Samuel Feder v. Minister of National Revenue, [1981] CTC 2330, 81 DTC 307

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 $69,291.71 in the computation of the appellant’s income as the appellant’s 8/20 share of the profit realized on the disposition, during the year, of about 25 acres of land known at the “Beecher property’’. It was the appellant’s contention that one half of the said $69,291.71 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, Mania (aka Mary) (sic) have any interest in the Beecher property at any time that the 8/20 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, Mania 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 attempt 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 The assessment in issue here has not been superseded or replaced by any subsequent assessment for the appellant’s 1974 taxation year.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 $69,291.71 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.

At the same time there is an appeal before me by Israel Feder. One Sam Victor, a chartered accountant, gave evidence subsequent to that of Samuel Feder and Sam Victor’s evidence related to both the Samuel and Israel Feder appeals. I must deal, however, with the appeals separately, using Samuel Victor’s evidence as common evidence to both appeals as requested by counsel for the appellant and for the respondent.

The appellant Samuel Feder resided in Winnipeg and his basic occupation was that of furrier, having come to Canada from Germany in 1949 as a tailor. He was married to Mary (Mania) Feder and brought with him approximately $10,000. He settled in Winnipeg and took up the furrier business, worked with Hecht Furs for five years, with Stahl Fur Company for five years until 1959 and several places subsequent thereto until 1968, when he bought the Canada Motor Lodge which he owned and operated for five years and which he eventually sold. In 1976 he acquired a share interest in the Brunswick Hotel. None of the documents relating to the purchase of the Beecher property mentioned Mary Feder’s name.

The appellant Samuel Feder and his wife Mania Feder maintained a joint chequing account with the Royal Trust Company, which accounts were closed out January 13, 1972. Filed on behalf of the appellant was a bank Statement showing Samuel Feder and Mrs Mania Feder, each with the authority to sign on a bank account statement 2480. On or about May 18, 1978, Mr Samuel Feder received the following letter from the Royal Trust Corporation of Canada:

18th May,

1978.

Mr Sam Feder

1 Marigold Bay

Winnipeg, Manitoba

R2V 2L9

Dear Sir:

This is to advise that you terminated the Fund B account registered in your name only on February 28, 1973. The proceeds of $10,268.30 were deposited to Chequing Account number 2480. The chequing account was a joint account registered to Mr Samuel Feder and Mrs Mana Feder. On March 6, 1973, you withdrew $10,000 from this account but our records do not indicate if this was by cheque or a personal withdrawal. I am enclosing a copy of our branch records which reflect this transaction.

Yours truly,

ROYAL TRUST CORPORATION OF CANADA,

(Signature)

G G Manning,

Money Services.

Enclosure

GGM/gd

416

(Italics mine).

Further Exhibits were filed on behalf of the appellant. Exhibit A-9 is a letter from the Canadian Imperial Bank of Commerce to Mr Sam Feder indicating that he and his wife operated two joint accounts at their office. This letter was dated May 11, 1978.

The appellant maintained that he always conducted his business on the basis of a full partnership with his wife. I must confess that my first impression was to accept this evidence with some reluctance. However, after listening to the accountant Sam Victor and listening to and observing Mrs Mania Feder when she gave evidence, I have no hesitation whatsoever in concluding that Mania Feder indeed was the driving influence of the family. She was a powerful, assertive woman and fully knowledgeable of all affairs involved in the appeal.

Findings

Starting from 1955, Mania Feder indicated that she and her husband purchased the Inkster property, Gilia Drive and 185 Union Street and obtained revenues from them and declared them in their income. She states that she helped her husband in his tailor and furrier work doing piece work at night. She says: “I work more than him”. For example, she painted the house. In all my years of experience at the Bar I have never met a woman more assertive and strong-willed than Mania Feder. She indicated under cross- examination that the money she brought to Canada would involve diamond rings and earrings which she bought with money that she earned in Germany.

They bought the Gilia property for $9,500; they purchased the Inkster property for $7,000 and the Union Street property for $6,000. Mrs Mania Feder refers to these purchases as partners.

Income tax returns were filed by Samuel and Mania Feder which speak for themselves. They had been prepared for these people by Sam Victor, a chartered accountant, who seemed to be fully conversant with the work done by this couple.

The relevant section of the Act to be considered is subsection 74(5) which reads as follows:

(5) Where a husband and wife were partners in a business, the income of one spouse from the business for a taxation year may, in the discretion of the Minister, be deemed to belong to the other spouse.

I find that there was a constructive trust in all assets held in the name of the appellant for the benefit of himself as well as equally for his wife Mania. The appellant admitted that Mrs Feder did not do too much work in Canada until she and her husband took over Canada House and for a short period, one or two years, she operated a grocery store between 1962 and 1963. Not too much money was earned during this period by Mania Feder. It should be noted that any income earned by Mrs Feder’s business was reported in her income tax returns. Paragraphs 4 and 5 of the appellant’s submission read as follows:

4. In particular, the returns of income of Sam and Mania Feder show a sharing or division of income throughout and as follows:

S Feder—Ex A-10: (the appellant’s copies are incomplete although the copies filed with the respondent would have been preferable and more complete)

1964 Return—page 4 CCA Schedule in names of Mr and Mrs Feder and page 7 sharing of rental income;

1965 Return—page 5 sharing of interest income and page 6, sharing of rental income (including CCA Schedule page 7);

1968 Return—page 3 sharing of interest and rental income;

1971 Return—page 4 declaration that partner is Mania Feder;

1972 Return—page 4 sharing of interest and rental income:

1974 Return—pages 4-7 inclusive, sharing of rental and interest income.

M Feder— Ex A-14

1971 Return—page 4, declaration that partner is S Feder;

1973 Return—page 2, sharing of interest and rental income;

1974 Return—pages 4-7 inclusive, sharing of interest and rental income.

9. A husband who supports his spouse must declare her income if he intends to make any claim for her support as a deduction or exemption (ie married exemption). Sam Feder’s returns of income show:

1963 Return—page 3, no claim for a deduction:

1965 Return—page 3, showed spouse’s share of rental income of $249.81 but erred in omitting interest income of $1,521;

1966 Return—page 3, spouse’s income shown as $250;

1967 Return—page 3, spouse’s income shown as $506.02;

1968 Return—page 4, spouse’s income shown as $1,080;

1969 Return—page 3, spouse’s income shown as $928.67;

1971 Return—page 3, no claim for a deduction;

1973 Return—page 3, no claim for a deduction;

1974 Return—page 3, no claim for a deduction;

1975 Return—page 3, no claim for a deduction:

1976 Return—page 3, no claim for a deduction;

1977 Return—page 3, no claim for a deduction;

1978 Return —page 3, no claim for a deduction;

As mentioned earlier, Sam Feder and his wife acquired Canada House, a hotel, as well as the Brunswick Hotel, wherein, of course, it is readily appreciated by any lawyer who has had experience in hotels run by husband and wife that the wife indeed works as hard or possibly harder than the husband; he usually confines his time to the beer parlor.

Sam Victor stated unequivocally that the people who lived in the block where Sam Feder and his wife, as well as Israel Feder (the other appellant) and his wife, lived, all worked in the evening doing “piece work’’ in tailoring and in furrier work. He said “the whole block was doing this’’. He found this common in people coming from the Old Country.

Although the respondent disclaims any importance to net worth assessments issued to Sam and Mania Feder for the years 1970, 1971, 1972 and 1973, quite obviously two separate auditors from the Department of National Revenue had reached the conclusion that the assets owned by the appellant and his wife Mania at that time were jointly owned. Indeed this could have been an erroneous assumption on the part of the auditors, but in light of the evidence I find it far more consistent with the story of the appellant that, from the time he came to Canada from Germany, he and his wife shared in all common losses and worked together as one. They were hard working immigrants, a burden on no one, rather an asset to the community.

It was very clear from the time of the arrival of the appellant and his wife from Germany and settling in Winnipeg, that Samuel Feder acted as a twosome with his wife Mania. I suggest that over such a long period of time up to the relevant year of assessment, it would be impossible to keep a detailed review of financial transactions between Sam Feder and his spouse. Nevertheless, the onus rests upon the appellant to establish on the balance of probabilities that each of the spouses had obtained an equal interest in the Beecher property. From the time of their arrival in Canada in 1949 they pooled all their assets and income, their relationship was indeed a partnership in every sense of the word.

I have considered the following cases cited by counsel for the appellant:

Sv S (1952), 5 WWR 523;

Nemeth v Nemeth (1967), 64 DLR (2d) 377;

Warm v Warm (1969), 70 WWR 207.

I therefore find that the husband and wife shared equally in their 8/20 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.