Mary J Graves, Gary C Graves v. Minister of National Revenue, [1983] CTC 2594

St-Onge, TCJ:—The appeals of Gary C Graves and Mary J Graves came before me on July 20, 1983, at the City of Halifax, Nova Scotia, and the issue is whether the appellants did carry on business in partnership and whether some expenses claimed were to earn income in the appellants’ 1978 and 1979 taxation years.

The facts of these appeals are set forth in the reply to the notice of appeal of Mr Gary C Graves at paragraphs 2 to 6 inclusive which read as follows:

2. The Appellant and spouse commenced carrying on business in partnership as distributors of Amway of Canada Limited on October 7, 1978, and income expenses and losses were reported in connection therewith for the 1978 and 1979 taxation years as follows:

	1978	1979
Income	$ 682	$22,333
Expenses & capital Cost Allowance	$2,231	$29,120
Loss Reported	$1,549	$ 6,787

3. In the 1978 taxation year the Appellant originally claimed 25% of the reported $1,549.00 loss ($387.00) as a deduction against other income, and subsequently revised his claim to 50% ($774.50) of the said loss.

4. In the 1979 taxation year the Appellant claimed 100% of the reported $6,787.00 loss from the said partnership.

5. The Minister of National Revenue reassessed the Appellant for the 1978 and 1979 taxation years by Notices of Reassessment dated January 25, 1982, the Appellant objected by Notice of Objection dated April 8, 1982, and the reassessments were confirmed by Notification of Confirmation dated September 8, 1982.

6. In so assessing the Appellant, in respect of the matters in issue herein, the Minister of National Revenue made, inter alia, the following assumptions of fact:

(a) the Appellant and spouse carried on the said business as equal partners,

(b) casual labour expenses claimed in the amounts of $133.00 in 1978 and

$446.00 in 1979 were personal or living expenses of the Appellant and spouse,

(c) no more than 3% of the area of the residence of the Appellant and spouse was used for carrying on the business of the partnership,

(d) expenses claimed for maintaining an office in the home in the amount of $312.00 in 1978 and $1,840.00 in 1979 were overstated by pesonal or living expenses of $255.00 in 1978 and $1,613.00 in 1979,

(e) expenses claimed for hotels, food and entertainment in the amount of

$132.00 in 1978 were overstated by personal or living expenses of $114.26,

(f) expenses claimed for travelling in the amount of $2,732.00 in 1979 were overstated by personal or living expenses of $2,317.00,

(g) expenses claimed for books and cassette tapes in the amounts of $198.00 in 1978 and $1,198.00 in 1979 were overstated by $198.00 in 1978 and $697.00 in 1979,

(h) expenses claimed for the purchase of seminar and rally tickets in the amounts of $189.00 in 1978 and $312.00 in 1979 were overstated by $164.00 in 1978 and $212.00 in 1979,

(i) vehicle expenses were incurred for the purpose of gaining or producing income and capital cost allowance could be deducted, for the 1979 taxation year, as follows:

Gas & Oil	$1,709
Repairs	$1,135
Insurance	$ 225
Parking, etc	$	35
Capital Cost Allowance	$ 750
	$3,854
Less 50% personal	$1,927
Allowable deduction	$1,927,
and,

(j) total expense and capital cost allowance claims of $2,231.00 in 1978 and

$29,120.00 in 1979 were overstated by $1,533.55 in 1978 and $11,266.00 in 1979.

At the hearing the appellant, Mr Gary Graves, admitted paragraphs 2, 3, 4 and 5. He also explained that the income and expenses of a partnership could be apportioned between the parties on the basis of the work done. Paragraph 26(a) of the Partnership Act of the Province of Nova Scotia provides for the apportionment of expenses and income to be effectuated as follows and I quote:

(a) All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm.

According to the evidence adduced and the conduct of the parties it appears that, prior to the event, there was never any agreement, written or verbal, to the effect that the apportionment should have been on the basis of 25% and 75%, 90% and 10% or 95% and 5% or 100% and nothing could be implied in that respect.

As may be seen, the appellants had made their position clear from the beginning and if they wanted to change the apportionment in the course of their business, it would have been wiser to do it in a written document. It is as easy to create a partnership without any document as it is difficult to make change without any. The third party in the occurence, the respondent, has to be protected against such changes of mind and the least a couple could do when they decide to change their minds is to show a duly written document to that effect. Furthermore, it is obvious that the appellant, Mr Graves, could not shift from one apportionment to others to satisfy his own tax purposes.

As to the expenses claimed, the Court is ready to allow the following:

Under the item “Home office”, the Court allows $600 instead of $227 for the 1979 taxation year. The Court believes that in 1979 a rent of $20 a month, is much too low for the use of a basement to store products and a garage — $50 a month is more appropriate.

Under the item “Travelling”, the Court is willing to allow 30% of the amount mentioned in the 1979 taxation year, namely $2,317 — 30% of it would be $695.10. This 30% is to cover travelling in Canada but not in the United States. The travelling expenses incurred in the US were not reasonable and also they were not incurred to earn income. There was no need for the couple to go in the US to learn what could have been learned in Canada.

Under the item “Books and Cassettes”, the Court allows $198 for the taxation year 1978 and $200 for the 1979 taxation year. Under the item “Vehicle expenses”, the Court allows instead of 50% of the amount claimed, namely $3,854, the Court will increase the proportion to 75%.

Consequently, the Court decides that there was a partnership between both appellants in the 1978 and 1979 taxation years and they have carried on the business as distributors of Amway Canada Limited as equal partners and that the losses arising from the said partnership should be equally divisible in accordance with the provisions of paragraph 96(1 )(g) of the Income Tax Act, SC 1970-71-72, c 63 as amended.

The appeal is allowed in part and the matter referred back to the Minister for re-assessment to allow the different amounts that I have just mentioned.

Appeal allowed in part.