Sarchuk,
T.C.J.:—The
appeal
of
Marion
Estates
Ltd.
is
with
respect
to
its
1980,
1981,
1982
and
1983
taxation
years.
The
appellant
is
a
company
incorporated
under
the
Companies
Act,
R.S.B.C.
1948,
c.
58,
s.
1
and
carries
on
the
business
of
land
development
in
the
course
of
which
it
enters
into
various
arrangements
with
other
developers.
During
1981
the
appellant
was
a
participant
in
four
ventures
known
as
Sheffield
Estates,
to
the
extent
of
30
per
cent;
Delair
Heights,
to
the
extent
of
25
per
cent;
Belcarra
Estates,
to
the
extent
of
25
per
cent;
and
Scotty
Creek
Development,
to
the
extent
of
50
per
cent.
In
computing
its
income
for
the
1981
taxation
year
the
appellant
asserted
that
its
inventory
of
land
was
overstated
and
in
order
to
reduce
the
carrying
value
thereof
to
the
lower
of
cost
or
fair
market
value
deducted
the
sum
of
$440,075.14.
By
assessment
dated
June
11,
1984
the
respondent
refused
to
allow
the
deduction
of
the
aforesaid
amount
in
1981,
and
as
a
further
consequence
reduced
the
non-capital
loss
applied
in
1980
to
nil.
By
assessment
dated
December
3,
1984
the
respondent
reduced
the
small
business
deduction
for
1983
to
$5,635.42
as
a
result
of
the
increase
in
the
appellant's
cumulative
deduction
account
in
1981.
It
is
the
appellant's
position
that
the
Minister
erred
in
refusing
to
allow
the
deduction;
erred
in
computing
the
non-capital
loss
available
for
application
in
1980
and
in
computing
the
small
business
deduction
for
1983;
and
erred
in
refusing
to
amend
the
allocation
of
joint
venture
profits
and
losses
to
the
1982
taxation
year.
The
appellant
further
contends
that
Regulation
4300
is
ultra
vires
and
interest
cannot
be
levied
by
the
Minister
by
virtue
of
that
provision.
In
reassessing
as
he
did
the
Minister
assumed
that
the
appellant
was
involved
in
partnerships
in
the
development
ventures
and
the
partnerships
properly
determined
their
income
(or
losses)
on
the
basis,
inter
alia,
that
the
value
of
the
partnership's
inventory
of
lots
was
not
less
than
the
cost
to
the
partnership
of
the
said
inventory.
Thus
the
appellant
is
not
entitled
to
determine
its
income
or
loss
from
the
partnership
in
a
manner
different
from
that
determined
for
the
partnership.
Accordingly
the
respondent
properly
disallowed
the
loss
claimed
which
was
based
on
de-valued
inventory.
At
the
commencement
of
the
trial
counsel
advised
the
Court
that
the
appellant
concedes
that
the
respondent
properly
determined
and
levied
interest
pursuant
to
the
provisions
of
Regulation
4300
and
the
Income
Tax
Act
(the
Act).
Counsel
further
advised
the
Court
that
deductions
based
on
de-valued
inventory
as
applied
to
the
Sheffield,
Delair
and
Scotty
Creek
projects
were
properly
disallowed
by
the
respondent.
This
leaves
for
consideration
the
respondent's
disallowance
of
the
loss
in
the
amount
of
$108,400
claimed
by
the
appellant
with
respect
to
Belcarra
Estates.
Evidence
on
behalf
of
the
appellant
was
adduced
from
its
President,
Mr.
John
Kenneth
Sigurdson
(Sigurdson)
and
from
Mr.
Clayton
George
Shultz,
a
Chartered
Accountant.
Mr.
Sigurdson
testified
that
on
December
12,
1974
the
appellant
and
Lost
Lagoon
Ventures
Co.
Ltd.
(Lost
Lagoon)
entered
into
an
option
agreement
with
Belcarra
Vineyards
Ltd.
with
respect
to
a
joint
development
of
some
52
acres
of
land
of
which
26
acres
were
available
for
development
as
soon
as
suitable
access
and
a
supply
of
domestic
water
was
arranged.
The
remaining
26
acres
would
be
available
for
development
upon
obtaining
a
release
from
the
Agricultural
Reserve
Plan
of
the
Regional
District
of
Central
Okanagan.
The
parties
agreed
that
the
52
acres
were
to
be
valued
at
$500,000
which
sum,
subject
to
other
provisions
in
the
agreement,
would
be
credited
to
Belcarra's
equity
upon
the
full
development
of
the
said
lands.
The
parties
also
agreed
to
form
a
partnership
for
the
joint
development
of
the
said
lands
as
a
residential
subdivision
in
which
Belcarra
was
to
supply
the
land
and
Marion
Estates
and
Lost
Lagoon
as
the
developers
were
to
supply
the
necessary
development
funds
and
expertise
in
return
for
which
they
were
to,
on
the
terms
and
conditions
set
out
in
the
agreement,
to
earn
an
eventual
50
per
cent
interest
in
all
lands
developed
as
such
a
residential
subdivision.
Mr.
Sigurdson
described
this
agreement
as
follows:
In
1974
we
entered
into
an
agreement,
Lost
Lagoon
and
Marion
Estates,
to
joint
venture
50
acres
of
land
owned
by
Belcarra
Vineyards.
We
took
an
option
on
the
land,
we
paid
them
$30,000.00.
And
the
agreement
was
that
when
a
property
became
available
for
subdivision
that
they
would
put
up
the
land
based
on
$500,000.00,
and
that
we
would
put
up
the
development
costs.
As
the
lots
were
sold
we'd
divide
the
number
of
lots
into
the
$500,000.00
and
they
would
get
their
portion
back
as
the
lots
were
sold.
We
would
do
likewise
with
our
development
costs
and
we
would
get
that
proportionately
back
as
the
lots
were
sold.
On
December
5,
1975
the
parties
executed
a
memorandum
of
agreement
with
the
intention
that
it
be
embodied
into
an
amended
agreement
with
that
of
December
12,
1974.
One
effect
of
the
amending
memorandum
was
that
the
appellant
and
Lost
Lagoon
were
required
to
provide
the
Royal
Bank
of
Canada
(Belcarra's
banker)
with
a
letter
indicating
their
intention
to
exercise
the
option
to
participate
in
the
joint
development
of
Belcarra's
land.
The
appellant
and
Lost
Lagoon
provided
the
letter
and
in
consideration
thereof
Belcarra
agreed
to
extend
the
option
for
a
further
period
of
25
years
to
expire
on
December
31,
2000.
In
all
other
substantial
aspects
the
December
12,
1974
agreement
remained
in
force.
On
March
27,
1978
Belcarra
granted
the
appellant
and
Lost
Lagoon
a
mortgage
in
the
sum
of
$41,235.30.
This
amount
represented
advances
made
by
them
for
development
expenses
as
defined
in
the
agreement
and
memorandum
of
agreement
previously
referred
to.
By
virtue
of
clause
8(c)
of
the
agreement
of
December
12,
1974
the
appellant
and
Lost
Lagoon
were
entitled
to
secure
their
interest
against
Belcarra’s
title.
On
November
21,
1980
Belcarra,
in
consideration
of
the
sum
of
$1
and
other
good
and
valuable
consideration,
transferred
all
its
interest
in
the
subject
property
to
Belcarra
as
to
an
undivided
50
per
cent
interest,
to
Lost
Lagoon
as
to
an
undivided
25
per
cent
interest,
and
to
the
appellant
as
to
an
undivided
25
per
cent
interest.
Mr.
Sigurdson's
terse
description
of
this
transaction
was
as
follows:
Mr.
McMahon:
Q.
Now,
the
document
immediately
following
the
amendment
is
a
transfer
of
land
in
fee
simple.
Could
you
describe
to
the
Court
how
this
came
about?
This
transfer
of
land
from
Belcarra
Vineyards
to
Belcarra
Vineyards
as
to
50
per
cent,
Lost
Lagoon
as
to
25
and
Marion
Estate
as
to
25.
A.
The
value
of
the
land
was
set
at
$500,000.00
and
roughly
in
1980
we
developed
a
property
called
Scott
Creek
and
we
had
a
surplus
of
over
$250,000.00
in
there.
And
we
decided,
Lost
Lagoon
and
Marion
Estates
decided
that
to
make
it
more
equitable
for
the
development
that
we
would
buy
a
half
interest
in
the
land,
25
per
cent
for
Marion
and
25
per
cent
for
Lost
Lagoon
and
that
we
would
borrow
the
money
jointly
to
develop
the
property.
Q.
So,
what
you're
saying
then
is
that
the
agreement
changed?
A.
The
agreement
changed.
Q.
So,
instead
of
the
land
effectively
being
retained
by
Belcarra
Vineyards
and
Marion
and
Lost
Lagoon
putting
up
all
of
the
development
costs
including
undertaking
any
liabilities
which
might
be
related
to
that,
it
was
decided
that
you
would
pool
your
resources
and
actually
buy
the
land?
A.
Buy
a
half
interest
in
the
land.
Q.
Half
interest,
sorry.
And
then
the
three
would
develop
the
land?
A.
Correct.
Q.
Okay,
and
is
that
what
happened?
A.
That's
what
happened.
With
respect
to
the
transfer
of
land
Sigurdson
conceded
that
the
“change
in
the
agreement"
was
not
documented
in
any
way
because:
We
agreed
verbally
that
we
would
joint
venture
the
property
by
paying
them,
or
buying
half
their
property.
I
don't
think
an
agreement
was
necessary.
It
was
all,
it
was
all
done
by
when
we
became
joint
owners
of
the
land.
In
1981
the
partners
developed
approximately
40
lots.
According
to
Sigurdson
for
a
number
of
reasons
including
the
installation
of
services,
particularly
water,
and
a
problem
regarding
access
to
a
portion
of
the
acreage
to
be
subdivided,
the
costs
of
developing
this
stage
were
higher
than
normal.
Concurrently
with
the
first
stage
subdivision,
as
developers
they
were
required
to
and
in
the
early
fall
of
1981
did
file
a
prospectus.
Sigurdson
recalled
that
prior
to
filing
it
they
had
developed
"quite
a
list
of
people
that
were
interested
in
buying
lots
there"
and
as
a
result
had
estimated
that
the
lots
would
be
sold
within
one
year
of
approval
of
the
prospectus.
However
Sigurdson
said
by
then
the
situation:
.
.
.
had
changed
drastically
because
the
interest
rates
went
up
as
high
as
24
per
cent
and
the
market
was
on
a
downward
trend.
And
I
think
that
the,
the
situation
was
that
when
the
market
was
going
up
everybody
was
clamoring
to
buy
property
because
they
didn't
want
to
be
left
out.
When
the
market
was
going
down
everybody
was
afraid
to
buy
because
they
didn't
want
to
buy
until
it
reached
the
bottom,
and
nobody
knew
when
it
was
going
to
reach
the
bottom.
So,
at
that
point
our
sales
dried
up.
At
some
unspecified
point
of
time
the
developers
and
two
contractors
built
four
houses
in
the
subdivision
to
"get
the
subdivision
rolling”
and
to
"create
some
activity".
Nonetheless
Sigurdson
said
that
sales
were
minimal,
interest
rates
were
high
and
as
developers
they
were
concerned
that
“we
might
lose
the
bundle
in
there".
At
some
later
point
of
time
the
accountants
spoke
to
Sigurdson
with
reference
to
the
appellant's
income
tax
returns
and
discussed
the
“doubtful
debt"
treatment.
Sigurdson's
recollection
of
the
considerations
which
went
into
this
decision
were:
Mr.
McMahon:
Q.
But
if
I
can
refer
you,
Mr.
Sigurdson,
to
that
amount
described
as
doubtful
debt,
440,000,
did
you
discuss
that
with
your
accountant?
A.
Very
briefly.
Q.
And
the,
and
what
was
the
result
of
that
discussion
then?
A.
Well,
I
met
with
him
and
he
suggested
that
it,
that
this
was
possible
and
—
His
Honour:
Q.
Tm
sorry,
that
what
was
possible?
A.
That
putting
this
doubtful
account
in
there.
And,
to
tell
you
the
truth,
at
that
particular
time,
I
didn't
pay
too
much
attention
to
it.
Mr.
McMahon:
Q.
You
agreed
with
his
suggestion?
A.
Yes,
definitely.
Q.
Okay.
Why
did
you
agree
with
his
suggestion?
A.
Well,
because
he
said
that
it
was
something
that
could
be
done
properly?
Q.
And
that's
what
I’m
getting
at,
why
did
you
think
that
it
was
proper
to
make
that
deduction?
A.
Why
did
he
say
it
was
proper?
Q.
No,
why
did
you
agree
with
him
that
it
was
proper?
A.
Well,
I'm
not
an
accountant.
I’m
a
developer.
Q.
I
understand
that.
A.
And
when
I
go
to
an
accountant
and
he
says,
this
is
the
way
it
should
be,
then
I
agree
with
him.
Q.
But
as
the
developer
you
are
the
individual
who
is
cognizant
of
values.
A.
Well,
at
that
particular
time,
as
I’ve
just
said,
the
market
was,
well,
there
was
no
market
and
nobody
knew
at
that
time
what
was
going
to
happen
in
the
future.
So,
he
recommended
that
we
put
that
in
as
doubtful
accountants
and
I
agree
with
him.
I
assumed
that
was
proper
accounting
procedure.
That
evidence
represents
the
totality
of
Sigurdson's
recollection
regarding
the
inventory
write-down
claimed
as
an
expense
by
the
appellant.
In
his
testimony
Mr.
Shultz
gave
an
opinion
as
to
the
generally
accepted
accounting
principles
with
respect
to
the
valuation
of
an
inventory
of
real
estate
held
for
resale.
For
this
purpose
he
assumed
certain
facts
provided
to
him
by
counsel
for
the
appellant.
He
said
and
I
quote:
It
is
my
opinion
that
the
application
of
generally
accepted
accounting
principles
and
circumstances
prevalent
in
December
31,
1981
could
properly
dictate
that
a
real
estate
developer
substantially
reduce
(a)
the
carrying
value
of
an
inventory
of
land
held
for
resale
and
(b)
an
interest
in
a
partnership,
the
assets
of
which
were
all
or
substantially
all
inventoried
real
estate
held
for
resale.
Counsel
for
the
appellant
submitted
that
the
Belcarra
Estates
project
was
a
joint
venture
entered
into
by
Belcarra,
Lost
Lagoon
and
the
appellant.
He
contended
that
the
agreement
of
December
12,
1974
was
nothing
more
than
an
option
agreement
which
provided
that
the
parties
thereto
would
become
partners
if
the
option
was
exercised
and
that
the
amendment
dated
December
5,
1975
did
nothing
to
alter
that
fact.
According
to
counsel
Sigurdson's
evidence
clearly
establishes
that
these
agreements
were
not
proceeded
with
and
that
the
option
was
not
taken
up.
This
demonstrated
that
the
parties
intended
to
abandon
the
partnership
proposed
in
those
agreements
and
that
the
Belcarra
Estates
project
was
thereafter
carried
on
as
a
joint
venture.
Counsel
made
reference
to
the
prospectus
of
Belcarra
Estates
filed
pursuant
to
the
provisions
of
the
Real
Estate
Act
of
British
Columbia
in
which
document
the
developer
is
described
as
a
joint
venture
of
Belcarra,
Lost
Lagoon
and
the
appellant.
In
support
of
his
submissions
Mr.
McMahon
relied
principally
on
the
decision
in
Woodlin
Developments
Ltd.
v.
M.N.R.,
[1986]
1
C.T.C.
2188;
86
D.T.C.
1117,
and
on
an
article
by
James
G.
McKee,
titled
"The
Distinction
Between
Joint
Ventures
and
Partnerships",
Canadian
Current
Tax,
Volume
1,
No.
17,
May
1985
in
which
the
author
discussed
in
some
detail
elements
of
the
differentiation
between
a
partnership
and
a
joint
venture.
Counsel
for
the
appellant
argued
in
the
alternative
that
even
if
it
were
to
be
found
that
no
joint
venture
existed
and
that
the
Belcarra
Estates
development
was
a
partnership
the
decline
in
value
of
the
inventory
"would
also
be
an
appropriate
deduction
where
the
deduction
is
made
in
respect
of
a
partnership
interest”.
Mr.
McMahon
submitted
that
the
appellant's
business
was
in
developing
real
estate
and
in
particular
the
acquisition
and
subdivision
of
land;
the
selling
of
lots,
but
not
construction
in
any
aspect.
He
proceeded
from
that
factual
base
to
submit
that
the
partnership
interests
in
this
instance
were
not
capital
property
but
were:
For
want
of
a
better
term,
income
property
or
property
in
respect
of
any
gain
from
the
disposition
of
which
would
be
a
capital
or
would
be
a
gain
on
income
account.
and:
In
this
particular
case
the
partnership
interest
is
not
a
capital
asset.
And
my
further
submission
is
that
a
partnership
interest
is
not
a
capital
asset
simply
because
its
a
partnership
interest.
In
other
words,
like
a
share
you
must
look
beyond
it.
and:
That
if
Marion
Estates
had
disposed
of
its
developments,
assuming
that
they
were
partnership
interests,
and
had
disposed
of
those
interests,
I
have
absolutely
no
doubt
that
the
Minister
would
take
the
view
that
the
disposition
was
one
on
income
account.
In
support
counsel
cited:
Patrick
J.
Cull
v.
The
Queen,
[1987]
2
C.T.C.
63;
87
D.T.C.
5322,
Dobieco
Ltd
v.
M.N.R.,
[1965]
C.T.C.
507;
65
D.T.C.
5300
and
O/ie
Mandryk
v.
Canada,
[1989]
1
C.T.C.
162;
89
D.T.C.
5062.
It
is
not
uncommon
to
encounter
difficulties
in
distinguishing
between
a
joint
venture
and
a
partnership.
In
the
absence
of
a
written
agreement
the
evidence
establishing
the
existence
of
a
joint
venture
must
be
reasonably
clear
and
unequivocal.
Such
is
not
the
case
here.
At
the
outset
I
must
state
that
Sigurdson's
recollection
of
events
was
poor,
perhaps
understandably
so
given
the
length
of
intervening
time,
but
that
is
all
that
is
before
the
Court.
Mr.
Sigurdson
baldly
asserts
that
they
agreed
to
"joint
venture
the
property".
This
assertion
is
not
supported
by
the
evidence.
While
it
is
clear
that
the
parties
failed
to
conform
strictly
to
the
1974
and
1975
agreements
it
is
not
possible
to
accept
Sigurdson's
evidence
that
their
business
arrangement
was
altered
to
that
of
a
joint
venture.
There
is
no
evidence
before
me
that
the
parties
thereto,
all
of
them,
had
abandoned
the
relationship
contemplated
by
the
agreements
of
December
1974
and
December
1975
and
proceeded
to
carry
on
with
the
Belcarra
project
on
some
basis
other
than
partnership.
Counsel
submitted
that
Sigurdson
did
speak
to
the
question
of
liability
and
that
from
his
testimony
it
could
be
inferred
that
each
of
the
participants
in
Belcarra
Estates
was
liable
for
its
pro-rata
share
of
the
bank
financing.
With
respect
his
evidence
does
not
go
that
far
and
I
do
not
believe
I
can
draw
the
inference
that
counsel
urges.
It
was,
I
may
add,
open
to
the
appellant
to
call
evidence
to
establish
that
the
lending
institutions
did
not
look
to
the
participants
as
partners
in
the
project
with
each
accepting
total
liability
for
the
association’s
debt.
The
failure
to
introduce
such
evidence
reduces
the
weight
to
be
given
to
Mr.
Sigurdson's
generalized
comments.
Mr.
McMahon
argued
that
proof
of
a
joint
venture
is
found
in
the
fact
that
title
to
the
property
was
registered
in
the
names
of
the
individual
participants
with
no
reference
to
partnership
in
the
Deed
of
Transfer.
This
in
my
view
does
not
by
itself
evidence
each
participant's
unfettered
right
to
dispose
of
their
respective
interest
in
the
property.
Was
each
participant
in
this
association
at
liberty
to
deal
with
its
undivided
interest
in
the
property
as
its
own?
The
evidence
in
this
regard
is
most
unsatisfactory
and
inconclusive.
In
fact
what
evidence
there
is
before
me
indicates
that
it
was
treated
as
property
of
the
partnership
at
least
by
one
participant,
Lost
Lagoon.
I
have
considered
other
factors.
There
is
no
evidence
of
the
existence
of
a
right
of
mutual
control
or
management
of
the
enterprise.
In
fact
I
note
from
paragraph
19
of
the
December
12,
1974
agreement
that
the
appellant
and
Lost
Lagoon
were
charged
with
the
responsibility
and
were
given
control
of
all
development
work
subject
to
keeping
Belcarra
Vineyards
informed.
It
would
seem
that
in
the
absence
of
evidence
of
some
later
agreement
an
assumption
of
continued
control
and
management
of
the
project
by
the
appellant
and
Lost
Lagoon
can
be
made.
Counsel
also
urged
the
Court
to
find
that
the
arrangement
between
the
three
participants
was
limited
to
the
development
of
Belcarra
Estates
even
though
there
was,
as
counsel
conceded,
no
direct
evidence
of
any
such
agreement.
It
would
be
more
than
difficult
to
draw
that
inference
from
the
limited
evidence
that
Sigurdson
gave.
Furthermore,
the
prospect
of
entering
into
further
projects
is
suggested
by
paragraph
18
of
the
agreement
of
December
12,1974
which
granted
the
appellant
and
Lost
Lagoon
a
right
of
first
refusal
with
respect
to
other
properties
owned
by
Belcarra
Vineyards.
There
is
no
evidence
that
any
agreement
existed
for
the
allocation
of
gross
revenues
and
expenses
to
each
of
them
as
joint
venturers.
The
appellant's
position
is
also
inconsistent
with
the
fact
that
ultimately
there
was
a
calculation
of
the
profit
or
loss
at
the
partnership
level
and
a
distribution
of
such
profit
or
loss
to
the
parties
on
that
basis.
Each
of
the
appellant's
financial
statements
for
the
years
ending
December
31,
1981,
December
31,
1982
and
December
31,
1983
discloses
a
profit
(loss)
share
to
the
appellant
from
Belcarra
Estates.
Although
the
financial
statements
of
the
appellant
did
not
have
attached
the
financial
statements
for
Belcarra
Estates,
the
latter
did
form
part
of
the
material
filed
by
Lost
Lagoon
in
its
income
tax
returns
for
the
relevant
periods
of
time.
Since
Mr.
Sigurdson
owned
50
per
cent
of
the
shares
in
Lost
Lagoon
and
since
he
signed
the
income
tax
returns
for
taxation
years
ending
May
31,
1980
and
May
31,
1981
as
director,
the
material
contained
therein
may
appropriately
be
referred
to
with
respect
to
the
matter
before
me.
The
1980
financial
statement
of
Lost
Lagoon
contain
the
following
note:
Belcarra
Vineyards
—represents
an
option
to
participate
in
a
52
acre
development.
The
partnership
will
consist
of
Belcarra
Vineyards
Ltd,
Marion
Estates
Ltd.
and
Lost
Lagoon
Ventures
Co.
Ltd.
In
the
financial
statement
attached
to
Lost
Lagoon's
1981
income
tax
return
(Exhibit
R-6)
the
comment
with
respect
to
Belcarra
is
as
follows:
Represents
a
25%
interest
in
a
52
acre
development.
The
other
partners
are
Belcarra
Vineyards
Ltd.
(50%)
and
Marion
Estates
Ltd.
(25%).
Note
3
to
the
financial
statement
reads
in
part:
Belcarra
Vineyards
represents
a
partnership
in
a
future
development
in
which
Marion
Estates
Ltd.
and
Lost
Lagoon
Ventures
Co.
Ltd.
are
one-quarter
owners.
During
the
year,
Scotty
Creek
has
expended
funds
on
behalf
of
Belcarra.
Funds
thus
dispersed
have
been
charged
on
a
50/50
basis
to
the
drawings
of
Marion
Estates
and
Lost
Lagoon
and
reflected
in
the
partners
equity
accounts.
Attached
to
the
financial
statement
of
Lost
Lagoon
as
at
May
31,
1983
and
filed
with
its
income
tax
return
for
that
year
is
the
financial
statement
of
Belcarra
Estates
as
at
December
31,
1982.
This
statement
clearly
and
unequivocally
establishes
that
a
calculation
of
profits
or
losses
with
respect
to
this
project
was
made
at
the
partnership
level.
The
onus
is
on
the
appellant
to
establish
that
the
arrangement
was
something
other
than
a
partnership.
The
appellant
has
failed
to
do
this.
On
the
contrary
it
is
clear
that
at
least
one
of
the
other
participants
at
all
times
acted
on
the
basis
that
their
relationship
was
a
partnership.
I
am
satisfied
that
the
association
in
this
case
was
not
a
joint
venture
but
was
a
partnership.
A
number
of
consequences
flow
from
this,
the
most
important
for
the
purposes
of
this
appeal
is
that
although
it
is
the
partners
themselves
who
are
ultimately
taxed
by
virtue
of
section
96
of
the
Income
Tax
Act,
a
separate
calculation
of
the
partnership's
income
is
required
as
though
it
were
a
separate
entity;
the
income
or
loss
so
calculated
then
flows
through
the
partners
and
is
taxable
in
their
hands.
What
this
means
is
that
if
a
partnership
is
carrying
on
a
business,
taxable
capital
gains
and
allowable
capital
losses
must
be
determined
and
reflected
in
the
income
of
the
partnership.
Similarly
the
provisions
of
section
10
of
the
Act
relating
to
inventories
must
be
utilized,
if
appropriate,
by
the
partnership
and
must
enter
into
the
computation
of
partnership
income.
There
is
nothing
in
the
Act
that
would
permit
Marion
Estates
to
separately
write-down
its
inventory.
The
definition
of
"inventory"
in
the
Act
reads:
248(1)
"inventory"
means
a
description
of
property
the
cost
or
value
of
which
is
relevant
in
computing
a
taxpayer's
income
from
a
business
for
a
taxation
year;
The
52
acres
of
land
in
issue
was
inventory
of
the
partnership,
the
cost
or
value
of
which
may
have
been
relevant
in
computing
its
income
from
its
business
for
a
taxation
year,
but
not
in
computing
the
income
of
the
appellant.
Mr.
McMahon
also
argued,
on
the
basis
of
Mr.
Shultz's
testimony,
that
a
developer
such
as
the
appellant
could
properly
and
substantially
reduce
the
value
of
its
interest
in
a
partnership,
the
assets
of
which
were
all
or
substantially
all
inventoried
real
estate.
Mr.
Shultz's
report
provided
no
information
beyond
this
comment.
In
Court
nothing
was
said
by
him
to
explain
just
how
this
was
to
be
accomplished
within
the
ambit
of
the
Income
Tax
Act.
Certainly
it
would
be
more
than
difficult
in
this
case
to
characterize
the
appellant's
interest
in
the
partnership
as
inventory
and
I
do
not
believe
that
is
what
Shultz
intended
to
suggest.
There
are
problems
with
this
submission.
In
the
first
place
throughout
the
relevant
periods
of
time,
the
appellant
claimed
the
right
to
deduct
the
amount
of
$440,075.14
on
the
basis
that
it
truly
represented
the
value
of
its
inventory
of
land
held
for
resale.
At
no
point
of
time
did
the
appellant
suggest
that
this
deduction
related
to
the
value
of
its
interest
in
a
partnership.
Based
on
the
cases
cited
by
counsel
I
would
agree
that
had
the
partnership
disposed
of
its
projects
the
Minister
might
have
taken
the
view
that
the
disposition
was
on
income
account.
However
none
of
these
cases
are
of
particular
assistance
to
the
appellant
since
the
issue
therein
generally
was
the
treatment
to
be
given
to
profits
realized
by
a
partnership.
That
is
not
the
issue
raised
by
counsel.
What
is
being
urged
upon
me
by
counsel
is
that
the
appellant
in
some
fashion
is
entitled
to
reduce
the
value
of
its
interest
in
a
partnership
and
to
deduct
this
as
an
expense
in
its
calculation
of
taxable
income.
But
what
seems
to
be
ignored
is
that
as
a
general
rule
a
taxpayer's
interest
in
a
partnership
is
capital
property.
I
have
not
been
referred
to
any
provision
in
the
Income
Tax
Act
which
would
afford
the
appellant
the
relief
his
counsel
seeks.
Subsequent
to
the
hearing
of
the
appeal
Marion
Estates
Ltd.
applied
to
this
Court
for
an
Order
that
the
hearing
in
respect
of
the
1983
taxation
year
be
reopened
and
that
the
appellant
be
allowed
to
amend
the
notice
of
appeal
in
respect
of
that
taxation
year
as
follows:
7.1
The
Appellant’s
share
of
losses
for
the
1983
taxation
year
in
respect
of
the
joint
ventures
Delair
Heights
and
Belcarra
Estates
amounted
to
$2,287
and
$6,851.83
respectively.
12.1
The
Minister
erred
in
refusing
to
allow
deductions
in
respect
of
joint
venture
losses
for
the
1983
taxation
year
in
the
amount
of
$9,138.83.
The
respondent
consented
to
the
application
and
granted
the
Orders
sought.
Prior
to
further
evidence
being
called
with
respect
to
these
issues
the
parties
by
their
respective
solicitors
filed
with
the
Court
a
partial
consent
to
judgment.
Pursuant
thereto
the
appeal
for
the
1983
taxation
year
will
be
allowed
and
the
matter
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
that
the
appellant
incurred
losses
for
its
1983
taxation
year
with
respect
to
business
ventures
in
Delair
Heights
and
Belcarra
Estates
amounting
to
$2,287
and
$6,851.83
respectively.
In
all
other
respects
the
assessment
for
the
1983
taxation
year
remain
unchanged.
The
appeals
with
respect
to
the
1980,
1981
and
1982
taxation
years
are
dismissed.
Appeals
dismissed.
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