January 27, 2012

Twin Islands Estates Ltd. v. Her Majesty the Queen

2004 DTC 2515
Neutral Citation: 2004 TCC 141
Tax Court of Canada
Date: April 2, 2004

Court File No. 2002-3698(IT)G (General Procedure)

Income or capital gain — Part III tax — Whether taxpayer acquired and resold land as part of logging operation or adventure in nature of trade — Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, ss. 9(1), 39(1), 129(3), 184(2).

Facts: In computing its income for 1999, the corporate taxpayer reported the gain on the sale of land (“Twin Islands”) on capital account. The Minister reassessed this gain on income account (the Part I reassessment), and also assessed the taxpayer for Part III tax on the ground that the capital dividend paid by it exceeded the amount in its capital dividend account (the Part III assessment). The Minister’s position was that, at the time of its acquisition of the land, the taxpayer had in mind the possibility of resale at a profit as its operating motivation. The taxpayer appealed to the Tax Court of Canada.

Held: The taxpayer’s appeal was allowed. The issue was whether the taxpayer sold Twin Islands as a residue of a timber limit with proceeds on capital account, or whether it was engaged throughout in an adventure in the nature of trade with the sale of the property giving rise to income. The taxpayer’s evidence was credible and reliable. There was nothing to indicate any intention other than that the land had been purchased for the business of a logging operation. No application whatsoever was made to subdivide the land into additional lots. The taxpayer was not involved in an adventure in the nature of trade for the purchase and sale of the land, and this was not its primary objective. The land was sold as a residue of a timber limit with proceeds on capital account. Also the taxpayer’s capital dividend did not exceed its capital dividend account. The Minister’s Part I reassessment and Part III assessment were vacated accordingly.