Stone
J.A.:
This
appeal
from
a
judgment
of
the
Tax
Court
of
Canada
of
July
26,
1993,
and
the
appeals
in
Court
File
Nos.
A-566-97,
A-568-97
and
A-569-
97,
were
heard
together.
All
four
appeals
raise
a
common
issue,
namely,
whether
in
the
1988
taxation
year
the
particular
trust
“did
not
carry
on
any
active
business”
within
the
meaning
of
paragraph
122(2)(c)
of
the
Income
Tax
Act.
If
the
trust
did
not
carry
on
an
active
business
in
that
year
it
will
be
freed
of
the
requirement
in
subsection
122(1)
to
pay
tax
at
the
rate
of
29%
on
the
amount
taxable
for
that
year.
Subsection
122(1)
and
paragraph
122(2)(c)
as
they
stood
in
1988,
read
as
follows:
122(1)
Notwithstanding
section
117,
the
tax
payable
under
this
Part
by
an
inter
vivos
trust
upon
its
amount
taxable
for
a
taxation
year
shall
be
29%
of
its
amount
taxable
for
the
year.
122(2)
Subsection
(1)
is
not
applicable
for
a
taxation
year
of
an
inter
vivos
trust
other
than
a
mutual
fund
trust
if
the
trust
(c)
did
not
carry
on
any
active
business
in
the
year;
The
case
at
trial
was
heard
on
an
agreed
statement
of
facts.
It
will
be
convenient
here
to
set
out
the
salient
facts,
which
appear
in
paragraphs
6-13
of
that
statement:
6.
By
agreement
made
the
31st
day
of
August,
1970,
the
Appellant
Trust
and
other
parties
agreed
to
form
a
limited
partnership
in
accordance
with
the
laws
of
the
Province
of
Manitoba;
7.
The
partners
entered
into
the
limited
partnership
for
the
purpose
of
carrying
on
the
business
of
constructing
and
operating
a
Nursing
Home
called
the
Holiday
Haven
Nursing
Home,
and
generally
all
matters
connected
with
the
Nursing
Home
business;
8.
As
required
by
the
provisions
of
The
Partnership
Act
of
the
Province
of
Manitoba,
a
declaration
of
limited
partnership
was
made
and
registered
as
required
under
the
provisions
of
The
Business
Names
Registration
Act
of
the
Province
of
Manitoba
on
the
2nd
day
of
September,
1970
and
such
registration
has
been
renewed
from
time
to
time
as
required
by
law
and
subsists
as
at
the
date
of
this
Notice
of
Appeal;
9.
The
limited
partnership
constituted
as
above
retained
a
corporation,
Shaker
Investments
Ltd.,
to
construct
the
Nursing
Home;
10.
The
operation
of
the
said
Nursing
Home
has
always
been
managed
by
a
management
corporation,
pursuant
to
written
management
agreements.
The
current
manager
of
the
business
operations
of
the
limited
partnership
is
Shaker
Investments
Ltd.;
11.
In
the
1988
taxation
year,
the
limited
partnership,
pursuant
to
the
limited
partnership
agreement,
carried
on
the
business
of
operating
a
Nursing
Home
and
all
matters
connected
with
the
Nursing
Home
business;
12.
At
all
relevant
times,
the
Appellant
Trust
was
a
limited
partner
in
the
said
limited
partnership;
13.
In
its
1988
taxation
year,
the
Appellant
derived
income
from
the
Nursing
Home
Business;
It
is
not
suggested
that
the
business
that
was
carried
on
in
1988
was
not
an
“active
business”.
The
learned
Tax
Court
Judge
concluded
from
these
facts
and
from
certain
provisions
of
The
Partnership
Act,
R.S.M.
1987,
c.
P30,
that
the
trust
did
not
carry
on
any
active
business
in
1988
because,
as
he
put
it
at
page
5
of
his
reasons:
..the
Appellant
never
exercised
a
management
role
in
the
partnership.
Nor
did
the
Appellant
take
any
part
in
the
business
of
the
partnership.
Thus
the
Appellant
did
not
carry
on
an
active
business
in
its
1988
taxation
year.
The
trust
was
created
pursuant
to
a
written
agreement
dated
August
31,
1970.
The
following
“powers
and
authorities”
conferred
on
the
trustees
under
clause
42
of
Schedule
A
to
that
agreement
ar
worthy
of
note:
(q)...to
enter
into
partnership
or
limited
partnership
for
the
purpose
of
carrying
on
any
business...;
(r)
...to
carry
on
any
business
or
businesses
either
alone
or
in
partnership...and
do
all
things
necessary
or
advisable
for
the
carrying
on
of
any
such
business
or
businesses...;
(s)
With
respect
to
any
business,
enterprise
or
investment
or
venture
which
the
Trust
may
own
or
be
financially
interested
in
the
Trustees
shall
be
empowered
and
authorized
to
delegate
such
duties,
with
the
requisite
powers,
to
any
employee,
manager
or
partner,
or
otherwise
as
they
may
deem
proper...;
(t)
The
net
annual
profit
of
any
such
business
or
the
share
of
the
Trust
Estate
in
any
such
annual
profits,
shall
be
deemed
to
be
the
income
of
the
Trust
Estate....
The
trustees
of
the
trust
and
those
of
the
trusts
involved
in
the
other
three
appeals
(described
as
“The
Parties”),
entered
into
the
partnership
agreement
dated
August
31,
1970
with
two
corporations,
Cedar
Lake
Enterprises
Ltd.
and
St.
Andrews
Enterprises
Ltd.
They
acknowledged
in
the
first
recital
of
that
agreement
that
they
wished
to
“enter
into
a
partnership
for
the
purpose
of
constructing
and
carrying
on
a
Nursing
Home
and
generally
all
matters
connected
with
the
Nursing
Home
business”.
Clause
1
of
that
agreement
reads
in
part:
Cedar
Lake
and
St.
Andrews
and
the
Parties
shall
carry
on
business
as
a
limited
partnership
pursuant
to
the
Partnership
Act,
Statutes
of
Manitoba,
1965
Chapter
59
and
amendments
thereto...
.[Emphasis
added]
Clause
2
reads:
The
purposes
for
which
the
partnership
shall
be
carried
on
are
to
carry
on
the
business
of
constructing
and
operating
a
Nursing
Home
and
generally
all
matters
connected
with
the
Nursing
Home
business.
Control
and
management
of
the
business
together
were
provided
for
in
clause
4,
which
reads
in
part:
St.
Andrews
and
Cedar
Lake
together
shall
have
sole
and
complete
charge
of
the
partnership
and
St.
Andrews
shall
be
responsible
either
to
manage
or
arrange
for
the
management
of
the
said
business
and
shall
operate
or
cause
the
said
business
to
be
operated
for
the
benefit
of
the
said
partnership.
The
limited
partnership
was
registered
on
September
2,
1970
pursuant
to
The
Business
Names
Registration
Act,
S.M.
1965,
c.
8.
All
of
the
parties
declared
by
this
registration
that
“the
said
partnership
(commenced)
(intends
to
commence)
business
on
the
31st
day
of
August
1970”.
Later
in
a
“Changed
or
Alteration
in
Membership”
form
dated
December
22,
1975,
and
registered
pursuant
to
that
statute,
the
partners
declared
in
clause
1
that,
“We
have
been
carrying
on
business
as
a
Nursing
home...under
the
firm
name
and
style
of
HOLIDAY
HAVEN
NURSING
HOME...”.
This
declaration
was
repeated
in
renewal
statements
that
were
registered
by
the
partners
on
August
31,
1975
and
June
19,
1980.
The
written
management
agreements
into
which
the
limited
partnership
entered
acknowledged
that
the
limited
partnership
had
been
“duly
created
and
registered
under
the
Partnership
Act,
Statutes
of
Manitoba,
1970,
P30
and
amendments
thereto
for
the
purpose
of
carrying
on
business
as
a
nursing
home
under
the
firm,
name
and
style
of
Holiday
Haven
Nursing
Home”.
Clause
1
of
each
agreement
is
identical.
It
reads:
The
Partnership
hereby
engaged
the
Manager
to
be
employed
by
Partnershi
the
Partnership
for
the
purpose
of
providing
management
and
supervisory
services
to
the
Partnership
in
general
and
specifically
to
perform
the
duties
for
the
Partnership
hereinafter
set
forth.
[Emphasis
added]
As
the
Tax
Court
Judge
noted,
section
3
of
The
Partnership
Act
of
Manitoba
describes
a
“partnership”
relationship
in
the
following
terms:
Partnership
is
the
relation
which
subsists
between
persons
carrying
on
a
business
in
common,
with
a
view
of
profit;
but
the
relationship
between
members
of
an
incorporated
company
or
association
is
not
a
partnership
within
the
meaning
of
this
Act.
The
Tax
Court
Judge
also
considered
some
of
the
language
in
sections
52
and
53,
subsection
54(1),
section
62
and
subsection
63(1)
of
that
statute.
After
doing
so,
he
concluded
as
follows,
at
p.
4:
Thus
a
common
law
partnership
is
the
relationship
between
persons
carrying
on
a
business
in
common
with
a
view
to
profit.
In
a
limited
partnership
one
or
more
persons,
the
“general
partners”,
are
partners
within
the
common
law
concept.
A
limited
partner
contributes
capital
to
the
partnership
but
is
not
liable
for
its
debts
beyond
his
or
her
specific
capital
contribution
unless
the
limited
partner
takes
part
in
the
management
of
the
partnership
to
the
knowledge
of
the
general
partners.
Then
the
limited
partner
“has
the
power
to
bind
the
partnership”
pursuant
to
subsection
54(1).
Taking
part
in
the
management
of
the
partnership
within
subsection
54(1)
is
synonymous
with
taking
“an
active
part
in
the
business
of
the
partnership”
as
stated
in
subsection
63(1).
Thus
in
The
Partnership
Act
of
Manitoba
a
management
role
in
the
partnership
is
equivalent
to
an
active
role
in
the
business
of
the
partnership.
The
appellant
submits
that
the
Tax
Court
Judge
misconstrued
the
effect
of
the
Manitoba
statute,
and
also
that
he
paid
insufficient
attention
to
the
undisputed
evidence
in
the
record.
Counsel
argues
that
the
words
“partnership”
and
“person”
which
appear
in
section
3
must
be
read
in
light
of
their
definitions
in
section
1,
which
read:
“partnership”
includes
a
limited
partnership;
“person”
includes
a
sole
proprietorship,
partnership,
unincorporated
association,
syndicate
or
organization,
a
trust,
and
a
natural
person
in
his
capacity
as
trustee,
executor,
administrator
or
other
legal
representative.
The
appellant
contends
that
because
a
“partnership”
includes
a
limited
partnership,
and
is
the
relationship
that
subsists
between
persons
-
including
a
trust
-
carrying
on
business
in
common
with
a
view
of
profit,
the
appellant,
like
the
general
partners,
did
carry
on
the
business
of
the
limited
partnership
in
common
with
a
view
of
profit.
She
further
contends
that
evidence
that
the
respondent
did
in
fact
do
so
is
contained
in
the
various
agreements
already
referred
to
as
well
as
in
the
various
declarations
registered
by
the
partnership
from
time
to
time
pursuant
to
the
provisions
of
The
Business
Names
Registration
Act
of
Manitoba.
The
appellant
relies
on
a
line
of
cases
in
which
it
was
held
that
a
person
is
just
as
much
a
partner
for
tax
purposes
though
he
or
she
be
a
“silent”
or
“passive”
partner:
Minister
of
National
Revenue
v.
Lane,
(1964),
64
D.T.C.
5049
(Can.
Ex.
Ct.)
at
pages
5054-55;
Randall
v.
R.,
(1985),
85
D.T.C.
5208
(Fed.
T.D.)
at
page
5209;
Wiss
v.
Minister
of
National
Revenue,
(1972),
72
D.T.C.
6231
(Fed.
T.D.)
at
page
6231-32.
I
note,
however,
that
each
of
these
decisions
concerned
a
general
rather
than
a
limited
partnership.
The
respondents
argue
that
paragraph
122(2)(c)
is
“taxpayer
specific”.
Their
submissions
are
that
the
trust
did
not
carry
on
any
business
in
1988
and
that
the
only
business
that
was
carried
on
was
carried
on
by
the
limited
partnership.
Several
judicial
decisions
are
relied
upon,
including
that
of
Laidlaw
J.A.,
speaking
for
himself,
in
Pszon,
Re,
[1946]
O.R.
229
(Ont.
C.A.)
at
page
234,
where
he
stated:
A
person
who
devotes
no
time
or
attention
or
labour,
by
himself
or
by
servants
or
employees,
to
the
working
or
conduct
of
the
affairs
of
an
enterprise
does
not
carry
on
the
business
of
such
enterprise.
He
might,
for
instance,
be
only
financially
interested.
But
to
carry
on
business
he
must
give
attention,
or
perform
labour,
for
the
maintenance
or
furtherance
of
the
undertaking,
and
devote
time
to
the
accomplishment
of
its
objects.
That
case
involved
the
interpretation
of
bankruptcy
legislation.
Smith
v.
Anderson,
(1880),
15
Ch.
D.
247
(Eng.
C.A.)
at
pages
277-79,
involving
the
interpretation
of
English
companies’
legislation,
is
similarly
relied
upon.
That
the
income
of
a
partnership
receives
particular
treatment
under
various
provisions
of
the
Income
Tax
Act
is
a
point
well
made
by
L.R.
Hepburn,
Limited
Partnerships
(Scarborough:
Carswell,
1992),
at
page
5-3:
The
basic
principles
for
the
taxation
of
income,
transactions
between
the
partners
and
the
partnership,
and
transactions
involving
partnership
interests
apply
equally
to
both
general
and
limited
partnerships
and
their
partners.
The
fact
that
the
liability
of
certain
partners
may
be
limited
does
not
alter
the
manner
in
which
partnership
income
is
taxed.
Although
a
partnership
itself
is
not
a
taxpaying
entity,
the
income
(or
loss)
from
the
partnership
activities
is
determined
at
the
partnership
level
as
if
it
were
a
separate
person.
Such
income
(or
loss),
whether
or
not
actually
distributed,
is
taxed
on
an
annual
basis
in
the
hands
of
the
members
of
the
partnership
according
to
their
share.
Income
from
the
partnership
generally
retains
its
characteristics
as
to
source
and
nature
in
the
hands
of
the
partners.
The
statutory
matrix
under
which
the
limited
partnership
was
formed,
registered
and
operated
must,
of
course,
be
kept
in
mind
even
though,
in
the
last
analysis,
it
is
the
language
of
paragraph
122(2)(c)
that
must
be
construed
in
light
of
that
matrix
and
of
the
admitted
facts.
The
question,
then,
is
whether
the
trust
“carried
on
any
active
business”
in
1988.
It
is
true,
as
the
Tax
Court
Judge
observed,
that
the
appellant
never
exercised
a
management
role
in
the
partnership
nor
took
any
part
in
the
business.
Subsection
54(1)
of
The
Partnership
Act
provides
that
it
is
only
when
a
limited
partnership
“takes
part
in
the
management
of
the
partnership
business”
that
he
or
she
has
power
to
bind
the
partnership,
and
subsection
63(1)
renders
a
limited
partner,
to
the
extent
described
in
that
subsection,
“liable
as
if
he
were
a
general
partner”
if
he
or
she
“takes
an
active
part
in
the
business
of
the
partnership”.
In
my
view,
the
effect
of
these
provisions
do
no
more
than
state
the
circumstances
in
which
the
actions
of
a
limited
partner
will
bind
the
partnership
as
well
as
the
circumstances
in
which
a
limited
partner
may
become
liable
in
the
same
way
that
a
general
partner
is
liable
for
the
debts
of
the
partnership.
They
have
no
decisive
bearing
on
the
issue
that
is
before
the
Court
in
the
present
case.
That
being
said,
these
provisions
must
be
viewed
in
the
context
of
the
statute
as
a
whole,
particularly
section
3
and
the
definitions
of
“partnership”
and
“person”
in
section
1.
These
provisions,
in
my
view,
appear
clearly
to
contemplate
that
all
of
the
partners
of
a
limited
partnership
carry
on
the
business
of
the
partnership.
Whether
a
partnership
be
limited
or
general
under
the
Manitoba
statute,
it
must
consist
of
“persons
carrying
on
business
in
common,
with
a
view
of
profit”.
It
is,
therefore,
the
persons
which
compose
the
partnership
that
carry
on
the
business
rather
than
the
limited
partnership
itself.
The
position
of
limited
partners
under
the
corresponding
English
statute
would
appear
to
be
similar
to
that
prevailing
under
the
Manitoba
statute.
In
Reed
(Inspector
of
Taxes)
v.
Young,
[1983]
B.T.C.
430
(Eng.
Ch..),
a
tax
case,
Nourse
J.
stated
at
page
446:
For
present
purposes,
the
essential
features
of
a
limited
partnership
are
twofold.
First,
there
must
be
one
or
more
general
partners
who
are
liable
for
all
the
debts
and
obligations
of
the
firm.
Secondly,
there
must
be
or
one
more
limited
partners
who
at
the
time
of
entering
into
the
partnership
must
contribute
capital
(which
cannot
be
drawn
out
during
the
continuance
of
the
partnership)
and
who
are
not
liable
for
the
debts
and
obligations
of
the
firm
beyond
the
amount
so
contributed....
There
is
another
distinctive
feature,
which
is
that
a
limited
partner
cannot
take
part
in
the
management
of
the
partnership
business
and
does
not
have
power
to
bind
the
firm…
These
three
features
apart,
there
is
no
inordinate
difference
between
a
limited
and
an
ordinary
partnership.
The
result
is
that
while
the
partnership
is
a
going
concern
a
limited
partner
adopts
a
pose
as
supine,
and
profits
or
loses
as
much
or
as
little,
as
a
sleeping
partner
in
an
ordinary
partnership.
The
only
difference
between
the
two
is
that
the
sleeping
partner
may
be
rudely
awoken
to
find
that
his
liability
for
the
debts
and
obligations
of
the
firm
is
unlimited.
[Emphasis
added]
That
the
appellant
took
no
part
in
the
management
of
the
business
does
not,
in
my
view,
mean
that
it
and
the
other
limited
partners
did
not
carry
on
that
business
in
conjunction
with
the
general
partners
in
that
year.
Neither
must
the
direct
evidence
in
the
record
be
neglected.
That
all
of
the
partners
carried
on
the
business
in
1988
is
precisely
what
they
expressly
agreed
to
do
pursuant
to
clause
1
of
the
August
31,
1970,
partnership
agreement.
The
recent
decision
of
the
Tax
Court
of
Canada
in
Grocott
v.
R.,
(1995),
[1996]
1
C.T.C.
2311
(T.C.C.),
supports
this
conclusion.
That
case
involved
a
question
of
whether
a
non-resident
limited
partner
of
a
limited
partnership
formed
pursuant
to
Ontario’s
Limited
Partnership
Act,
R.S.O.
1990,
c.
L.16,
had
derived
“incomes
from
businesses
carried
by
him
in
Canada”
within
the
meaning
of
subparagraph
115(l)(a)(ii)
of
the
Income
Tax
Act,
despite
the
fact
that
the
taxpayer
had
taken
“no
part
in
the
control
of
the
business...”
in
the
sense
described
in
section
13
of
the
Ontario
statute.
The
Tax
Court
concluded
that
the
taxpayer
had
derived
income
from
a
business
carried
on
by
him
in
Canada.
I
would
here
adopt
the
following
reasoning
of
Bowman,
J.T.C.C.,
at
pages
2316-17:
Limited
partnerships
are
created
by
statute.
In
Ontario,
unlike
certain
other
provinces,
the
Limited
Partnerships
Act
is
a
separate
statute
from
the
Partnerships
Act.
One
of
the
most
salient
features
is
that
the
liability
of
the
limited
partner
is,
under
section
9,
limited
to
his
capital
contribution.
Also,
under
section
13
a
limited
partner
is
not
liable
as
a
general
partner
unless,
in
addition
to
exercising
rights
and
powers
as
a
limited
partner,
the
limited
partner
takes
part
in
the
control
of
the
business.
Mr.
Grocott
took
no
part
in
the
control
of
the
business.
A
limited
partner
of
course
has
the
right
to
be
informed
as
to
the
business
of
the
partnership
and
to
receive
his
or
her
share
of
the
income.
A
limited
partner
is
nonetheless
a
partner
in
a
partnership.
It
is
simply
that
his
liability
is
limited
by
statute
provided
that
he
does
not
participate
in
running
the
business.
I
do
not
think
it
can
be
said
that
this
limitation
of
liability
and
prohibition
against
any
active
part
in
the
control
of
the
business
means
that
he
is
not
carrying
on
business
through
the
partnership.^
A
non-resident
partner
who
did
not
actively
participate
in
the
business
of
a
general
partnership
but
who
was
nonetheless
a
participant
in
the
profits
was
held
in
Randall
v.
R.
(sub
nom.
Randall
v.
The
Queen,
[1985]
1
C.T.C.
268,
85
D.T.C.
5208
(F.C.T.D.)
to
be
carrying
on
business
in
Canada.
I
do
not
think
that
the
fact
that
the
partnership
is
a
limited
partnership
alters
the
nature
of
the
non-resident
limited
partner’s
participation.
I
trust
that
I
am
being
neither...
“results
oriented”
{Tennant
v.
R.
{sub
nom.
Tennant
v.
Canada),
[1994]
2
C.T.C.
113,
94
D.T.C.
6505,
175
N.R.
332
(F.C.A.))
nor...
“purely
mechanical”
{Swantje
v.
R.
{sub
nom.
Swantje
v.
Canada),
[1994]
2
C.T.C.
382,
94
D.T.C.
6633,
174
N.R.
224
(F.C.A.))
in
my
interpretation
of
these
provisions
when
7
observe
that
it
would
be
a
rather
surprising
result
if
a
non-resident
who
is
a
limited
partner
in
a
Canadian
limited
partnership
that
carried
on
business
in
Canada
could
escape
taxation
under
section
115
on
his
Canadian
source
profits
from
the
partnership
on
the
basis
that
he
was
not
carrying
on
business
in
Canada^
[Footnote
omitted]
[Emphasis
added]
In
the
result,
I
would
allow
the
appeal
with
one
set
of
costs
in
this
and
the
other
three
appeals,
set
aside
the
judgment
of
July
26,
1993,
and
restore
the
Minister’s
assessment.
I
would
grant
the
same
relief
in
the
other
three
appeals
for
the
same
reasons
which,
upon
filing
in
those
matters,
shall
constitute
my
reasons
for
doing
so.
Appeal
allowed.
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