Albertine Ryan v. Minister of National Revenue, [1992] 2 CTC 2288, [1992] 1 CTC 2681, [1992] DTC 2027, [1992] DTC 2036

Tremblay, T.C.C.J.:—This appeal was heard on September 28, 1990 at Sherbrooke, Quebec, and was taken under reserve upon receipt of final argument on December 3, 1990.

1. The point at issue

According to the notice of appeal and the reply to the notice of appeal, the point at issue is whether the appellant, who until November 4, 1983 owned a farm located in Clarenceville, Quebec, which she had inherited from her husband in 1982, is correct in computing her income with respect to the 1983 taxation year:

(1) to include only A of the net income of the farm, $1,871.54, and to attribute the balance, $7,486.16,to her son Jacques.

The respondent included the entire $9,357.70 in the appellants income, except for a salary attributed to her son. The respondent argues that the appellant was the undivided owner of /4 of the farm and that she had the usufruct of the other /4.

(2) not to include in 1983 the profit from the sale of the farm to her son on November 4, 1983 at a price of $200,000. The reason is that she received payment only in March, 1984, when her son took possession of the land, and that her income is reported on the cash method. Accordingly, if she is to be taxed, she can be taxed only in 1984. Furthermore, according to the appellant, that year has become prescribed.

(3) Moreover, the appellant argues that by applying subsection 73(3) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") as she did, and so by selling all the farm property to her son at the adjusted cost basis, there is no income tax to be paid by the vendor because of the rollover, that is, the deferral of capital gains taxation to later, at the time of disposition of the farm by the son.

The respondent specifically taxed the taxable capital gain resulting from the sale of the buildings and the profit realized from the sale of the livestock.

The respondent argues that the property exempt from tax, i.e., the property which was the subject of the rollover, by subsection 73(3), in addition to a piece of land, are depreciable property of a prescribed class. However, the respondent argues that the livestock does not fall into a prescribed class. The same is true of the buildings, which are included in the property described in Part XVII of the Income Tax Regulations (the “Regulations”) and so do not fall into a prescribed class.

The respondent includes the amounts of $18,225 as income from a business resulting from the sale of the livestock and of $963.50 as capital gain taxable on the buildings.

On these last two points, the appellant complains that neither she nor her accountant was able to meet with the respondent's representatives (accountants and lawyers) to present the relevant facts, contrary to her right to be heard and treated fairly. Inter alia, she disputes the fair market value of $59,500 for the buildings, particularly since 314 of the buildings were not included in her property titles as well as 27 acres of land which belonged to her neighbour. The sale price of the farm had to be reduced by $50,000. The appellant argues that the respondent had refunded $45,605.51 to her in 1988, as a result of errors by the assessors, and that the balance in this matter, the $1,990.32 still owing to her, should be returned to her.

2. The burden of proof

2.01 The burden of proof is on the appellant to show that the respondent's assessments are incorrect. This burden of proof results from several judicial decisions, including the judgment of the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.

2.02 In the case at bar, the facts assumed by the respondent are described in subparagraphs (a) to (n) of paragraph 7 of the respondent's reply to the notice of appeal. These facts have been denied or admitted by the appellant. This paragraph reads as follows:

7. In reassessing the appellant for her 1983 taxation year, the respondent Minister of National Revenue relied on the following facts, inter alia:

(a) during the 1983 taxation year, the appellant was the owner of an undivided A of a farm, and had the usufruct of the other 1/4 of the farm, which was owned by her son Jacques Ryan; [denied]

(b) during the 1983 taxation year, the farm generated net income after depreciation of $9,357.70. The appellant reported only $1,871.54 as income from the farm for that year, the balance, $7,486.16, having been attributed to her son Jacques Ryan; [admitted]

(c) the respondent recomputed the net income attributable to the appellant in the reassessment of September 3, 1986, as indicated in the computation appearing in Schedule A attached hereto, on the basis that the income from the farm should be attributed totally to the appellant, subject to a salary attributed to her son; [admitted]

(d) by notarial deed dated November 4, 1983, the appellant sold all her rights in the farm to her son Jacques Ryan, for the total price of $200,000,without any allocation in the notarial contract among the land, buildings, machinery, herd, rolling stock, residence and milk quotas; [admitted]

(e) at the time of this transaction, the appellant applied subsection 73(3) of the Income Tax Act and transferred each and every one of these assets at the indicated cost into the hands of her son, Jacques Ryan; [admitted]

(f) however, among the assets sold by the appellant to her son were buildings and livestock (the"herd"); [admitted]

(g) the buildings which are the subject of the dispute belonged in 1980 to Albert Ryan, the late husband of the appellant, who died on June 7, 1982; [admitted]

(h) in 1980, Mr. Ryan claimed a deduction for depreciation on the buildings, under Part XVII of the Income Tax Regulations; [denied]

(i) the buildings which are the subject of the dispute are listed in Part XVII of the Income Tax Regulations; [denied]

(j) under subsection 73(3) of the Income Tax Act, only buildings in a prescribed class may be transferred without any tax consequences; buildings covered by Part XVII of the Income Tax Regulations are not in a prescribed class; [denied]

(k) the taxable capital gain on the sale of these buildings was therefore computed, on the basis that the proceeds of disposition were equal to the fair market value of these buildings at the time of the sale. The taxable capital gain was computed in the manner shown in Schedule B hereto; [sic]

(l) moreover, the business income derived from the sale of the livestock cannot be exempt from tax under subsection 73(3) of the Income Tax Act, since the livestock was not in a prescribed class under the Regulations either; [denied]

(m) accordingly, the whole of the profit realized on the sale of the livestock by the appellant to her son in 1983 was taxable in the hands of the appellant during the 1983 taxation year, and was computed as follows:

Proceeds of disposition (fair market value at

November 4, 1983:

$39,200 xX 75%)	$29,400
Adjusted base proceeds [sic]*	$11,175
Business income	$18,225

The appellant's adjusted base proceeds c] correspond to A of the adjusted base proceeds [sic] for her husband under paragraph 70(3)(a) of the Income Tax Act, which was computed at $14,900, that is, the fair market value at December 31, 1971. [denied]

(n) the respondent allowed a reserve for the 1983 taxation year in the amount of $8,674 ($17,348 — [sic] 2) on the taxable capital gain on the buildings; [denied]

[Translation.]

3. The facts

3.01 The facts are briefly summarized in subparagraphs (b), (c), (d), (e), (f) and (g) of paragraph 7 of the facts assumed by the respondent in his reply to the notice of appeal, which facts were admitted by the appellant.

3.02 The facts, which I shall reproduce a second time but in a slightly different order, read as follows:

1. by notarial deed dated November 4, 1983, the appellant sold all her rights in the farm to her son Jacques Ryan, for the total price of $200,000, without any allocation in the notarial contract among the land, buildings, machinery, herd, rolling stock, residence and milk quotas;

2. at the time of this transaction, the appellant applied subsection 73(3) of the Income Tax Act and transferred each and every one of these assets at the indicated cost into the hands of her son, Jacques Ryan;

3. however, among the assets sold by the appellant to her son were buildings and livestock (the"herd"),

4. the buildings which are the subject of the dispute belonged in 1980 to Albert Ryan, the late husband of the appellant, who died on June 7, 1982; [He ceded the buildings to her pursuant to subsection 70(9) of the Act.]

5. during the 1983 taxation year, the farm generated net income after depreciation of $9,357.70. The appellant reported only $1,871.54 as income from the farm for that year, the balance, $7,486.16, having been attributed to her son Jacques Ryan;

6. the respondent recomputed the net income attributable to the appellant in the reassessment of September 3, 1986, as indicated in the computation appearing in Schedule A attached hereto, on the basis that the income from the farm should be attributed totally to the appellant, subject to a salary attributed to her son;

[Translation.]

Schedule A reads as follows:

REVISED COMPUTATION OF BUSINESS INCOME DERIVED FROM THE FARM FOR ALBERTINE RYAN

PERIOD FROM JANUARY 1, 1983 TO DECEMBER 31,1983
Net income reported		$9,357.70
Add: depreciation (3,375 + 2,412 + 7,760 + 4,827)		$18,374.00
Revised net income before depreciation		$27,731.70
Deduct: Income paid to Jacques Ryan, considered
as Salary:		$7,486.16
as salary:
		$20,245.54
Deduct: Depreciation expenses allowed:
Albertine Ryan:	$4,871.76
Albert Ryan Trust:	$1,820.94	$6,692.70
Revised net income		$13,552.84
Subtract: Reported income		$1,871.54
Revised additional net income:		$11,681.30
	[Translation.]

3.03 It is important to specify, however, that when Albertine Ryan ceded her share of the real property, that is, the undivided A, on November 4, 1983, there was a defect in title. Therefore a survey was required, and on February 14, 1984 the corrections were made when Julia Czerwony ceded more than 34 arpents (11,556 hectares) of land and the buildings thereon for $1, in order to correct the sale of November 4, 1983. Together, these comprised the farm which James Ryan was to buy and which the Office du credit agricole (” Farm Credit Bureau”) and the lender, the Canadian Imperial Bank of Commerce of Lacolle, were to take as security before granting the loan. The Farm Credit Bureau therefore granted the loan on April 16, 1984.

4. Law—cases at law and doctrine—analysis

4.01 Law

The main statutory provisions on which the respondent relies are, inter alia, subsection 9(1), paragraphs 20(1)(a) and 38(a), subsection 40(1) and sections 69, 70 and 73 of the Income Tax Act as amended. The other provisions involved are paragraph 1100(1)(a), subsection 1102(7), section 1105, schedule 2, class 8 and section 1700 of the Income Tax Regulations (as well as part XVII and schedule II).

The respondent also relies on articles 406, 984, 1025, 1027 and 1472 et seq. of the Civil Code of Lower Canada. These legal provisions will be quoted in the analysis if necessary.

4.02 Cases at law

The parties referred the Court to the following cases at law:

1. Filion v. Dahme, [1989] R.D.I. 159;

2. Théberge v. Le sous-ministre du Revenu du Québec, [1989] R.D.F.Q. 195;

3. Gesser Estate v. The Queen, [1989] 2 C.T.C. 31, 89 D.T.C. 5274 (F.C.T.D.);

4. McCubbin Estate v. M.N.R., [1980] C.T.C. 2112, 80 D.T.C. 1113 (T.R.B.);

5. Scott's Dairy Ltd. v. M.N.R. (1957), 34 Tax A.B.C. 182, 57 D.T.C. 194 (T.A.B.);

6. M.N.R. v. Shields, [1963] Ex. C.R. 91, [1962] C.T.C. 548, 62 D.T.C. 1343;

7. Cornforth v. The Queen, [1982] C.T.C. 45, 82 D.T.C. 6058.

4. 03 Doctrine

The doctrine to which the parties referred is as follows:

1. Canada Tax Service, vol. 5, pages 70-130 et seq.;

2. Canada Tax Reporter, vol. 2, page 10411 et seq.;

3. Canada Tax Reporter, vol. 2, pages 10595, 6557, 4697;

Revenue Canada, Taxation Interpretation Bulletins

4. IT-50R Capital Cost Allowances—Date of Acquisition of Depreciable Property;

5. IT-170R Sale of Property—When Included in Income Computation;

6. IT-427 Livestock of Farmers;

7. IT-268R3 Inter Vivos Transfer of Farm Property to Child;

8. IT-212R3 Income of Deceased Persons—Rights or Things.

4.04 Analysis

4.04.1 Appellant's first argument; reply by respondent

The first argument advanced by counsel for the appellant is that the sale and transfer of the property and its dependencies was effective only in 1984 since the titles were not definitively regularized and corrected until February 14, 1984 and farm credit was granted only on that date [sic] April 16, 1984.

Accordingly, counsel for the appellant argues that since no moneys had been received in 1983, there was no income tax to be paid in respect of the deed of sale signed, a fortiori on the cash accounting method.

Moreover, he argues that the respondent's claim that should have been made in 1984 shall be barred since it is prescribed.

Counsel for the respondent submits, relying on articles 406, 984, 1025 and 1472 of the Civil Code, that the consent of the parties alone perfects the sale even when the price has not been paid. He referred us on this point to numerous judgments in which the general idea expressed may be summarized by saying that the fact that payment or settlement is made subsequent to the contract of sale in no way suspends it, or makes it nonexistent or unconditional [sic].

Counsel therefore submits that neither the regularization of titles nor the loan obtained by Jacques Ryan (3.03) [sic] were finalized in 1984 or [sic] altered the disposition (sale) which took place on November 4, 1983. Accordingly, he argues that Jacques Ryan acted, as of that date, as the sole owner of the farm and the appellants claim is entirely unfounded.

Accordingly, counsel for the respondent disallowed the appellant any depreciation in computing her income from farming for the 1983 taxation year. According to the respondent, the appellant no longer had any property on December 31, 1983, since on November 4 of the same year she had divested herself of the undivided A of the farm which she owned, including the buildings, machinery, livestock, tools, agricultural implements and other items used to operate the farm (Exhibit 1-1).

Accordingly, counsel for the respondent submits that the appellant could not take depreciation for the 1983 taxation year under the Act.

4.04.2 Appellant's second argument

Counsel for the appellant also claims that his client was justified in including only $1,871.54 in her income from farming for the 1983 taxation year, on the ground that there was a partnership contract (Exhibit A-4) between the appellant and her son which provided that the appellant would receive only 20 per cent of the proceeds of the farm. The partnership contract reads as follows:

Clarenceville, January 2, 1983

Agreement between Albertine Ryan and Jacques Ryan, co-owners of the farm, for division of net profits of the farm in 1983.

We the undersigned, co-owners, agree to divide the net income of our farm in the following proportion:

20% to Albertine Ryan for her invested capital and 80% to Jacques Ryan for his invested capital and the performance of all work and administration of the farm. Given my physical disability and my advanced age I assume no liability. This agreement is valid for the entire 1983 year.

In witness whereof we have agreed and signed accordingly,

Albertine Ryan

Jacques Ryan

[Translation.]

4.04.2(a) Reply by respondent to this argument

In reply to this argument, the respondent argues that the document submitted by the appellant (Exhibit A-4, reproduced above) cannot in itself alone prove the actual existence of a partnership for the purposes of the Act.

He referred us to the decision in Shields (4.02(6)) in which Cameron, J. quoted the following, at page 1346:

I think it is settled law, however, that for income tax purposes it is insufficient to establish a partnership in fact merely by the production of a partnership deed. It must also be shown that the parties thereto acted on it and that it governed their transactions in the business being carried on.

Counsel for the respondent contends that no evidence was submitted at the hearing by counsel for the appellant as to whether this partnership actually existed. Moreover, he argues that the nature of that document indicates that only net income would be divided, and not liabilities. Accordingly, referring to article 1831 of the Civil Code, he argues that this document cannot be binding on a third party such as the respondent. Article 1831 of the Civil Code reads as follows:

1831. Participation in the profits of a partnership carries with it an obligation to contribute to the losses.

Any agreement by which one of the partners is excluded from participation in the profits is null.

An agreement by which one partner is exempt from liability for the losses of the partnership is null only as to third persons.

4.04.2(b) Counsel for the respondent also submits that until November 4, 1983 the appellant was the co-owner, with her son Jacques Ryan, of A of the farm, while Jacques Ryan owned the other quarter and, based on the will of the late Albert Ryan (Exhibit 1-1), the appellant had the full enjoyment of all the property and owned the usufruct of it.

Counsel for the respondent denies the existence of a partnership and, consequentially, as far as he was concerned, the respondent correctly included the additional income of $11,681.30 in the appellants instead of her son's income.

Counsel for the respondent considers the amount of $7,486.16 initially attributed to the son to be salary paid to him (3.02).

Ultimately, counsel for the respondent concludes that if the Court believes that there actually was a partnership, then it should tax the appellant in 1983 not only on the appreciation realized on the buildings which had been depreciated according to class [sic] XVII of the Regulations and on the livestock but on all the property which was part of the farm, since in his view there cannot have been a transfer without tax consequences on any item transferred to a partnership.

He argues that the appellant was relying on subsection 73(3) of the Act, which covers only inter vivos transfers of farm property by a farmer to his or her child.

4.04.3 The appellant's third argument

Counsel for the appellant submits, in conclusion, that there had been a rollover, under subsection 3 of section 73 of the Act, of the farm property transferred to her son, Jacques Ryan. He argues that the exempt transfer between the late Albert Ryan and his wife Albertine Ryan under subsection 70(9) of the Act had never been contested, and so the same rules are accordingly applicable in this case. Counsel for the appellant argues as follows:

In his 1987 income tax return (P-5), Albert Ryan referred, on a schedule relating to capital property, to “land, residence, buildings and machinery”, as being included in Part XVII, but there was a transcription error since, despite this notation, this property was depreciated under Part XI, since to the right of the document there is noted "U.C.C.", or "undepreciated capital cost". This deduction is allowed only under Part XI. If the late Albert Ryan had really used Part XVII, he would have had to indicate the initial cost before 1972, which cost remains the same from year to year, and would then have taken the deductions on a straight line depreciation.

After the estate was settled, all this property remained in Part XI, and was therefore transferable at the time of death tax-free under section 73(3). Therefore Albertine Ryan earned no capital gain for the property set out in Exhibit P-5: the land, residence, buildings and machinery.

The Part XVII deduction is based on the cost of each item. In Part XI, property is grouped in classes and the deduction is based on the cost of all the property in each class, less the proceeds of disposition and amounts allowed in earlier years as a capital cost allowance. The remaining balance is designated as the "undepreciated capital cost" of this class. The deductions are computed using the straight line method for Part XVII and the diminishing balance method of depreciation for Part XI.

Under Part XVII, the initial cost paid before 1972 and the depreciation would always be at the same percentage, the amount would be the same each year and there would be an accumulated reserve for each of the items.

The late Albert Ryan’s 1981 income tax return clearly shows that the diminishing balance method of depreciation was used.

It emerged from the evidence that the buildings, barns and stables were renovated in 1981 at a cost of $4,000, the cement silo was raised from 40 feet to 60 feet in 1981, a shed was built in 1981 at a cost of $4,500 which the late Albert Ryan reported on his income tax return.

We must therefore respect the intention of the Legislator, who wanted to provide relief to farmers, and so established a rollover procedure.

Finally, in reply to the respondent's paragraph 7(1), the sale of the basic herd is exempt from tax since it belonged to a prescribed class.

[Translation.]

4.04.3(a) Counsel for the appellant also submits that when the late Albert Ryan filed his income tax return in 1982, the respondent accepted that half the herd was a basic herd (half since he was under a community of property regime, the other half belonging to his spouse). Accordingly, he argues that the appellant transferred the livestock to her son on the same conditions. She was then the owner of an undivided A of the herd, the other quarter belonging to Jacques Ryan. Accordingly, the appellant transferred only one quarter of the herd to her son.

4.04.3(b) In reply to the argument of counsel for the appellant that the buildings in question were depreciated using the diminishing balance method, counsel for the respondent contends that it is clearly indicated on the depreciation schedule provided by the late Albert Ryan in his 1980 income tax return that these buildings fell under Part XVII (Exhibit I-2). The relevant portion reads as follows:

Albert Ryan et fils, cultivateurs Associés 61 tax 4th concession

Clarenceville, Quebec

Capital property		Depreciation		U.C.C. at
Item	Part	% — amount		12/13/81
Land		6,500		6,500
Residence	XVII	7,000		7,000
Buildings XVII		2,470 5% 123 2,347
Machinery	XVII
Buildings	XI Class 6	3,389
Addition:
1981 : raise silo		5,000
		8,389 10%	839	7,550
		7,090
Machinery XI Class 8
Addition 81 :
Cultivator		2,984
Rock loader		5,000
		15,074 20% 3,014 12,060
		12,561
Machinery XI Class 10
Addition 81:
Tractor Class 10		28,500
		41,061 30% 12,318 28,743
			16,294	64,200
				[Translation.]

He also submits that no building acquired before 1971, and therefore depreciable under Part XVII of the Regulations, could be depreciated under Part XI of the Regulations and therefore be in a prescribed class.

He referred to paragraphs 1102(1)(g) and 1702(1)(k) of the Regulations, which read as follows:

1102(1) The classes of property described in this Part and in Schedule II shall be deemed not to include property

(g) in respect of which an allowance is claimed and permitted under Part XVII;

1702(1) Nothing in this Part shall be construed as allowing a deduction in respect of a property

(k) that was acquired by the taxpayer after 1971.

This Court asked the respondent on the day of the hearing to recompute the capital gain, on the basis that there was, among the property valued, a silo and the enlargement of a barn, which were rebuilt after 1971. The respondent admits that buildings constructed after 1971 are depreciable under Part XI of the Regulations.

The capital gain of $9,750 arising from the reserve allowed in 1983 was therefore reduced to $975, for a taxable capital gain of $487 on the buildings disposed of which were class [sic] XVII buildings.

The valuation of the buildings before the correction was as follows:

The valuation of the buildings that fell under class [sic] XVII as recomputed following removal of the additions to the silo and barn-stable after 1971 is as follows:

The respondent submits that if we return to the computation done on the capital gain realized on disposition of the class [sic] XVII buildings set out in Schedule B of the reply to the notice of appeal, the capital gain should read as follows:

Less

Adjusted base proceeds [sic]

[Adjusted cost base]
F. M.V. at December 31, 1971	$24,700
Albertine Ryan’s share	x 50%
Adjusted base proceeds [sic]
[Adjusted cost base]	$12,350	$12,350
Capital gain on Part XVII buildings on
November 4, 1983		$ 8,700
Deduct reserve under subsection 40(1) of the
Act at December 31, 1983
$8,500 x 9/10 =		$ 7,830
		$	870
Taxable capital gain (50%)		$	435
		[Translation.]

4.04.3(c) Finally, counsel for the respondent submits, in conclusion, that the property classified according to class [sic] XVII was not covered by the transfer effected under subsection 73(3) of the Act without any tax consequences.

4.04.4 Opinion of the Court

The first fundamental element which the Court must analyze relates to the first argument submitted by the appellant (4.04.1) with respect to the real value of the contract entered into by the appellant and her son on November 4, 1983.

The Court agrees with the respondent that the fact that the appellant's son subsequently regularized the titles and obtained the loan in no way affects the effective validity of the notarial contract of November 4, 1983.

It is clearly established in our law that the consent of the parties alone is sufficient for the contract to be honoured, on the condition that the requirements of Article 984 of the Civil Code are also honoured. Article 1472 of the Civil Code is particularly relevant, although several others might also be raised. Article 1472 of the Civil Code reads as follows:

Sale is a contract by which one party gives a thing to the other for a price in money which the latter obliges himself to pay for it. It is perfected by the consent alone of the parties. . . .

The Court believes that the fact that titles were regularized raises no problem in the instant case.

4.04.5 It seems to have been clearly admitted by all the parties that there was in fact a defect in titles: that the 34 arpents of land and buildings thereon were indeed the property of Albertine Ryan. Julia Czerwony (3.03) never disputed the corrections that had to be made.

That clearly shows that both parties to the contract were aware of this fact, and that the purchaser, Mr. Ryan, knew exactly what the deed of sale meant with respect to the dimensions of the land and all the movable and immovable property located thereon.

The Court is of the opinion that the fact that titles are regularized in no way affects the validity and effectiveness of such a contract. If, however, there had been any conflict between the parties as to regularizing titles, the remedy available would have been a personal one by a party against the other. The validity of the contract would never have been involved.

4.04.6 As well, there is nothing to show on reading the contract that there was any special clause or clause conditional on obtaining the loan granted by farm credit for the contract to take effect.

Of course, there was a cancellation clause in the contract. However, it was a general clause applying to each of the conditions set out in the contract.

4.04.7 It emerged from the evidence that the money was not paid until 1984, when the loan was obtained. Assuming that the appellant was operating on a cash accounting method, that did not permit the Department of National Revenue, in the view of the Court, to assess the appellant for 1983 on the capital gain arising from the sale of November 4, 1983.

In these circumstances, it seems unfair to assess the appellant for a capital gain that she had not yet received.

Accordingly, the Department of National Revenue should have assessed the appellant in 1984. Because she was on the cash accounting method, the decisive date was when payment was received, not when the contract was signed by the parties.

4.04.8 On the cash accounting method, a taxpayer has income when he or she actually receives the payment. The appellant had received no payment in 1983, and so she was not subject to assessment by the Department of National Revenue in law.

If the appellant had been on the accrual accounting method, then the capital gain, less the applicable reserve, would have had to be included, since it was an account receivable.

Because she received no money in 1983, a reserve equal to the total capital gain would have had to be taken.

4.04.9 Moreover, the Department of National Revenue was justified in disallowing the appellant any depreciation in computing her income from farming for 1983, since at that time the contract of November 4, 1983 was effective and so the appellant theoretically no longer owned any property on December 31, 1983. Therefore, she could not claim depreciation for property she no longer owned.

4.04.10 The second argument raises the question of the validity of the partnership contract between the appellant and her son.

Obviously, the mere fact of calling one's self a” partner" in a business in no way implies that there is really a partnership contract.

Moreover, it is important in determining the nature of the contract to attempt to identify the real intention of the parties, outside the apparent relationship between them.

Several authors, including Albert Bohemier and Pierre-Paul Côté [1] , recognize three fundamental elements as necessary to the formation of a partnership. The first is the contribution that each partner must make to the partnership, whether in goods or services. The second is that the object of the partnership must be to make a profit for the benefit of all the partners; and the third is precisely this desire to be in a partnership, the intention of each partner to work in co-operation with his or her colleagues to attain the objectives of the partnership.

This final element seems to suggest active participation in the social and administrative life of the partnership. On the evidence, and according to the partnership contract (Exhibit A-4) between the appellant and her son (4.04.2), it does not seem that this last test has been met as it relates to the appellant.

However, this lack of active participation by the appellant in the partnership undoubtedly explains the proportion in which the profits from the partnership were to go to her and her son. She did not share in the work, the administration or the liabilities, and so she received only 20 per cent of the net income.

Although we can perhaps not describe such a contract as a partnership contract, the Court is of the opinion that there is no prohibition whatsoever to prevent two individuals from having such a contract between them. In the present case, whether it is a partnership contract or a contract sui generis, the Court does not see how it affects the right of the Department of National Revenue to assess the appellant for all of the income from her farm in 1983.

The evidence of this contract sui generis (4.04.2) shows that the appellant in fact received only 20 per cent of the profit. Accordingly, she must be taxed in the same proportion as the percentage established.

4.04.11 The Court is of the opinion that the Department was therefore not justified in including all of the income from the farm in the appellants income.

4.04.12 This being the case, the Court has no need to express any further opinion on the subsequent arguments submitted by the parties.

5. Conclusion

For the foregoing reasons, the appeal is allowed, with costs, and the matter is referred back to the respondent for reconsideration and reassessment.

Appeal allowed.