A-153-73
Universal Timber Products Limited (Appellant)
v.
The Queen (Respondent)
Court of Appeal, Thurlow and Ryan JJ. and
Sheppard D.J.—Vancouver, June 27 and 28,
1974.
Income tax—Sale of licence to cut timber—Whether profit
a capital gain or trading profit—Income Tax Act, ss. 3, 4,
139(1Xe).
Appeal from the judgment of the Trial Division, [1973]
F.C. 1239, holding that the profit from the sale of a timber
cutting licence was the result of a trading adventure and
therefore subject to income tax. Appellant, a logging com
pany, about to go out of business after many years of
operations transferred its interest in a timber cutting licence
in British Columbia to another operator for $100,000. A
transfer of a licence to cut timber does not give the trans-
feree any right but merely places him in a better position to
obtain a licence from the authorities.
Held, the appeal is allowed. The evidence shows that, by
the transactions, the appellant succeeded in converting into
dollars something of value it already had, whether that
something was a legal right or privilege or position or not
and whether it was capable of being the subject-matter of a
sale as known to the law or not. The several steps were but
devices to effect that conversion and were not activities
constituting an adventure in the nature of a trade.
Tabor Creek Sawmills Ltd. v. Minister of Finance
[1972] 3 W.W.R. 622 upheld in [1973] 3 W.W.R. 14,
referred to.
INCOME tax appeal.
COUNSEL:
C. C. Sturrock for appellant.
L. P. Chambers and J. A. Weinstein for
respondent.
SOLICITORS:
Thorsteinsson, Mitchell, Little, O'Keefe &
Davidson, Vancouver, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
delivered in English by
THURLOW J.: The question raised by this
appeal is whether an amount of $100,000 which
the appellant received in its 1967 taxation year
from Jackson Brothers Logging Company Lim
ited was profit from an adventure or concern in
the nature of trade and therefore taxable as
income under the provisions of the Income Tax
Act.
From the time of its incorporation in 1932 the
appellant had been engaged in logging opera
tions on Crown lands in the Province of British
Columbia under timber licences which for some
years prior to 1966 included licences granted by
the Crown to cut annually to the extent of an
allotted portion of the total allowable annual cut
of timber on a 20,000 square mile area known
as the Quadra Public Sustained Yield Unit.
Such licences were granted for a specified
period of years but as a matter of the practice of
the Forest Service, if for no other reason,
applications for the putting up for sale of addi
tional licences to cut timber in the unit were
accepted only from persons already established
as operators in the unit and when an application
was accepted from such an operator certain
statutory rights accrued to him which gave him
advantages over other bidders including the
right to have the licence sold to him on his
matching the highest bid or tender. The privi
leged position or opportunity of an established
operator in such a unit to acquire additional
licences to cut timber could be of considerable
value to him, so much so that other established
operators in the unit or persons seeking to
become operators were prepared to pay sub
stantial amounts over and above the value of
the timber in order to acquire a timber sale
licence and thus get in that favoured position to
apply for and acquire further timber in the unit.'
Compare Davey C.J.B.C. in Tabor Creek Sawmills Ltd.
v. Minister of Finance [1972] 3 W.W.R. 622 at 624.
Early in 1966 the appellant decided tb discon
tinue its logging operations and the events
which led to the payment here in question fol
lowed. Jackson Brothers Logging Company
Limited (hereafter referred to as Jackson), an
established operator in the unit and already
holding a substantial quota of the allowable
annual cut was interested in increasing that
quota and by August 1966, if not earlier, a price
had been arranged for the appellant's quota and
that of Phillips and Lee Logging Limited, its
subsidiary or related company, (hereafter
referred to as Phillips and Lee) at $100,000
calculated at $40 per thousand on two and a
half million feet board measure of annual allow
able cut, which was the going rate. A problem
remained, however, as to the method by which
the intended result was to be accomplished and
it was not until December 1967 that it was
brought about.
In the meantime in January 1967 the appel
lant and Phillips and Lee had joined with Jack-
son in applying for the sale of a new licence
embodying the quotas of the appellant and of
Phillips and Lee and some of the Jackson quota
and in October 1967 a timber sale harvesting
licence had been granted to the three compa
nies. Jackson had carried out all the survey and
other arrangements in connection with the
application for the licence and it paid the depos
it required by the Forest Service as at no stage
did the appellant or Phillips and Lee have any
intention of operating under the licence.
On December 12, 1967 the appellant and Phil-
lips and Lee assigned their interest in the
licence to Jackson subject to the approval of the
Minister and on the same day they signed letters
addressed to the District Forester in a form in
use for the purpose advising of the transfer of
their logging interests to Jackson who proposed
to continue logging in the unit, applying to have
their position as established operators in the
unit transferred to that company and stating that
they understood that if the request for transfer
was presented they would no longer be con
sidered as recognized applicants for the purpose
of applying for licences in the unit.
The transfer so requested was made, the
assignment of their interest in the licence was
approved and Jackson paid the appellant the
$100,000 or the balance of it after allowing for
a deposit already made.
The learned Trial Judge [[1973] F.C. 1239] on
considering the documentations involved in the
transaction held that the $100,000 was paid
only for the assignment of the appellant's inter
est, and that of Phillips and Lee, in the licence
and that as neither company ever intended to
use the licence in carrying on a logging opera
tion but intended to sell it as soon as acquired
the amount received was profit from an adven
ture or concern in the nature of trade and there
fore taxable as income from a business within
the meaning of sections 3, 4 and 139(1)(e) of the
Income Tax Act.
With respect I do not think this conclusion
should be drawn from the evidence. The par
ticular document to which the learned Judge
attributed a great deal of weight, that is to say
the agreement of July 1967 (Exhibit 4) in which
a consideration of $100,000 is expressed as
being for transfer of the interest of the appellant
and Phillips and Lee in the timber harvesting
licence which had not yet been granted but
which was then expected to result from the joint
application made in January 1967, is but one
among a number of documents of some impor
tance in resolving the present problem. There is
first the joint application which prompts the
question as to why in January 1967 the appel
lant would not have made its own application if
all that was transpiring was the taking of action
to secure a licence for the purpose of selling it.
Moreover, the assignment of the appellant's in
terest in the licence made on December 12,
1967 cannot be divorced from the letter dated
the same day from the appellant and Phillips
and Lee to the District Forester requesting him
to have their positions as recognized applicants
transferred to Jackson. To my mind in the cir
cumstances described in the evidence it is not
conceivable that the appellant would have
received the $100,000 had that letter not been
signed as well as the formal assignment of the
interests of the appellant and Phillips and Lee in
the timber harvesting licence. I am therefore of
the opinion that for the purpose of resolving the
question here at issue, that is to say, whether
what transpired was an adventure or concern in
the nature of trade, the $100,000 cannot proper
ly be treated as having been received by the
appellant solely in respect of the transfer of its
interest and that of Phillips and Lee in the
particular newly acquired timber harvesting
licence.
In my view what the evidence as a whole
shows is that by the transactions in question the
appellant succeeded in converting into dollars
something of value that it already had, whether
that something was a legal right or privilege or
position or not and whether it was capable of
being the subject-matter of a sale as known to
the law or not. The several steps taken by the
appellant including joining Jackson in the
application for the new licence, the assignment
of the interest in the licence to Jackson and the
letter to the District Forester, as I view them,
were but devices used and steps taken to effect
that conversion. They amounted to no more
than a liquidation or realization of what the
appellant already had and were not activities
constituting an adventure or concern in the
nature of trade for the purpose of making profit
by acquiring and selling an interest in the new
licence.
I would allow the appeal with costs here and
in the Trial Division.
* *
RYAN J. concurred.
* * *
SHEPPARD D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.