A
J
Frost:—This
is
an
income
tax
appeal
in
respect
of
the
appellant’s
1962
taxation
year
wherein
an
additional
tax
to
the
extent
of
$17,146.75
was
levied
in
connection
with
the
profit
realized
from
the
sale
of
the
appellant’s
partnership
interest
in
O
H
Ranch.
Upon
Notice
of
Ob-
jection
duly
signed,
the
Minister
of
National
Revenue
confirmed
the
assessment
on
February
7,
1968.
This
appeal
and
the
appeals
of
Clinton
W
Roenisch,
Jr,
Harold
W
Roenisch
and
Mrs
Dorothy
E
Bacon
were
heard
together
on
common
evidence
on
September
29,
1971
at
Calgary,
Alberta
by
the
Tax
Appeal
Board
as
it
was
then
constituted.
The
O
H
Ranch
was
owned
and
operated
by
a
partnership
comprising
members
of
the
family
of
the
appellant
and
the
family
of
William
Ardern.
Each
family
owned
50%
of
the
partnership
assets
with
Clinton
W
Roenisch,
Jr
acting
as
trustee
for
the
appellant’s
family
and
A
D
Kingsford
for
the
Ardern
family.
On
January
4,
1962
the
Roenisch
family
sold
its
interests
to
O
H
Ranch
(1961)
Limited
for
$297,500.
The
agreement
of
sale,
made
retroactive
to
November
30,
1961,
did
not
allocate
the
purchase
price
between
livestock
and
other
partnership
assets.
The
Minister
assessed
the
transaction
on
the
basis
that
there
must
be
some
allocation
of
the
proceeds
of
sale
of
the
partnership
interest
between
assets
of
a
capital
nature
and
the
livestock
inventory.
The
appellant
disputed
this,
contending
that
the
entire
proceeds
of
sale
were
of
a
capital
nature,
and
submitted
that
the
tax
levied
in
respect
of
the
sale
of
the
livestock
inventory
had
no
basis
in
law.
Two
questions
arose
in
argument
which,
in
my
opinion,
bring
out
the
essentials
in
this
appeal.
They
are:
(1)
Was
the
total
sale
price
paid
for
the
interest
in
the
partnership
a
capital
receipt?
(2)
Was
the
inventory
of
cattle
excessive?
Counsel
for
the
appellant,
in
his
argument,
regarding
the
first
question,
contended
that
Rutherford
v
The
Commissioners
of
Inland
Revenue,
10
TC
683,
and
Van
Den
Berghs,
Limited
v
Clark,
[1935]
AC
431;
19
TC
390,
had
established
that
the
sale
price
of
an
interest
in
a
partnership
is
a
capital
receipt.
It
was
further
contended
that
the
agreement
by
its
terms
constituted
a
sale
of
an
interest
in
a
partnership
rather
than
in
a
business
or
part
of
a
business.
While
it
is
true
that
at
one
time
no
part
of
the
proceeds
of
the
sale
of
the
interest
in
a
partnership
was
taxable
on
the
ground
that
a
taxpayer
was
not
in
business
for
the
purpose
of
going
out
of
business,
this
is
no
longer
law.
Subsection
85E(1)
of
the
Income
Tax
Act
reads
as
follows:
85E.
(1)
Where,
upon
or
after
disposing
of
or
ceasing
to
carry
on
a
business
or
a
part
of
a
business,
a
taxpayer
has
sold
all
or
any
part
of
the
property
that
was
included
in
the
inventory
of
the
business,
the
property
so
sold
shall,
for
the
purposes
of
this
Part,
be
deemed
to
have
been
sold
by
him
(a)
during
the
last
taxation
year
in
which
he
carried
on
the
business
or
the
part
of
the
business,
and
(b)
in
the
course
of
carrying
on
the
business.
Accordingly,
I
find
that
the
Minister
is
right
in
distinguishing
livestock
inventory
from
the
capital
assets
of
the
partnership
and
in
taxing
the
profits
realized
from
the
sale
of
livestock
inventory
under
the
above-cited
section
of
the
Act.
Concerning
the
second
question,
counsel
contended
that
the
re-
assessment
was
inaccurate
in
that
it
treats
a
cow
and
a
calf
as
a
unit
and
one-half,
whereas
on
the
effective
date
of
the
agreement
(November
30,
1961)
a
cow
and
a
Calf
constituted
one
unit.
Section
1802
of
the
Income
Tax
Regulations
governing
the
valuation
of
animals
was
enacted
March
13,
1963,
applicable
to
the
1962
taxation
year
and
subsequent
years.
It
is
not
applicable
to
the
year
1961.
This
is
an
unusual
situation
in
that
the
Minister
causes
a
regulation
to
be
enacted
retroactively
at
a
time
when
the
appellant
has
already
entered
into
a
retroactive
agreement
and
thereby
unknowingly
succeeded
in
avoiding
retroactive
regulation.
Parliament
can
constitutionally
enact
legislation
on
a
retroactive
basis
within
its
class
of
subject
and
an
individual
can
also
enter
into
an
agreement
which
is
to
take
effect
as
from
a
date
prior
to
that
on
which
the
contract
was
signed.
The
retroactive
agreement
was
in
force
prior
to
the
enactment
of
the
retroactive
regulation.
In
my
view
the
appellant
was
within
his
rights
in
insisting
that
the
valuation
of
his
cattle
be
based
on
departmental
practice
as
of
November
30,
1961,
the
effective
date
of
the
sale.
I
further
find
that
the
inventory
of
cattle
was
overstated
by
24
head,
being
the
number
of
cattle
“sold”
as
a
bonus
to
the
appellant’s
foreman
prior
to
November
30,
1961.
Appeal
allowed
in
part.
Email this Content