Citation: 2008 TCC 638
Date: 20081124
Docket: 2006-2629(GST)I
BETWEEN:
JULIE SCOTT-TRASK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur J.
[1]
These appeals are from
assessments issued by the Minister of National Revenue under the Excise Tax
Act
for the periods October 1, 2001 to December 31, 2001 and October 1, 2002
to December 31, 2002, as a result of the Appellant’s failure as a partner in
Sunrise Gardens to remit goods and services tax to the Receiver General in the
amount of approximately $25,800, including interest and penalties. The issue
boils down to whether the Appellant was a partner in Sunrise
Gardens during the relevant periods.
[2]
Counsel for the Respondent
narrows the question to whether the business of Sunrise
was carried on in common by the Appellant and her then husband, Norman Scott-Trask.
The Appellant, Norman, and David Foster testified on the Appellant’s behalf. I
have no reason to disbelieve any of them.
[3]
The question can be
answered, primarily, upon applying the law to the facts which include the
following. The Appellant was teaching school to handicapped children in 1997
and 1998, her husband was unemployed and their marriage was strained. She was
disappointed to find out, through a third party, that Norman was taking steps
to commence a landscaping business but, to offer him moral support and solidify
their relationship, she completed and registered the business name as a partnership
in their joint names in March 1998.
She had no knowledge of the legal consequences and knew nothing of his new
landscaping business, having full teaching employment and caring for their own
two children at home. She did not work or participate in any way in her husband’s
new business and she remained the primary financial source for the family
particularly in Sunrise’s early years.
[4]
Previous to 1998, Norman had declared bankruptcy and they financed the purchase
of a home on the Appellant’s salary alone. She was anxious to save their
failing marriage, and therefore, to assist her husband, she co-signed a power
line loan with the bank for Sunrise and co-signed as a signatory for Sunrise’s bank account, opening documents along with GST
returns and related documents.
She never wrote a cheque on the bank account nor did she do any of the banking
or books and records.
[5]
In the Appellant’s personal
income tax returns for the taxation years 2001 and 2002, she reported her
$60,000 plus teacher’s salary, but made no mention of Sunrise
(profit or loss). Norman never discussed the Sunrise
business with her making all of the decisions, including the purchase of heavy
equipment such as a truck. She had no idea that Sunrise
was not remitting GST and other taxes to the Receiver General and was “hurt and
shocked” when her salary was garnished.
[6]
Norman corroborated the Appellant’s testimony. He
testified that he could not open a bank account for Sunrise
without a business registration and he had no money, so she agreed to help him.
He added “we never intended it to be a partnership, it was intended to be
my business”. He operated Sunrise as a sole proprietorship and stated that the
Appellant took no part in the operation whatsoever. It was his business alone
and absolutely. He needed her guarantee for the power line loan because he had
no income having been unemployed for some time prior to 1998. Sunrise lost more money than it made and went out of business
in 2003. Norman added that the only way he could keep
it afloat in 2001 and 2002 was by not remitting to the Receiver General. He
declared bankruptcy after Canada Revenue Agency garnished his wife’s salary.
[7]
The final witness for
the Appellant was David Foster. He worked for Sunrise
for over a year commencing in June 2000 as a landscape designer and labourer
and never saw the Appellant or any evidence to the effect that she was
connected to Sunrise during that period.
[8]
An appeals officer,
Maria Wormsbecker, testified for the Respondent. She stated that the
Appellant did not report any income (or losses) from Sunrise
during the relevant periods. She further stated that her file documents
reflected that the Appellant was a partner of Sunrise.
[9]
The Appellant’s
position through her counsel, was:
(a) She signed the
various documents to assist her husband only as a wife giving encouragement to
her unemployed husband.
(b) The documents she
signed did not create a legal relationship as partners.
(c) The Appellant’s and
Norman’s intentions and actions with respect to Sunrise Gardens determine the legal relationship. These intentions
and actions evidence that the Appellant did not carry on the business of Sunrise Gardens in common with Norman.
(d) At all times, Sunrise Gardens was operated as a sole proprietorship, owned
and operated exclusively by Norman.
[10]
The Respondent’s
position is that:
(a) In 1998, the
Appellant and her spouse, John Norman Scott-Trask, formed a partnership and
registered its name as Sunrise Gardens.
(b) The partnership was
a GST registrant with GST registration no. 89354 1623 RT0001.
(c) The Appellant had
signing authority and was named as a business partner on the partnership’s bank
accounts.
(d) Pursuant to
subsection 272.1(5) of the Act, the Appellant is jointly and severally
liable for all amounts that are payable or remittable by the partnership.
(e) The Minister
properly assessed the Appellant pursuant to subsections 272.1(5) and
296(1) of the Act for the unpaid amounts due by the partnership.
Analysis
[11]
Both parties referred
to Continental Bank Leasing Corp. v. Canada, where Bastarache
J. stated:
22. … This wording,
which is common to the majority of partnership statutes in the common law
world, discloses three essential ingredients: (1) a business, (2) carried
on in common, (3) with a view to profit. …
23. The existence of a
partnership is dependent on the facts and circumstances of each particular
case. It is also determined by what the parties actually intended.
As stated in Lindley & Banks on Partnership (17th ed. 1995), at p.
73: “in determining the existence of a partnership ... regard must be
paid to the true contract and intention of the parties as appearing from the
whole facts of the case”.
In these appeals, the
parties agree that criteria (1) and (3) are met, and it is accepted that Sunrise was a business with a view to profit. The only issue
is whether it was carried on in common by the Appellant and her husband Norman.
[12]
Briefly reviewing the
Respondent’s position, there was a formal partnership business registration, indicating
that the Appellant and her husband Norman were carrying on Sunrise in partnership. She signed a loan and banking
documents and was named as a partner on GST returns. There was no partnership
agreement setting out terms of the partnership. In her concluding remarks, counsel
for the Respondent stated:
… It’s clear that all levels of court have determined that a
partnership does not require that both partners have management of the
business. It does not require that both partners share in its profits, and it
does not require that both partners contribute labour to the business.
What that leaves us with is evidence of their subjective intention
which was only supported by their declaration, and, therefore, for that reason,
the respondent submits that this should be held to be a partnership because it
was held out to third parties as a partnership through their income tax
filings, the banking documents, the opening of the bank account, the loan documents,
the fact that Mrs. Scott‑Trask has signing authority for the
business bank account and the authority to bind the business with her
signature.
The Minister’s decision in this case is that there was a
partnership. There’s no evidence to suggest other than their declaration that
it wasn’t. …
(Transcript, pages 35-36)
[13]
Paragraph 2 The Partnerships
Act
states:
2 Partnership is the relation that subsists
between persons carrying on a business in common with a view to
profit … (Emphasis added)
For our purposes, the important words are “in common”.
In Backman v. R.,
Iacobucci and Bastarache JJ. stated:
21 In determining whether a business is carried on “in
common”, it should be kept in mind that partnerships arise out of contract. The
common purpose required for establishing a partnership will usually exist where
the parties entered into a valid partnership agreement setting out their
respective rights and obligations as partners. …
[14]
The single fact relied
on by the Respondent is the fact that the Appellant signed a Province of
Ontario business registration form to the effect that she was a partner
carrying on Sunrise together with Norman. This document cannot be isolated, and
it has to be taken in context. As the Supreme Court of Canada
stated in Continental Bank:
… A partnership
is dependent on the whole facts, the true contract and the intention of the
parties.
[15]
The relevant facts
include that the Appellant signed the business registration form ticking off
the box for partnership not realizing its legal significance, but doing so in
her attempts to encourage her husband’s efforts towards employment. She knew
nothing about landscaping and had no time or interest to get involved. Norman
treated Sunrise as his business alone as did she.
Registration alone does not form a partnership. The evidence before me as a
whole supports the reality that the Appellant and Norman had no intention of
carrying on Sunrise as a partnership. I have no doubt it
was a sole proprietorship. The Appellant co-signed for a power line loan
in the amount of $5,000. She did this as a supportive wife, as with the other
documents, and not because she was a partner. The GST returns included her name
because of the partnership registration and not because she was a partner.
Her personal income tax returns make no reference to the business or its
profits or, more likely, its losses. She surely could have used the losses to
reduce her tax payable. The uncontradicted evidence of the parties is clear
that they had no intention of creating a partnership. In Backman, the
Court added:
26 Courts must be pragmatic in their approach to the three
essential ingredients of partnership. Whether a partnership has been
established in a particular case will depend on an analysis and weighing
of the relevant factors in the context of all the surrounding circumstances.
That the alleged partnership must be considered in the totality of the
circumstances prevents the mechanical application of a checklist or a test with
more precisely defined parameters.
[16]
The following comment
of Christie J. in Sedelnick Estate v. Minister of National Revenue applies to the
present appeals:
2 … Where there is no evidence of the existence of an
express partnership agreement between husband and wife then in the absence of
some special reason, which I cannot at the moment foresee, the existence of
such a partnership should not be inferred from the conduct of the parties if
that conduct is equally consistent with conduct arising out of the community of
interests created by the marriage. This can embrace many activities which are
purely commercial in nature. …
He continues by citing Lindley on Partnership:
… the court will be less ready to infer a partnership where the
parties are husband and wife.
[17]
When a husband and wife
are involved, a higher standard must exist to find a business partnership
between them. Clearly, it was Norman’s business, the Appellant supported it as
a partner in marriage and not as a business partner. Norman
was a landscaper. The Appellant was a school teacher and mother. Had she
been claiming 50% of Sunrise’s losses, it is likely the Minister would
have taken the position that she was not a partner. There was no synergy
between the parties with respect to Sunrise.
[18]
For these reasons, the
appeals are allowed and the assessments are vacated.
Signed at Ottawa, Canada,
this 24th day of November, 2008.
“C.H. McArthur”
Email this Content