This
appeal
concerns
the
applicability
of
the
words
of
subparagraph
53(2)(c)(v)
to
a
payment
received
by
the
appellant.
That
subparagraph
reads:
53.
(2)
Amounts
to
be
deducted.—In
computing
the
adjusted
cost
base
to
a
taxpayer
of
property
at
any
time,
there
shall
be
deducted
such
of
the
following
amounts
in
respect
of
the
property
as
are
applicable:
(c)
where
the
property
is
an
interest
in
a
partnership,
(v)
any
amount
received
by
the
taxpayer
after
1971
and
before
that
time
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
a
distribution
of
his
share
(other
than
a
share
under
an
agreement
referred
to
in
subsection
96(1.1)
of
the
partnership
profits
or
partnership
capital.
.
.
.
The
appellant
contends
that
the
payment
received
by
him
was
"a
distribution
of
his
share
.
.
.
of
the
.
.
.
partnership
capital”
within
the
terms
of
that
text.
The
respondent,
on
the
other
hand,
claims
that
what
occurred
was
not
a
distribution
of
a
part
of
the
partnership
capital
but
a
disposition
by
the
appellant
of
a
part
of
his
interest
in
the
partnership
giving
rise
to
capital
gain
in
accordance
with
the
ordinary
rules
and,
more
particularly,
the
specific
rules
set
out
in
subsection
100(2):
100.
(2)
Gain
from
disposition
of
interest
in
partnership.—In
computing
a
taxpayer's
gain
for
a
taxation
year
from
the
disposition
of
an
interest
in
a
partnership,
there
shall
be
included,
in
addition
to
the
amount
thereof
determined
under
subsection
40(1),
the
amount,
if
any,
by
which
(a)
all
amounts
required
by
subsection
53(2)
to
be
deducted
in
computing
the
adjusted
cost
base
to
the
taxpayer,
immediately
before
the
disposition,
of
the
interest
in
the
partnership,
exceeds,
(b)
the
aggregate
of
(i)
the
cost
to
the
taxpayer
of
the
interest
in
the
partnership
determined
for
the
purpose
of
computing
the
adjusted
cost
base
to
him
of
that
interest
at
that
time,
and
(ii)
all
amounts
required
by
subsection
53(1)
to
be
added
to
the
cost
to
him
of
that
interest
in
computing
the
adjusted
cost
base
to
him
of
that
interest
at
that
time.
The
question
is
thus
to
know
the
proper
meaning
and
scope
to
be
given
to
the
word
“distribution”
in
subparagraph
53(2)(c)(v)
read
in
context
and
in
the
scheme
of
the
Act
as
a
whole.
At
all
relevant
times,
the
appellant
was
a
partner
in
a
general
partnership
called
the
"Kanvan
Group”.
Under
the
terms
of
the
partnership
agreement,
Clause
28A
(which
Reed,
J.
specifically
found
had
not
been
inserted
for
the
purpose
of
governing
the
transaction
here
in
issue)
provided
a
mechanism
whereby
a
partner
could
reduce
his
partnership
interest
in
whole
or
in
part
providing
he
found
someone
else
who
was
willing
to
acquire
that
interest
or
part
interest.
The
clause
reads
as
follows
(Appeal
Book,
Volume
IV,
pages
470-
71):
28A.
In
the
event
that
any
partner
("withdrawing
partner")
wishes
to
withdraw
from
the
partnership
or
reduce
his
partnership
interest
and
concurrently
therewith
a
person
("new
partner")
wishes
to
become
a
member
of
the
partnership
to
the
extent
of
the
reduction
amount
(as
defined
below)
the
withdrawing
partner
may
give
to
the
partnership
30
days'
notice
in
writing
("notice")
(which
may
be
waived
by
all
the
partners)
stipulating
the
amount
by
which
the
withdrawing
partner
wishes
to
reduce
his
partnership
interest
which
amount
may
be
the
whole
of
his
partnership
Interest
(”
reduction
amount”)
and
stipulating
the
identity
of
the
proposed
new
partner.
Provided
that
the
new
partner
has
tendered
his
certified
cheque
or
bank
draft
to
the
partnership
in
full
payment
of
his
capital
contribution
in
respect
of
his
partnership
interest
equal
to
the
reduction
amount
and
the
new
partner
has
become
a
party
to
this
agreement,
then
thirty
days
after
the
notice
has
been
deemed
to
be
received
by
the
partnership
under
the
terms
of
this
agreement
(“effective
date")
the
partnership
will
pay
in
cash
to
the
withdrawing
partner
the
aggregate
of
the
following
three
amounts:
(a)
his
capital
contributions
and
supplementary
capital
contributions;
(b)
his
share
of
net
profits
or
net
losses
of
the
partnership
up
to
the
effective
date;
and
(c)
his
share
of
the
value
of
the
assets
of
the
partnership
as
of
the
effective
date;
such
amounts
in
the
ratio
that
the
reduction
amount
bears
to
the
whole
of
his
partnership
interest.
The
partnership
will
calculate
the
share
of
profits
and
losses
of
the
withdrawing
partner
up
to
and
including
the
effective
date.
In
the
event
that
the
withdrawing
partner
and
the
partnership
are
unable
to
agree
to
the
reduction
amount,
that
matter
will
be
referred
to
a
single
arbitrator
under
the
Arbitration
Act
of
British
Columbia
whose
decision
shall
be
final
and
binding.
If
the
reduction
amount
of
a
partner
is
equal
to
his
partnership
interest
and
forthwith
after
the
partnership
has
paid
to
the
withdrawing
partner
the
full
amount
in
satisfaction
of
the
reduction
amount,
he
will
withdraw
from
and
cease
to
be
a
member
of
the
partnership
for
all
purposes.
When
the
partnership
has
paid
all
amounts
owing
to
a
withdrawing
partner
in
satisfaction
of
the
reduction
amount,
the
other
partners
will
indemnify
him
in
respect
of
any
liability
he
may
have
in
excess
of
his
partnership
interest
after
deducting
the
reduction
amount
and
the
withdrawing
partner
and
the
partnership
will
do
such
things
and
enter
into
such
documents
as
may
be
necessary
or
desirable
to
reduce
the
withdrawing
partner's
liability
accordingly
and
for
greater
certainty
the
withdrawing
partner's
liability
under
any
mortgage
granted
by
the
partnership
will
be
reduced
by
the
reduction
amount.
The
particulars
of
the
transaction
which
give
rise
to
this
litigation
are
comprehensively
stated
in
the
reasons
of
Mogan,
T.C.C.J.
(Appeal
Book,
Volume
I,
page
91):
The
partnership
fiscal
period
was
the
same
as
the
calendar
year.
On
December
31,
1982,
there
were
10
members
of
the
partnership
including
the
appellant
who
held
a
40
per
cent
interest
and
WGB
Developments
Ltd.
("WGB")
which
held
a
10
per
cent
interest.
On
or
about
February
7,
1983,
the
participating
interest
of
the
appellant
was
reduced
from
40
per
cent
to
15
per
cent
and
the
participating
interest
of
WGB
was
increased
from
10
per
cent
to
35
per
cent
when
WGB
paid
$162,500
to
the
partnership
and
the
partnership
paid
$162,500
to
the
appellant.
At
the
time
of
this
transaction,
the
aggregate
capital
contributions
of
all
partners
was
$400,000;
the
accumulated
losses
of
the
partnership
were
$1,079,248;
and
the
fair
market
value
of
the
partnership
assets
exceeded
cost
by
$250,000.
The
amount
of
$162,500
represented
25
per
cent
of
all
capital
contributions
($400,000)
plus
25
per
cent
of
the
increase
($250,000)
in
fair
market
value
of
partnership
assets
over
cost.
There
were
no
profits
of
the
partnership
to
allocate
or
pay
to
the
appellant
on
February
7,
1983
but
he
testified
that
the
amount
of
$269,812
(representing
25
per
cent
of
the
accumulated
losses
of
the
partnership)
was
transferred
on
the
books
of
the
partnership
from
his
account
to
the
account
of
WGB.
As
indicated,
both
the
Tax
Court
and
the
Trial
Division
of
this
Court
dismissed
the
appellant's
appeals.
They
appear,
however,
at
least
at
first
blush,
to
have
done
so
for
somewhat
different
reasons.
In
a
passage
from
his
reasons,
quoted
by
Reed,
J.
in
her
reasons,
Mogan,
T.C.C.J.
said
(Appeal
Book,
Volume
I,
page
92):
Applying
the
law
concerning
form
and
substance,
I
find
that
the
appellant
sold
a
25
per
cent
interest
in
the
partnership
to
WGB
on
or
about
February
7,
1983.
Although
the
form
of
the
transaction
was
a
surrender
of
a
25
per
cent
partnership
interest
by
the
appellant
to
the
partnership
and
the
acquisition
of
a
25
per
cent
partnership
interest
by
WGB
from
the
partnership,
the
substance
of
the
transaction
was
a
sale
from
the
appellant
to
WGB
outside
the
partnership.
I
accept
the
argument
of
the
respondent's
counsel
that
the
partnership
was
used
simply
as
a
conduit
in
that
transaction.
For
her
part,
Reed,
J.
said
(Appeal
Book,
Volume
V,
page
732):
Before
me,
that
argument
shifted
somewhat.
While
arguments
were
made
that
the
substance
of
the
transaction
and
not
its
form
should
be
considered
(ie.
that
there
was
really
one
transaction
and
not
two)
it
was
also
argued
that
subparagraph
53(2)(c)(v)
was
not,
in
any
event,
applicable
to
the
payment
of
the
funds
by
the
partnership
to
the
plaintiff
because
a
distribution
of
partnership
capital
had
not
occurred.
Counsel
for
the
Minister
argues
that
a
distinction
must
be
made
between
a
distribution
of
partnership
profits
or
capital
and
a
disposition
by
a
partner
of
part
of
his
or
her
partnership
interest
which
may
concomitantly
lead
to
a
reduction
of
that
partner's
share
in
the
partnership
capital.
In
this
case,
counsel
argues
that
the
transaction
involved
the
disposition
by
the
taxpayer
of
part
of
his
partnership
interest
and
not
a
distribution
of
partnership
capital
because:
there
was
no
change
in
the
overall
capital
account
of
the
partnership;
there
was
no
contribution
of
capital
made
to
the
partnership;
what
occurred
was
simply
a
substitution
of
capital
by
one
individual
for
that
previously
contributed
by
another.
Counsel
argues
that
inherent
in
the
concept
"distribution"
is
a
division
among
a
number,
on
a
proportionate
basis*,
and
not
merely
a
transaction
which
effects
one
member
of
the
group.
She
argues
that
a‘
"disposition"
does
not
necessarily
means
that
a
sale
has
to
occur;
a
taxpayer
can
dispose
of
a
capital
asset
otherwise
than
by
sale.
*see
Black's
Law
Dictionary,
5th
edition,
1979
at
page
426
and
Webster's
Third
International
Dictionary,
1986
at
page
600
for
definitions
of"
distribute"
and
distribution".
[Emphasis
in
original.]
She
went
on
to
describe
the
arguments
that
she
had
so
summarized
as
“compelling”.
Upon
analysis,
however,
I
find
that
the
difference
between
the
two
learned
judges
below
is
more
apparent
than
real.
While
it
is
certainly
true
that
Mogan,
T.C.C.J.
made
a
finding
that
the
substance
of
the
transaction
was
a
sale
(a
finding
that
I
would
have
great
difficulty
in
accepting
in
the
light
of
the
provisions
of
the
partnership
agreement
and
of
the
fact
that
real
rights
and
obligations
were
created
by
the
transaction
both
as
between
the
appellant
and
the
partnership
on
the
one
hand
and
as
between
the
partnership
and
WGB
on
the
other)
he
also
went
on
to
analyze
what
had
taken
place
and
to
state
that
he
did
not
feel
that
it
was
covered
by
the
applicable
texts,
including
paragraph
53(2)(c)
(above).
His
reasons
for
arriving
at
that
conclusion
were
stated
as
follows
(Appeal
Book,
Volume
I,
page
93):
Firstly,
the
appellant
surrendered
or
transferred
a
substantial
portion
(25/40
or
5/8)
of
his
partnership
interest.
Secondly,
the
25
per
cent
partnership
interest
was
not
allocated
among
existing
partners
or
among
some
existing
and
some
new
partners.
On
the
contrary,
it
was
transferred
wholly
to
an
existing
partner
to
increase
the
participating
interest
of
WGB
from
10
per
cent
to
35
per
cent.
Thirdly,
the
amount
of
$162,500
paid
in
to
the
partnership
by
WGB
was
simultaneously
paid
out
to
the
appellant.
Fourthly,
25
per
cent
of
the
partnership's
accumulated
losses
was
transferred
on
the
books
of
the
partnership
from
the
appellant
to
WGB.
And
fifthly,
WGB
paid
25
per
cent
($62,500)
of
the
increase
($250,000)
in
the
value
of
partnership
assets
over
cost
in
order
to
acquire
an
additional
25
per
cent
interest
in
the
partnership;
and
the
appellant
received
(through
the
partnership
as
a
conduit)
the
$62,500
which
WGB
paid.
There
was
no
evidence
that
the
partnership,
as
a
separate
entity,
or
that
any
partners
other
than
the
appellant
received
a
benefit
with
respect
to
WGB's
payment
of
the
$62,500.
In
other
words,
the
estimated
increase
in
value
of
$250,000
was
used
only
for
the
purpose
of
determining
a
portion
of
what
WGB
should
pay
in
February
1983
to
increase
its
participation
in
the
partnership
and
a
portion
of
what
the
appellant
should
receive
for
decreasing
its
participation
in
the
partnership.
Other
than
the
first
cited
reason,
which,
with
respect,
seems
to
me
to
be
wholly
irrelevant,
all
the
other
points
taken
by
Mogan,
T.C.C.J.
appear
to
me
to
relate
to
the
question
as
to
whether
what
took
place
was
a
disposition
or
a
distribution
of
the
appellant's
share.
While
he
does
not
put
it
in
those
terms,
that
is,
of
course,
precisely
the
issue
that
was
stated
and
resolved
by
Reed,
J.
By
the
same
token,
the
arguments
summarized
and
accepted
by
the
latter
in
the
passage
of
her
reasons
previously
quoted
are,
with
one
exception,
a
restatement,
in
rather
more
precise
terms,
of
the
points
taken
by
Mogan,
T.C.C.J.
in
the
above
quoted
passage
of
his
reasons.
The
exception
is
the
argument,
apparently
accepted
by
Reed,
J.,
based
on
the
dictionary
definition
of“
distribution”
as
requiring
a
proportionate
division
among
a
number
of
recipients.
With
respect,
that
argument
seems
to
me
to
be
in
error.
While
a
distribution
will
often
include
a
sharing
out
among
several,
there
appears
to
me
to
be
no
doubt
that
there
can
be
many
distributions
in
which
there
is
only
one
beneficiary.
An
obvious
example
would
be
the
distribution
of
an
estate
to
a
single
heir,
which
might
also,
at
the
testator's
direction,
take
place
in
several
stages
(eg.
annually
or
as
the
heir
reaches
certain
birthdays)
each
of
which
would
be
a
distribution.
Indeed,
the
very
text
of
subparagraph
53(2)(c)(v)
talks
in
terms
of
"distribution
of
his
share"
in
the
singular
and
not
of
“his
share
of
a
distribution”.
Respondent's
counsel
conceded
in
argument
that
if
all
that
had
happened
in
February
1983
had
been
a
reduction
of
the
appellant's
share
by
the
payment
to
him
out
of
partnership
capital
of
25/40
of
his
interest
and
without
the
intervention
of
WGB
there
would
have
been
a
distribution
within
the
meaning
of
subparagraph
53(2)(c)(v);
she
was
clearly
right
to
do
so.
In
my
view,
and
although
I
am
in
disagreement
with
certain
relatively
minor
parts
of
what
each
of
them
said,
I
think
the
two
learned
judges
below
reached
the
correct
conclusion
and
for
what
are
generally
the
right
reasons.
The
common
thread
running
through
both
decisions
is
the
unchanged
nature
of
the
capital
structure
of
the
partnership
before
and
after
the
transaction.
What
follows
is
a
restatement
in
my
own
words
of
what
I
take
to
be
the
essence
of
their
reasons.
In
the
first
place
it
should
be
recalled
that
we
are
dealing
here
solely
with
an
alleged
distribution
of
capital.
The
partnership
in
question
did
not
have
any
profits
and
it
may
be
that
somewhat
different
considerations
would
apply
in
determining
whether
or
not
a
payment
represented
a
distribution
of
profits.
Second,
it
seems
to
me
that
a
distribution
of
capital,
whether
it
be
a
proportionate
sharing
out
among
many
or
a
single
or
periodic
payment
to
one
recipient,
necessarily
results
in
a
change
in
the
residue
of
what
has
been
distributed
either
by
reducing
it
or
by
otherwise
altering
its
structure;
it
implies
a
division
or
redivision
of
that
which
is
distributed.
Accordingly,
a
distribution
of
capital
will
always
result
in
an
alteration
of
the
corpus
from
which
it
is
made,
whether
that
corpus
be
the
capital
structure
of
a
partnership,
an
estate,
a
trust
or
anything
else.
Finally,
in
order
to
trigger
the
application
of
subparagraph
53(2)(c)(v),
the
payment
made
to
the
appellant
must
not
only
be
a“
"distribution"
it
must
also
be
"of
his
share
.
.
.
of
the
.
.
.
partnership
capital”.
On
Februar
7,
1983,
25/40
of
the
appellant's
share
of
the
partnership
capital
had
a
value
of
$162,500.
If
that
amount
had
been
paid
to
him
on
that
day
and
the
partnership
capital
had
been
reduced
accordingly,
the
appellant
would
have
received
a
distribution
of
his
share
of
the
partnership
capital.
But
that
is
not
what
happened
since
the
partnership
capital
was
not
reduced
by
$162,500
or
at
all;
its
structure
remained
quite
unchanged.
Indeed,
in
accordance
with
the
very
terms
of
clause
28A
of
the
partnership
agreement,
the
appellant's
reduction
of
his
partnership
interest
by
the
amount
of
$162,500
(the
reduction
amount")
was
made
conditional
upon
WGB
(the"new
partner")
tendering
a
certified
cheque
or
bank
draft
to
the
partnership
for
exactly
the
same
amount.
The
clause
is
specifically
structured
so
that
the
payment
in
by
the
new
partner
will
be
simultaneous
with
(and,
as
stated,
a
condition
of)
the
payment
out
to
the
withdrawing
partner.
The
latter's
share
of
the
capital
is
accordingly
reduced
but
only
to
the
extent
that
a
portion
of
it
is
acquired
by
the
new
partner;
there
is
no
distribution
because
there
is
no
change
whatever
in
the
corpus
of
the
partnership
capital
or
in
the
relative
interests
therein
of
any
of
the
other
partners.
Since
it
is
not
disputed
that
if
what
took
place
on
February
7,
1983
was
not
a
distribution
of
a
part
of
the
share
of
the
appellant
in
the
partnership
capital,
it
was
necessarily
a
disposition
by
him
of
a
part
of
such
share
within
the
meaning
of
paragraph
54(c)
and
was
appropriately
assessed
as
such
by
the
Minister,
I
would
dismiss
the
appeal
with
costs.
Appeal
dismissed.
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