Niemi v. The Queen, [1984] CTC 181, 84 DTC 6194 (FCTD)

Reed, J:—This is an appeal from a decision of the Tax Review Board which dismissed the taxpayer’s appeal from a reassessment by the Minister for the taxation year 1975. The issue is whether sums received by the taxpayer in that year, as consideration for the sale of real property, should be accounted for as a capital gain or as income. The issue is whether the property in question was acquired pursuant to “an adventure or concern in the nature of trade’’ as that term has been interpreted for the purpose of determining business income under section 9 and subsection 248(1) of the Income Tax Act, SC 1970-71-72, c 63 applicable to the 1975 taxation year. While a number of factors have been accepted by the Courts as relevant to the determination of this issue, I take the primary consideration to be the intention of the taxpayer. That is, the question for determination is whether the property was purchased for the purposes of investment, personal use or enjoyment, or whether the property was purchased primarily for the purpose of resale at a profit.

There is evidence that the taxpayer purchased a farm property in the Bob’s Lake area near Timmins for $25,000 in December, 1973. The farm property was purchased from a Mrs Hebert, an acquaintance of the taxpayer and according to the evidence, Mrs Hebert initiated talk of the sale. The taxpayer’s prospective father-in-law, a Mr Groom, was consulted by the taxpayer and advised that the asking price was not unreasonable. Mr Groom was a real estate agent with J W Spooner and Sons Ltd, a Timmins real estate firm. There is evidence that the farm had been purchased by Mrs Hebert only three years earlier for $10,000, but there is little evidence to show that $25,000 in 1973 was an unreasonably high price. An appraiser’s report of 1979 prepared for another purpose, indicates that in 1973 the land value, without the buildings, would have been around $17,000.

There is no evidence concerning the contents of other discussions between Mr Groom and Mr Niemi respecting the proposed purchase of the Hebert farm apart from the advice Mr Groom gave that the price of $25,000 was a fair price. The Crown alleges that Mr Groom, in his capacity as real estate agent, knew of an agreement between Spooner Limited and Texas Gulf Sulphur, whereby the former agreed to assemble land for Texas Gulf in the Bob’s Lake area. There is no evidence before me that this was the case. There is no evidence of the date of the agreement between Texas Gulf and Spooner Ltd and whether that occurred in the fall of 1973, the spring of 1974 or later.

The taxpayer stoutly denies that Mr Groom mentioned any such land assembly program to him in the fall of 1973. The taxpayer, Mr Niemi, testified that the first time Mr Groom mentioned the possibility of a land assembly program was in the summer of 1974. Mr Groom was not called; he now lives in the United States. Mr Niemi testified that he purchased the farm in 1973 as a principal residence and because he wanted a place to keep his horses which at the time were boarded 30 miles away. This evidence is uncontradicted.

The farm land in question was sold to Texas Gulf Sulphur in February, 1975, for $234,000.

While the intention of the taxpayer is the primary consideration in determining whether an asset has been purchased for investment or income purposes, it is well established, as counsel for the Crown pointed out, that this is a conclusion to be drawn from all the circumstances:

Such a decision cannot depend solely on the number of transactions in the series, or the period of time in which they occurred, or the amount of profit made, or the kind of property involved. Nor can it rest on statements of intention on the part of the taxpayer. The question in each case is what is the proper deduction to be drawn from the taxpayer’s whole course of conduct viewed in the light of all the circumstances, [emphasis added].

(Cragg v MNR, 52 DTC 1004 at 1007)

The Crown alleges that the circumstances in this case are such as to demand a conclusion that the property was purchased, in contemplation of the land assembly program for Texas Gulf, and therefore primarily for resale at a profit. One of the circumstances relied upon by the Crown is the fact that Mr Groom was Mr Niemi’s prospective father-in-law and that he was closely connected to the taxpayer’s land transactions. Mr Groom acted as witness to the sale and purchase agreement between the taxpayer and Mrs Hebert concerning the Hebert farm; he was witness to the agreement of purchase and sale of a property which the taxpayer sold (the Front Street property) in order to buy the Hebert farm; and the evidence discloses that Mr Groom initiated and looked after the sale of the Hebert farm property to Texas Gulf for the taxpayer. However, in the absence of any proof of Mr Groom’s knowledge of the land assembly project or indeed of an agreement between Texas Gulf and Spooner Limited prior to the purchase of the farm by the taxpayer, I do not see that these can be held to be significant factors.

Another fact relied upon by the Crown is the speed with which the purchase of the Hebert farm was completed by Mr Niemi and tha fact that Mr Niemi did not negotiate with Mrs Hebert over price but paid what is alleged to have been an unreasonably high price. The agreement of purchase and sale was signed with Mrs Hebert on November 7, 1973. Mr Niemi listed the Front Street property for sale in order to buy the Hebert farm. The Front Street property was only listed for a month, Mr Niemi accepted the first offer he received and took less than his asking price. Mr Niemi explained his failure to negotiate with Mrs Hebert by saying she was a woman with seven children and he did not want to negotiate with her. Mr Niemi had been a “Big Brother” to one of Mrs Hebert’s children for several years prior to his purchase of the farm and it was because of that connection that he became familiar with the farm. There is little in this evidence from which one can draw a conclusion that Mr Niemi purchased the property in anticipation of a resale to Texas Gulf Sulphur.

The Crown made much of the fact that Mr Niemi did not move onto the property immediately after purchase and that the house was in a somewhat dilapidated state. For approximately two months after the closing of the sale, Mrs Hebert continued to store some of her belongings at the farm, during that time the furnace ran out of oil and pipes broke. Mr Niemi had the oil replenished but the water system was not finally put into shape until the following November. He moved some furniture onto the property in the spring of 1974, but did not move onto the farm as a permanent resident until the end of September or the beginning of October. During the spring and summer of 1974, he lived with his grandmother in Timmins residing on the farm property for short periods of time, eg: on weekends; he then spent some time in Barrie seeking employment; then worked on a pipeline job moving continually for the purposes of this employment. After his marriage in July, 1974, his wife accompanied him. Sometime toward the end of September or the beginning of October, Mr Niemi and his wife, together with a brother-in-law and sister moved onto the farm property. Mr Niemi and his brother-in-law commenced making various repairs to the property, such as repairing the plumbing, the wiring, levelling the ground, clearing wrecked cars from the property, and razing an unsafe barn building.

This evidence is completely consistent with Mr Niemi’s claim that he purchased the property for purposes of a permanent residence and in order to have a place to keep the horses which he owned. (The horses were never moved to the farm because fences and a barn for them were not built before the resale of the farm in February, 1975). There is nothing in these circumstances from which one can infer that the intention of Mr Niemi in December, 1973, was to purchase the farm property for the purpose of resale to Texas Gulf Sulphur.

The Crown also referred to the fact that in 1978 Mrs Hebert commenced a suit against the taxpayer, his spouse, Texas Gulf, L W Spooner Ltd and its principals and salesmen, alleging a conspiracy on the sale of the Hebert farm to the taxpayer in 1973. This suit was settled for $20,000 in October, 1979, the taxpayer paying $5,000, Spooner Ltd paying $15,000. Mr Niemi explained his decision to pay the $5,000 as being based on information he received from his solicitors that even if he won against Mrs Hebert his legal costs would be around $10,000.

The last circumstances on which the Crown relied were the “inconsistencies” in previous claims made by Mr Niemi or his solicitors.

In a letter (undated) addressed to a Mr Belcourt, Mr Niemi described his actions with respect to the farm property in 1974 as follows:

I moved onto the property within a few months after the deal closed . . .

After July 20, 1974 (got married) my wife and I moved into the farm permanently and I worked in the forest industry in the area . . .

The Crown points out that Mr Niemi and his wife did not move onto the property until September or October, 1974. Mr Niemi explained that his reference to moving onto the property within a few months of purchase referred to the fact that at that time he moved furniture onto the farm. It is clear in his letter by the use of the word “permanently” that he was conscious of a difference in the quality of his occupation of the farm in the spring of 1974 and that in the fall.

In the notice of objection filed by his solicitors to the tax assessment in issue it was stated:

The taxpayer acquired the property in December, 1973, for the purpose and intention of residing therein as a principle residence. This statement is supported by his cohabitation, improvements to and farming use of the property. [emphasis added.]

On the witness stand the taxpayer stated that he did not know what was meant by the reference to a “farming use of the property”. He stated that he had never farmed the property and indeed it was not suitable land for that purpose.

In addition, the Crown referred to the appellant’s statement filed by the taxpayer in the proceedings before the Tax Review Board in this case. Counsel for the taxpayer objected to the admissibility of this statement. I reserved judgment. The statement is admissible but not as proof of the facts alleged therein. Indeed the Crown’s purpose in introducing the document was not as proof of the facts alleged therein but because there were inconsistencies between facts alleged therein and the position now taken by the taxpayer.

The inconsistencies could reflect a lack of communication between Mr Niemi and his solicitors or a sloppiness on the part of one or the other. I do not give them much weight. However, even if they were more deliberate attempts by Mr Niemi to mislead they do not constitute even when taken together with the other circumstances noted above, evidence that the taxpayer’s intention in purchasing the Hebert property was such as to constitute that purchase “an adventure or concern in the nature of trade’’. This is particularly so in the absence of any evidence of the facts alleged by the Crown, but not proved, respecting the Texas Gulf-Spooner land assembly agreement and Mr Groom’s knowledge thereof at the relevant time.

Counsel for the Crown argued that the burden of proof was on the taxpayer to disprove the Minister’s assumptions: Johnston v MNR, [1948] SCR 486; [1948] CTC 195; 3 DTC 1182. Therefore, it was claimed that the taxpayer should have called Mr Groom as a witness to corroborate the taxpayer’s assertion that he had no knowledge of a prospective land assembly program in the fall of 1973. In my view, the taxpayer has discharged the onus on him. His evidence that he purchased the farm property as a principal residence is uncontradicted. Evidence given by his wife and his brother-in-law is entirely consistent with that assertion. Accordingly, the taxpayer’s appeal is allowed.