Joseph Beausoleil and Maurice Beausoleil v. Minister of National Revenue, [1976] CTC 2142, 76 DTC 1113

The Chairman:—This is the appeal of Joseph Beausoleil against assessments for the taxation years 1968 to 1971 inclusive, and of Maurice Beausoleil against assessments for the 1968 and 1969 taxation years. The appeals were heard and decided on common evidence.

In these cases the Board must decide whether or not the two appellants were members of a partnership known as Joseph Beausoleil Fils.

Mr Joseph Beausoleil is the father of four sons, one of whom is Maurice Beausoleil, the other appellant in this case. Mr Beausoleil has very little education, and has always worked on his own for the City of Montreal on an hourly basis with his own truck, earning between $4,000 and $5,000 per annum. Mr Joseph Beausoleil and his wife also received a monthly rental income of $75.

Mrs Joseph Beausoleil, who seemed betier educated than her husband, stated that she collected all the bills for her husband’s truck expenses, recorded all of his earnings and expenses in a a notebook, and gave everything to their accountant, Mr Marcel Laroche, for him to prepare Mr Joseph Beausoleil's tax returns. Neither Mr Beausoleil nor Mrs Beausoleil Signed the tax returns. All of Mr Beausoleil’s tax returns from 1968 to 1971 inclusive were signed by Mr Laroche on behalf of Mr Beausoleil. Furthermore, it was established that Mr Beausoleil had at no time possessed or seen copies of the tax return sent by Mr Laroche to the Department of National Revenue. When questioned about this, Mr Laroche indicated that he did not send Mr Beausoleil a copy of the return because the latter owed him fees. In view of this, the Board cannot understand why Mr Laroche went to the trouble of preparing Mr Beausoleil’s tax return.

The Minister’s assessments for the years 1968 to 1971 were based on the tax returns of Mr Joseph Beausoleil who, in addition to reporting his salary and the sum of $75 received by him as rental, also reported various incomes amounting to $69,000 in 1968 and $52,000 in 1971. In the returns, Joseph Beausoleil is said to have received amounts varying from $480 to $2,465 as his share of the net profits of the partnership’s operations in the years pertaining to this appeal (Exhibit I-1 on file).

Mr Beausoleil opposed the assessments, testifying along with his wife that he had always worked for himself with his truck for the City, had never belonged to any partnership whatsoever, and had never earned over $5,000 per year.

The testimony of Mr Marcel Laroche, a chartered accountant who has been in charge of the Beausoleil family’s tax returns since 1959, was extremely interesting. Mr Laroche Stated that there was no written partnership agreement, but that a de facto partnership existed, and that the construction equipment, consisting of a backhoe and bulldozers, had been purchased by Joseph Beausoleil. However, Mr Laroche explained to the Board that Floyd, one of Mr Beausoleil’s sons, had gone bankrupt, and as he could no longer purchase property, he used his father’s name to buy the equipment in question and used it for construction work. Although Mr Laroche somehow assumed that Joseph Beausoleil was aware of this, it is established that the father knew nothing about it.

Mr Laroche also stated that he did business with Floyd, but that his relationship with the latter was Strictly an employer-employee one. Mr Laroche pointed out that for the purposes of the Construction Industry Commission and the Workmen’s Compensation Board, it was [to] Floyd’s advantage to consider his business as a family enterprise in which all members of the partnership were tradesmen.

Although Mr Laroche may perhaps have thought that a a parinership existed, I find it it impossible to believe that a a responsible accountant who had been in charge of a client’s tax returns since 1959 could enter in his books and in his tax returns since 1968 incomes ten times greater than his client had ever earned in his life, especially without mentioning this to him or at least sending him a copy of the tax return he had made. The accountant himself admitted that he had never given Joseph Beausoleil copies of the tax returns showing an income of about $60,000 in 1968 and similar amounts for the following years, and that he had simply signed Joseph Beausoleil’s name and sent the returns to the Department of National Revenue.

I believe that Mr Laroche’s testimony lends support to that of Joseph and Mrs Beausoleil, that Mr Beausoleil had never worked for or with his son Floyd, and that he had never been in a partnership.

In maintaining that Mr Joseph Beausoleil and Mr Maurice Beausoleil did in fact belong to the partnership referred to in the tax returns for the years in question, counsel for the respondent cited Article 1830 of the Civil Code of the Province of Quebec:

Article 1830. It is essential to the contract of partnership that it should be for the common profit of the partners, each of whom must contribute to its property, credit, skill, or industry.

It is, I believe, well established that Joseph Beausoleil brought neither property, credit (which he did not have), skill nor industry to the partnership; and there is no indication that the partnership was formed for the common profit of the partners, since Mr Beausoleil gained nothing from it, even after Floyd had sold all the equipment to an American firm.

Even if the facts were different, Article 1830 and the other articles on partnership in the Civil Code of the Province of Quebec are applicable only if there is consent by the parties to the formation of a partnership. The facts lead me to believe that, not only was there no consent by Mr Joseph Beausoleil to the formation of a partnership, but there was also no knowledge on his part of its existence (if it ever did exist). In my opinion, great pains were taken to prevent his knowing about it.

Under these circumstances, since the partnership does not exist in fact or in law, I fail to see how the respondent can claim that the partnership has a valid existence as regards a third party—in this case, the Minister of National Revenue.

I am convinced that Joseph Beausoleil was a victim of fraud, that he never consented to, and was not informed of, his participation in a partnership, and that he gained absolutely no profits from the alleged partnership.

As for Maurice Beausoleil, the latter stated that during 1968 and 1969 he was employed by his brother Floyd as a crane operator, but that he was never considered a partner in a partnership. In his testimony, Maurice Beausoleil stated that the equipment belonged to his brother Floyd and that his father had never worked for Floyd; neither was he with him in any partnership, since there never was a partnership.

Counsel for the respondent referred to a letter (on file) dated April 17, 1975, signed by Maurice Beausoleil. This letter suggests that Floyd had asked Maurice to work for him for $80 per week.

The third paragraph of this letter contains the following: (Translation)

When the tax reports were filed I never saw the said reports and did not even sign them. Messrs Floyd Beausoleil and Marcel Laroche, CA, had told me that everything would be done by them. When an amount of tax was due, I received a cheque payable to me signed by Floyd (Joseph) Beausoleil, which I deposited in my account and then made one out for the same amount for the tax.

Counsel for the respondent suggests that this paragraph from the letter shows that Maurice was a partner in the alleged partnership. Although Mr Maurice Beausoleil never received a T4 and although his tax was paid by his brother, I do not believe that these circumstances support the conclusion that Maurice Beausoleil was a member of a partnership.

The facts seem rather to indicate that Floyd, as he had done with his father, took it upon himself, in conjunction with the accountant, to file the tax returns and to include, without Maurice’s knowing it, income and distribution of profits which only Floyd knew about and manipulated. It should be noted that Mr Laroche signed Maurice Beausoleil’s tax returns from 1965 to 1967 inclusive.

I conclude from the evidence submitted that Joseph and Maurice Beausoleil were not partners in a partnership under the name of Joseph Beausoleil Fils, that this partnership had no actual or legal existence, and that the appellants received no benefit and had no knowledge of the net profit distribution that Floyd, unknown to them and in conjunction with his accountant, had included in their tax returns.

It is regrettable that the Minister may fail to collect taxes from Floyd to which he is perhaps entitled, but under the circumstances I believe it would be highly unjust to impose a tax on income from a partnership which existed neither in fact nor in the minds of the appellants, and which they never received.

For the above reasons, these appeals are allowed in part and the matter referred back to the Minister for reconsideration and reassessment, so that he may take into consideration the fact that the appellants were neither members nor beneficiaries of a partnership. However, the appellants’ incomes from sources other than the partnership are taxable and should be taxed if this has not already been done.

Appeals allowed in part.