Kuchirka v. The Queen, 91 DTC 5156, [1991] 1 CTC 339 (FCTD)

Strayer, J.:—

Relief Requested

This is an appeal from a decision of the Tax Court of Canada of January 22, 1988 dismissing an appeal by the plaintiff in the present action with respect to the reassessment of his income tax returns for the years 1979 to 1982 inclusive. The plaintiff and his wife filed income tax returns for those years on the basis that they were partners in the operation of a farm and, commencing in 1982, of some rental properties in the city of North Battleford. In his reassessments the Minister refused to recognize the existence of such a partnership, attributing the income and expenses from the farm to the plaintiff and the income and expenses in respect of the rental properties to the plaintiff's wife.

Facts

The farm in question consists of two one-half sections in township 44, range 12, west of the third meridian: these being the west one-half of section 21 and the east one-half of section 17. The plaintiff bought the west one-half of section 21 in 1960 but did not acquire registered title to it until it was transferred into the names of himself and his wife as joint owners in 1971. The east one-half of section 17 was transferred to him in 1963 by his father and it remained in his name alone until 1985 when it was transferred by him into the names of himself and his wife as joint owners.

In 1981 the plaintiff's wife inherited from her parents two duplexes, rental properties, in the city of North Battleford. These were registered in her name in 1982 and were transferred into the names of the plaintiff and herself as joint owners in 1985.

According to the evidence of the plaintiff and his wife, Mrs. Kuchirka contributed financially to the farming operation and their joint savings. When they were married in 1965 she had sold her own business in North Battleford netting about $3,500 which, as I understood it, she contributed towards farming operations. When her parents died she inherited, apart from the properties, some $22,000. $17,000 of this was used to pay for farm equipment and $5,000 was put into term deposits in their joint names.

It was said by both witnesses that Mrs. Kuchirka had shared the work of the farm. The only specific things referred to,however, were helping with the baling (I do not know if this continued after they disposed of their cattle in 1967) and driving the truck to haul grain at harvest time. She also participated in decisions about major purchases of equipment.

Most of the banking for the farm operation was done through an account in the name of the plaintiff alone at the Canadian Imperial Bank of Commerce; this was not changed to a joint account until 1982. There was also a small joint account at the North Battleford Credit Union where some savings were deposited. From time to time term deposits and term notes were purchased in their joint names. Some of these savings were eventually used to build a new house.

The farm truck was registered in the plaintiff's name as was the insurance on it and on the farm buildings. Equipment was purchased by the plaintiff in his name, and when it was necessary to borrow money for such purpose this was done by the plaintiff in his name alone. Cheques for various forms of farm income were received in his name alone.

With respect to the North Battleford rental property, as I understand it the Kuchirkas started managing this property in 1979 and it became Mrs. Kuchirka's property in 1981. She was primarily responsible for finding renters and dealing with the complaints although the plaintiff would sometimes be involved and would undertake repair work on the properties. The insurance on those properties was in her name after she inherited them.

There was no written partnership agreement between the plaintiff and his wife. The plaintiff said that they just took it for granted that they were partners but never discussed it very much. According to Mrs. Kuchirka they had discussed the sharing of work and money shortly after they were married but did not decide on a fifty-fifty basis for splitting income at that time. She said that this was agreed upon about the time they prepared their 1979 income tax returns. Both spouses said that they started filing returns as partners in 1979 for the first time because they then realized she would be inheriting the rental properties in North Battleford.

Conclusions

The Partnership Act of Saskatchewan, R.S.S. 1978, c. P-3 provides in subsection 3(1) that:

Partnership is the relation that subsists between persons carrying on a business in common with a view of profit.

It is trite law that the existence of a partnership is dependent on there being a contract, expressed or implied, that two or more people are to carry on such a business with all that that implies in terms of the rights and liabilities of each of the partners and their individual ability to bind the partnership.

In the present case there was no written agreement of partnership between the plaintiff and his wife. The plaintiff alleges instead that there was a“ " verbal agreement" meaning, apparently, a common understanding which had never even been fully articulated orally between the parties.

Counsel for the plaintiff relied heavily on principles enunciated on behalf of the Supreme Court of Canada by Lamer, J. in Beaudoin-Daigneault v. Richard, [1984] 1 S.C.R. 2; 51 N.R. 288 at S.C.R. 15 where it was said that a court, to find that a tacit partnership agreement existed, should be satisfied: that each partner has made contributions to the partnership either in money or in property or by work, and in the case of those living together this must not be simply a contribution to the common household; that their past conduct shows how losses and gains were to be distributed, but in the case of those living together this could be by the use of partnership earnings for the support of the partners; and that their conduct discloses an intention of having a partnership through evidence of“ "an active and deliberate mutual effort. . . on an equal footing . . . for a particular purpose, namely the division of earnings”.

While this decision provides useful guidance in the analysis of the facts alleged to demonstrate a partnership in the present case, one must remember that the Beaudoin-Daigneault case, supra, involved the application of the Quebec Civil Code and concerned the right of the female plaintiff to a share of a farm which had been purchased in the name of a man with whom she was living while they were cohabiting. The present case must be governed in part by the law of Saskatchewan and involves the imposition of tax on income alleged to belong to a partnership. This in turn involves the extent to which the Minister of National Revenue is bound by an alleged business partnership agreement between two parties to a marriage.

From a survey of a number of similar cases it becomes obvious that each must turn on its own facts. While the fact that the alleged partners are also married should not automatically exclude the existence of a business partnership between them, one must take care to see if the conduct allegedly establishing the partnership is not simply attributable to the fact of the marriage relationship. [1]

I am not satisfied from all the evidence in this case as to the conduct of the parties that a business partnership existed between the plaintiff and his wife during the years in question. I will review the principal factors which lead me to this conclusion.

While some stress was put on the joint ownership of property from which the income in question was derived, it should first be noted that, apart from one-half section of the farm land which was put in the joint names of this couple in 1971, the remainder of the property was not put into joint ownership until 1985, several years after the taxation years in question. Further, section 4 of The Partnership Act of Saskatchewan provides that:

4 In determining whether a partnership does or does not exist, regard shall be had to the following rules:

1 Joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof;

The principal bank account used for the farm was not put in their joint names until 1982.

While the plaintiff's wife shared equally, it would appear, in earnings which were used for living expenses or put into savings in their joint names, such as the term notes or term deposits, this is not determinative that a partnership agreement existed. Rule 3 under section 4 of The Partnership Act of Saskatchewan, whose opening words are quoted above, provides as follows:

The receipt by a person of a share of the profits of a business is prima fade evidence that he is a partner in the business, but the receipt of such share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business. . . .

In fact the portion of the revenues in which she shared appear to have been randomly determined and not clearly calculated on the basis of the net returns from their businesses. Even if these were seen as a "share of the profits”, by Rule 3 they would only be evidence of a partnership and not effective perse to make her a partner.

The most telling factor, I believe, against the existence of a partnership was the lack of evidence that they operated, vis-à-vis third persons, as partners entitled to bind the partnership rather than themselves. As noted the truck was registered in the plaintiff's name, equipment was bought and financed in his name, insurance with respect to the truck and farm buildings was all in his name, and cheques for farm income were typically in his name alone. Similarly, after Mrs. Kuchirka inherited the houses in North Battleford, they were insured in her name alone and she principally dealt with their rental. There was no evidence from third parties as to any kind of holding-out by either the plaintiff or his wife that they were acting on behalf of a partnership.

Viewed as a whole, such sharing as there was of money or property as contributions to their common welfare, or of earnings for purpose of personal support and family savings, is equally consistent with normal family relation

ships. There is nothing in their conduct or their relations with third persons to confirm their intention to have a business partnership where each could act for the partnership and where they would legally share both the profits and the debts of the partnership.

I should also add that counsel for the plaintiff suggested in argument that if the Income Tax Act were applied so as to impose a more stringent test on married couples to establish a partnership than that imposed on non-married persons, this would amount to a discriminatory practice based on marital status which is prohibited by the Canadian Human Rights Act, R.S.C. 1985, c. H-6, section 3. I have some difficulty in characterizing what is really the weighing of evidence, where different facts naturally give rise to different inferences, as a discriminatory practice. Further, the appropriate remedy against a re-assessment by the Minister of National Revenue that is alleged to be discriminatory is by way of complaint to the Canadian Human Rights Commission (Lodge v. Canada (Minister of Employment and Immigration), [1979] 1 F.C. 775; 94 D.L.R. (3d) 326 at 784 (D.L.R. 334) (F.C.A.)).

The appeal is therefore dismissed.

Appeal dismissed.