :for taxation year •1954. In connection with this taxation period, the respondent increased appellant's assessable returns by adding $6,201.23 as net profit on the resale of 'a parcel of- land in Ville St-Laurent, now the City of St-Laurent, one of -thé most thriving and progressive municipalities constituting the greater Montreal. In his exception to this revised assessment, appellant counters that: (See Statement of Facts) 6. The purchase was motivated solely and exclusively in order to provide the appellant [a very successful general building contractor]. with • a long term home for his business. ' ' -* * * I (1957) 17 Tax AB.C:• 419. 83917-5-3a
238 EXCHEQUER COURT OF CANADA [1960] 1960 11. The said gain constitutes a capital gain and not taxable income. L̀E 12. Acquisition of the land which gave rise to the said gain was not ADLER D. in any way an adventure in the nature of trade. MINISTER OF 13. The sale of the said land constituted the realization of a capital NATIONAL REV ENUE asset. Dumoulin J. In law, the respondent merely replies that: (Cf. Reply to Notice of Appeal, para. 7) 7. The amount of 3620123, net profit on the sale of the above-mentioned parcel of land, constitutes income of the appellant for the taxation year 1954 and the tax thereon has been properly and accurately determined and assessed by the Respondent within the meaning of Sections 3 and 4 of the Income Tax Act. Intrinsically considered, the facts leading up to this litigation remain largely uncontested, the moot question arising from the legal connotation attached to them by each of the contending parties. As already said, the appellant, Leon Adler, carries on the business of general building contractor, presently occupying a rather spacious office in Ville St-Laurent, now the City of St-Laurent, off Authier Street, north of Côte -de -Liesse. It is a matter of general knowledge, I believe, that Ville St-Laurent is a rapidly expanding municipality on the Island of Montreal. In 1953, Mr. Adler felt that his office space, on Manseau Street, in Outremont, no longer sufficed to the requirements of his trade which, according to the customary expression, had increased "by leaps and bounds". He began inquiring about some suitable location in August of 1953, his attention being drawn, initially, to a vacant lot of some 10,000 feet on Davaar Street, Outremont, owned by a Mrs. Bessette. This tentative deal did not eventuate, as Mrs. Bessette's title to the property was, in virtue of her late husband's will, subject to certain conditions of avoidance. Adler's second attempt, a 26,000 feet lot along Laurentian Boulevard, also proved unsuccessful, because a railway company held a servitude of passage over the land (Cf. Ex. A-3). The appellant, who had agreed to vacate by May 1 his former premises, sold to Thrift Stores Inc., was under some pressure, when Notary Hart, his agent, got in touch with
`L
Ex. C.R. EXCHEQUER COURT OF CANADA 239 Messrs. Scott and Paradis, or more precisely their represen- isso tative, Federation Realties, entrusted with the bulk dis-ADLER posal of an unoccupied area, measuring exactly 196,847 MINrsT ER of square feet (Cf. Ex. A-4). This land was an unsubdivided N ATIONAL R EvENIIE portion of lot number 478 (Pt. 478) of St-Laurent Parish. — Dumoulin J. In his evidence, the only one adduced, Mr. Adler is quite — explicit on the topic that a space of the above given dimen- sions far exceeded his needs, which some ten thousand feet or thereabouts would have met. The explanation vouchsafed is that he tried to acquire the "smallest part they [i.e. Messrs. Scott and Paradis] would sell", but since this land could not be obtained piece- meal, he resolved to buy the entire lot, at a price of $0.40 per square foot, a total sum of $78,738.80 (Cf. Ex. A-4). The purchase was duly executed on January 18, 1954, but Adler started building, before actually obtaining a legal right to the land, an office completed in June of that year. The structure itself covers nine thousand (9,000) square feet, half of which is offices, and half warehouse and garage. A global space of twenty-seven thousand (27,000) square feet, roughly sixteen percent (16%) of the total ground, remains unsold and occupied by Adler, who also ceded to Ville St-Laurent "an area of about four hundred and fifty (450) feet by sixty-six (66)" for the opening of a road throughout the length of this property. Four separate lots were subsequently included in a subdivision of the excess land and parcelled off to four purchasers, netting a profit of $34,748.88, although an item of $6,201.23 only is at stake in this appeal. Regarding the portion of 27,000 feet utilized or retained by appellant, it lies at the rear of the property, and could be reached only by a road built for that purpose. Appellant, on cross-examination, refused to concede that this back sec tion constituted a less valuable part. The fact remains, however, that, usually, the front portion of a piece of land, abutting on a street or roadway, is more saleable. ' It would appear, and no blame attaches, that Mr. Adler surely does not belong to the hesitant type. In business matters, if the instant case offers a fair sample, his decisions are prompt and pertinent.
240: EXCHEQUER COURT OF CANADA [1960] 1960 . He initiated constructional.operations; "we know, without ADLER waiting for due completion of the conveying instrument, V. MIN OF and went one better in disposing of the unneeded ground. NATIONAL REVENUE, The: following excerpts, taken from the transcript of his testimony at pages 24 and 25, bear out this impression. He Dumoulin J. is examined by his counsel. Page 24— .. Q. In connection with the property_ that you acquired under Exhibit A4, did you need that much land for purposes of your own construction? A. No sir. Q. What was your intention with respect to the excess land that you did not'need? A. I wanted to dispose of it. Q. And did you want to dispose of it on a commercial basis Or profit basis, or any other basis? Page 25— A. I just wanted to dispose of it. I did not care one way or another. Q. What effort did you make to dispose of it? A. Well, I almost disposed of half of it before I bought it. We are aware that four purchasers bought the corresponding newly subdivided lots. Reverting to the appellant's assertion (Statement of Facts, s. 6) that "the purchase was motivated solely and exclusively in order to provide ... a long term home for his business", the admitted facts disclose a complete misconception of the matter. There may be in store, future alone will tell, "a long term" occupancy of the office and the land it rests on, and no dispute arises on this score, but the "long term" notion is patently missing in the lightning quick sale of those 170,000 odd feet of land, transacted even before Adler's ownership of them. Should time and continued retention of a property be, to a degree, a qualifying factor of an investment, and there is no dearth of authorities to that effect, then we might delete this element from the case. without further ado. Even so, a brief reference will be had, particularly on the score of retention, to recent cases wherein its significance was attested. Mr. Justice Hyndman, D.J. as he then was, wrote in re:. Minister of National Revenue v. McIntoshl, that: [McIntosh] Having acquired the property there was no intention in his mind to retain it as an investment, but to dispose of the lots, if and when suitable prices could be obtained. 1 [1956] Ex.C.R. 127 at 130..
Ex. C.R. EXCHEQUER COURT OF CANADA 241 McIntosh had contended the profit made on the sale of 196o the 20 lots constituted a capital accretion out of an invest- ADLER ment in the ordinary sense. V. MINSTER of The lines immediately following, albeit dealing with NAT NAL R.EVENIIE another aspect, strangely enough dispose of a point raised mouan J. on Adler's behalf, when he casually mentioned a loss of less Du than . three hundred dollars on the resale of one of the four lots. It was said that the price received by him [McIntosh] was one or two hundred dollars less than the real value, and that this fact in some way negatived an intention of entering into a scheme to make a profit on the, venture. I am unable to see any force in this argument. In view of all the circumstances, his insistence in obtaining the property could unquestionably only have been with the object of making a gain or profit. Mr. 'Justice Hyndman's decision was unanimously affirmed by the Supreme Court of Canadas. Chief Justice Kerwin, delivering judgment for the Court, concluded his remarks by stating: In the present case I agree with Mr. Justice Hyndman's findings with reference to the appellant that: "Having acquired the said property there was no intention in his mind to retain it as an investment, but to dispose of the lots, if and when suitable prices could be obtained." I do not question in the least Mr. Adler's assertion that he, or rather his business, required larger and more up-to-date facilities than those formerly obtaining. On the other hand, his 'claim that he positively could not find, in and about Ville St-Laurent, a smaller space, from the time he decided to move and January 18, 1954, sounds somewhat unconvincing. Even if that mild scepticism of mine be unfounded, the legal situation would remain unaltered. The pertinent facts: quick disposal, profit-taking, are proved; they stand as convincing witnesses, and as the Scots say: "So the facts go, so goes the law". Now, in order that no confusion should, if possible, becloud this analysis, I repeat it was a perfectly legitimate and reasonable thing for the appellant to amortize, through some profitable disposal of unnecessary land, the cost of his new installation. 'Neither am I asked to pass judgment upon so natural and sound a venture, but to decide whether or not it falls within 'the purview of our income tax law. 1[1958] S.C.R. 119 at 121.
242 EXCHEQUER COURT OF CANADA [1960] 1960 The other case: Day v. Minister of National Revenue', ADLER dealt with a situation which, for all practical ends, may be V. MINISTER OF fairly likened to the instant one. Mr. Justice Cameron cited NATIONAL at some length from Justice Hyndman's pronouncement in REVENUE McIntosh v. Minister of National Revenue (supra), Dumoulin J. emphasizing the passage about the lack of intention to retain the property at issue. The learned judge wrote: I am unable to distinguish that case [McIntosh v. M.N.R.] from the one before me. Here Day had no intention of retaining the property as an investment, but did intend to sell it if and when a suitable price could be obtained. Having entered into the business of a subdivider in exactly the same way as one engaged in that business would do, and having been frustrated in completing his arrangements for disposing of it in one way—namely, in lots—he did sell it in another way—namely, en bloc. It could go without mention that here the "frustration" angle is noticeably absent since the appellant is clear as to his decision of selling the excess land. I have already quoted on this topic from page 25 of the transcripted evidence, and might add to it replies appearing on page 58; Adler is under cross-examination. Q. And you built a road? A. That's correct. Q. And you did so with a view of trying to find somebody to buy. Otherwise, they would not have bought, is that right? A. Obviously, I did not want it all. There is no question about it. I was very happy to sell it off. The appellant is very actively and successfully engaged in the contracting-building line. He agrees that his annual turn-over runs to a million or two million dollars (Cf. Transcript, p. 48). During the past decade or so, in the pursuit of "his trade, he bought land in several sectors of metropolitan Montreal, and also in Dartmouth, Nova Scotia, for hundreds of thousands of dollars. In 1954, his income tax return, page 3, in the liability entry, shows an item of $148,281,30, listed "Accounts Payable—Land". I note that this latter document, extensively read from at the trial, does not appear to have been fyled. On the grounds purchased, Adler erected individual apartments by the hundreds (Cf. Transcript, pages 34 to 45 inclusive). His explanation, that he never acquired"vacant 1 [1958] Ex. C.R. 44 at 51.
Ex. C.R. EXCHEQUER COURT OF CANADA land" before on a purely speculative venture, does not detract from his occupational capacity of building contrac- tor regularly engaged in buying land. Mr. Justice Cameron's words in the case above suit the present appellant, for manifest reasons, with yet greater precision, than they suited Day, Adler being ". . . one engaged in that business ..." and having retained a qualified surveyor to subdivide four lots, although, through some involuntary confusion, I presume, this information was not readily elicited (Cf. Transcript, pages 61, 62, 63, 64). For the reasons above, I have no doubt whatsoever that the amount of $6,201.23 added by the respondent to appellant's income, due for the year 1954, does accrue from a business profit and was properly assessed within the meaning, inter alia, of ss. 3 and 4 of the Therefore the appeal is dismissed with taxed costs in favour of the respondent. 243 1960 ADLER V. MINISTER OF NATIONAL REVENUE Dumoulin J. -Income Tax Act. Judgment accordingly.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.