Angelo Travica v. Minister of National Revenue, [1988] 1 CTC 2359, 88 DTC 1260

Brule, T.C.J.: — The present appeals, heard at Vancouver, British Columbia, on October 28, 1987, deal with the appellant's 1979, 1980 and 1981 taxation years.

At the outset of the hearing counsel for the respondent made a motion to dismiss the purported appeals for the 1979 and 1980 taxation years on the grounds that the notice of objection pertaining to those years had not been filed within the time prescribed by section 169 of the Income Tax Act. Counsel for the appellant did not oppose the motion, which the Court granted. Only the appeal relating to the appellant's 1981 taxation year remains before the Court.

By notice of reassessment dated December 2, 1983, the Minister increased the appellant's reported fishing loss of $3,576.70 to $11,614.23, his taxable capital gain from $38,250 to $76,500 and his capital cost allowance recapture from $15,909.44 to $31,818.88.

The appellant's solicitor argued that a fishing vessel used in relation to the appellant's fishing business was owned and operated by the appellant Mr. Travica in partnership with the appellant's wife. Half of the loss from the operation of the fishing business and half of the capital gain resulting from the sale of the fishing vessel in 1981 should therefore be allocated to the appellant's wife. The appellant's solicitor argued in the alternative that if the Court found that no partnership existed, half of the capital gain should still be allocated to the appellant’s wife as she was half owner of the vessel.

The evidence adduced at the hearing has revealed the appellant had purchased a 50 per cent interest in the fishing vessel "Sunrise Maid” in 1971. An excerpt of a register, produced as Exhibit A-2 indicated that the remaining 50 per cent interest in the ship, comprised of 32 shares, was subsequently sold to the appellant's wife, as evidenced by a bill of sale dated July 12, 1977. The register indicates that shortly thereafter, on July 29,1977, the 50 per cent interest was sold by Mrs. Travica to the appellant.

The appellant testified his wife had contributed to the purchase of the ship and that she worked on the ship, primarily as a cook, for three to five weeks in the summer and winter. Mrs. Travica testified she had contributed $700 towards the down payment to purchase the boat and has worked both on the ship and the financial management of the business. She received no salary for the work performed in relation to the business.

The appellant explained that no agreement in writing existed as to any partnership between he and his wife. All the cheques received as payment of fish sold by the business were made payable to the appellant. The profits from the business were never divided between the appellant and his wife. Income from the fishing business has always been reported on an individual basis by the appellant in previous years. Capital cost allowance on the entire undepreciated capital cost of the ship was claimed solely by the appellant in the previous tax years.

I will first address the issue of partnership. In the case of Porter v. Armstrong, [1926] S.C.R. 328, Duff, J. stated at page 329 of the report:

Partnership, it is needless to say, does not arise from ownership in common, or from joint ownership. Partnership arises from contract, evidenced either by express declaration or by conduct signifying the same thing. It is not sufficient there should be community of interest; there must be contract.

More recently, in the case of The Estate of John Sedelnick v. M.N.R., [1986] 2 C.T.C. 2102; 86 D.T.C. 1563 Christie, A.C.J.T.C. stated at page 2163 (D.T.C. 1564):

While the sine qua non of a partnership is the existence of a contract, it need not be in writing but can be established by parol. Nevertheless when the basic assumption relied on in reassessing under the Income Tax Act is that an alleged partnership did not exist between spouses thereby placing the onus on the appellant to establish on the preponderance of the evidence that it did exist one should, in my opinion, be guided by these considerations. Where there is no evidence of the existence of an express partnership agreement between husband and wife then in the absence of some special reason, which I cannot at the moment foresee, the existence of such a partnership should not be inferred from the conduct of the parties if that conduct is equally consistent with conduct arising out of the community of interests created by the marriage. This can embrace many activities which are purely commercial in nature. I think these authorities can be usefully mentioned: Cornforth v. The Queen, [1982] C.T.C. 45; 82 D.T.C. 6058; Bédard v. M.N.R., [1984] C.T.C. 2239; 84 D.T.C. 1204; Law of Partnership, 3rd (1983) ed. by Charles D. Drake and The Law of Partnership, 4th (1981) ed. by P.F.P. Higgins and K.L. Fletcher.

In that case the Court found that, in the absence of a written partnership contract, the fact the couple held a joint bank account and had joint ownership of farm properties and dwelling houses was not conclusive evidence of the existence of a partnership. The same conclusion must apply all the more to the present case where the appellant has, in previous years, reported the income from the business on a personal basis and where no division of the profits has occurred.

Having determined the appellant and his wife were not partners in the fishing business, there remains to be determined the ownership of the “Sunrise Maid” for the purposes of calculating the allocation of the capital gain arising out of the sale of the ship. The register excerpt produced as Exhibit A-2 indicates that the shares in the ship held by Mrs. Travica were sold to the appellant on July 29, 1977. The fact that Mrs. Travica appears as one of the vendors on the contract of sale of the ship executed in 1981, does not, in the absence of a partnership, refute the evidence of ownership established by the register.

The evidence is further supported by the fact that the income from the fishing business and the capital cost allowance on the ship have always in the past been reported by the appellant on an individual basis. For these reasons the appeals must fail. Therefore the appeals are dismissed.

Appeals dismissed.