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T-2600-75
Sudden Valley, Inc. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Vancouver, March 30; Ottawa, April 22, 1976.
Income tax—Non-residents—Plaintiff selling land in U.S. Attempting to induce Canadians to visit U.S. site Offers made and accepted and deposits paid in U.S. only— Plaintiff taxed as corporation situated abroad and receiving income from Canadian residents on interest received on bal ance of purchase price of U.S. lands sold to Canadian resi- dents—Whether carrying on business in Canada—Whether interest reasonably attributable to business of selling land— Income Tax Act, R.S.C. 1952, c. 148, s. 2(2)(b) as am. 1970- 71-72, c. 63, ss. 2(3)(b), 253(b).
Plaintiff sold land in the United States, and in an attempt to interest Canadians in the development, carried out activities in Vancouver limited to devising and employing means to induce Canadians to visit the U.S. site. Plaintiff had no licence to sell real estate in Canada and no offers or sales were made here. After purchase by a Canadian, payments had to be made in U.S. funds, and no one in Canada was authorized to accept payment on plaintiff's behalf except for fowarding to the U.S. Plaintiff, which had made no profit during the years in ques tion, claimed to be taxable as a company doing business in Canada.
Held, the appeal is dismissed. Plaintiff was not carrying on a business in Canada. Simply obtaining orders in a jurisdiction is not enough to constitute the exercise of trade therein, if the a le is eventually made outside. In the absence of any other evider re of carrying on business in a jurisdiction, the place where the contracts are made is decisive. The Canada-U.S. Tax Conven tion Act is inapplicable, in that it applies only if plaintiff was carrying on business in Canada, or had industrial or commer cial profits derived from Canadian sources. While section 253(b) of the Income Tax Act does change the common law somewhat, in considering whether plaintiff was "soliciting orders" in Canada the words cannot be extended to include "a mere invitation to treat". Soliciting orders means to seek and attempt to obtain them within the jurisdiction, and "offer" in the section must be given its ordinary meaning in contract law, especially in light of the fact that the question at common law depends specifically on the existence of a binding contract and section 253(b) was introduced to amend the former common law to the effect that the contract need not be made within the jurisdiction. No offer was obtained or attempted to be obtained and nothing was offered for sale in Canada, whether through an agent or otherwise. There was no Canadian income from plaintiff's activities in Canada and the payments in question are much too remote from Canadian activities.
Grainger and Son v. Gough (1890-98) 3 T.C. 462; Geigy (Canada) Ltd. v. Commissioner, Social Services Tax [1969] C.T.C. 79, applied. Partridge v. Crittenden [1968] 2 All E.R. 421, discussed.
INCOME tax appeal. COUNSEL:
W. J. A. Mitchell for plaintiff. W. Hohmann for defendant.
SOLICITORS:
Thorsteinsson, Mitchell, Little, O'Keefe and Davidson, Vancouver, for plaintiff.
Deputy Attorney General of Canada for defendant.
The following are the reasons for judgment rendered in English by
ADDY J.: The plaintiff, a United States com pany, was taxed for the years 1969 to 1972 inclu sively under Part III of the Income Tax Act' (hereinafter referred to as the "former Act") and, subsequently, under Part XIII of the Income Tax Act 2 (hereinafter referred to as the "current Act") as a corporation situated abroad and receiving income from Canadian residents. Under the above- mentioned provisions, 15% of the income was deducted at source from amounts paid to it by Canadian residents. The income in question con sisted of interest payable on the balance of the purchase price of lands purchased from the plain tiff Company by Canadian residents or on lands which had been resold by original purchasers from the plaintiff to Canadian residents and on which there remained to be paid a balance of the original purchase price.
The Company, which had not made any profit during the years in question, claims that it is taxable and should be taxed as a company actually doing business in Canada and, therefore, be sub ject to tax pursuant to section 2(2)(b) of the
R.S.C. 1952, c. 148.
2 S.C. 1970-71-72, c. 63.
former Act and 2(3)(b) of the current Act. It alleges that the interest payable on the outstanding balances is reasonably attributable to the business of selling land and is taxable under Part I and not Part III of the former Act and under Part I and not Part XIII of the current Act.
The facts are simple and are really not disputed. The plaintiff was engaged in the business of selling land in Sudden Valley, in the State of Washington, some sixty miles south of Vancouver, B.C. The land consisted of approximately 2,000 acres which the Company had acquired in Sudden Valley and which it proceeded to improve, subdivide, and sell in lots as part of a large recreational home de velopment scheme. Most of the lots sold at the outset, were sold to purchasers from the Seattle area. But, in the early spring of 1970, due to the sudden closing down of a large industry in that area and the extremely high level of unemploy ment resulting therefrom, the land market became so depressed as to be practically non-existent. The Company therefore turned to the Vancouver market.
It leased office space in Vancouver and hired telephone operators, whose main duty was to con tact various people in the Vancouver area to set up meetings consisting of dinners and other social gatherings the main purpose of which was to inter est Canadians living in the area to visit Sudden Valley and become aware of and, hopefully, inter ested in the many opportunities it offered as a recreational area for persons who chose to become property owners there.
To accomplish this object, it also incorporated a Canadian company and also acted through United States affiliates and subsidiary companies and, in some instances, through brokers and other con tacts in the real estate field in Vancouver.
The plaintiff had no licence to sell real estate in Canada and the evidence discloses clearly that not one sale was in fact made in Canada. There was no evidence either of any legally binding offer to purchase ever having been obtained at any time in
Canada. It is clear that the activity, carried on in the Vancouver area, was limited to devising and employing various ways and means to induce Canadians to visit the Sudden Valley project in the State of Washington, where they would be approached and an attempt would be made to sell them land. Offers were made and accepted and the deposits were paid there. No agent or representa tive in Canada had any authority to accept an offer or bind the plaintiff. The advertising cam paign in Canada, which cost approximately $1,000,000, was significantly successful as approx imately 70 to 75 per cent of the lots, sold by the plaintiff to original purchasers, were purchased by Canadian residents from the Vancouver area.
The advertising did not state that there was land for sale but merely invited Canadians to visit the beauties of Sudden Valley which was so proximate to and so easily accessible from Vancouver. The individual was given a gate pass which allowed him access to visit the Sudden Valley Development.
As to payments made by Canadian residents after a lot had been purchased, these payments had to be made in United States funds and no one in Canada was authorized to accept any payment on behalf of the plaintiff except for the purpose of forwarding it on to the plaintiff in the United States.
In so far as the interest payments are concerned, if the plaintiff was carrying on its business of selling real estate in Canada then, in my view, the payment of interest on the balance of the purchase price of any land so sold would clearly be reason ably attributable to the carrying on of that busi ness. The question may therefore be narrowed down to the issue of whether the plaintiff was carrying on the business of selling real estate in Canada or whether it was carrying on a business in Canada to which the payment of such interest may be reasonably attributed.
At common law, it seems very clear that the plaintiff was not carrying on business in Canada, for, to exercise trade in a jurisdiction, it is not
sufficient to obtain orders within that jurisdiction if the sale is eventually made outside the jurisdic tion (see Grainger and Son v. Gough (Surveyor of Taxes) 3 ). In the absence of any other evidence that a person was carrying on business in a par ticular jurisdiction, the place where the contracts are made is decisive (see Geigy (Canada) Ltd. v. Commissioner, Social Services Tax 4 ).
Both counsel agreed that the Canada-U.S. Tax Convention Acts really need not be considered in the case at bar for the Convention only applies if the plaintiff was in fact carrying on business in Canada or if it had industrial or commercial prof its derived from Canadian sources. Section 253(b) of the current Act does change the common law to some extent and the matter therefore turns on whether the facts of the present case fall within the provisions of that section. It reads as follows:
253. Where, in a taxation year, a non-resident person
(b) solicited orders or offered anything for sale in Canada through an agent or servant whether the contract or transac tion was to be completed inside or outside Canada or partly in and partly outside Canada,
he shall be deemed, for the purposes of this Act, to have been carrying on business in Canada in the year.
[The text of the section in existence in 1969 and 1970 was identical to the section in the current Act.]
In considering whether the plaintiff was "solicit- ing orders" in Canada, I do not agree that the words can be extended to include "a mere invita tion to treat." Soliciting orders means that orders must be sought and attempts made to obtain them within the jurisdiction and the word "offer", in my view, must be given its ordinary meaning in con tract law, that is, a binding offer which, if accept ed, would create a contract between the offeror and the offeree. This becomes all the more evident when one considers that the question at common
3 (1890-98) 3 T.C. 462 at 465, 466 and 467.
4 [1969] C.T.C. 79 at 84.
5 S.C. 1943-44, 7-8 Geo. VI, c. 21.
law depended specifically on the existence of a binding contract and that the section was intended to amend the former common law to the effect that the contract need not be made within the jurisdiction (see Partridge v. Crittenden 6 ). From a glance at the evidence in this case, which I have summarized above, it is abundantly clear that no offer was obtained and no attempt was made to obtain any in Canada and it is equally clear that nothing was offered for sale in Canada either through an agent or otherwise. One must therefore conclude that the real estate business of the plain tiff was not being carried on in Canada even within the extended meaning given to that term by section 253(b).
The only activity carried on in Canada by the plaintiff was that of attempting to induce Canadi- ans to visit Sudden Valley in the hope that some might eventually become interested in buying property there. There was no Canadian income from this business undertaking and the payment of interest on the agreements resulting from its United States real estate business is without a doubt much too remote from the Canadian activities.
The appeal therefore fails and the plaintiff's claim is dismissed with costs.
e [1968] 2 All E.R. 421 at 423 and 424.
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