Joan C. Hansen v. Minister of National Revenue, [1986] 2 CTC 2276, 86 DTC 1697

Tremblay, T.C.J.:—This appeal was heard on June 18, 1986 at the City of Regina, Saskatchewan.

1. The Point at Issue

The point is whether the appellant is correct in the computation of her income for the 1978, 1979, 1980 and 1981 taxation years to claim business losses from the mining operation of Vault Placer Mining: $1,551.21 (1978), $4,310.52 (1979), $7,123.23 (1980), and $8,706.73 (1981).

The respondent disallowed the said losses contending that the appellant has no partnership in the business but that her husband owned 50 per cent of the business and a Mr. Keldon Adams owned the other 50 per cent.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent's assessment is incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by 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 same judgment, the Court decided that the assumed facts on which the respondent based his assessment or reassessment are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

5. In assessing the income tax liability of the Appellant as he did, and with respect to those matters here in issue, the respondent made, inter alia, the following assumptions of fact:

(a) that William Hansen was at all material times the spouse of Joan C. Hansen;

(b) that William Hansen was at all material times the owner of the 50% interest

in the Vault Placer Mining Partnership that is the subject matter of this Appeal;

(c) that a Bill of Sale for the Vault Placer Mine dated January 3, 1980 between George Thompson and his trustee, Keldon Adams, states that William Hansen owns George Thompson’s interest in the Vault Placer Mine;

(d) that the purchase money for the 50% interest in the Vault Placer Mining Partnership was provided by William Hansen;

(e) that expenses charged to the partnership share here in issue were paid by William C. Hansen in 1979 and 1980.

3. The Facts

3.01 William J. Hansen was at all material times the spouse of Joan C. Hansen, the appellant.

3.02 From documents issued by the Department of Indian Affairs and Northern Development on July 24, 1978 (Exhibit A-2), it clearly appears that the appellant was, at that time, owner of the following claims: P-1567, P- 4372 and P-4373 in the mining district of Dawson, Yukon Territory. The transfer of the two latter claims had been made on July 7, 1978 (Exhibit A-1). The transfer of the first claim (P-1567) was also made on July 24, 1980. Three documents (Exhibit A-10) were issued by the same Department, the Department of Indian Affairs and Northern Development, granting exclusive right of entry to Joan Hansen on the three claims, P-1567 until July 14, 1985 and P-4372 and P-4373 until October 3, 1983. On September 24, 1979, the said exclusive right of entry was granted until July 1988 and October 1986 respectively (Exhibit A-11) on the said claims.

3.03 On July 17, 1979, the appellant appointed her husband to act “on [her] behalf in all dealings with the purchase of George Thompson’s interest” in the Vault Placer Mining Partnership and also to operate and protect her interest after the purchase (Exhibit A-3). The Thompson’s interest was 50 per cent of the partnership.

3.04 On July 25, 1979, an interim document signed by George Thompson and the appellant (Exhibit A-4) shows that the said 50 per cent includes all equipment for $14,000, $2,000 of which was paid that day. The other partner

K. G. Adams also signed as trustee to act for Thompson until the official contract and final payment be done before January 1980.

3.05 The official document, the Bill of Sale (Exhibit A-5), issued on January 3, 1980, shows that the 50 per cent interest of Vault Placer (including equipment) is sold to William J. Hansen. Exhibit A-5 includes the photocopy of a cheque to Keldon G. Adams (it was in fact for Thompson) signed by William J. Hansen.

3.06 The appellant stated that her husband used his own money to pay the said interest, as she did not have a chequing account at the time. No written agreement was made concerning the said loan.

3.07 According to the appellant, the amount of $14,000 for the said 50 per cent interest of Vault Placer was reimbursed to her husband plus another amount of $7,000 concerning equipment in April 1982 when the 50 per cent interest was sold to Keldon G. Adams for $24,000. A final release issued by the appellant and her husband in favour of K. Adams (Exhibit R-1) says that a cheque of $24,000 was made to the order of William and Joan Hansen.

3.08 The appellant testified that she endorsed the cheque and remitted it to her husband in payment of the $21,000, the balance being interest.

3.09 In July 1980, the Controller of Water Rights of the Department of Indian Affairs and Northern Development authorized the appellant to use water for her three claims (Exhibits A-8 and A-9).

3.10 In January 1981, Mr. Parisien, Manager of Precious Metals and Mining Relations of the Royal Canadian Mint, accepted from the appellant the mandate to sell the gold extracted from the claims. Two letters signed by the appellant to Mr. Parisien concerning the same mandate were filed with the same document as Exhibit A-7.

3.11 The appellant stated that her husband was not an employee. She never paid him a salary. She stated that the Vault Placer Mining Operation was like a family business. The appellant herself went to Dawson about 4 to 5 weeks per year and is still the owner.

3.12 The quantum of the losses claimed by the appellant is not in dispute.

4, Analysis

4.01 The preponderance of evidence is to the effect that the appellant is the owner of the three claims on which the Vault Placer Mining Operation was carried out. So many official documents indeed confirm the testimony of the appellant (Exhibits A-1, A-2, A-7, A-8, A-9, A-10, A-11 and A-12).

4.02 Concerning the Vault Placer Mining Operation itself, the preponderance of the evidence is to the effect that if the appellant did furnish the claims, her husband furnished the capital and the know-how. He was not an employee, however, he had the mandate to operate the business which was a family business. In substance, the Court concludes that from the part of Vault Placer, purchased from George Thompson, the appellant owned 50 per cent and her husband 50 per cent.

4.03 The appellant has the right to deduct 50 per cent of the losses of the portion purchased from George Thompson. The quantum of the said losses is not in dispute.

5, Conclusion

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

Appeal allowed.