Mendel Tenenbaum and Hersz Tenenbaum v. Minister of National Revenue, [1977] CTC 2534, 77 DTC 390

A J Frost (orally: May 4, 1977):—I shall now give my decision in Appeals Nos 76-119 and 76-120 between Mendel Tenenbaum and Hersz Tenenbaum, appellants, and the Minister of National Revenue, respondent. These are income tax appeals with respect to the appellants’ 1971 and 1972 taxation years, which were heard on common evidence on May 4, 1977.

By agreement made in February 1971, Hersz Tenenbaum, Mendel Tenenbaum and Milla Tenenbaum as the trustees of the Rebecca Tenenbaum Trust, the Rhonda Tenenbaum Trust, the Sally Ethel Tenenbaum Trust, the Leah Deborah Tenenbaum Trust and the David Dov Tenenbaum Trust; and Dora Tenenbaum as the trustee of the Meyer Avram Tenenbaum Trust, the Ruth Deborah Tenenbaum Trust and the Benny Jerry Tenenbaum Trust, formed a partnership called Tenen Management Company.

One of the appellants, Mr Hersz Tenenbaum, testified that he had two main reasons for establishing the management company partner- ship, namely estate planning and the central management of several properties.

The seven properties under central management of the partnership trust, six of which were controlled by the appellants, contained 1,603 rental units and reflect a substantial business operation which cannot, in my opinion, be considered a sham. As long as a trust, corporation or agency performs a bona fide business function and fulfils the business purpose for which it was established, it is not a sham. I find therefore that the Tenen Management Company cannot be faulted on this ground.

With respect to estate planning, it is my view that most work in this field is aimed at the reduction of tax in some form by the transference of assets and/or income from a taxpayer to members of his family.

On the evidence I find that despite the bona tides of the management company (trust partnership) as a business enterprise, its creation did have the effect of diverting income into the trust for the benefit of the children, which was the principal reason for its creation. This aspect I find more important than the management aspect. Therefore, since the principal aim is to reduce taxes, the appellants are caught by the language of section 103 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

For these reasons the appeal is dismissed.

Appeals dismissed.