Peter Flicke v. Minister of National Revenue, [1980] CTC 2538, 80 DTC 1473

John B Goetz:—This is an appeal from an assessment for income tax for the 1976 taxation year of the appellant.

At the outset of the hearing, the appellant’s agent stated that he had discovered that the issue for the 1976 taxation year also applied to the 1975 taxation year. Since the appellant had not filed a notice of objection for the 1975 taxation year, an application for extension of time to file a notice of objection for the said year was made with this Board and an order extending the time for filing a notice of objection for the 1975 taxation year was granted in October 1979. Where a taxpayer has served a notice of objection to an assessment, he may appeal to this Board after “the Minister has confirmed the assessment or reassessment’’, or after “180 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that he has vacated or confirmed the assessment or reassessment”. In this case, Mr Flicke could have appealed to this Board for the 1975 taxation year after the above conditions had been met. As no appeal has been instituted for the 1975 taxation year at the date of the hearing of the present appeal, this Board, therefore, has no jurisdiction to deal with the 1975 taxation year.

Facts

The appellant has carried on a carpentry and cabinet-making contracting business since 1968, under the name of “Peter Flicke Carpentry and Contracting”. Mrs Hilda Flicke, the appellant’s wife, was a registered nurse by profession and contributed to the purchase of a house in 1966 which is owned jointly. In that house is a cabinet-making workshop taking up an area of approximately 800 square feet. The appellant says that his wife, at the time of the commencement of the business, stopped working as a registered nurse, and undoubtedly part of the reason for this was that she had two youngsters. The appellant claims that he operated as a partner with his wife, for profits since 1968, but such partnership was never registered. The main work involved in the business is that of general contracting services, mostly in home improvements and repairs, necessitating the appellant to be away from his workshop most of the day. His wife has become proficient in carpentary and cabinet work which is done in their shop in their home. Among other duties, Mrs Flicke looks after all communications with customers and suppliers and is, in fact, on standby duty all day while the appellant is away on outside jobs. Some of the functions she performs, according to the appellant, are: she answers the telephone, makes appointments, calls customers and suppliers, locates sources and orders materials and supplies, follows up on orders, types contracts, invoices, etc. She keeps track of receivables and payables and items to be paid and “assists” in the shop in cabinet work and in particular finishing work as veneering, sanding, staining and varnishing. She cleans the shop and looks after the maintenance of small tools and makes deliveries and pick-ups of samples of materials of supplies and finished products and runs errands. She prepares and draws all cheques which are signed by the appellant. On occasions when work becomes too heavy for his wife, the appellant retains the services of casual help.

Frankly, until Mrs Hilda Flicke took the witness stand and gave evidence, I was somewhat hesitant to assume that she was able to perform the functions referred to by her husband, but she impressed me as not only a very stong and handsome woman but one who was very honest in using terminology indicating her knowledge and expertise with respect to cabinetmaking. She states that she worked at the Metro Hospital up to the ninth month of her pregnancy and was back to work within six days after the birth of their child. It was then shortly after having had her second child that she went into business with her husband and did not go back to nursing.

Findings

I have no hesitation in concluding that indeed Mr and Mrs Flicke carried on the business of general contracting and cabinet-making as partners for the purpose of profit, regardless of whether such partnership was registered pursuant to the laws of the Province of Ontario.

The appellant felt that there should be a sharing of the profits between him and his wife on a 50/50 basis, but I cannot accede to this suggestion, but rather having regard to the fact that she is not only a wife and a mother and has considerable household duties to perform, that her share of the profits would be more reasonably set at 35% of the net revenue from the operation of the business.

The respondent’s position was basically that the appellant and his spouse agreed to share income from the partnership in order to reduce or postpone tax that might otherwise have been or become payable under the Income Tax Act, with a view to making a profit. To substantiate his position, the respondent relied, inter alia, on subsection 103(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended, which reads as follows:

(1) Where the members of a partnership have agreed to share, in a specified proportion, any income or loss of the partnership from any source or from sources in a particular place, as the case may be, or any other amount in respect of any activity of the partnership that is relevant to the computation of the income or taxable income of any of the members thereof, and the principal reason for the agreement may reasonably be considered to be the reduction or postponement of the tax that might otherwise have been or become payable under this Act, the share of each member of the partnership in the income or loss, as the case may be, or in that other amount, is the amount that is reasonable having regard to all the circumstances including the proportions in which the members have agreed to share profits and losses of the partnership from other sources or from sources in other places.

The appellant and his wife obtained the services of a chartered accountant, who realized after discussing the business of the appellant and his spouse, that they had not taken advantage of the provisions of the Income Tax Act to which they were entitled to do in the calculation of their annual income. I find that the appellant and his wife were carrying on a general contracting and cabinet-making business, together in partnership with a view to profit, and that the proper share of the profits accruing to the spouse, Hilda Flicke, should be 35%.

Decision

The appeal is allowed on the basis that the share of the profits accruing to the appellant’s spouse should be determined at 35%. The matter is referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.