Universal Timber Products Ltd. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Sweet D.J.—Vancouver, June
21,22, August 7,8 and 9, 1973.
Income tax—Sale of licence to cut timber—Whether profit
a capital gain or trading profit.
Plaintiff, a logging company, about to go out of business
after many years of operations transferred its interest in a
timber cutting licence in British Columbia to another opera
tor for $100,000. A transfer of a licence to cut timber does
not give the transferee any right but merely places him in a
better position to obtain a licence from the authorities.
Held, the transaction was not a capital transaction but an
adventure in the nature of trade, and the profit was accord
ingly subject to income tax.
Metropolitan Taxi Ltd. v. M.N.R. [1967] 2 Ex.C.R. 32;
[1968] S.C.R. 496, applied; Re Tabor Creek Sawmills
Ltd. v. Min. of Finance [1973] 3 W.W.R. 14, discussed.
INCOME tax appeal.
COUNSEL:
C. C. Sturrock for plaintiff.
L. P. Chambers for defendant.
SOLICITORS:
Thorsteinsson, Mitchell, Little and O'Keefe
for plaintiff.
Deputy Attorney General of Canada for
defendant.
SWEET D.J.—The Crown granted to the plain
tiff, Jackson Brothers Logging Company Lim
ited (herein referred to as Jackson) and Phillips
and Lee Logging Limited (herein referred to as
Phillips and Lee) timber sale harvesting licence
A 00044 dated the 2nd day of October 1967
which, subject to what was therein contained,
permitted the licensees to cut and remove quan
tities of timber from Crown lands within the
Quadra Public Sustained Yield Unit in British
Columbia being in the Chapman Creek area.
That licence will be herein referred to as the
licence.
In 1967 the plaintiff sold its interest in the
licence to Jackson. From that sale the plaintiff
realized $100,000.00. That was the total cash
consideration for the interest in the licence of
both the plaintiff and Phillips and Lee. Appar
ently, on agreement, the parties to this litigation
treated the matter as though the plaintiff was
entitled to and did receive all of the $100,-
000.00 and so it is dealt with here.
The plaintiff did not include that $100,000.00
in the computation of its income in its 1967
taxation year. In assessing the plaintiff the
defendant included all of it.
The plaintiff seeks to have that item of $100,-
000.00 declared not taxable. Wording in the
statement of claim is:
The Plaintiff therefore claims as follows:
(a) A declaration that the profit derived from the sale of
the quota position was a capital gain and not taxable
pursuant to any of the provisions of the Income Tax Act;
(b) An order that the said Notice of Assessment be set
aside and vacated;
(c) Such further and other relief as to this Honourable
Court might seem just;
(d) Costs.
In the statement of claim the plaintiff calls
what was sold to Jackson its "quota position".
The following is a summary of what the plain
tiff in its statement of claim alleges to be
"facts" and the position taken by the plaintiff:
In 1932 the plaintiff commenced business as
a logging company and since then has at no
time engaged in trading or dealing in timber
cutting rights or quota positions. Pursuant to a
decision to terminate the plaintiff's logging
operations it sold its quota position in the
Chapman Creek area. As the British
Columbia Department of Forestry would not
recognize the assignment of a quota position
per se the only way the plaintiff could trans
fer the Chapman Creek quota position was to
acquire and then assign the licence. In 1967
the plaintiff sold the Chapman Creek quota
position to Jackson for $100,000. For the
reason given the sale of the quota position
took the form of a sale to Jackson of the
plaintiff's interest in the licence. That quota
position was acquired by the plaintiff as an
intangible capital asset and accordingly, a
non-taxable capital gain was realized on the
sale.
In the statement of defence there is a state
ment to the effect that in assessing the plaintiff
with respect to its 1967 taxation year the
defendant inter alia assumed that:
(a) prior to March, 1966 the plaintiff carried
on the business of logging involving inter alia
cutting timber for its own account, contract
logging and dealing in beach-combed logs;
(b) in or about March, 1966 the plaintiff
decided to discontinue its operations of cut
ting timber for its own account as soon as the
timber under its existing timber sales con
tracts had been exhausted;
(c) in or prior to June, 1967, at a time when
the plaintiff terminated, or was about to ter
minate its operations of cutting timber for its
own account, the plaintiff acquired an interest
in the licence;
(d) the plaintiff acquired its interest in the
licence for the purpose of trading and turning
the same to account at a profit;
(e) the plaintiff sold its right, title and interest
in the licence immediately upon its acquisition
by it to Jackson at a profit to the plaintiff of
$100,000;
(f) the said profit was income to the plaintiff
from a business within the meaning of sec
tions 3, 4 and 139(1)(e) of the Income Tax
Act, R.S.C. 1952, chapter 148 as amended.
It is easier to understand the positions taken
by the parties if regard is had to something of
the history of the logging industry in British
Columbia, practices in that industry and atti
tudes of those engaged in it.
A witness called by the plaintiff was Mr.
Francis F. Lloyd, a British Columbia registered
forester. According to him the Government of
British Columbia set up geographical areas for
lumbering. According to Mr. Lloyd the unit
which includes the area covered by the licence
contains something in the order of 20,000
square miles.
Prior to the delineating of these units there
had been operators logging in those areas.
According to that witness the government took
measures to assure established operators that
they would have a continual supply of timber
available. Mr. Lloyd defined such "established
operators" as those who had been logging
within a specific unit for a number of years.
Apparently in the attempt to have timber
available in perpetuity the Forest Service estab
lished annual allowable cuts of timber for whole
units respectively in the hope that if no more
than the respective annual allowable cut were
taken off each year the processes of reforesta
tion, both natural and with planting, would be
such that that annual allowable cut could, sub
ject to exigencies, be made forever. Portions of
this annual allowable cut would be allocated to
specific operators or licensees. The portion of
the annual allowable cut for the entire unit
allocated to an operator became known in the
trade as that operator's "quota".
Once an operator had an allocation made to
him through the medium of a licence he attained
a preferred position with definite and important
advantages over those who did not have
licences in the public sustained yield unit in
which he was licensed.
Relevant legislation is the Forest Act,
R.S.B.C. 1960, chapter 153 as amended.
The following are portions of that Act:
2. In this Act, unless the context otherwise requires,
"Minister" means the Minister of Lands and Forests;
16. Crown timber which is subject to disposition by the
Crown shall be disposed of only by the Minister in accord
ance with this Act and the regulations.
17. (1) The Minister or any officer of the Forest Service
authorized so to do by the Minister may from time to time,
at the instance of any applicant, or otherwise, advertise for
sale and sell by public competition in the manner prescribed
in the regulations a licence to cut and remove any Crown
timber which is subject to disposition by the Crown.
(la) When the extent of the prospective harvest for the
next year within the perimeter of a unit administered by the
Forest Service for the purpose of growing and sustaining
crops of timber continuously thereon is equal to the allow
able annual harvest, an applicant under subsection (1) above
may request in writing that the sale of timber for which he
has applied be made by tender in sealed containers; and if
the applicant's tender does not contain the highest offer for
the timber amongst those received by the Minister, he may
forthwith, or within such time as the Minister may fix,
submit a further tender containing an offer not lower than
the highest offer received from any person; and if the
applicant submits the further tender, the sale shall be made
to him.
(3a) Where a sale is conducted under subsection (l a) or
(2), every person who submits a tender, with the exception
of the applicant for the sale by tender, shall pay to the
Minister a bidding fee in an amount prescribed by the
Minister. The Minister may refund all or any part of the
bidding fee paid by a person whose tender is accepted.
(7) The Minister may, in his discretion, reject any or all
offers made for the purchase of the licence.
146. (1) The Lieutenant-Governor in Council may make
such regulations not inconsistent with the spirit of this Act
as he considers necessary or advisable for carrying out the
purpose and provisions of this Act, including matters in
respect of which no express or only partial or imperfect
provision has been made.
The handbook apparently for the guidance
and instruction of persons in the British
Columbia Forest Service contains:
19.3 FULLY COMMITTED PUBLIC SUSTAINED YIELD UNITS
19.31 Definition
As set out in subsection (1)(a) of section 17 of the
Forest Act, a fully committed public sustained-yield unit
may be defined as an area of Crown land administered by
the Forest Service for the purpose of growing and sustain
ing crops of timber continuously thereon and wherein the
extent of the prospective harvest for the next year is
equal to the allowable annual harvest.
Timber sale applications will only be considered from
established licensees in the unit in which the application is
made. (See sections 2.121, 2.143, and 2.25.)
19.32 Established Licensees
Within a fully committed public sustained-yield unit
there may be one or more established licensees.
An established licensee may be defined as a person or
company who holds or has held licences to cut Crown
timber in a given public sustained-yield unit and has
become a recognized applicant because of holding or
having held a valid and subsisting licence or licences
within the perimeter of that public sustained-yield unit
and has qualifications deemed by the Minister to be
sufficient to entitle the person or company to be a recog
nized applicant.
A recognized applicant has the privilege of applying for
Crown timber to the extent of his individual allowable
annual cut established by the Chief Forester. However,
the individual allowable annual cut may vary through the
acquisition or loss of timber sales at public auction or
through assignment, or as a result of reduction in the
allowable annual cut for other reasons.
According to the evidence that handbook is
not a regulation made by the Lieutenant-Gover
nor in Council but does set out practice fol
lowed by the Forest Service. Presumably it is
satisfactory to the Minister and since the Minis
ter has such wide discretion it would seem that
the logging industry would be justified in treat
ing it as having definite significance.
When subsections (1), (la), (3a) and (7) of
section 17 of the Forest Act and sections 19.31
and 19.32 of the handbook are all read together
it is apparent that a person or company who or
which holds or has held a licence to cut Crown
timber in a public sustained yield unit and is "an
established licensee" and a "recognized appli
cant" has advantages over and is in a preferred
position as compared with others.
The plaintiff had been in that preferred posi
tion for some years. It had been a licensee and
so had had a portion of the annual allowable cut
(known in the industry as its quota) allocated to
it.
A "quota", uncertain and even nebulous as it
is, does have substantial value in the market
place of the logging industry.
It has been the practice of the Forest Service
to allocate, subject to certain conditions, to an
assignee of a licence the individual annual
allowable cut of the assignor of that licence.
It is this quota which the plaintiff claims is
"an intangible capital asset". It is also the posi-
tion of the plaintiff that the assignment of its
interest in the licence was the vehicle whereby
it assigned to Jackson what the plaintiff submits
was that intangible capital asset.
I am satisfied on the evidence that if Jackson
was not entirely motivated in joining in an
application for the licence and then taking an
assignment of the interest of the plaintiff and
Phillips and Lee in the licence by the expecta
tion that it would, as a result, have enlarged its
then already existing individual annual allow
able cut that expectation played a large part in
motivating Jackson to enter into the transaction.
I am satisfied, too, that even if Jackson would
have paid something for the assignment without
that expectation it would not have paid
$100,000.00.
However, I do not agree with the submission
made on behalf of the plaintiff that that transac
tion resulted in the realization by the plaintiff of
a non-taxable capital gain.
It is, of course, a commonplace that merely
because someone pays, and substantially, for
something which another person has that cir
cumstance does not make that something
capital.
It is my opinion that what the plaintiff sold to
Jackson was its interest in the licence and noth
ing more. In my opinion it did not and could not
sell its preferred position whether it be called
that; whether it be called its quota; or whether it
be called its annual allowable cut. It is my
conclusion those were not saleable items and
that there was no competence in the plaintiff to
sell them.
In my view the documentation as finalized
points to and was a sale of the licence and did
not effect a sale of anything else.
There was produced a draft of a contemplated
agreement dated August 31st, 1966 between the
plaintiff and Phillips and Lee as Vendors and
Jackson as Purchaser. Included in the recitals
are:
And whereas the Vendors have or will have the right to
apply for 414 m.c.f. of timber in the Quadra Public Sus
tained Yield Unit hereinafter called the Timber Rights
And whereas the Vendors have agreed to assign their right,
title and interest in and to the Timber Rights
In the operative portion there is:
The Vendors covenant and agree to transfer, set over and
assign all their right, title and interest in and to the Timber
Rights ... .
Thus there is indicated the proposed transfer of
the "quota" per se.
That draft was not executed.
Produced also was a paper writing dated
the day of June, 1967 wherein the plaintiff
and Phillips and Lee are called the Vendors and
Jackson was called the Purchasers. One of its
recitals is:
Whereas the vendors have or will have the right to apply for
414 m.c.f. of timber in the Quadra Public Sustained Yield
Unit (hereinafter called "the Timber Rights").
The following are also extracts from it:
The vendors covenant and agree with the Purchasers that as
soon as conveniently possible after the execution hereof but
at the cost and expense of the Purchasers, to make an
application to the Forest Branch jointly with the Purchasers
for a timber sale contract or timber sale contracts or other
cutting rights to timber to take advantage of and to secure
the timber rights above referred to ... .
In consideration of the sale, assignment or transfer of the
timber rights by the Vendors to the Purchasers as aforesaid
the Purchasers hereby covenant and agree to pay to the
Vendors the total sum of one hundred thousand ($100,-
000.00) dollars ... .
Here again there is an indication of the pro
posed transfer of the "quota" per se.
This appears to have been signed on behalf of
the vendors but not on behalf of Jackson.
Another exhibit is a photocopy of the
"Application to Purchase Crown Timber" in the
"S.E. portion of X-77764, Chapman Creek, as
shown on the attached sketch". It is dated 4th
January, 1967. It is made by the plaintiff, Jack-
son and Phillips and Lee.
Then there is a photocopy of an executed
agreement dated the day of July 1967
wherein the plaintiff and Phillips and Lee are
called "the Vendors" and Jackson is called "the
Purchasers". It contains the following recitals:
Whereas the Vendors and the Purchasers in or about the
month of January, 1967 made a joint application to the
Forest Branch of the Province of British Columbia for a
Timber Sale Contract in the vicinity of Chapman Creek.
And whereas the Vendors and the Purchasers have now
been informed by the Forest Branch by letter dated the 6th
day of July, 1967 that because of a change in departmental
policy the application for a Timber Sale Contract can no
longer be proceeded with, and as a result thereof the parties
hereto have made a joint application for a Timber Harvest
ing Licence to the said Forest Branch covering the similar
area in the vicinity of Chapman Creek.
And whereas the Vendors desire to terminate their active
operations as logging companies.
The following are extracts from that
agreement:
As soon as may be conveniently possible after the grant of
any Timber Harvesting Licence (hereinafter called "the
Licence") to the Vendors and the Purchasers jointly as
aforesaid the Vendors covenant and agree with the Purchas
ers that they and each of them will assign their right, title
and interest in the Licence to the Purchasers subject always
to the consent of the Forest Branch thereto, ... .
In consideration of the sale, assignment or transfer of the
Licence by the Vendors to the Purchasers as aforesaid the
Purchasers hereby covenant and agree to pay to the Ven
dors the total sum of One Hundred thousand ($100,000.00)
dollars ...
That executed document, which sets out the
transaction and its terms, dealing as it does with
the licence itself, contains no reference to
annual allowable cut and contains no reference
to quota position. Thus there is a significant
change in the executed instrument from the
draft or proposed documents.
As I understand it it is common ground that
the Forest Service of British Columbia will not
recognize a purported assignment of the pre
ferred position of a licensee nor any attempt to
assign his quota. In any event that is my finding
on the evidence.
It is the plaintiff's submission that what was
actually sold by the plaintiff was its quota posi
tion and that the assignment of its interest in the
licence was merely the vehicle which accom-
plished it. Counsel pointed out that the "quota"
which Universal previously had was added to
Jackson's allowable annual cut. However I find
that was not done by a transfer from the plain
tiff to Jackson but that it was effected by action
of the Forest Service.
Following the departmental practice the plain
tiff applied in writing to have its position trans
ferred to Jackson. It informed the district for
ester that it had transferred its logging interests
to Jackson. In the same document the plaintiff
stated that it understood that if the request for
transfer was approved it would no longer be
considered as a recognized applicant for the
purpose of applying for timber sales or timber
sale harvesting licences in the Quadra Public
Sustained-Yield Unit.
In my opinion this clearly indicates that the
replacing of the plaintiff as an established oper
ator by Jackson was accomplished not by the
plaintiff but by the Forest Service.
An application for transfer is something quite
different from a transfer. As I see it only a
request was made by the plaintiff. The alloca
tion of the plaintiff's quota to Jackson was
made by the Forest Service.
In my opinion the plaintiff did not have any
right, power or authority to transfer its pre
ferred position, its annual allowable cut or its
quota. It could only transfer the licence per se
subject to the approval of and on the terms and
conditions decided upon by the Forest Service.
Indeed in the executed agreement selling out
the transaction and its terms the plaintiff did not
even give any undertaking that Jackson would
acquire its quota position. Although the deal
was contingent upon the consent of the Forest
Branch to the assignment of the vendors' right,
title and interest in the licence the agreement
does not stipulate that the deal was contingent
upon Jackson acquiring the quota position. For
that, it would appear Jackson depended upon
the grace of the government.
A case referred to was Metropolitan Taxi
Limited v. M.N.R. [1967] 2 Ex.C.R. 32 before
Cattanach J. On appeal from that decision Cart-
wright C.J.C. [1968] S.C.R. 496 inter alia at p.
498 said:
After a consideration of the arguments of counsel and the
authorities to which they made reference I find myself so
fully in agreement, not only with the conclusion of the
learned Exchequer Court Judge but also with his reasons,
that I am content simply to adopt them.
A taxicab company acquired the assets of
another taxicab company for a total considera
tion of $104,441.65, of which the taxpayer
allocated $93,550.00 to 14 licensed taxicabs.
The Minister in assessing the appellant allocated
$18,590.00 of the purchase price to the 14
taxicabs and $72,031.65 to consideration not
attributable to depreciable property. What was
to be decided was the extent to which the tax
payer was entitled to a capital cost allowance.
The Taxicab Board had limited the number of
taxicabs that could be operated to four hundred.
Because the quota of four hundred had been
filled and a long waiting list existed, the only
practical ways in which a person might become
eligible to operate a taxicab, or if already
engaged in the taxicab business to increase the
number of taxicabs which he might operate was
to buy the shares of the corporate taxicab oper
ator or to succeed to the position of an already
licensed operator by buying from that operator
one or more vehicles with respect to which a
licence had been issued. Because, said the
learned trial judge, of the circumstances
outlined in his judgment, it was quite obvious
that the licences to operate taxicabs in greater
Winnipeg had acquired a considerable value.
The appeal was dismissed.
Although what was to be decided in the Met
ropolitan Taxi case was the amount of the con
sideration applicable to depreciable property
and not as here whether the realization was
capital or income, which makes that case distin
guishable from this, there is, I think, an analogy
to be drawn between the following comment by
Cattanach J. in the Metropolitan Taxi case and
the situation existing here, namely:
In view of my conclusion that the licences granted by the
Taxicab Board are personal to the owner, although with
respect to a specific vehicle, it follows that they are not
transferable in themselves and are not the subject matter of
barter or sale. Therefore, the appellant did not buy the
licences in question but by its purchase of fourteen licensed
taxicabs placed itself in a better position from which to
apply to the Taxicab Board for licences on its own behalf.
[P. 45.]
Similarly, it seems to me, when Jackson pur
chased the plaintiff's interest in the licence it
did not purchase its preferred position as an
established licensee. Jackson merely placed
itself in a better position for which to apply to
the competent authorities for those benefits.
Another case referred to was Re Tabor Creek
Sawmills Ltd. v. Minister of Finance in which
there was an appeal from the British Columbia
Court of Appeal to the Supreme Court of
Canada. On the appeal to the Supreme Court of
Canada ([1973] 3 W.W.R. 14), delivering the
judgment of the Court, Martland J. said:
We are all in agreement with the view expressed by Davey,
C.J.B.C., in the Court of Appeal that the enhanced price
paid by the purchaser for the timber cutting licences, in
order to obtain a preferred position in an application for
more timber, was part of a net profit on the appellant's sale
of the right to cut standing timber and was taxable under
The Logging Tax Act, R.S.B.C. 1960, c. 225. The appeal is
dismissed with costs.
Obviously that case differs from this inas
much as it deals with different legislation and by
a different jurisdiction than is the situation here.
Nevertheless it is of assistance in connection
with the matters at issue here, and this particu
larly, because that case also deals with
"so-called quota replacement privilege" and
"timber sale contracts". The following are
extracts from the judgment of Davey C.J.B.C.
when the matter came before the British
Columbia Court of Appeal ([1972] 3 W.W.R.
622 at pages 623 et seq.):
At one time during the argument, I was inclined to think
that the so-called quota replacement privilege was a quality
or attribute of the timber sale contracts, i.e., the right to cut
standing timber, that enhanced their value. However, a
closer study of The Logging Tax Act, R.S.B.C. 1960, c. 225,
and the Regulations and the judgment of Cattanach J., in
Metropolitan Taxi Ltd. v. Minister of National Revenue,
[1967] 2 Ex.C.R. 32, [1967] C.T.C. 88, 67 D.T.C. 5073, as
adopted by the Supreme Court of Canada, [1968] S.C.R.
496, [1968] C.T.C. 163, 68 D.T.C. 5098, 68 D.L.R. (2nd) 1,
has convinced me that that is a faulty analysis of the
relationship of quota replacement privileges to the timber
sale contracts. I do not think the quota is a quality or
characteristic of the timber sale contracts or a right appur-
tenant thereto passing with them. It is, I think, a personal
right vested in an owner or former owner of a timber sale
contract to apply to buy more timber in a sustained yield
unit under The Forest Act, R.S.B.C. 1960, c. 153, s. 17(1)
and (1 a) (en. 1961 c. 20 s. 2(a)). To the extent that the right
to apply for more timber is a statutory right, the reasoning
on the first branch of the Metropolitan Taxi Ltd. case
applies a fortiori. The fact that the right to apply is not
appurtenant to the timber sale contract, but is personal, is
further demonstrated by Regs. 19.31 and 19.32 specifying
that applications under s. 17(1a) of The Forest Act will only
be considered from an established licensee, and defining an
established licensee as a person or company who holds or
has held licences to cut Crown timber in a public sustained
yield unit, and has qualifications deemed by the Minister to
be sufficient to entitle him to be a recognized applicant ... .
So the right to apply is not appurtenant to a timber sale
contract. Moreover the Minister must be satisfied with the
personal qualifications of the applicant to allow him to be
recognized as such and, even if the Minister is satisfied, he
is not obliged to sell. The importance of a timber sale
contract to a prospective applicant is that the ownership of
it is one of the two things that gives him a right to apply for
more timber if he possesses the necessary personal qualifi
cations, and undoubtedly greatly improves his chances of
being able to buy more timber in the unit, if the Minister is
willing to sell, especially since competition from former
owners of the timber sale contract is eliminated by the
practice of the Minister of requiring assignors of timber sale
contracts to relinquish their claims to quota before approv
ing the assignment. However, I cannot see how that practice
of the Minister unsupported by Act or Regulation can
change the essential character of a quota.
The uncontradicted evidence is quite clear that prospec
tive purchasers will pay substantial sums over and above the
value of the standing timber in order to buy a timber sale
contract and thereby get in that favoured position to apply
for more timber in the unit.
In that same case Taggart J.A. said [at page
630]:
It is of prime importance to the present appeal to appreci
ate that "quota replacement privilege" has no existence
separate from a timber sale licence which authorizes the
cutting of standing timber in a P.S.Y.U. The privilege cannot
be bought or sold in whole or in part separate from the
timber sale licences held by the licensee.
and again [at page 630]:
The argument advanced on behalf of the appellant, it
seems to me, ignores the fact that quota replacement privi
lege has no existence separate from a timber sale licence
conferring cutting rights.
Accordingly "the protection taking the form
of the likelihood, but not certainty, that as the
timber in those areas within the P.S.Y.U. in
respect of which an operator holds timber sale
licences from the Crown is depleted, he will be
able to have put up for sale, and acquire, future
timber sale licences" (per Taggart J.A.) is not an
entity.
As I see it the finding in the Tabor case to the
effect that the "quota replacement privilege"
has no existence separate from the licence cou
pled with the circumstance that the British
Columbia Forest Service does not recognize a
purported sale of the "quota position" and
reserves to itself, as it is entitled to do, the
matter of allocation of annual allowable cut
following the sale of a licence impels the con
clusion that the so-called "quota position" is not
a saleable item and cannot be the subject of sale
and purchase. The quota position simply does
not exist apart from the licence. Accordingly it
is only the licence itself that is sold. In this case
only the interests of the plaintiff and Phillips
and Lee in the licence were sold to Jackson.
The fact that the expectation and even the
likelihood that the Forest Service will place the
purchaser of a licence in the same favoured
position as was the seller of that licence may
and does influence the purchaser to buy the
licence or pay a higher price for it does not
change the fact that only the licence itself is
sold.
In this case the documentation is consistent
with the interests of the plaintiff and Phillips
and Lee in the licence only being sold.
That being so the matter comes down to a
determination as to whether the amount realized
by the plaintiff from the sale of its interest in
the licence was a capital gain and not taxable or
was taxable income.
It is apparent that the purpose of Crown
licences is to provide Crown timber for logging
companies carrying on logging operations. It is
also apparent and I find that the plaintiff did not
join in the application to purchase Crown timber
dated 4th January 1967, which resulted in the
licence, in order that it would have a supply of
Crown timber with which to carry on the busi
ness of logging.
I find that when the plaintiff joined in that
application it had already decided to terminate
operations as a logging company. I find that the
plaintiff sought a licence and accepted the
licence for the sole and only purpose of immedi
ately assigning its interest in the licence to Jack-
son for a consideration and that the cash consid
eration received for the assignment of the
interests of the plaintiff and Phillips and Lee in
the licence was $100,000.00.
Even though this may have been an isolated
transaction that would be immaterial under the
circumstances.
What occurred here was an adventure or con
cern in the nature of trade.
I find and declare that the plaintiff's realiza
tion of $100,000.00 on the transaction was not a
capital gain. I find and declare that it was
income within the meaning of sections 3, 4 and
139(1)(e) of the Income Tax Act, R.S.C. 1952,
c. 148 and that it is taxable as such.
The plaintiff's action is dismissed with costs.
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.