Millford Development Ltd. v. Canada
T-1436-85
Rothstein J.
22/1/93
15 pp.
Appeal from Tax Court decision upholding reassessment whereby Minister reassessing discount on sale of mortgage as capital loss -- Plaintiff in business of real estate development -- Taking mortgage back on sale of land in 1976 -- Treating profit on sale as income -- In 1980 sold mortgage receivable at discount -- Treating discount as loss on income account -- Tax Court holding buying and selling of mortgages not part of regular business -- Mortgage acquired as capital asset -- Investment producing income until sold -- Taking back mortgages usual practice in sale of real property -- Necessary to effect sales -- Mortgages taken back constituted significant portion of plaintiff's assets -- Proceeds of land and building sales always treated as revenue, even though portion of sale price not paid in cash, but represented by mortgage receivable -- Sale of mortgage to relieve pressure from bankers -- Appeal allowed -- Rebuttable presumption income or loss resulting from activity done in pursuit of object in charter of corporate taxpayer business income or loss: Canadian Marconi v. R., [1986] 2 S.C.R. 522 -- Test whether asset giving rise to gain or loss acquired to effect commercial transaction -- Sale of mortgage taken back at discount reducing proceeds from sale of real property, and therefore income -- Potential sale of mortgages integral part of scheme of plaintiff's profit making by buying and selling real property -- If business banking arrangements leading to sale of mortgage taken in ordinary course of business, sale should be considered as part of business of company also -- If sale of mortgage at discount treated as separate and distinct transaction from sale of real property and taking back of mortgage, Minister receiving tax on income not received -- Intention also relevant to characterization of gain or loss i.e. mortgage taken back to effect sales -- Sale at discount to relieve pressure from bank -- Intention re: both acquisition and sale related to business requirements, not to investment purposes -- Fact sale of mortgage one-time transaction not disqualifying transaction from being treated as income transaction -- Cases involving unusual situation not associated with ordinary course of business, i.e. winding up, sale of receivables by proprietor to company incorporated by him, sale of mortgage for unusually large discount for no apparent reason, distinguished -- Sale of mortgage in response to pressure from bank, business purpose related to plaintiff's ongoing operation and business -- Vancouver Pile Driving & Contracting Co. Ltd. v. M.N.R., [1963] Ex. C.R. 162, where company required to post performance bond and purchased government bonds to earn interest while performance bond in place, distinguished -- Acquisition of government bonds not made in ordinary course of trading activities, but as investment -- Mortgage herein acquired in normal trading activity of plaintiff and not as investment -- Influenced treatment of loss arising on sale of mortgage -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 172(1).