Israel Feder v. Minister of National Revenue, [1981] CTC 2327, 81 DTC 311

John B Goetz:—The appellant appeals from an assessment of income tax for his 1974 taxation year, notice of which assessment was dated July 11, 1977. On assessing, the Minister included the sum of $43,307.32 in the computation of the appellant’s income as the appellant’s 5/20 share of the profit realized on the disposition, during the year, of about 25 acres of land known as the “Beecher property”. It was the appellant’s contention that one-half of the said $43,307.32 profit was his and that the remaining one half was his wife’s.

I must, at the outset, dispose of an area of confusion, namely, the purported reliance by the respondent on subsection 74(5) of the Income Tax Act. One of the assumptions of fact which the Minister, in his reply to notice of appeal, pleaded that he made on assessment was:

8. ...

(4) at no time did the appellant’s wife, Raisa (aka Ray) (sic) have any interest in the Beecher property at any time that the 5/20 interest in that property was registered in the appellant’s name.

The Minister pleaded further in paragraph 9 of the reply to notice of appeal:

9. In the alternative, if the appellant and his wife were partners in respect of the Beecher property, the Minister of National Revenue states that he deems the income of the appellant’s wife, Raisa Feder, that was derived from the disposition of the Beecher property, to belong to the appellant.

In determining whether the assessment under appeal is correct the present opinion of the respondent as to the question in whose income the profit falls, has no relevance. Nowhere does the Minister plead that on making the assessment under appeal or that before making such assessment, he exercised the discretion vested in him by subsection 74(5). No reference is made to the exercise of such discretion either in the notice of assessment or in the explanation which forms part of such notice. Although reference is made to the exercise of such discretion in the notice of confirmation, no at- temp or purported attempt to exercise the subsection 74(5) discretion can, if made after the making of the assessment in question, have any relevance whatsoever. The assessment in issue here has not been superseded or replaced by any subsequent assessment for the appellant’s 1974 taxation year. Thus, the issue in this case, as I see it, is a simple question of fact, namely, was the $43,307.32 profit derived from a business or adventure in the nature of trade by the appellant alone, or was it derived from such business or adventure in the nature of trade carried on by the appellant and his wife.

Samuel Feder also filed a notice of appeal with respect to the disposition of his share in the Beecher property. Separate reasons for judgment will be issued for his appeal. A J Irving, Esq, counsel for both Israel and Sam Feder and Gaston Jorré, Esq, counsel for the respondent, agreed that the evidence would fit together although there were two separate appeals. This arose because of the evidence given by one Sam Victor, a chartered accountant, who did the books for both the appellants for a long period of time.

The appellant is a fur finisher. His wife’s name is Raisel Ray Feder. They were born in Poland and were prisoners of war in Germany and when they were released they worked together as tailors and had a daughter born to them while they were residing in Germany. When they came to Canada they had approximately $2,000 and worked for Hertig Furriers for 15 years. They did piece work in the evening, which was done by his wife Raisel as much as by the appellant. They raised money this way and saved it. They purchased a home for $16,000, putting a down payment of $5,000. Raisel Feder worked at the Hudson’s Bay store and of, course, declared her income. Both Israel Feder and Raisel Feder filed their income tax returns with a view of clearly establishing that at no time were they attempting to conceal their operations. Like Mr and Mrs Sam Feder, Israel and Raisel Feder operated as one, apparently the old country philsosphy, especially having regard to their background in Poland and in prison camps in Germany.

A number of cheques drawn on the Toronto-Dominion Bank, savings account, were signed jointly by Israel and Raisel Feder. I think these are rather Significant.

Israel Feder indicated that he had purchased #487 Osborne Street, in the City of Winnipeg, Manitoba, in April 1961, for $85,000, which he ultimately sold for $53,300 at a loss. He had acquired this property from his bonds and savings. He sold his half interest to one Maier Jakuvowitz. The sale was effected in 1972. The property at 487 Osborne Street was held in the joint names of Israel Feder and Raisel Feder. A letter was written to Mr and Mrs I Feder, on March 17,1972, by the law firm of Yanofski, Pollock & Associates (Exhibit A-24). This related to the adjustments on the sale of 487 Osborne Street. Likewise Exhibit A-25 indicates the actual adjustments in numerals. Mr Feder also filed a bank statement which was in their joint names, being account number 1055 (Exhibit A-26). He indicated that when he acquired the Beecher property he used bonds and cash which were supplied by him and his wife. His main acquisitions while in Canada were his personal home, the Osborne Street property and the Beecher property. He admits that he received cheques in his name, that he only worked eight or nine months a year but that his wife worked at The Bay and worked at home, at the same time raising a family.

Raisel Feder gave evidence that she worked in the wintertime at the Hudson Bay store and in the summertime as a furrier. Her income tax return would seem to indicate this. The Beecher purchase involved $15,000, the funds coming from bonds and savings.

Mr Sam Victor, chartered accountant, states that an officer of the Department of National Revenue visited him to get all the necessary information to prepare their net worth assessments being Exhibits A-12 and A-13. Mr Victor prepared all of Raisel Feder’s income tax returns from information given to him.

All the time while living in Canada they had split their income and used their monies as one. Raisel Feder, like her neighbours in the block, did extensive piece work which her husband brought home from the furrier for whom he worked.

I was impressed with the candor in which both Israel and Raisel Feder gave their evidence and I have no reason whatsoever to doubt their credibility. I accept their statement that they pooled all their assets throughout their married life. Raisel Feder consistently earned income in her own right which was contributed to the joint pool. The parties cashed bonds and deposited same to their Toronto-Dominion joint Bank account #1055, for the purpose of acquiring the appellant’s 5/20 interest in the Beecher property.

On the balance of probabilities, this case must be considered on the facts and I have no hesitation whatsoever in concluding that any properties held in one of the single names of either Sam or Israel Feder were held in trust for the beneficial interest of their spouse and that all assets acquired and disposed of by them were disposed of as an equal and joint interest.

I therefore find that the husband and wife shared equally in their 5/20 share of the profits accruing from the sale of the Beecher property and allow the appeal and refer the matter back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.