Citation: 2009TCC352
Date: 20090708
Docket: 2009-690(IT)I
BETWEEN:
KAREN ELIZABETH NEUFELD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, D.J.
[1]
This appeal pursuant to
the Informal Procedure was heard at Lethbridge, Alberta
on June 25, 2009. The Appellant testified and called Bradley Kreft (who sued
her former husband, Kurt, and settled the lawsuit), her stepfather Andrew
Johnstone and her boyfriend’s father Robert Frederick Miller. Messrs Kreft and
Miller are both former recruits and members of Excel, a division of Vartec
Telecom (“Excel”); Mr. Miller was recruited into Excel by Kurt Neufeld. The
Respondent did not call any witnesses.
[2]
The Appellant has
appealed the confirmation of the assessment for her 2004 taxation year which
was assessed on the same basis as it was reported by her in her 2004 income tax
return (Exhibit R-5). The Appellant testified that she signed it under duress
from her husband Kurt. She signed a similar income tax return for 2003 (Exhibit
R-6). Mrs. Neufeld also testified that she gave a letter to the accountant not
to file her 2004 income tax return, but this letter is not in evidence, she
didn’t state the letter’s date, and the accountant was not called to testify.
Moreover, the Appellant nodded “yes” that she thought that signing the income
tax returns reporting her partnership income would benefit her from income
splitting.
[3]
The particulars in
dispute are set out in paragraphs 2, 3, 6, 7 and 9 of the Reply. They read:
2. The Appellant’s 2004 income tax return was initially assessed on
April 16, 2007.
3. In computing income for the 2004 taxation year, the Appellant
declared gross business income of $86,635 and net business income of $35,617.
The income was assessed as filed.
6. In determining the Appellant’s tax liability for the 2004 year,
the Minister relied on the following assumptions of fact:
(a) during the relevant period, the Appellant and her husband, Kurt
Neufeld (hereinafter “Kurt”), were 50/50 partners in a business venture
(hereinafter “the Partnership”);
(b) the Appellant was actively involved in the Partnership;
(c) the Appellant and Kurt were each 50% shareholders of PowerTeam
Inc.
(d) from 2001 to 2004 the Partnership was involved in network
marketing for Excel Telecommunications;
(e) in 2004 the Partnership became distributors for XanGo juice
(f) the Appellant and Kurt jointly owned the bank account in which
business income was deposited;
(g) the Appellant declared business income from the Partnership, in
2002 and 2003;
(h) the Partnership received gross business income of not less than
$86,635 in the 2004 year, and
(i) the Appellant received net business income of not less than
$35,617 in the 2004 year.
7. The issue to be decided is whether income has properly been
assessed in the Appellant’s tax return for the 2004 years.
9. The Respondent submits that in the 2004 taxation year, the
Appellant received net business income of not less than $35,617.
[4]
There is no evidence
about assumptions 6 (c) and (e), so they were not refuted. Assumption 6(f) is
correct. Assumption 6(g) was not refuted. Assumption 6(a), (b), (d), (h) and (i)
were disputed by the Appellant on the basis that she was not a partner of Kurt
and that she did not receive business income or business income from the
partnership in 2004.
[5]
The Appellant and Kurt
had their names together on business cards as Excel “Regional Directors” (Exhibit
R-2) and on an Excel “Award of Excellence” dated December 7, 2002 (Exhibit R-3).
Karen admitted that she served on the desk and as a greeter at Excel meetings.
Kurt assembled and Karen added up receipts respecting the Excel business
(Exhibit R-1). The Appellant went to Excel conferences in Calgary and Texas although she testified that she didn’t
attend training sessions. She went on an Excel awarded holiday in Mexico, but she said that she went as Kurt’s spouse.
However, she nodded yes and admitted that she was named in Excel’s documents as
being in the Excel business.
[6]
The Neufelds had a
joint account in the Alberta Treasury Branch into which the Excel earnings were
deposited in 2004 and on which the Appellant had and used individual powers of
withdrawal; she also had an ATM card on the account, which she used. She
testified that she only did this with Kurt’s authorization. However the account
record for October 2004 was admitted by her to be used by her for individual
purchases (Exhibit R-4). This is the account that received the Excel earnings.
[7]
Bradley Kreft testified
that Karen attended at major Excel events to support Kurt. Andrew Johnstone
testified that he knew that Kurt exercised “significant pressure” on Karen, but
he didn’t state when or in relation to what; he and his wife were recruited
into Excel by Kurt and he testified that over the years he and his wife lost
tens of thousands of dollars in Kurt’s schemes. Frederick Miller testified that
Karen attended Excel meetings and socialized there, but that she was never
involved in the business and most times in his experience she left the house
when customers were there. Mr. Miller also testified that Excel members make
money by recruiting representatives and make more money when these
representatives recruit additional representatives.
[8]
The Appellant testified
that she learned that they had become Excel representatives when Kurt come home
and announced that he had signed up with Excel. She also testified that she did
not recall signing a partnership agreement with Kurt and didn’t know of some of
his business dealings and investments. She stated that recruits to Excel are
often from social contacts and that when potential recruits were being approached
in her home she often served them coffee or something similar.
[9]
The Neufelds separated
in about August of 2006 and signed a divorce agreement (ExhibitA-6) on 18 and
15 December 2006. In that agreement Kurt reported net total assets of $132,663,
whereas Karen reported total assets of $11,000. Kurt’s imputed annual income
was $44,000; Karen’s was $12,000. She testified that the divorce agreement
indicated to her that there had been an unequal division of their assets and
that she didn’t profit from the business. However paragraph 7.5 of the
Agreement orders Kurt to pay Karen $36,000 in consideration of her interest in
the matrimonial home and the agreement agrees on a division of the remaining
assets.
[10]
To be a partner with a
person in business one need not sign an agreement or register the partnership.
A partnership is merely a “relationship between persons carrying on a business in
common with a view to profit.” (Alberta Partnership Act, RSA 2000
Chapter P-3 paragraph 1(a)). The Court finds that Kurt and Karen were doing
this in their Excel business. They held out to others that they were in
business together in their business cards, in their Excel awards, in their
income tax returns and in their deposits of Excel earnings and profits in their
joint bank account. Moreover they recruited through social contacts and Karen
served potential representatives and recruited representatives coffee in their
home and attended Excel meetings as a greeter and desk person. She testified
that Kurt made threats to her to sign the 2004 income tax return, but she
received Excel money in her joint account in 2004 and she knew that she and
Kurt would receive a tax benefit from their partnership income tax returns by
splitting income. The Court does not believe that she only spent money from
this account on Kurt’s direction; rather it is an ordinary joint household
account between spouses that they also used for their business purposes. All of
this went on for a number of years. Section 28 of the Alberta Partnership
Act states that the partners are entitled to share equally in the capital
and profits of the partnership business. The evidence is that they shared
profits equally in their account and there is no evidence that the business
needed capital. On the evidence, each of them in their own ways was carrying on
the Excel business in common with a view to profit.
[11]
As a result, having
regard to the assumptions (a), (b) and (d) are correct, and assumptions (h) and
(i) are also correct.
[12]
The appeal is
dismissed.
Signed at Saskatoon, Saskatchewan, this 8th day of July 2009.
“D.W. Beaubier”
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