Jodare Ltd. v. Minister of National Revenue, (1986) 1 F.T.R. 91 (TD)

• Judge: Rouleau, J.
• Court: Federal Court (Canada)
• Case Date: November 19, 1985
• Jurisdiction: Canada (Federal)
• Citations: (1986), 1 F.T.R. 91 (TD)

Jodare Ltd. v. MNR (1986), 1 F.T.R. 91 (TD)

MLB headnote and full text

Jodare Limited v. Minister of National Revenue

(No. T-4530-81)

Fairhaven Estates Limited v. Minister of National Revenue

(No. T-4531-81)

Indexed As: Jodare Ltd. v. Minister of National Revenue

Federal Court of Canada

Trial Division

Rouleau, J.

January 19, 1986.

Summary:

Two brothers owned a construction company that purchased land in 1963 for development. Development was frustrated by the municipality. The brothers each formed two companies. Two of the companies (Jodare and Fairhaven) carried on business as a holding company as partners. The two other companies were partners in a development company. In 1966 the construction company sold part of the land to the holding company and part to the development company. The holding company held the land for eight years for "multi-residential development for a longterm hold". This became unfeasible, but there was no plan to sell the land. In 1974, the holding company sold the land in response to an unsolicited offer. The gains made by Jodare and Fairhaven were assessed as income from an adventure in the nature of trade. The taxpayers submitted that the gains should have been assessed as capital gains, of which only 50% was taxable.

The Federal Court of Canada, Trial Division, held that the gains were capital gains, not income from an adventure in the nature of trade.

Income Tax - Topic 1020

Income from business or property - Sale of land - Adventure in nature of trade - Land was sold to a holding company by a construction company after development plans were frustrated by the municipality - The company held the land for eight years and did not deal in real estate during that time - The holding company sold the land after receiving an unsolicited offer - At no time had the company done anything in an attempt to sell the property - The Federal Court of Canada, Trial Division, held that the gains realized by the partners in the holding company were taxable as capital gains, not income from an adventure in the nature of trade, because the court was satisfied that the holding company acquired the land for the purpose of a long-term investment and not to turn the land to account.

Income Tax - Topic 1020

Income from business or property - Sale of land - Adventure in nature of trade - At issue was whether the profits from a sale of land were income or a capital gain; the solution depended upon whether the vendor was engaged in the buying and selling of real estate or held the land as a longterm investment - The Federal Court of Canada, Trial Division, stated that in determining the vendor's intention at the time of acquiring the land (1) the evidence of an interested party was not necessarily determinative of a stated intention; (2) the intention must be determined from the entire course of conduct and relevant circumstances and (3) a person with a history of trading in real estate and who controls a corporation dealing in real estate has a very heavy burden in satisfying the court that there was a change in intention when disposing of the land which is their stock in trade.

Cases Noticed:

Elgin Cooper Realties Ltd. v. M.N.R., 69 D.T.C. 5276 (Ex. Ct.), refd to. [para. 18].

Bead Realties Ltd. v. M.N.R., 71 D.T.C. 5453, refd to. [para. 18].

Woodbine Developments Ltd. v. The Queen, 84 D.T.C. 6556, refd to. [para. 18].

Simmons v. Inland Revenue Commissioners, [1908] 2 All E.R. 798 (H.L.), refd to. [para. 19].

Kit-win Holdings (1973) Limited v. The Queen, 81 D.T.C. 5030, refd to. [para. 21].

Racine, Demers and Nolin v. M.N.R. (1965), 65 D.T.C. 5098, refd to. [para. 23].

Leonard Reeves Incorporated v. M.N.R. (1985), 85 D.T.C. 419, refd to. [para. 24].

Regal Heights Ltd. v. M.N.R., 60 D.T.C. 1270, refd to. [para. 30].

Edmund Peachey Ltd. v. M.N.R. (1979), 25 N.R. 485; 79 D.T.C. 5064 (F.C.A.), refd to. [para. 30].

Counsel:

Appearances: D.C. Natanson, Q.C., for the plaintiffs;

J.P. Malette and L. Teichman, for the defendant.

Solicitors of Record:

McDonald and Hayden, for the plaintiffs;

Frank Iacobucci, Deputy Attorney General of Canada, for the defendant.

This action was heard at Toronto, Ontario, on November 19, 1985, before Rouleau, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on January 10, 1986.