Amos Barzilay v. Minister of National Revenue, [1984] CTC 2353, 84 DTC 1290

Christie, CJTC:—This appeal pertains to the appellant’s 1977 taxation year. There are two issues. First, whether the appellant was entitled to deduct $4,620 from his total income as a bad debt, and, second, whether during the relevant period Whitby Dominion Hardware (“Whitby”) was a partnership caried on by the appellant together with his wife or a proprietorship.

On May 20, 1980, the respondent mailed a notice of reassessment to the appellant adding $37,237.08 to the latter’s income as unreported income from Whitby. The appellant objected on these grounds:

(a) the $37,237.08 should be reduced by $4,620 to reflect a bad debt owing by Pafco Sales to Whitby in 1977; and

(b) Whitby, being a partnership consisting of the appellant and his wife, only one-half of the income therefrom should be attributed to the appellant.

Paragraph 20(l)(p) of the Income Tax Act (“the Act”) authorizes a taxpayer in computing his income for a taxation year from a business or property to deduct a debt owing to him subject to these two conditions. The taxpayer must establish:

(i) that the debt has become bad in the year; and

(ii) that the amount of the debt has been included in computing his income for the year or a previous year.

Whether a debt has become bad is a question of fact to be determined in accordance with the evidence adduced in each case, but the decision rendered by W S Fisher, QC on behalf of the Income Tax Appeal Board in Hogan v MNR, 15 Tax ABC 1; 56 DTC 183, supplies very useful guidelines in making that determi- nation. Hogan is cited with approval by Mr Justice Walsh of the Federal Court- Trial Division in Fradet v The Queen, [1983] CTC 424; 83 DTC 5445 at 430 [5449] et seq.

The appellant having failed to establish that the $4,620 was included in computing his income as required by subparagraph 20(l)(p)(ii), this aspect of the appeal fails. It follows that it is unnecessary to decide whether the debt had become bad. Nevertheless, I observe that applying the general principles stated in Hogan to be applicable to determining whether a debt has become bad to the evidence adduced on this appeal, my conclusion is that the requirements of sub- pararaph 20(l)(p)(i) of the Act have not been met. The only evidence presented to establish that the debt was bad was two cheques, both dated February 27, 1978, and signed by one Percy Arnott. One cheque is in the amount of $3,670 and the other in the amount of $950. Both are stamped “Payment Stopped”.

Turning now to the partnership issue. In the Canadian Encyclopedic Digest (Ontario) 3rd edition, this is said at 106-23 and 24, regarding the determination of the existence of a partnership:

The question whether there was a partnership must be determined by the real intention of the parties as evidenced by their conduct. In ascertaining their real relationship the court will not take any one circumstance and say that it, by itself, raises a presumption for or against a partnership and then ask whether there is anything to rebut that presumption, but will take into consideration everything that is available — formal contracts, admissions, documents, advertisements, correspondence and the evidence of witnesses — and ascertain therefrom, if possible, what the true relationship was.

Reference is also made to MNR v Braat, [1969] CTC 294; 69 DTC 5219 at 302 [5224] et seq.

There was a paucity of evidence regarding the question whether the alleged partnership existed during the relevant time. It consisted simply of the appellant’s statement that the partnershp did exist. The other alleged partner was not called and no reason was given for this. No other witness was called by the appellant. Nothing by way of documentation was produced to sustain the creation of the partnership. Mr Whatmough, an employee of Revenue Canada who conducted an audit of the appellant’s financial affairs, testified that he uncovered no evidence of a partnership. In the light of the foregoing, I conclude the partnership did not exist.

From what I have said, it follows that the appeal must be and it is dismissed.

Appeal dismissed.