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Citation: 2003TCC102
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Date: 20030312
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Docket: 2002-2318(IT)I
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BETWEEN:
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DOUGLAS DIXON,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
Docket: 2002-2319(IT)I
AND BETWEEN:
LLOYD DIXON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
2002-2320(IT)I
AND BETWEEN:
SHARON DIXON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
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REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] These appeals were heard together
on common evidence at Regina, Saskatchewan, on February 14, 2003.
The parties files an Agreed Statement of Facts as Exhibit AR-1.
It was the only evidence.
[2] The only issue remaining between
the parties at the hearing was whether each Appellant was
required to report as income the proceeds of grain sales tickets
in the gross amount of $79,481 which was received by Dixon Farms
Partnership (the "Partnership") in calendar 1997 and
cashed on January 2, 1998.
[3] The Agreed Statement of Facts
reads as follows:
At the Tax Court of Canada hearings of these matters on
February 14, 2003, the Appellants and the Respondent are
permitted to enter into evidence in addition to the following
facts agreed to in this Agreed Statement of Facts but only if
such facts are relevant to the issues in the appeals. However,
none of the parties may enter evidence which contradicts any of
the facts agreed to herein.
The parties hereto, by their respective solicitors, agree as
follows:
1. Douglas
Dixon, Lloyd Dixon and Sharon Dixon
(the "Taxpayers") reside in the Rural Municipality
of Maryfield, Saskatchewan and have a postal address of Box 56,
Maryfield, Saskatchewan, S0G 3K0.
2. For several
years prior to 1997 and continuing until December 1, 1997, Lloyd
Dixon and his wife, Sharon Dixon, carried on the business of
farming as partners in a partnership ("the Lloyd and Sharon
Dixon Partnership").
3. Lloyd Dixon
and Sharon Dixon each held a 50% partnership interest in the
Lloyd and Sharon Dixon Partnership.
4. The fiscal
year end of the Lloyd and Sharon Dixon Partnership is December
31st.
5. The Lloyd
and Sharon Dixon Partnership reported its income in accordance
with the cash method pursuant to subsection 28(1) of the
Income Tax Act (the "Act").
6. The Lloyd
and Sharon Dixon Partnership and William Dixon (Lloyd Dixon's
brother) each held a 50% partnership interest in a partnership
("Dixon Brothers") which carried on the business of
farming.
7. On January
1, 1997, William Dixon sold his 50% partnership interest in Dixon
Brothers to Douglas Dixon, the son of Lloyd Dixon and Sharon
Dixon. Thereafter, the partnership was referred to as "the
Dixon Farms Partnership" and Douglas Dixon held a 50%
partnership interest in it.
8. The fiscal
year end of the Dixon Farms Partnership is December
31st.
9. During
1997, the Dixon Farms Partnership delivered wheat, barley, oats
and rapeseed (now commonly referred to as "canola") to
primary elevators and was issued cash purchase tickets (the
"Cash Purchase Tickets"). Such Cash Purchase Tickets
entitled the Dixon Farms Partnership to receive payment of the
sale price of the grain in the aggregate amount of $79,481.00, on
January 2, 1998. Title to the grain was transferred to the
elevators at the time of delivery.
10. The Dixon Farms
Partnership reported its income in accordance with the cash
method pursuant to subsection 28(1) of the Act. Pursuant to
subsection 76(4) of the Act, it did not include the Cash Purchase
Tickets in its income for the fiscal year ended December 31,
1997.
11. Prior to December 1,
1997, Dixon Farms Ltd. ("the Corporation") was
incorporated under the provincial laws of Saskatchewan.
12. The fiscal year end of
the Corporation is November 30th.
13. On December 1, 1997,
Douglas Dixon transferred his 50% partnership interest in the
Dixon Farms Partnership to the Corporation, for consideration
that included a share of the Corporation, pursuant to a sale
agreement and pursuant to subsection 85(1) of the Act. (The sale
agreement did not refer to the Cash Purchase Tickets.) As a
result of that transfer, the Corporation held a 50% partnership
interest in the Dixon Farms Partnership.
14. Also on December 1,
1997, Lloyd Dixon transferred his 50% partnership interest in the
Lloyd and Sharon Dixon Partnership to the Corporation, for
consideration that included a share of the Corporation, pursuant
to a sale agreement and pursuant to subsection 85(1) of the Act.
(The sale agreement did not refer to the Cash Purchase Tickets.)
As a result of that transfer, the Corporation held a 50%
partnership interest in the Lloyd and Sharon Dixon
Partnership.
15. On December 31, 1997,
Sharon Dixon transferred her 50% partnership interest in the
Lloyd and Sharon Dixon Partnership to the Corporation, for
consideration that included a share of the Corporation, pursuant
to a sale agreement and pursuant to subsection 85(1) of the Act.
(The sale agreement did not refer to the Cash Purchase Tickets.)
Immediately thereafter, the Corporation carried on alone the
farming business that were the businesses of the Dixon Farms
Partnership and the Lloyd and Sharon Dixon Partnership and
continued to use, in the course of the businesses, the property
that was, immediately before December 31, 1997, partnership
property and that was received by the Corporation as proceeds of
disposition of the Corporation's interests in the
partnerships.
16. The Corporation
included in its 1998 income $90,882.00 of income which was earned
by the Dixon Farms Partnership and the Lloyd and Sharon
Partnership for the period ending December 31, 1997. This
$90,882.00 did not include any of the $79,481.00 for the Cash
Purchase Tickets and was in respect of other income which the
Dixon Farms Partnership and the Lloyd and Sharon Dixon
Partnership earned in 1997.
17. For the fiscal year
ending December 31, 1997, Douglas Dixon was allocated $30,000.00
of partnership income and Sharon Dixon was allocated $14,000.00
of partnership income, both in farm management fees paid to them
from the Dixon Farms Partnership and the Lloyd and Sharon Dixon
Partnership.
18. The $79,481.00 amount
of the Cash Purchase Tickets was paid on January 2, 1998. That
amount was deposited to the bank account of the Corporation. The
Dixon Farms Partnership and the Lloyd and Sharon Dixon
Partnership both ceased to exist by December 31, 1997.
19. If not for the
cessation of the Dixon Farms Partnership, the $79,481.00 Cash
Purchase Tickets amount would have been income of the Dixon Farms
Partnership in the 1998 taxation year.
20. In 1997, the Dixon
Farms Partnership reported the expenses associated with earning
the $79,481.00 in calculating its partnership income. The
partnership income was allocated to, and reported by the
following partners:
Sharon Dixon
(by way of the Lloyd and Sharon Dixon Partnership)
$14,000.00
Douglas
Dixon
$30,000.00
Dixon Farms
Ltd.
$90,882.00
21. The Corporation is a
Canadian-Controlled Private Corporation and claimed the small
business deduction for the 1998 taxation year.
22. The Corporation
reported the amount of the Cash Purchase Tickets, being
$79,481.00, as part of its income for the fiscal year ended
November 30, 1998.
23. The Minister of
National Revenue reassessed the Taxpayers' 1998 taxation year
to include in their income the amount of the Cash Purchase
Tickets paid on January 2, 1998, as follows:
Lloyd
Dixon
$19,870.00
Sharon
Dixon
$19,870.00
Douglas Dixon
$39,741.00
Total
$79,481.00
[4] In the Court's review the
analysis comes down to subsection 76(3) and (4) and subsection
98(5) of the Income Tax Act (the
"Act").
They read:
...
76(3) This section is enacted for greater certainty and shall
not be construed as limiting the generality of the other
provisions of this Part by which amounts are required to be
included in computing income.
76(4) Where a cash purchase ticket or other form of settlement
prescribed pursuant to the Canada Grain Act or by the
Minister is issued to a taxpayer in respect of grain delivered in
a taxation year of a taxpayer to a primary elevator or process
elevator and the ticket or other form of settlement entitles the
holder thereof to payment by the operator of the elevator of the
purchase price, without interest, stated in the ticket for the
grain at a date that is after the end of that taxation year, the
amount of the purchase price stated in the ticket or other form
of settlement shall, notwithstanding any other provision of this
section, be included in computing the income of the taxpayer to
whom the ticket or other form of settlement was issued for the
taxpayer's taxation year immediately following the taxation
year in which the grain was delivered and not for the taxation
year in which the grain was delivered.
...
98(5) Where at any particular time after 1971 a Canadian
partnershiphas ceased to exist and within 3 months after
the particular time one, but not more than one, of the persons
who were, immediately before the particular time, members of the
partnership (which person is in this subsection referred to as
the "proprietor", whether an individual, a trust or a
corporation) carries on alone the business that was the business
of the partnership and continues to use, in the course of the
business, any property that was, immediately before the
particular time, partnership property and that was received by
the proprietor as proceeds of disposition of the proprietor's
interest in the partnership, the following rules apply:
(a) the proprietor's proceeds of disposition of the
proprietor's interest in the partnership shall be deemed to
be an amount equal to the greater of
(i) the total of the adjusted cost base to the proprietor,
immediately before the particular time, of the proprietor's
interest in the partnership, and the adjusted cost base to the
proprietor of each other interest in the partnership deemed by
paragraph (g) to have been acquired by the proprietor at
the particular time, and
(ii) the total of
(A) the cost amount of the partnership, immediately before the
particular time, of each such property so received by the
proprietor, and
(B) the amount of any other proceeds of the disposition of the
proprietor's interest in the partnership received by the
proprietor;
(b) the cost to the proprietor of each such property shall be
deemed to be an amount equal to the total of
(i) the cost amount to the partnership of the property
immediately before that time,
(i.1) where the property is eligible capital property, 4/3 of
the amount, if any, determined for F in the definition
"cumulative eligible capital" in subsection 14(5) in
respect of the partnership's business immediately before the
particular time, and
(ii) where the amount determined under subparagraph
(a)(i) exceeds the amount determined under subparagraph
(a)(ii), the amount determined under paragraph (c)
in respect of the property;
(c) the amount determined under this paragraph in respect of
each such property so received by the proprietor that is a
capital property (other than depreciable property) of the
proprietor is such portion of the excess, if any, described in
subparagraph (b)(ii) as is designated by the proprietor in
respect of the property, except that
(i) in no case shall the amount so designated in respect of
any such property exceed the amount, if any, by which the fair
market value of the property immediately after the particular
time exceeds the cost amount to the partnership of the property
immediately before that time, and
(ii) in no case shall the total of amounts so designated in
respect of all such capital properties (other than depreciable
property) exceed the excess, if any, described in subparagraph
(b)(ii);
(d) [Repealed by 1986, c. 55, s. 26(4).]
(e) where any such property so received by the proprietor was
depreciable property of a prescribed class of the partnership and
the amount that was the capital cost to the partnership of that
property exceeds the amount determined under paragraph (b)
to be the cost to the proprietor of the property, for the
purposes of sections 13 and 20 and any regulations made under
paragraph 20(1)(a)
(i) the capital cost to the proprietor of the property shall
be deemed to be the amount that was the capital cost to the
partnership of the property, and
(ii) the excess shall be deemed to have been allowed to the
proprietor in respect of the property under regulations made
under paragraph 20(1)(a) in computing income for taxation
years before the acquisition by the proprietor of the
property;
(f) the partnership shall be deemed to have disposed of each
such property for proceeds equal to the cost amount to the
partnership of the property immediately before the particular
time;
(g) where, at the particular time, all other persons who were
members of the partnership immediately before that time have
disposed of their interests in the partnership to the proprietor,
the proprietor shall be deemed at that time to have acquired
partnership interests from those other persons and not to have
acquired any property that was property of the partnership;
and
...
[5] Paragraph 96(1)(a) of the
Act treats a partnership as if it "were a separate
person". But a partnership is not a taxpayer under the
Act. For this reason, subsection 76(4) does not apply to
this matter.
[6] Therefore, pursuant to paragraph
98(5)(f), the partnership ceased to exist after Sharon
transferred her interest in it to the sole remaining partner,
Dixon Farms Ltd., on December 31, 1997. Then Dixon Farms Ltd.
carried on alone the business of the partnership and continued to
use the partnership property, namely, the cash grain tickets.
[7] Accordingly, Dixon Farms Ltd. is
deemed to have acquired the partnership's interest and not
its' property. Therefore, when it cashed the tickets on
January 2, 1998, the income was Dixon Farms Ltd.
[8] For these reasons, the appeals are
allowed. The Appellants are each awarded their costs
throughout.
Signed at Toronto, Canada this 12th day of March 2003.
J.T.C.C.
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