Sidney Zionce v. Minister of National Revenue, [1978] CTC 2865

The Chairman:—This is the appeal of Sidney Zionce from an assessment by which the Minister of National Revenue added to the appel- lant’s income for the taxation year 1973 an amount of $2,622.09 as his share of the profits from: certain land sales. A reserve of $2,470.80 in accordance with paragraph 20(1 )(n) of the Income Tax Act, SC 1970- 71-72, c 63 as amended, was allowed for that year. -

Issue

The appellant claims that he was a participant in a joint venture administered by St Lucie Groves Investment Limited; having acquired 1/40 of 1310 acres of land in Florida at a total cost of $11,222.54. The appellant contends that the average cost to him of $342.67 per acre should be used in computing his share of the profits from the sale of the lands.

The respondent contends that a partnership existed in 1973 and that the cost of the land purchased in partnership in 1957 was $157.42 per acre and that the appellant’s share of the partnership’s profits must be calculated on the basis of the cost of the land to the partnership and not on the basis of what the appellant paid for his interest in the partnership.

Facts

In 1956 Messrs D Appleby and M Karten purchased a considerable acreage of land in Florida at a cost of $157.42 per acre. The land was held by them in an equal partnership as tenants in common. (See agreement dated April 15, 1957 attached to the notice of appeal and Exhibit R-4.)

On April 15, 1957, Mr Appleby sold 14/20 of his half interest in the partnership, 1/20 of which was acquired by the appellant at a cost of $11,222.54 (US currency). The appellant’s portion therefore represented a 1/40 interest in the partnership. (See agreement dated April 15, 1957 attached to the notice* of appeal.)

In 1964 St Lucie Groves Investments Limited, a non-beneficial limited company! was incorporated under the laws of the province of Ontario to hold the property in trust fdr the various owners. The four directors of the Company were:

Eight common shares were issued to the directors and the sum of $8 for the shares was deposited in a separate bank account. (See Exhibits A-1 and R-1).

On April 10, 1964, a trust agreement was entered into whereby St Lucie Groves Investments Limited confirms and declares that “it is holding and is possessed of the above-described lands and premises in trust, subject to the existing encumbrances and the rights'of the other persons”. The agreement stipulates that the appellant has a 1/40 beneficial interest in the venture. (Exhibit R-2).

In 1973 310 acres of the 1310 acres of land were sold for $188,000. (Exhibit R-1.)

The appellant, in computing his share of the profits from the disposition of the said sale, contends that:

4. At an average cost of US $342.67 per acre, my share of profit of land sales in 1973 should be calculated as follows:

Land sales	$188,000
Less — 50% allocated to Pinetree
Investments Limited	94,000	$94,000
Less - 6/20th allocated to David
Appleby		28,200
		65,800
Less — Cost of land (14/20 x 155
acres @ $342.67)		37,180
Gross profit		$28,620
Less — Expenses per financial
statements	34,316
Less - 50% allocated to Pinetree
Investments Limited	17,158
	17,158
Less — 6/20th allocated to David
Appleby	5,147	12,011
Net profit		$16,609
My share of net profit is 1 /14th of $16,609 or $1,186.
5. My share of the reserve under paragraph 20(1)(n)
should be 1 /40th of $28,620 x $133,480 or $1,451
65,800
6. The addition to my income for the 1973 taxation
year should be as follows:
Share of profit on land sales	$1,186
Less: Reserve under paragraph 20(1 )(n)
(limited to the amount of share
of profit from sales)	1,186	$..	nil
Share of interest on investment			42
		$	42

The respondent, on the other hand, calculated the appellant’s share of the profits as follows:

Submissions

The appellant contends that he is not nor has he ever been a member of a partnership in respect of the project administered by St Lucie Groves Investments Limited but that he acquired a /2 interest in the land administered by the joint venture from David Appleby at a cost of $342.67 per acre and objects to the inclusion in his income of any amount in connection with the profit from the sale of the land.

The respondent submits that in 1957 Mr Appleby and Mr Karten purchased the land in equal partnership at $157.42 per acre with the intention of making a profit from that asset. Counsel contends that what the appellant acquired from Mr Appleby in 1957 for $11,225.54 was 1/20 of Mr Appleby’s one-half interest in the partnership or 1/40 of the whole partnership or undertaking and that his interest was in the partnership and not in the land.

Counsel for the respondent further contends that the profits derived by the partnership from the disposition of the subject lands in 1973 must be calculated on the basis of the cost of the land to the partnership in 1956. The cost of the land to the partnership is quite a different matter from the price the appellant may have paid for 1/20 of Mr Appleby’s half interest in the partnership.

Finding of Facts

1. On the basis of the evidence it appears clear that the said lands were originally purchased by Mr Appleby and Mr Karten in equal partnership as tenants in common at a price of $157.42 per acre. Although Mr Karten’s half interest in the partnership was subsequently transferred to the Tanenbaum group, there is no evidence that the partnership was at anytime dissolved or liquidated.

2. The appellant and thirteen other persons purchased 14/20 of Mr Appleby’s half interest in the partnership at a cost of $139,650, which is at a rate of $300 per acre. (See page 2, paragraph 1 of agreement dated April 15, 1957 between Mr Appleby and fourteen other persons, attached to the notice of appeal.) The appellant claims that the cost to him of his 1/20 interest was $11,222.54 or $342.67 per acre, the figure he used in calculating his share of the profits realized on the disposition of the subject land.

In my view, paragraphs 3, 4, 5, 6 and 7 of the agreement dated April 15, 1957 are very pertinent to the issue and read as follows:

3. It is hereby agreed by the parties hereto that the said party of the first part, David Appleby, will not sell, mortgage, lease or in any other manner whatsoever, encumber the said lands unless he has the written authority and consent of at least a majority of the said parties of the second part, but this provision and paragraph shall not apply in case the said party of the first part, David Appleby, wishes to give a deed and convey to the said Morris Karten his one-half interest in the said lands.

4. The party of the first part, David Appleby, covenants and agrees at all times to keep the parties of the second part informed and advised of all activities and decisions affecting the said lands.

5. Any expenses incurred in connection with the party of the first part one half interest in the said lands shall be borne and paid by the parties to this agreement in the following proportions:

6/20ths by the said party of the first part, David Appleby; and

14/20ths by the said parties of the second part in equal shares.

6. Any obligations or losses incurred by the said parties of the second part under this agreement shall be assumed and borne by the said parties of the second part in equal shares.

7. Any profits made from the said one-half interest in the said lands, subject to the payment of any moneys due the said party of the first part, David Appleby, under paragraph 1 hereof, and of any outstanding debts and obligations, shall belong to. and be divided between the parties herein in the following proportions: 6/20ths to the said party of the first part and 14/20ths to the said parties of the second part in equal shares.

It is clear from the agreement that the appellant had no power to sell any of the subject lands; that he contracted to pay his share (1/20) of any expenses or any obligations incurred in respect of Mr Appleby’s half interest in the lands and that he would share in any profits realized from the lands on the same proportional basis.

3. St Lucie Groves Investments Limited, a non-beneficial corporation, was incorporated in 1964 to hold in trust and to administer 40/40 of the assets of the original partnership and its incorporation does not, in my view, alter in any way the nature of the original agreement between Mr Karten and Mr Appleby and the agreement of April 15, 1957 between Mr Appleby and fourteen other persons including the appellant.

4. Although the appellant now claims that he was never a member of a partnership, there appears to have been some doubt in the appellant’s mind in 1975 in that respect.

On June 30, 1975, the appellant wrote the following letter to the Director of the District Taxation Office in Toronto:

June 30/75

Sidney Zionce

71 Fontainbleau Dr

Willowdale Ont

Director — Taxation

Revenue Canada

Taxation

36 Adelaide St E

TORONTO Ont

Dear Sir:

Re 1973 & 1974 income.

For 1973 I request that a reserve of $2470.80 be applied against the income from sale of land by St Lucie Groves Investments Ltd. This is under the authority of paragraph 20(1)(N) of the Act.

For 1974 please add to my income the following:

1973 Reserve as above	$2470.80
Less: 1974 Reserve	2117.80
Income from land sales	$ 353.00
Interest on investments	98.03
Total	451.03
	Yours truly
	(Signature)

PS Further investigations by me into the partnership agreement may result in me filing a notice of objection.

Although this letter can in no way be considered as conclusive evidence that a partnership agreement existed in the 1973 taxation year when the subject lands were sold, it does, however, add to what might be described as a series of more than circumstantial evidence which indicate to'me that a partnership agreement did exist and that the appellant was a member of the partnership which disposed of the subject lands in 1973 through St Lucie Groves Investments Limited, incorporated for that, purpose.

The Minister’s assessment in this appeal is based on the assumption that a partnership agreement existed at the time the subject lands were sold. The appellant did not establish, to the satisfaction of the Board, ihat the Minister’s assumption was ill-founded; that no partnership existed; or that the cost of the land to the partnership was other than $157.42 per acre.

On the basis of the evidence before it, the Board concludes that the appellant was a member of a partnership which disposed of lands in 1973 and that the appellant’s share of the profits from the sale of the lands must be calculated on the basis of the cost of the lands to the partnership in 1957 and not on the cost of the appellant’s interest in the partnership. The Minister correctly assessed the appellant’s profits arising from the same of the lands.

The appeal is therefore dismissed.

Appeal dismissed.