Artor F. Jorge and Esmyrna A. Jorge v. Minister of National Revenue, [1989] 1 CTC 2219, 89 DTC 126

Sarchuk, T.C.J.: —The appeals of Artor F. Jorge and Esmyrna A. Jorge are from reassessments of income tax for their 1982 taxation year. The appellants are husband and wife and by consent of all parties the appeals were heard together. A number of issues are raised in these appeals. Some are personal to the respective appellants while others arise out of commercial activities which they carried on in partnership. For the sake of convenience I propose to deal first with the latter category.

Esmyrna Jorge has a bachelor’s degree in business administration and is a certified public accountant. Both degree and certification were earned in the Philippines. Since her arrival in Canada in 1970 she has been employed variously as an accountant, office manager, controller and other similar positions. While with the County of York she acted as a financial consultant to the Borough of York. During the taxation year in issue she was employed by the York Hydro System.

Artor Jorge's background is in the field of computer science. In the years in question he was a consultant. Both appellants appear to be hard-working, ambitious and business-oriented persons. On the evidence it is fair to conclude that Esmyrna Jorge was the person primarily responsible for the management of the partnership's businesses, including the preparation and maintenance of all records; the preparation of financial statements and the preparation and filing of the returns of income and so forth.

The businesses in which the appellants were involved as partners were commenced in 1981. Aries Enterprises (Aries) is in the business of distributing Amway products. In taxation year 1982 the appellants were equal partners in this business. Art and Esmyrna Jorge Management Consultants (Consultants) was established to provide a bookkeeping and tax preparation service, consulting in the computer field, and office and business management advice. Its principal intended source of clientele was the Amway distribution network. While the evidence is not as precise as it might be it appears that at the relevant time the appellants each owned a 40 per cent share in the partnership while Esmyrna Jorge's father owned 20 per cent.

Each of the appellants, in filing a return of income for the 1982 taxation year, claimed business losses of $8,293 from Aries, and $859 from Consultants. By way of reassessment the respondent allowed each of the appellants a business loss of $1,882.53 with respect to Aries Enterprises and a loss of $217 with respect to Consultants.

The appellants assert that all of the expenses claimed were incurred in the course of their business activities and were made for the purpose of gaining or producing income from these businesses.

The respondent initially reassessed on the basis that the expenses were personal or living expenses and as such were not deductible. At trial counsel advised the Court that the respondent would also be taking the position that his reassessment was also correct on the basis that Aries and Consultants were not businesses carried on for profit or with a reasonable expectation of profit. Counsel concedes that the onus to establish any fact supporting this recently advanced position rests with the respondent.

In support of this position counsel for the respondent relied on subsection 248(1) and in particular the definition of "personal or living expenses". Such expenses, he said, are spoken of in the context of expenses relating to a business carried on for profit or with a reasonable expectation of profit. He submitted that the determination of whether or not a business exists is to be made on a two-pronged test; is it being carried on for profit, or is it being carried on with a reasonable expectation of profit, in each instance determined by an objective test. He further argued that there must be, in addition, a subjective intention to carry it on for profit and if a taxpayer has no such intention, then it is not a business carried on for profit. Counsel pointed to the very nature of the Amway business with its low gross profit margins and argued that it is not possible to make a profit with such margins. Furthermore, he argued that the evidence demonstrated that the intention of the taxpayers was not to earn profits out of these operations, rather their primary if not only intention was to write off personal expenses and to obtain tax refunds. Counsel submitted that from their conduct it could readily be concluded that there was no other reason why they became involved in this business. There being no subjective intention with respect to these activities other than an intention to subsidize personal and living expenses, they were not businesses being carried on for profit.

Three cases were cited by counsel, the first two being Escudero v. M.N.R., [1981] C.T.C. 2340; 81 D.T.C. 301 and Walker v. M.N.R., 76 D.T.C. 1224, which are marginally illustrative of the point attempted to be made and are, in my view, of little assistance. In the third, Horvath v. M.N.R., [1980] C.T.C. 2636; 80 D.T.C. 1540 the facts were that the taxpayer, a welder, sold fruit from an orchard in his spare time. He became dissatisfied with the operation and destroyed the fruit trees. Subsequently a municipal assessor advised him that the property could no longer be categorized as a farm and that his taxes would increase. The taxpayer then began raising poultry. The Court held that there was no reasonable expectation of profit, finding that the taxpayer's farming activity was merely a hobby and had been commenced solely for the purpose of retaining a low rate of municipal taxation. The Court did refer to the motivation of Horvath but only as one factor considered in reaching the conclusion that the poultry operation was not a business.

The facts before me do not support the same conclusion. I am satisfied the criteria suggested by Mr. Justice Dickson in Moldowan v. The Queen, [1978] 1 S.C.R. 480; [1977] C.T.C. 310; 77 D.T.C. 5213 with respect to the determination of a "reasonable expectation of profit” have been met. Although the evidence establishes with abundant clarity that motives other than profitability existed, there is some evidence of an intention to develop a profitable business. In my view the testimony specifically referred to by counsel for the respondent is more relevant to determining the reasonableness and deductibility of the expenses claimed rather than the issue of whether or not the appellants were carrying on a business.

I turn now to the expenses claimed by the appellants relating to the operation of Aries. In an analysis performed by Mr. Richard Allan Wilson, a Revenue Canada auditor, the expenses were segregated into four categories: purchase expenses (inventory), convention expenses, travelling expenses and promotion expenses (Exhibit R-1, Tab 17). With respect to the first category, the assessment proceeded on the basis that no supporting evidence had been presented to establish the purchase of such inventory. In the course of Esmyrna Jorge's testimony certain journals and books of record were produced and counsel for the respondent quite properly conceded that inventory expenses in the amount of $5,477.09 should be allowed.

I propose to deal with the convention and promotion expenses together. With respect to convention expenses the respondent disallowed the sum of $1,242.81. The amount claimed under this head was made up of items as diverse as the rental of halls, meeting rooms at hotels, the cost of registering guests, payments to caterers, restaurant charges and other similar expenditures. Counsel for the appellant argued that Amway is a distribution business which can be described as a network marketing organization. Its sales technique is based on seminars, workshops, rallies and conventions. He submitted that the evidence of Esmyrna Jorge adequately established both the fact that these expenses were incurred in their entirety and that they were reasonable and necessary.

Of the total amount of $7,186 claimed as promotion expenses the respondent allowed $3,370. The whole of the disallowed portion is in issue. Counsel for the appellant suggested that rather than reviewing a number of pages of disputed items the deductibility of these expenses could be determined on the basis that the amount claimed amounted to nine per cent as a percentage of gross income. Since the Court was dealing with a business which is totally market and promotion oriented and which was in its embryonic stage, it was not unreasonable that the appellants spent more on marketing and promotion as a percentage of the gross than they might be required to do at a later time when the business was established. Counsel submitted that in such circumstances nine per cent is not an unreasonable amount, particularly in light of the fact that the respondent by his assess- ment had accepted expenses amounting to approximately four per cent of the gross. In the alternative, counsel argued, if the whole of the amount claimed could not be allowed because at this time it was impossible for Esmyrna Jorge to recall why a particular expenditure was incurred or what it represented, then at the very least a percentage of the gross be allowed closer to nine per cent than the four per cent allowed by the Minister.

I cannot accept these submissions. The evidence in relation to each category suffers from the same shortcomings and defects. In particular I am not satisfied with Esmyrna Jorge's testimony with regard to these expenses, and I note that her evidence stands alone since Artor Jorge had very little knowledge of the business records and his testimony did little to support the deductibility of the expenses claimed.

There are, in both categories, too many items which could not be identified by the appellants as an expense incurred in the course of carrying on the business of Aries. A glance at the promotion expense summary contained in Exhibit R-1, Tab 17 discloses that almost without exception the items disallowed were charges made on Mastercard, Chargex, Eatons, The Bay and Dominion Stores. Esmyrna Jorge explained the inclusion of these amounts in the following way. Statements received from the credit card companies were reviewed to determine which expenses were business expenses of Aries or of Consulting or were personal items. Using a Mastercard statement dated January 21, 1982 as an example (Exhibit A-1, Tab 10, page 41) she described the first step as the identification of specific items related to the cost of sales meetings, automobile expenses and so forth. These were then allocated to either Aries or Consultants in the appropriate category, e.g. car expenses, convention expenses, office expenses, etc. Then the balance of the charges disclosed in the statements was allocated, 40 per cent to personal expenses and 60 per cent as promotional expenses on the basis of 50 per cent to Aries and 10 per cent to Consulting. With respect to the nature of the expenses it was alleged that the majority of the credit card charges were for dinners and gifts to clients, customers and distributors.

In my view more is required than a retrospective analysis of statements of account from Mastercard or of cancelled cheques with commentary on the various items to the effect “Oh yes that must have been in relation to a meeting we held or workshop that we attended". The vast majority of the invoices produced related to purchases made at retail outlets such as The Steak Shop, F.W. Woolworth, Marks and Spencer, Sugar Plum, Henry Birks, at shoe stores, men's wear stores and fast food restaurants. Items such as "two pairs of shoes for the Philippines’ were written off as a business expense with no further explanation. The overwhelming conclusion that One reaches from an examination of the documents, particularly those contained at Tabs 10, 11, 12 and 13 of Exhibit A-1, is that the appellants were prepared to write off as a business expense as much of their personal and living expenses as possible.

The respondent's position that certain expenses under these heads had been allowed and that with respect to the balance in issue most had not been clearly established as being business related is sound. I flatly reject the suggestion made by counsel that if I were, in a general sense satisfied that a portion of these expenses had been established, then an additional arbitrary allocation by the Court on a percentage basis might be acceptable. There is abosolutely no basis upon which the selection of any other "percentage of gross" figure could be achieved other than by sheer guesswork. I do not believe that it is the proper role of the Court to speculate as to what expenses were legitimately incurred in the course of the carrying on of a business.

When a taxpayer claims as a business expense gifts and other similar inducements to clients or customers, then that taxpayer must assume the difficult task of showing that such expenses were both rational and reasonable in the circumstances. There is no evidence before me to support the appellants’ claims other than Esmyrna Jorge's vague assertions that all expenses were business related. That evidence fell far short of satisfying me that the respondent's assessments were in error. If the appellants do not keep records which permit them, when challenged, to establish with reasonable particularity both the fact that the expenses were incurred in the course of business and the reasonableness thereof then they must expect to be reassessed as they were in this case.

The final category with respect to Aries relates to travelling expenses in the amount of $2,303.69, all of which were disallowed. This total is made up of five items, two cheques of $100 each to cash, allegedly issued to cover travel expenses to Windsor for a workshop; a Mastercard charge of $55.35, which item related to expenses incurred at Red Hot Video Ltd. in Vancouver and Cost Cutter Toys in Billingham, Washington; the sum of $537.84 expended for a flight taken by both appellants to Vancouver allegedly for the purpose of developing an Amway distribution network there in 1982 and the amount of $1,510.50 paid to Koho Travel which represents 50 per cent of the cost of a trip the appellants’ parents took to Manila.

Let me first deal with the Vancouver trip. It is a fact that an Amway distribution network was set up in Vancouver which by 1987 was producing approximately five per cent of the gross revenues earned in that year. Although I am satisfied that personal reasons (a visit to relatives) motivated this trip some income-producing activity appears to have occurred in an effort to "start-up" this network. I am therefore prepared to allow 50 per cent of that cost as a reasonable business expense. The balance of the expenses claimed under this head was properly disallowed. The travel expenses to Windsor are inadequately documented. The expenses incurred as part of the Vancouver trip at Red Hot Video Ltd. and at the toy store in Billingham were not explained by the appellants and are questionable to say the least. The justification advanced for the Manila trip was that the parents took with them three 20-piece sets of cookware for delivery to purchasers. Esmyrna Jorge testified that the parents also were to make efforts to cultivate contacts in order to enable the appellants to do business in the Philippines. With respect to these expenses counsel for the appellants suggested that since some revenue was derived from the sale of the pots and pans at the very least a minimal amount ought to be allowed as an expense of delivering them, being the equivalent cost of air freight rates, calculated to be $229. Notwithstanding counsel's ingenious argument I have concluded that the expense was totally unreasonable in the circumstances and was properly disallowed.

I turn next to the expenses claimed in relation to the business carried on by Consultants. In 1982 this partnership obtained several small contracts in the computer field which produced gross income of $3,932. The partnership claimed as allowable expenses the sum of $6,078. With two exceptions the respondent allowed the claimed expenses. These two exceptions were an amount of $840 claimed as the cost of advertising and promotion and $942 claimed as travel expenses.

These particular expenses were alleged to have been incurred in the performance of a subcontract whereby Artor Jorge was to assist in the installation of a data base system for Roche Pharmaceuticals. The sum of $942 is the amount expended by both appellants in travelling to the United States for three days allegedly in order to provide the services performed.

I have concluded that no justification exists for Esmyrna Jorge's expenses. I am not satisfied that her attendance was necessary or that she "helped in the design of the system". Given the size of the contract her expenses were neither rational nor reasonable.

With respect to Artor Jorge's expenses, being the cost of his airfare plus 50 per cent of $442 (the incidental expenses which had been claimed for both) they are proper expenses of the partnership and are allowed. Notwithstanding the fact that Esmyrna Jorge's evidence was not entirely consistent with the receipts submitted in support of the expenses I am satisfied that the partnership is entitled to claim the amounts indicated.

With respect to the disallowed advertising and promotion expenses the evidence of Esmyrna Jorge did not convince me that they are deductible. I reach this conclusion for two reasons. Firstly, a substantial portion of these expenses relate to the purchase of "promotional gifts to contacts". Her evidence was most unsatisfactory as to who the recipients were, what their relationship was with Consultants and what business it was intended to foster or promote. Secondly, even if there were some remote nexus between Consultants and these individuals, very little evidence was adduced to address the issue of the reasonableness of such expenses in the circumstances.

In the course of these reasons I have on several occasions noted that I found the evidence of the appellant Esmyrna Jorge to be less than convincing. With respect to the issue of credibility reference should be made to the testimony of Mr. Romy Dizon who was called on behalf of the respondent. Dizon met the appellants at a social gathering in April 1983, where, following dinner, the appellants set up a blackboard and demonstrated a business they were involved in. They described how an individual could make money by recruiting people to sell products and specifically discussed certain benefits as being available to such distributors. Dizon's recollection was that the appellants stated:

. . . that just about all the expenses you wanted could be claimed, giving as an example "when my husband and I go out for dinner we expense that amount" or that when the appellants travel to England or to Vancouver the costs are treated as an expense because they “talk about Amway";

Dizon recalled that one of their hosts asked whether a trip she was proposing to take to Mexico could be claimed as an expense and was advised by Esmyrna Jorge that it would be possible to do so simply by saying that the trip was to visit an Amway office.

Tax refunds were discussed and the appellants produced an assessment notice showing the refunds they received as a direct result of the losses from their Amway business. It was Dizon's recollection that in this context Esmyrna Jorge stated that she joined Amway because "it is a good tax shelter". In the course of the evening discussion also ranged to the willingness of the appellants to do income tax returns for distributors and in case of audits to represent the individuals.

The appellants were cross-examined with respect to the events of this evening. Both recall meeting Mr. Dizon and conceded that during the course of the evening, Amway "may have been informally discussed”. Both appellants however denied discussing Amway as a tax shelter, and denied making any comments relating to travel expenses or to the deductibility of such expenses. It was not disputed that Esmyrna Jorge prepared tax returns for their Amway distributors and that the appellants had relatives, both in Vancouver and in England who had been visited during the relevant period of time, but neither could recall whether these matters were discussed.

To the extent that there is a contradiction between the testimony of the appellants and that of Dizon I accept that of Dizon. He was in my view, notwithstanding his employment with the respondent, a disinterested witness. His evidence was not impeached on cross-examination. The manner in which he testified, the probability of the facts he testified to and the lack of motive to dissemble all lead me to conclude that his version of the events of that evening should be taken as the true one.

One final comment before leaving the issue of business expenses. The nature of the expenses claimed by the appellants and the manner in which they were recorded and detailed suggested to me if not a deliberate attempt to write off as many personal expenses under the guise of business expenses as possible, at the very least a cavalier attitude towards the concept of legitimate business expenses.

I turn next to certain business losses each of the appellants claimed which did not arise out of their partnership activities.

In filing his income tax return for the 1982 taxation year Artor Jorge claimed losses resulting from an involvement with Lynjon Canada Ltd. as an allowable business investment loss. The respondent disallowed this loss on the basis that the appellant was not at arm's length from a Canadian controlled corporation nor was the loss incurred in the 1982 taxation year as required by paragraph 38(c) and paragraph 39(1)(c) of the Income Tax Act (the Act). In this same return Artor Jorge also sought to deduct the sum of $723 as a rental loss. This loss was disallowed on the basis that the losses were personal or living expenses of the appellant and were unreasonable. Counsel for the respondent also pleaded that the appellant Artor Jorge did not carry on a rental business for profit or with reasonable expectation of profit.

In respect of both matters counsel for the appellants advised the Court at trial that these claims were being abandoned.

In filing her income tax return for the 1982 taxation year Esmyrna Jorge claimed a business loss of $17,943 arising from her involvement with a travel agency, Lynjon Travel. This deduction was disallowed in its entirety on the basis that she was not a partner as alleged and that she did not incur a business loss in the activities of Lynjon Travel. The facts giving rise to this reassessment follow.

In 1981 the appellants met John and Lynda Elkin who had come to Canada from England to establish a jewellery business, Lynjon Canada Ltd. In January 1982 Esmyrna Jorge and Lynda Elkin became involved in a travel agency, Lynjon Travel, which carried on business at the premises of Lynjon Canada Ltd., 240 Wellesley Avenue, Toronto. Esmyrna Jorge alleges that she and Lynda Elkin were partners in this venture, agreeing to share the expenses and to split the “income and the losses on a 50/50 basis". No formal partnership agreement was ever entered into.

According to Esmyrna Jorge an application under the Travel Industry Act was filed with the Ministry of Consumer and Commercial Relations and a document purporting to be an unsigned copy of that application was filed as Exhibit A-1 (Tab 1). Although this copy names Lynda Elkin and Esmyrna Jorge as the applicants the temporary Certificate of Registration issued by the Ministry (Exhibit A-1, Tab 2) reads: "Name of Registrant: Lynjon Canada Ltd. operating as Lynjon Travel". Esmyrna Jorge gave no reason for this discrepancy other than "it may have arisen out of the fact that Lynjon Travel was to operate out of the premises of Lynjon Canada Ltd." No steps were ever taken to correct the alleged inaccuracy. The permanent registration which followed in due course was never produced.

Lynjon Travel carried on business for less than a year. As a new agency it was not entitled to membership in IATA and could not book its travel requirements directly with airlines and other transportation companies. It was therefore necessary for it to book its sales through another broker, Koho International Travel Inc., and for so doing Koho paid it a percentage of the commissions so earned. Business was carried on in this manner until the fall of 1982 when, according to Esmyrna Jorge, marital difficulties between Lynda and John Elkin brought activities to a halt. At approximately the same time Lynjon Canada Ltd. was sued into bankruptcy and in December 1982 the trustees took over its premises. The books and records of Lynjon Travel which were kept at those premises were also seized. No real effort was made to contact the trustees to recover the books nor were any steps taken to disssociate Lynjon Travel from the bankrupt company.

From Esmyrna Jorge's evidence it seems fair to characterize her and Lynda Elkin’s activities as those of travel sales representatives. Their exact relationship with Lynjon Travel is unclear. None of the books and records are available to shed any light on how business was carried on. Lynjon Travel never opened a bank account. Esmyrna Jorge says she used a personal joint account she had with her husband to write cheques on behalf of Lynjon Travel, adding "I would issue the cheque out of our own personal account between my husband and myself as the agreed share of expenses". No evidence was adduced as to how her advances or advances by Lynda Elkin, if made, were treated and recorded in the books of Lynjon Travel.

Esmyrna Jorge produced several cheques issued to Lynjon Canada Ltd. which she said were in payment of the travel agency's rent. She produced other cheques drawn on the joint account in the amounts of $200 paid to the Treasurer of Ontario and $1,000 paid to the Travel Compensation Fund. The latter cheque, although drawn on her account, inexplicably was endorsed "Lynjon Canada Ltd. O/A Lynjon Travel". Other than stating that the endorsement was not in her hand no explanation was forthcoming. Other cheques issued by her were produced representing payments to Koho Travel for bookings made on behalf of clients. In all instances she asserted that these funds were advanced by her on behalf of Lynjon Travel. There is, again, no evidence as to how these advances, if made, were recorded in the books of the alleged partnership.

In her return of income for the taxation year in issue Esmyrna Jorge claimed a loss of $17,943 as a business loss from her involvement with Lynjon Travel. In support of this claim she filed with her return a statement of income and expenses which purported to be the total income and expenses of "Lynjon Travel O/A Lynjon Canada". In this statement the loss from its operations was calculated to be $16,380, of which Esmyrna Jorge claimed 50 per cent. In addition she claimed, under the head "other allowable ex- penses", an item described as “Collections Deposited in Partner's Other Account and Share of Expenses Not Advanced—$9,753", which, added to her 50 per cent share of the agency's losses make up the total amount of business loss claimed in her return.

She explained that this statement of income and expenses had not been prepared by the partnership or from the partnership books of account, but was a reconciliation which she made from her own records. All references by her to "source documents" were to documents in her possession, such as her own bank statements, etc. which she used in the preparation of this reconciliation. She conceded that the sales figures do not, in any sense, accurately reflect the partnership's gross revenues in that year. That concession applied to the expenses listed therein as well. It was her evidence nonetheless that the amount claimed accurately reflected her “business loss".

Counsel submitted that there was uncontradicted evidence that a partnership between Lynda Elkin and Esmyrna Jorge existed and that references to Lynjon Canada Ltd. on the application and on the temporary Certificate of Registration were "a mistake". He contended that there also was uncontroverted evidence that Esmyrna Jorge made sales on behalf of Lynjon Travel, received moneys on its behalf and made substantial advances to it and that all such transactions were evidence both of the loss incurred and the existence of a partnership.

In the alternative, counsel argued that if in reality it was Lynjon Canada Ltd. which was carrying on the travel business, then certain amounts which the appellant advanced, such as the fees for the Certificate of Registration, the payment to the Travel Compensation Fund and other similar amounts were amounts paid by her on behalf of the corporation. Based on her testimony counsel calculated that Esmyrna Jorge advanced $12,422 to Lynjon Canada Ltd. of which she recouped $4,250 and had a loss of $8,172 which she would be entitled to claim. Such a claim would arise not out of a partnership relationship but rather from a debtor/creditor relationship with Lynjon Canada Ltd. Under section 51 of the Act she was entitled to write off a bad debt in the year in which it occurred or in the year in which the corporation becomes bankrupt, in either event 1982.

I have concluded that Esmyrna Jorge's assertions that a partnership existed cannot be accepted. It is true that the absence of a formal partnership agreement does not by itself preclude the existence of a partnership. However, in cases where no formal agreement exists one must look at the conduct of the alleged partners to determine, if possible, the true state of affairs. In this particular case the evidence is conflicting and inconsistent with the existence of a partnership.

Esmyrna Jorge is an accountant. It is not unreasonable to assume that the books of Lynjon Travel were kept in some reasonable order, particularly in view of the fact that their maintenance was required by statute and they were no doubt subject to inspection. I am satisfied that these books of account were available to Esmyrna Jorge in April 1983 when she prepared and filed her income tax returns. Her failure to obtain copies of the relevant documents, both at that time and subsequently, entitle me to draw the inference that their contents do not support her assertions.

In her efforts to explain that portion of her loss described as “Collections Deposited in Partner's Other Account" Esmyrna Jorge suggested that certain receivables were deposited in Lynda Elkin’s personal account and were never remitted to her. There is no independent evidence supporting this assertion. Furthermore the amounts are based on a reconstruction based on her own records and cannot be accepted as being an accurate reflection of the agency's books. Ultimately the only conclusion available to the Court is that Esmyrna Jorge's calculations cannot be accepted as reflecting the true state of business affairs of Lynjon Travel in that year.

There are other disturbing discrepancies. A Lynjon Travel “balance sheet" which was prepared by Esmyrna Jorge from her records includes, under the heading "Liabilities", an amount of $10,000 as a loan payable to Artor Jorge. When asked whether her husband loaned the travel company the sum of $10,000 she replied “Well I was spending my husband's money also for the travel agency. . . . That's the money I was spending for the travel agency, my share of the travel agency." When asked why the loan was recorded as a liability to her husband notwithstanding the fact that it was taken out of their joint account, her response was “Because I used his money. . . . It is jointly our money but because he is not part of the partnership I didn't feel that it was mine alone." No explanation was given as to whether the amount represented the whole of the funds advanced to Lynjon Travel and/or whether it duplicated in part the losses she claimed in her income tax return.

This same financial document makes reference to Lynjon Travel and Lynjon Canada Ltd. and states that the latter was a Canadian-controlled private corporation. No satisfactory explanation was forthcoming from Esmyrna Jorge as to the inclusion by her of any reference to Lynjon Canada Ltd. in the alleged partnership's "balance sheet”.

I have previously noted that when Lynjon Canada Ltd. was placed in bankruptcy no steps were taken to disassociate Lynjon Travel's business from that of the bankrupt. Both Artor and Esmyrna Jorge were in touch with the trustee at that time since, on January 12, 1983 a proof of claim in bankruptcy was made on behalf of Aries for an amount of $909.46 owed to it for products purchased by Lynjon Canada Ltd. No other claims were advanced. Subsequently Artor Jorge filed a "proposed amendment to proof of claim” captioned “In The Matter of The Bankruptcy of Lynjon Canada Ltd. of Ontario O/A Lynjon Travel” seeking to recover the sum of $10,000 he allegedly advanced to Lynjon Canada Ltd. Furthermore, on July 17, 1984 Esmyrna Jorge wrote to Mr. Wilson, a Revenue Canada auditor, and with respect to Lynjon Travel stated “Of course this business is not existing since it was declared bankrupt in 1983 as I told you".

It is on the basis of such evidence that the Court is being asked to find that a partnership existed between Lynda Elkin And Esmyrna Jorge and that the losses were incurred as claimed. There is no doubt that the appellants, both of them, were in some manner involved with Lynjon Travel and with Lynjon Canada Ltd. but one can only speculate as to what this relationship was. On the evidence before me I cannot with confidence conclude that a partnership existed. Even if I did so find I would reject Esmyrna Jorge's claim on the basis that the amounts alleged to constitute the totality of her business loss have simply not been proven in a satisfactory manner.

With respect to counsel's alternative submission suffice it to say that the evidence does not satisfy me of the existence of a debtor-creditor relationship between Lynjon Canada Ltd. and Esmyrna Jorge.

To recapitulate, the appeals of Esmyrna Jorge and Artor Jorge are allowed, without costs, and the reassessments referred back to the respondent for reconsideration and reassessment to the following extent:

1. that in calculating the partnership income of Aries Enterprises the cost of inventory (allowable purchases) is to be increased by the amount of $5,477.09 and that the cost of travel amounting to $268.92 be allowed as a deductible expense; and

2. that in calculating the partnership income of Artor and Esmyrna Management Consultants the allowable expenses are to be increased by the amount of $221.

In all other respects the reassessments remain unchanged.

Appeals allowed in part.