Zimmer v. Minister of National Revenue, [1975] C.T.C. 2150, 75 D.T.C. 123

A W Prociuk (orally: October 8, 1974):

1 This is an appeal by the appellant, George A Zimmer, from the respondent's reassessment of his income for the years 1967, 1968 and 1969 by notices of reassessment dated April 19, 1972 and confirmed by the respondent on July 19, 1973.

2 The issue involves the receipt by the appellant of the sum of $11,960.80 from one Thomas A Buckham, of which $3,495 was received in 1967, $4,670 in 1968 and $3,795.80 in 1969. The appellant, in his notice of appeal, stated that from on or about February 16, 1962 until June 6, 1967 he was in business as a partner with the said Thomas A Buckham in the City of Edmonton. On termination of the partnership in June 1967 he and Buckham jointly arrived at a settlement of the appellant's interest in the business, being in the sum stated earlier.

3 The respondent took the position that the appellant was an employee of the said Thomas A Buckham; that the amounts paid to him in the years in question were amounts representing the income that he had earned while associated with Thomas A Buckham as an employee, and that the said income was taxed accordingly.

4 At the opening of the hearing of this appeal, both counsel submitted that the issue to be determined here is whether or not there was a partnership between the appellant, George A Zimmer and Thomas A Buckham during the period mentioned earlier, that is, February 2, 1962 to June 6, 1967, and that, if the finding of this Board is that there was in fact a partnership, then the appeal should be allowed in full.

5 Now am I stating that issue correctly?

6 MISS McFADYEN: Yes.

7 MR PITFIELD: Yes.

A W PROCIUK:

8 The background to this issue is not in dispute. Both men gave evidence that they were employees of Canadian Credit Men's Trust Association Ltd in Edmonton and that each had a certain amount of responsibility in that firm. Cases in the area of estate management and bankruptcy were mostly handled by Buckham during his employment with that company. In 1960 and 1961 Canadian Credit Men's Trust Association Ltd was undergoing certain structural changes and it was common knowledge that it was going out of the administration of bankrupt estates and personal bankruptcies. According to the appellant Zimmer, there was a vacuum being created in this area, and it appeared advisable to start a business to take care of the business that was being left unattended by Canadian Credit Men's Trust Association Ltd. It appears that Buckham and Zimmer had many discussions with reference to commencing some sort of an operation in this field. Each terminated his employment with his former employer some time during the summer of 1961. At first Buckham commenced operating a business from his residence, and then arranged for the rental of office space at 617 Revillon Building in the City of Edmonton. The appellant states that he and Buckham had many conversations with regard to the conduct of the business and the two joined forces either late in 1961 or early in 1962.

9 Mr Zimmer's evidence is that he was anxious to set up some permanent arrangement and suggested to Buckham that he would not draw any salary or require any payment for the first 3 months of their association. If the business later proved to be worthwhile, then they would set up a more permanent arrangement.

10 On being questioned on this point, Mr Buckham stated that he did not recall that there was a conversation with regard to the 3-month period but, on closer questioning, he agreed that, although he did not have a present recollection of that conversation, it may in fact have taken place.

11 I find that both witnesses gave evidence as frankly as they could, but I am driven to the conclusion that Mr Buckham, who was called by the respondent, was in certain areas reluctant to answer questions, and stated that he had no recollection of certain parts of conversations and of certain events that had in fact taken place. When it is a question of determining which evidence to accept, I have no hesitation in accepting Mr Zimmer's versions of the conversations in those instances where Mr Buckham says he has no present recollection.

12 On February 16, 1962 the two entered into a brief agreement, filed as Exhibit A-1, which reads as follows:

The net profits of the business of Trustees, Liquidators and Consultants carried on by Thomas A Buckham and George A Zimmer of Edmonton, Alta, shall be shared as follows monthly: Buckham 60% of the first $1,000.00 and 50% thereafter; and Zimmer 40% of the first $1,000.00 and 50% thereafter. On the death or withdrawal of either party he, or his Estate, as the case may be, shall be entitled to the above-mentioned share of fees earned as of that date.

13 The agreement (Exhibit A-1) would not of itself, in my opinion, constitute a partnership. It would not be a factor that could not be rebutted. There are cases where a person has called himself a partner but was in fact not a partner at all. The other document that I have considered at some length is Exhibit A-5. Exhibit A-5 contains financial statements of the operation of this business from the year 1962 to the year 1966, inclusive.

14 Mr Buckham, being the senior man in this operation, was, pursuant to Exhibit A-1, entitled to receive a greater share of the net income of the business. He stated in his evidence that, while he was employed by Canadian Credit Men's Trust Association Ltd, it was his responsibility to look after the payroll while that was being handled in Edmonton and to make deductions with respect to income tax for employees of that firm. I notice in Exhibit A-5 that during the years this business operated there were in fact income tax deductions made in respect of certain employees that were hired and if my memory serves me correctly, I questioned Mr Buckham on the matter of the salaries indicated in the statement of revenue and expenditures. He replied that the salaries were those of the stenographers hired by the office and the income tax deductions referred to those employees. That went on until 1966. I notice that, from the very start, each of the two men—and at the moment I am not going to call them partners—put a certain amount of money into the business and, in 1962, for the fiscal year ended December 31, 1962, the loan payable to Mr Buckham was $1,411.39 and the loan payable to the appellant was $170.48. Such contributions went on until finally, in 1966, in the fiscal year ended December 31, 1966, the loan payable to Buckham was $3,439.19 and to Zimmer $3,439.20.

15 One of the factors that I have considered is that, if Zimmer were a mere employee of Buckham, why would he be making loans to the business? Why was he in effect building up the capital of a business in which he had no part, except as an employee entitled to certain payments on account of his wages? I also notice that no income tax deductions were made from the remuneration that he received if he were in fact an employee. On Mr Buckham's own admission, there were no T4's issued to Mr Zimmer.

16 The evidence discloses further that Mr Buckham applied for a licence as, and became, a trustee in bankruptcy at the commencement of this business, and in 1963 Mr Zimmer similarly applied for nomination and for a licence as a trustee under the Bankruptcy Act. Exhibit A-2 is the application filed for that licence and it reads in part as follows:

I, George Allan Zimmer, residing at #25—10516 Jasper Ave., in the City of Edmonton in the Province of Alberta, and carrying on business at 617 Revillon Bldg in the City of Edmonton in the Province of Alberta, hereby apply for a licence to act as a trustee in bankruptcy under the Bankruptcy Act, and do solemnly declare and say:—

2(a): I am a partner in the partnership of Buckham and Zimmer which consists of the following partners—Thomas Archie Buckham and myself. ...

3: My profession or principal occupation is administration of Bankrupt estates. ...

6: My business activities and experience during the past ten years have been as follows: For the past year and nine months I have been in business with T A Buckham, Bankruptcy Trustee. For the preceding 10 years, I managed the Collection Department and assisted in the Estates Dept of the Edmonton Branch of The Canadian Credit Men's Trust Ass'n. Ltd.

17 This application was signed on July 6, 1963. Evidence on cross-examination disclosed that Mr Buckham was interviewed by the RCMP at the instance of the Superintendent of Bankruptcy and that, on November 15, 1963, the Superintendent of Bankruptcy wrote to the appellant advising him that his application to act as trustee in bankruptcy had been approved. This letter has been filed as Exhibit A-3. I would say that I am entitled to draw the inference from this evidence, that is, the evidence of the application for licence by the appellant and the fact that Buckham was interviewed by the RCMP as to the credibility and desirability of granting a licence to the appellant, that Mr Buckham was well aware of the fact that the appellant had applied and he knew what the situation was vis-à-vis the appellant's position in this business.

18 When the partnership was terminated on June 6, 1967 there appeared to have been no animosity between the two men in question. They got together to determine what settlement the appellant Zimmer should receive, and the settlement arrived at was certainly not the one described in Exhibit A-1. It was a settlement reviewed by both parties and, to quote the words of Mr Buckham, “we came to a set figure that Zimmer would receive”. On further questioning by the Board, Mr Buckham stated that, in arriving at this figure, Mr Zimmer took the files he was working on, calculated the anticipated returns, and took 50% of that figure. It appears to me that Zimmer did not receive what he would have received under the agreement (Exhibit A-1) because at that time he would only have been entitled to the share of the fees earned as of that date. However, he did in fact receive a settlement representing what both considered to be his share of the business at the time of the termination of this arrangement.

19 Having looked at and reviewed the totality of the evidence, including the exhibits, and having considered the cases cited to me by both counsel, I have come to the conclusion that there in fact existed a partnership from February 16, 1962 to June 6, 1967 in the business of the administration of bankrupt estates by the appellant and his senior partner, Thomas A Buckham. Accordingly, I would allow the appeal in full.