Staltari v. The Queen

Staltari v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-06-05
Neutral citation
2015 TCC 123
File numbers
2013-1038(IT)G
Judges and Taxing Officers
John R. Owen
Subjects
Income Tax Act
Decision Content
Docket: 2013-1038(IT)G
BETWEEN:
MARIO STALTARI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on November 19, 2014, at Ottawa, Canada,
Before: The Honourable Justice John R. Owen
Appearances:
Counsel for the Appellant:
Gregory Sanders
Counsel for the Respondent:
Pascal Tétrault
AMENDED JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 2009 taxation year, notice of which is dated November 21, 2011, is allowed, with costs to the Appellant, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the gift by the Appellant to the City of Ottawa of 19.59 hectares of land located at 6851 Flewellyn Road yielded a capital gain to the Appellant and that the taxable half of that capital gain is deemed to be equal to zero by paragraph 38(a.2) of the Income Tax Act (Canada).
This Amended Judgment is issued in substitution of the Judgment dated May 13, 2015.
Signed at Ottawa, Canada, this 5th day of June 2015.
“J.R. Owen”
Owen J.
Citation: 2015 TCC 123
Date: 20150605
Docket: 2013-1038(IT)G
BETWEEN:
MARIO STALTARI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
(Back page amended to change counsel of the Respondent)
Owen J.
[1] This is an appeal by Mr. Mario Staltari of a reassessment of his 2009 taxation year by notice dated November 21, 2011. The reassessment treated a gift of land made by Mr. Staltari to the City of Ottawa as a disposition of inventory and included the value of the land less its original cost in Mr. Staltari’s income from a business for his 2009 taxation year. Mr. Staltari had filed his T1 income tax return for 2009 on the basis that the gain from the gift was a capital gain and that the taxable half of the capital gain was deemed to be equal to zero by paragraph 38(a.2) of the Income Tax Act (Canada) (the “ITA”).
I. Evidence Regarding the Appellant [2] Mr. Staltari testified on his own behalf. I found Mr. Staltari to be a credible witness who quite understandably did not recall all of the details of the past 14 years with perfect accuracy. His evidence was consistent with the objective circumstances.
[3] Mr. Staltari graduated from university in 1980 and worked for an accounting firm until he obtained his chartered accountant designation in 1983. From 1983 to 1987, he was the vice-president of finance at Regional Realty. He testified that in that role he did not buy or sell real estate.
[4] In 1987, Mr. Staltari incorporated his own commercial real estate brokerage company, Staltari Realty Corporation, which he continued to operate until 1996, when he joined J.J. Barnicke as Vice-president, Investment Sales. According to Mr. Staltari, J.J. Barnicke was a full-service commercial real estate brokerage. He testified that the majority of the sales activity in which he was involved entailed the acquisition or sale of predominantly commercial buildings on behalf of others in exchange for a fee.[1] Such things as land sales and development, office leasing and retail properties (such as shopping centres) would be handled by other groups in the company.
[5] Mr. Staltari testified that after approximately 10 years (which would have been in 2006),[2] he left J.J. Barnicke and again incorporated his own commercial real estate brokerage company, this time under the name Staltari Commercial Real Estate Corporation (“SCRC”). In cross-examination, he provided a more accurate departure date of 2009 when it was pointed out that SCRC was not listed in schedule 9 (the “Schedule”) of a 2008 T2 corporate income tax return[3] filed by Flewellyn Land Holdings Inc. (“Flewellyn”), a corporation owned by Mr. Staltari that held the bare legal title to the land donated by him to the City of Ottawa. The 2009 date is consistent with a reference to Mr. Staltari’s employment on page 4 of Exhibit R-8.
[6] SCRC, through Mr. Staltari, provided commercial real estate services that were the same as those he was involved in at J.J. Barnicke, but on a smaller scale. He also did work for “users”, who are people who need land for a specific commercial purpose such as a car dealership. The user would identify what was needed (size of lot and location) and Mr. Staltari would seek out an appropriate parcel of land for the user to purchase.
[7] SCRC relied on word of mouth for its business, but also had a website. The website identified six areas of expertise: Agency/Brokerage, Industrial, Offices, Retail Services, Tenant Representation and Property Management. Mr. Staltari stated that he was capable of providing all of these services. The “About Us” web page for SCRC described the corporation as follows:
Staltari Commercial Real Estate Corp. is a boutique real estate brokerage firm assisting clients in buying, selling, financing, leasing, managing, site selection and space location. The firm’s power of execution relies on expertise in: valuation; market positioning; monetizing strategies; access to target markets; and mortgagee controlled sales.
[8] The “About Us” web page also referred to other firms and listed memberships in various organizations. Mr. Staltari explained that the other firms were two independent boutique firms – one in Toronto and one in Calgary – that chose to market themselves with SCRC. The owners of the firms would refer work to one another on occasion, but that was the extent of the collaboration. The reference to memberships was to collective memberships of the firms. Mr. Staltari stated that SCRC was not a member of the Builders Industry and Land Development (BILD) organization. Nor was SCRC a member of any of the other organizations listed.
[9] Mr. Staltari testified that he did own other companies and that one of those companies (identified as 1172210) acquired vacant land around 1996.[4] The parcel of land acquired was originally a single lot 265 feet wide by 110 feet deep but, prior to its purchase by the corporation, it was divided into three lots by its owner at the request of Mr. Staltari. Of the three lots purchased by 1172210, one was sold to Mr. Staltari’s father-in-law, who built a house on it for himself, and one was used by Mr. Staltari to build a personal residence. Mr. Staltari stated that both he and his father-in-law still live in these homes.[5] The third lot was used by 1172210 to build four townhouses, which were then rented to third parties. Mr. Staltari stated that it was he who built the personal residence and the four townhouses on the two lots. He also stated that he had not built on any other vacant land for business purposes.[6]
[10] When initially asked in cross-examination whether he considered himself a builder, Mr. Staltari said he had built the house and four townhouses described in the immediately preceding paragraph as well as “a few houses for myself”. He also conceded that he could correctly be described as the general contractor for the construction of the house and four townhouses built on the land purchased in 1996.[7] Mr. Staltari denied being a developer[8] and, when asked again later in cross-examination whether he represented himself as being a builder, he stated that he had held himself out as a builder in an appeal to the Ontario Municipal Board (the “OMB”).[9] He explained on re-examination that he had described himself as a builder to show he had some experience relevant to the subject matter of the application under appeal (the expansion of the dining room at, and increasing the occupancy capacity of, 174 Glebe Avenue described below) and that he would be able to do a good job.[10] When in re-examination he was asked why he also described himself as a chartered accountant in the appeal to the OMB, he explained that he was proud of his accounting designation, but paid dues as an inactive member and so did not practise as a chartered accountant.
[11] In cross-examination, Mr. Staltari was asked about eight corporations listed on the Schedule: (1) 1657-1673 Carling Inc. (“Carling”); (2) Moda Development Corporation (“Moda”); (3) Staltari Realty Corporation (“SRC”); (4) 1172210 Ontario Inc. (“1172210”); (5) Bayview Property and Asset Management (“Bayview”); (6) 174 Glebe Avenue Ltd. (“Glebe”); (7) 841133 Ontario Inc. (“841133”); and (8) 1128-1150 Cadboro Limited (“Cadboro”).
[12] Carling held the bare legal title to a property at 1657-1673 Carling Avenue (the “Carling Property”), which was a 24,000-square-foot building with retail stores on the ground floor and offices on the second floor. Mr. Staltari could not recall the name of the beneficial owner of the Carling Property, but stated that it was either 1172210 or Moda.
[13] Moda was a holding company that owned the shares of 1172210. Moda also had a stock portfolio acquired with funds from refinancing the Carling Property in 2000. The Carling Property was sold in 2013 and a number of the companies owned by Mr. Staltari were amalgamated that same year to “clean up [his] affairs”.[11]
[14] SRC was the corporation that operated the brokerage business started by Mr. Staltari in 1987, and 1172210 was the corporation that acquired the three vacant lots purchased in 1996. Bayview was a property management company set up in 1993 that did not own any property of its own.
[15] 841133 and Cadboro were inactive. Mr. Staltari said he could not find any records for 841133 to show what it did before it became inactive. Cadboro at one time held the bare legal title to a 6,000-square-foot strip mall on Cadboro Avenue (the “Cadboro Property”) for a period of six months.
[16] Glebe held the bare legal title to a retirement home at 174 Glebe Avenue (the “Glebe Property”) purchased in 2004. Mr. Staltari was asked about applications to the City of Ottawa regarding this property. He stated that an initial application was made to obtain approval for an increase in occupancy from 47 residents to 59 residents and the expansion of the dining room. The dining room expansion was approved but not the increase in occupancy. In 2011, another application was made to rezone the land to R4, which allows for the construction of condominiums.
[17] Mr. Staltari explained that the Glebe Property was subsidized by the City of Ottawa. The City, after raising an issue about the residence’s administrator that was not resolved to its satisfaction, cancelled its contract to subsidize the residence. This resulted in the loss of all of the tenants. At that point, Mr. Staltari sought alternative uses for the property. Applications for town homes were denied, as was an application to build two doubles, so an application for the R4 zoning was made. That application was approved and it is anticipated that condominiums will be built by Moda at a cost of approximately $9.5 million. In cross-examination, Mr. Staltari stated that the construction will be overseen by a third party project manager with the necessary expertise and that the condominiums are being marketed through a real estate agent and on the website of SCRC.
II. Evidence Regarding the Land [18] The vacant land (the “Land”) that was donated by Mr. Staltari to the City of Ottawa in 2009 consisted of 19.59 hectares located at 6851 Flewellyn Road, Ottawa, Ontario. The Land had been purchased by Mr. Staltari’s father in 1983 and was owned jointly by his father and mother. Mr. Staltari testified that nobody really knew why his father purchased the land other than because he wanted to own a piece of land. From time to time, his father and his father’s friends would hunt on the Land, but other than that his father did nothing with it.
[19] Mr. Staltari testified that around 2000, his father, who was 72 and retired at the time,[12] approached him about purchasing the Land. Mr. Staltari stated that his father wanted some extra cash but was not willing to simply accept a gift from Mr. Staltari. The sale of the Land to Mr. Staltari allowed his father to provide something in return for the cash.
[20] To the best of Mr. Staltari’s recollection, the price of $70,000 was determined by his reviewing comparable properties in the area on MLS. He suggested in cross-examination that the magnitude of the purchase was such that it did not warrant more involved research regarding the price. At the insistence of his mother, the purchase price was to be paid over time, accordingly, an initial payment of $6,000 and thereafter annual payments of $8,000 were made. In 2002, Mr. Staltari paid two instalments of $8,000 because his father needed extra money that year.
[21] Mr. Staltari testified that he had had no independent intention to acquire the Land and that the only reason he purchased the Land was because his father asked him to. He also testified that, when he purchased the Land from his father and mother, he knew it was rural land that could be used as farmland, but he did not know the actual zoning of the Land. He suggested that the only thought he had at the time of purchase was that he might operate a tree farm on the Land when he retired 10 or 12 years down the road. He also stated that any development in the area was to the north of Stittsville or, more recently, to the east. In cross-examination, Mr. Staltari denied any knowledge of other residential developments in the area of the Land at the time he purchased the Land, but admitted current knowledge of one such development. He also admitted that he knew there were streets east of the property running north off Flewellyn Road but he did not know the names of those streets and still does not even today. A witness for the Respondent indicted that the streets were 1.5 km and 2 km to the east of the Land.
[22] Mr. Staltari testified that he did nothing with the Land until early 2003. He stated that he was advised by a lawyer friend at a cocktail party in late 2002 or early 2003 that the City of Ottawa was about to implement a freeze on estate lot development; she advised him that to protect himself he needed to make two applications to the City – one to rezone the Land and another to subdivide the Land. Mr. Staltari stated that he was advised that these applications had to be made prior to a council meeting that was to be held in April 2003.
[23] Mr. Staltari entered into evidence a letter from the aforementioned lawyer dated March 6, 2003 (Exhibit A-2) that referenced an enclosed copy of what is referred to in the letter as Recommendation 71 of the Ottawa Planning and Development Committee. The enclosure titled PLANNING AND DEVELOPMENT COMMITTEE DISPOSITION 46 17 – 21 FEBRUARY 2003 states in paragraph 71:
COUNTRY ESTATE LOT DEVELOPMENTS
WHEREAS the Planning and Development Committee has heard from numerous rural residents and representatives of the rural development community that a complete ban on country estate lot development could be detrimental to the rural economy;
THEREFORE BE IT RESOLVED that staff be requested to develop options and alternatives to a complete ban and provide such recommendations to the Committee prior to the Official Plan public meetings scheduled for late March.
CARRIED
[24] Mr. Staltari engaged a consultant, who filed the applications on his behalf on April 16, 2003. He also engaged other people to test the soil, to confirm the availability of well water by drilling test wells and to perform a watershed study, all of which was required in support of the applications.
[25] A copy of the two applications entered into evidence by the Respondent in cross-examination[13] indicates that the applications were submitted with a Preliminary Tree Planting and Conservation Plan and an Environmental Impact Study and that a Hydrogeology Study and Terrain Analysis “will be provided”.[14]
[26] Mr. Staltari also hired a contractor to build a gravel road on the Land at a cost of $104,719 plus tax.[15] Mr. Staltari explained that the road was necessary because the truck of the person who was hired to drill the test wells had become stuck in the peat moss on the site. According to Mr. Staltari, the road was necessary to free the truck and complete the test wells. In cross-examination, he stated that the road was built from Flewellyn Road to the location of the truck approximately three-quarters of the way to the north side of the property. He also stated that the road was not suitable for a subdivision because it did not extend all the way to the north end of the property and it did not end in a roundabout.
[27] Mr. Staltari testified that the City of Ottawa raised a concern that the Land was close to environmentally sensitive land and commissioned a wetland study. This left the rezoning and subdivision applications in limbo. To move matters along, Mr. Staltari requested that he be informed of the City’s position on the applications and the City said the applications would not be approved. Mr. Staltari then appealed to the Ontario Municipal Board in order to preclude the Land being designated environmentally sensitive wetlands.
[28] Copies of two appeals by Flewellyn to the OMB dated January 13, 2005 were entered into evidence by the Respondent.[16] In cross-examination, Mr. Staltari stated that the appeals were filed because the City of Ottawa did not make a decision on the applications within the applicable limitation period.[17] He also agreed that the appeals were pending until they were withdrawn on February 3, 2009.[18] When asked about the status of the Land as wetlands, Mr. Staltari stated that, at the time of the applications to the City of Ottawa, he had no concern that the Land was wetlands. This concern was raised after the applications had been filed.[19]
[29] At some point between 2005 and the time of the donation,[20] while the appeal to the OMB was ongoing, the Ministry of Natural Resources (the “MNR”) requested permission to come onto the Land to assess its environmental status. Mr. Staltari granted permission for the visit because he did not think the Land was environmentally sensitive. The representative of the MNR who visited the property told him about the possible advantages of donating the Land. He then researched online the possibility of a donation and came to the conclusion that the City of Ottawa would be a qualified donee.
[30] Mr. Staltari approached the City and the City agreed to accept the donation. The Land was appraised at $1,935,000 and was donated to the City in 2009. The City issued an official charitable donation receipt to Mr. Staltari for the appraised value of $1,935,000. The Minister of the Environment certified the Land as ecologically sensitive land and also certified the fair market value of the Land as being $1,935,000.
[31] Mr. Staltari used $875,000 of the ecological gift receipt amount to claim a non-refundable income tax credit for his 2009 taxation year under subsection 118.1(3) of the ITA. The Respondent does not contest the eligibility of the gift of $1,935,000 for inclusion in Mr. Staltari’s “total ecological gifts” and “total gifts”, as defined in subsection 118.1(1) of the ITA, for 2009.
[32] Mr. Staltari testified that his reasons for choosing to donate the Land to the City of Ottawa were as follows:[21]
What was going through my mind at that time after I explored the donation, I had wetlands hanging over my head. I had the OMB appeal that I could continue with, and I had this donation option in front of me.
To not do the donation and not do the appeal, okay, meant in my mind then and now, by the way, but even then was I was going to end up with environmentally sensitive land and I could do nothing. So that was not an option I was going to do.
So then the option was do I continue with the appeal, protect my future rights, or I had this donation receipt, which was very ‑‑ financially was very attractive because I had a large gain with the building I sold and I could use a good chunk of that gain that year.
So I said financially, this makes the most sense, okay? So I took the gift and then dropped the appeal.
[33] In re-examination, Mr. Staltari stated that the purpose of the application relating to a plan of subdivision was to secure approval of such a plan of subdivision and nothing more. He stated that no discussions were held regarding the construction of homes, and no steps were taken in furtherance of the construction of homes, on the Land.
[34] Mr. Staltari testified that he incurred expenses of $293,820.98 in respect of the Land, which included the $70,000 purchase price. He also stated that the expenses were paid by his corporation and were recorded as a balance owing by him to the corporation in the shareholder loan account of the corporation. In cross-examination, Mr. Staltari clarified that in fact the corporation owed him money, so the payments reduced the amount owed to him by the corporation.[22] He did not recall which corporation’s shareholder loan balance was so reduced and conceded that he did not have the relevant accounting records with him.[23]
III. Evidence of the Respondent [35] Two witnesses testified for the Respondent: Michael Berghout and James Atkinson. Michael Berghout is an income tax auditor with the Canada Revenue Agency (“CRA”) and in 2011 audited the gift by Mr. Staltari of the Land to the City of Ottawa in 2009. James Atkinson is a manager in the Large Business Audit Division of the CRA, but was formerly with the Income Tax Rulings Directorate. As a rulings officer, he dealt in November 2008 with a request submitted by Mr. Staltari for an advance income tax ruling regarding the income tax characterization of the gift of the Land to the City of Ottawa.
[36] Mr. Berghout testified that as part of his audit he researched estate lot developments in the vicinity of the Land. He determined that there was a similar development approximately 2 km away on Ridingview Crescent and that MLS listings suggested that the homes in the development were being built from 2000 to 2004. In cross-examination, Mr. Berghout conceded that in the Reply the Respondent assumed that the homes on Ridingview Crescent were built in 2003 and 2004.[24] Mr. Berghout also testified that building was underway in the Ironstone estate development when he drove by in July or August 2011. That development was about 1.5 km from the Land.
[37] Mr. Berghout testified that he researched the purchase price paid by Mr. Staltari for the Land by looking on GeoWarehouse, which provides a summary of land registry information. The information on GeoWarehouse indicated that the purchase price was $70,000, as stated by Mr. Staltari. Mr. Berghout testified that Mr. Staltari did not provide any information to confirm the other expenses included in the $293,820.98 identified by Mr. Staltari as having been incurred in respect of the Land.[25]
[38] In cross-examination, Mr. Berghout confirmed that the only assumptions relating to 2000 (that is, the year in which Mr. Staltari purchased the Land from his father) are found in paragraphs 8 a) to e) of the Reply. He also stated that he was not aware of any other facts that existed at the time of that purchase. In re-examination, he confirmed that paragraph 8 f) of the Reply was an accurate statement of an assumption made regarding a fact that existed at the time of the purchase.
[39] Mr. Atkins testified that he advised Mr. Staltari by telephone in November 2008, in response to a ruling request submitted by Mr. Staltari, that the CRA did not provide advance income tax rulings on questions of fact such as whether a disposition of property yields income or a capital gain. He also testified that he said that, on the facts that he had available, “it’s likely that we would say it was inventory, but that’s not a determinative answer”.[26]
IV. The Position of the Appellant [40] Counsel for the Appellant submitted that paragraph 38(a.2) of the ITA, which excludes from taxable capital gains any capital gains resulting from a gift to a qualified donee of property described in the definition of “total ecological gifts” in subsection 118.1(1), implies that, where land qualifies for such treatment, it should be considered capital property of the donor. Paragraph 38(a.2) is a specific provision that is not limited in its application to a disposition of “capital property” and it would have been an easy matter for Parliament to insert the word “capital” before the word “property” in subparagraph 38(a.2)(i). As a specific provision addressing the disposition of environmentally sensitive land, paragraph 38(a.2) must be given precedence over the more general regime distinguishing capital gains from business income.
[41] Counsel for the Appellant submitted that treating qualifying environmentally sensitive property as capital property is consistent with the underlying incentive-oriented policy of the provisions applicable to the donation of such property and provides certainty to taxpayers regarding the tax result of such donations. Counsel noted that such donations are described on the Environment Canada website as providing certain tax advantages — for individuals, a charitable donation tax credit without any taxable capital gain resulting from the gift. Nowhere is it stated that these tax consequences may be denied, and taxpayers are entitled to certainty regarding such matters.
[42] On the more general issue of whether the Land was capital property or inventory of Mr. Staltari, counsel submitted that there was no evidence that Mr. Staltari had either a primary or a secondary intention to sell the Land at a profit at the time he acquired the Land in 2000. Mr. Staltari’s real estate career and his attempts to secure approval of a plan of subdivision on being made aware of the City of Ottawa’s change in policy do not support such a primary or secondary intention. In particular, with the exception of the construction of the four townhouses, there is no evidence that Mr. Staltari had experience in developing vacant land, and certainly he did not have it to the extent required for a parcel the size of the Land. The evidence showed that Mr. Staltari was an active real estate agent involved in commercial and retail property acquisition and leasing. As well, there was no evidence that Mr. Staltari was aware of the City’s change of policy prior to 2003 or that he took any action related to the development of the Land between the purchase of the Land in 2000 and the beginning of 2003.
[43] Counsel referred to the decision of the Federal Court, Trial Division (as it then was) in Happy Valley Farms Ltd. v. M.N.R., [1986] F.C.J. No. 465 (QL) and of the Exchequer Court in Racine, Demers et Nolin v. Ministre du Revenu National, [1965] 2 Ex. C.R. 338 for the proposition that, in order for a transaction involving the acquisition of a capital asset to be characterized as an adventure or concern in the nature of trade, the purchaser must have in his mind, at the moment of the purchase, the possibility of reselling as an operating motivation for the acquisition. Counsel submitted that this requirement was affirmed by the Federal Court of Appeal in Canada Safeway Limited v. The Queen, 2008 FCA 24.
[44] Counsel also referred to the decision of the Federal Court, Trial Division (as it then was) in Demeter Equity Limited v. The Queen, 79 DTC 5230 (which, at page 5233, referred to another decision of that court) and submitted that the oral evidence of Mr. Staltari is sufficient in this case to establish intent given that his purchase of the Land is explained by his desire to help out his parents and that he did nothing with the Land until the beginning of 2003, when circumstances changed.
[45] Counsel submitted that the following conclusions could be drawn from the evidence:[27]
1. The zoning of the Land at the time of acquisition did not allow for the development of estate lots, so that at the time of acquisition Mr. Staltari would not have been able to develop the Land without taking extra steps.
2. Mr. Staltari’s business did not include the development of vacant lots into subdivisions.
3. Mr. Staltari would have needed to arrange substantial financing to develop the Land, yet he made no effort to raise financing, nor did he market the plan of subdivision to possible purchasers.
4. Mr. Staltari made no improvements to the Land. His activity on the Land from 2003 to 2004 was limited to taking the necessary steps to obtain the reports needed to support the subdivision plan, including the construction of the road to deal with the truck stuck in the peat.
5. Mr. Staltari was not under any personal financial pressure that would have required him to sell the Land in order to recover his costs.
6. Mr. Staltari never completed the subdivision process.
[46] Counsel submitted that, on the evidence, Mr. Staltari’s primary reason for purchasing the Land was to help his parents. Mr. Staltari’s secondary reason for purchasing the Land, if he had one, was to use the property in retirement for tree farming. Counsel also submitted that the donation crystallized the character of the Land as capital property of Mr. Staltari’s because he had no opportunity for profit from that method of disposition, and counsel cited in support of this proposition page 1602 of the decision of this Court in Whent v. The Queen, reported sub nom. Pustina et al. v. The Queen, at 96 DTC 1594, affirmed at 251 N.R. 252 sub nom. Canada v. Zelinski et al., leave to appeal to the Supreme Court of Canada denied at 266 N.R. 393.
V. The Position of the Respondent [47] Counsel for the Respondent argued that the Land was inventory because Mr. Staltari was a real estate specialist who often sold properties for others and occasionally for himself. The Land was acquired by Mr. Staltari as part of a business scheme, as evidenced by the fact that Mr. Staltari held real estate through several corporations and the Land was held in much the same fashion. Mr. Staltari had built properties in the past (the row of four townhouses and his own home) and had a current scheme involving the construction and sale of condominiums at 174 Glebe Avenue in Ottawa.
[48] In the alternative, counsel submitted that the purchase and donation of the Land was an adventure or concern in the nature of trade with the result that the gift of the Land triggered income from a business. The donation was akin to an unsolicited offer of purchase that was accepted by Mr. Staltari, the only difference being that instead of there being a sale price, the ITA deemed the proceeds of disposition to be equal to the fair market value of the Land.
[49] Counsel for the Respondent referred to the judgment of the Supreme Court of Canada in Friesen v. Canada, [1995] 3 S.C.R. 103 and to the judgment of the Federal Court of Appeal in Canada Safeway, supra. In particular, counsel referred to the factors identified in paragraphs (i) to (iv) on page 116 of Friesen and to the summary of the guiding principles at paragraph 61 of Canada Safeway. Counsel recited the fifth principle identified in Canada Safeway, namely that “. . . viva voce evidence of the taxpayer with respect to his or her intention is not conclusive and has to be tested in the light of all the surrounding circumstances” and then referred to the principle stated in Ludco Enterprises Ltd. v. Canada, 2001 SCC 62, [2001] 2 S.C.R. 1082 at paragraph 54, that “In the interpretation of the Act, as in other areas of law, where purpose or intention behind actions is to be ascertained, courts should objectively determine the nature of the purpose, guided by both subjective and objective manifestations of purpose: . . .”
[50] With respect to the objective circumstances, counsel submitted that the fact that Mr. Staltari spent, according to his own estimation, around $226,000 to protect his interest in the Land belied the suggestion that he had no plans for the Land at the time of purchase, as no reasonable man would spend that much money to protect a $70,000 property for which he had no plans. As well, the suggestion that Mr. Staltari would start a tree farm in his retirement was problematic as he attributed this idea to a friend he played hockey with, but had also suggested in his request for an advance ruling that his father had considered tree farming. Counsel questioned why this idea would not have come from his father if indeed it was considered at the time of purchase.
[51] Counsel also noted that Mr. Staltari had been in the real estate business all of his professional life and submitted that there was a pattern of behaviour that supported an inference of business-like dealings with the Land, such as the use of a nominee corporation to hold legal title to the Land, the existence of a form of financing of the purchase price of the Land (i.e., the deferred annual payments), the absence of any income from the Land and the making of two applications —one for rezoning and one for subdivision approval — roughly two years after acquisition in order to enhance the value of the Land. Counsel observed that this last step was much like the initial application to make 174 Glebe Avenue more profitable by increasing the number of occupants from 47 to 59.
[52] Finally, counsel submitted that I should draw an adverse inference from the fact that Mr. Staltari did not present other witnesses, such as his parents or those involved in the rezoning and subdivision approval applications, who might have corroborated his story.
VI. The Statutory Provisions [53] Under paragraph 38(a) of the ITA, a taxpayer’s taxable capital gain from the disposition of any property is one-half of the taxpayer’s capital gain from the disposition of that property. Paragraph 38(a) states:
38. Taxable capital gain and allowable capital loss — For the purposes of this Act,
(a) [taxable capital gain — general] — subject to paragraphs (a.1) to (a.3), a taxpayer’s taxable capital gain for a taxation year from the disposition of any property is ½ of the taxpayer’s capital gain for the year from the disposition of the property]
[54] Paragraph 38(a.2) of the ITA provides an exception to the general rule in paragraph 38(a) by deeming a taxpayer’s taxable capital gain from the disposition of ecologically sensitive land to be zero. The portion of the paragraph relevant to this appeal states:
38. Taxable capital gain and allowable capital loss — For the purposes of this Act,
(a.2) [taxable capital gain — ecological gift] — a taxpayer’s taxable capital gain for a taxation year from the disposition of a property is equal to zero if
(i) the disposition is the making of a gift to a qualified donee (other than a private foundation) of a property described, in respect of the taxpayer, in paragraph 110.1(1)(d) or in the definition “total ecological gifts” in subsection 118.1(1), or . . .
[55] Paragraph 39(1)(a) of the ITA describes what constitutes a taxpayer’s capital gain for a taxation year from the disposition of any property other than certain listed properties. The paragraph states:
39. (1) Meaning of capital gain and capital loss [and business investment loss] — For the purposes of this Act,
(a) a taxpayer’s capital gain for a taxation year from the disposition of any property is the taxpayer’s gain for the year determined under this subdivision (to the extent of the amount thereof that would not, if section 3 were read without reference to the expression “other than a taxable capital gain from the disposition of a property” in paragraph 3(a) and without reference to paragraph 3(b), be included in computing the taxpayer’s income for the year or any other taxation year) from the disposition of any property of the taxpayer other than
(i) eligible capital property,
(i.1) an object that the Canadian Cultural Property Export Review Board has determined meets the criteria set out in paragraphs 29(3)(b) and (c) of the Cultural Property Export and Import Act and that has been disposed of,
(A) in the case of a gift to which subsection 118.1(5) applies, within the period ending 36 months after the death of the taxpayer or, where written application therefor has been made to the Minister by the taxpayer’s legal representative within that period, within such longer period as the Minister considers reasonable in the circumstances, and
(B) in any other case, at any time,
to an institution or a public authority in Canada that was, at the time of the disposition, designated under subsection 32(2) of that Act either generally or for a specified purpose related to that object,
(ii) a Canadian resource property,
(ii.1) a foreign resource property,
(ii.2) a property if the disposition is a disposition to which subsection 142.4(4) or (5) or 142.5(1) applies,
(iii) an insurance policy, including a life insurance policy, except for that part of a life insurance policy in respect of which a policyholder is deemed by paragraph 138.1(1)(e) to have an interest in a related segregated fund trust,
(iv) a timber resource property, or
(v) an interest of a beneficiary under a qualifying environmental trust; . . .
[56] Paragraph 39(1)(a) must be read in conjunction with the relevant portions of section 3 of the ITA, which state:
3. Income for taxation year — The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,
(b) determine the amount, if any, by which
(i) the total of
(A) all of the taxpayer’s taxable capital gains for the year from dispositions of property other than listed personal property, and
(B) the taxpayer’s taxable net gain for the year from dispositions of listed personal property,
exceeds
(ii) the amount, if any, by which the taxpayer’s allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer’s allowable business investment losses for the year,
. . .
[57] A taxpayer’s income for the year from a business or property is described in subsection 9(1) of the ITA:
9. (1) Income — Subject to this Part, a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.
[58] The basic rules for measuring a capital gain are found in subsection 40(1) of the ITA. Subsection 40(1) states, in part:
40. (1) General rules [gain and loss calculation] — Except as otherwise expressly provided in this Part
(a) a taxpayer’s gain for a taxation year from the disposition of any property is the amount, if any, by which
(i) if the property was disposed of in the year, the amount, if any, by which the taxpayer’s proceeds of disposition exceed the total of the adjusted cost base to the taxpayer of the property immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition . . .
[59] The term “capital property” is defined in section 54 as follows:
“capital property” of a taxpayer means
(a) any depreciable property of the taxpayer, and
(b) any property (other than depreciable property), any gain or loss from the disposition of which would, if the property were disposed of, be a capital gain or a capital loss, as the case may be, of the taxpayer; . . .
[60] The term “business” is defined in subsection 248(1) of the ITA as follows:
248. (1) Definitions — In this Act,
“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and paragra