Zielinski et al. v. R. – TCC: Profit on Sale of Vacant Lots and a Duplex on Income Account

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Zielinski v. The Queen[1] (December 3, 2013) involved the sale of a number of vacant lots and a duplex by the taxpayers who were husband and wife.  They treated the resulting profits as capital gains while the Crown reassessed the profits as being on income account.  The court did not accept the taxpayers’ position:

Vacant Land

[16]        Although Mr. Zielinski stated that he and his spouse purchased the vacant land for the pleasure and enjoyment of their family, almost immediately after they received title to the land on July 2, 1993, they sought to have the property rezoned so that it could be subdivided. According to the documents filed by Mr. Zielinski, the first rezoning application was filed with the regional planning commission on December 13, 1993. (See page 10 of exhibit A-1 where the Appellant lists the cost of filing the application.) Between 1993 and 1997, they actively campaigned with the residents in the area to change the land use bylaws. Mr. Zielinski even ran for public office to, among other things, effect this goal. Shortly after Mr. Zielinski was elected to municipal council, the municipal by-laws were changed and the Appellants subdivided their land so they could sell portions of it. In both direct and cross examination, Mr. Zielinski stated that his intention was to sell the excess land. Although the vacant land was purchased in 1993 and the lots of land at issue were sold in 2006 and 2007, I do not find that the length of ownership of the land is a factor which favours the Appellants. They applied to subdivide the land the same year that they purchased it. From 1997 until 2006, they continued to subdivide the land to a level that made the acreage ready for sale. They worked to make the land more marketable and to attract purchasers. They improved the road into the property, put in culverts and fenced the individual lots. At all times, they actively sought to sell portions of the acreage.

[17]        Although the entire acreage was purchased in 1993, the lots at issue in this appeal, lots 12 and 13, were only created in April 2006. They were held for a short period of time as they were sold in 2006 and 2007.

[18]        I found the Appellants’ stated reason for selling the vacant land unconvincing. It is my view that the Appellants had the intention when they purchased the vacant land to subdivide it and sell the lots.


[19]        The Appellants purchased the duplex on John Street in 2001. It was their principal residence until 2003. However, I was not told whether they lived in the total duplex or just one half of the duplex. At some point in time, they renovated the duplex and sold it in 2006. Mr. Zielinski said he didn’t recall that the duplex was ever vacant but he did not receive any rental income for it. He did not give a reason for renovating the duplex or selling it.

[20]        There was evidence that the Appellants had purchased and sold property in the past. In 1996, they purchased a house located at 1126 John Avenue in Pincher Creek; they renovated the house and then sold it in 2000.

[21]        When I consider all of the evidence, I am satisfied that the Appellants purchased the duplex with the intention of selling it. When they bought the duplex, they were building their principal residence on lot 10 of the vacant land and they knew their stay in the duplex would not be permanent. I am not persuaded that they purchased the duplex to be a permanent residence for the members of their family. They renovated the duplex so that they could sell it for the maximum amount. The Appellants had lived in the Pincher Creek area since 1991 and they were well aware of the real estate market in the area.

[22]        In conclusion, I find that the sale of the vacant land and the duplex was a business venture or an adventure in the nature of trade and the gain was properly assessed as income.

The court did allow the taxpayers additional costs of $5,148.78 to survey two of the lots but otherwise confirmed the reassessments.

[1] 2013 TCC 394.