[OFFICIAL ENGLISH TRANSLATION]
Date: 20010727
Docket: 2000-2384(IT)I
BETWEEN:
MARTINE DROLET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal for the 1995,
1996 and 1997 taxation years. The issue is whether the appellant
was a member of a partnership those years. If so, I will have to
decide whether the Minister of National Revenue ("the
Minister") was justified in including in the appellant's
income 50 percent of the partnership's income for 1995, 1996
and the first three months of 1997. If not, the appellant's
appeal will have to be allowed.
[2] The appellant explained that her
spouse had started operating a business in 1987; it was a
business that delivered and sold dairy products.
[3] Initially, the customers were
mainly people from private homes, while later they were mainly
businesses.
[4] The appellant did not receive any
salary from the business; however, she had an interest as someone
who took part in the business, since she kept the books, made
deposits and occasionally ran errands. Since she did that work
from home, she also answered the telephone and took
customers' orders.
[5] She explained that her main
occupation was looking after her two children; she also did
volunteer work and political organizing.
[6] The appellant said that she was in
no way a co-owner of or partner in the business of her
spouse, Michel Guillemette. She took an interest in it, she
helped him and she participated not as a partner but basically as
a spouse who really cared about the success of the business owned
by the person on whom she depended financially, since the
family's income came solely from the said business.
[7] A number of facts suggest that
there was a genuine de facto partnership in which the
partners were the appellant and her spouse,
Michel Guillemette. The evidence brought out the following
facts, inter alia:
- all of the business' banking was done
through the spouses' personal account;
- the appellant was authorized to write cheques;
she kept the books and made the deposits;
- the business' accountant apparently
suggested to the appellant's spouse in the early 1990s that
the income from the business be divided up or shared 50-50;
the appellant admitted that she tacitly accepted the
accountant's suggestion; she therefore completed, signed and
filed her tax returns as a co-owner of the partnership.
[8] Obviously, all of these facts
strongly support the existence of a partnership in which the
appellant had a 50-percent interest. However, the evidence
also showed that the partnership that may have existed between
the appellant and her spouse ceased to exist at a certain
point.
[9] The appellant said that after
learning that the strategy developed by the accountant was not
legitimate, she told her spouse in 1995 that she wanted to put an
end to the partnership.
[10] Is that what she really told her
spouse? I consider it possible and likely; moreover, she and her
spouse divorced shortly thereafter because of their deteriorating
relationship. This was reasonable, plausible and certainly
possible behaviour, since spouses who no longer get along usually
do not like or agree to share or co-operate easily.
[11] Serge Gagné, who audited the
file and who testified at the respondent's request, said that
the appellant's 1995 tax return was filed much later and had
probably been prepared by her former spouse, since it was not
signed. This confirms the appellant's version that everything
was prepared for the accountant.
[12] Mr. Gagné also said that he
talked to and met with Mr. Guillemette a few times concerning the
business' file. He admitted that he never met with the
appellant, although he spoke to her once or twice on the
telephone.
[13] The witness justified his interest in
Mr. Guillemette by saying that Mr. Guillemette had all the
information and documents he needed for his audit.
[14] This fact alone confirms unequivocally
that the appellant was excluded from the business' affairs or
at least that there had been a break with the situation that
existed in previous years when she looked after and had
possession of information, documents and all the administrative
materials.
[15] Given the atmosphere between the
appellant and her spouse, I have no doubts about the answers the
auditor was able to obtain from Mr. Guillemette; Mr.
Guillemette had a real and considerable interest in claiming and
maintaining that the appellant was a co-owner or partner
with him in his business, since an answer indicating that he was
the sole owner would have had significant effects on his own tax
situation.
[16] The appellant said that she did not
report any income for the years at issue. She submitted that the
returns for the previous years had been completed by the
business' accountant and that all the costs related thereto
had been assumed and paid by Mr. Guillemette, who was then
her spouse.
[17] Were it not for the divorce, the date
of the divorce, the agreements reached and all of the facts and
circumstances existing during that period, I think that the
appellant, through her testimony alone, could not have proved
that there was no de facto partnership between her
and her spouse at one time.
[18] However, for the period to which this
appeal applies, the weight of the evidence leads me to conclude
otherwise, mainly for the reasons given below.
[19] First, not only were the explanations
given by the appellant corroborated by the testimony of Mr.
Gagné, a witness for the respondent, but, what is more,
they were strengthened and supplemented.
[20] Second, the agreements reached by the
parties in connection with the divorce also confirmed the
appellant's claims.
[21] Third, counsel for the respondent
referred to article 2186 of the Civil Code of
Québec, which reads as follows:
A contract of partnership is a contract by which the parties,
in a spirit of cooperation, agree to carry on an activity,
including the operation of an enterprise, to contribute thereto
by combining property, knowledge or activities and to share any
resulting pecuniary profits.
A contract of association is a contract by which the parties
agree to pursue a common goal other than the making of pecuniary
profits to be shared between the members of the association.
[22] This article thus sets out an essential
and fundamental condition, namely the parties' consent to be
partners.
[23] The evidence concerning certain actions
showed on a balance of probabilities that such an intention
existed at one time. This is not the case at all for the period
at issue, namely the 1995, 1996 and 1997 taxation years. Not only
does the appellant's testimony indicate the contrary, but her
testimony is also confirmed by the evidence adduced by the
respondent through Mr. Gagné's testimony.
[24] Was there a de facto partnership
between the appellant and Mr. Guillemette? There is no doubt
in my mind that such a partnership existed at one time.
[25] However, the weight of the evidence for
1995, 1996 and 1997 does not show this. A partnership is a
creation resulting from facts but also from the parties'
consent. When one party, here the appellant, expresses his or her
intention to end the partnership, the partnership can no longer
exist. In this case, the appellant's testimony that she was
not her spouse's partner is confirmed by decisive facts,
including the divorce and the circumstances and facts described
by the respondent's witness.
[26] It is my view that the appellant has
discharged the burden of proof by the explanations given but also
and above all by the corroboration resulting from the documentary
evidence and the testimony of the person in charge of the file,
Serge Gagné.
[27] I therefore conclude that the de
facto partnership that may have existed between the appellant
and Michel Guillemette no longer existed during 1995, 1996 and
1997, the years at issue.
[28] Accordingly, the appeal is allowed.
Signed at Ottawa, Canada, this 27th day of July 2001.
J.T.C.C.
Translation certified true
on this 21st day of January 2003.
Sophie Debbané, Revisor
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