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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