Kenneth H Wright v. Minister of National Revenue, [1982] CTC 2744, 82 DTC 1766

The Chairman:—The appeal of Kenneth Wright is from an assessment with respect to the 1979 taxation year. In his personal income tax return, the appellant reported income on the basis that he was in partnership with his wife in the operation of a carpentry business. The Minister of National Revenue assessed the appellant as sole proprietor of the business and added to the appellant’s income an amount of $7,051 representing that portion of the purported partnership which had been attributed to the appellant’s wife. The issue of course is whether a partnership existed between the appellant and his wife in 1979.

Summary of Facts

The appellant, a truck driver for Taggart Transport from 1965 to 1972, marrried his wife Brenda in 1966. At that time, the total of the family assets was $3,500. In 1969, the appellant and his wife built their first residence which they owned jointly. In subsequent years, they changed residences several times and each new home was jointly owned.

In 1972 the appellant was employed as a carpenter for C J Molten Construction Company but in the spring of 1977, the appellant went into business for himself under the name of Ken Wright Carpentry. Three children were born of the marriage, the last child born in 1977.

The appellant’s income tax returns for the 1977, 1978 and 1979 taxation years were prepared by Mr Carsley, a high school teacher in Perth, Ontario, on the basis that the appellant’s business was a sole proprietorship. The tax return of the appellant’s wife Brenda, dated March 14, 1980, also prepared by Mr Carsley, showed she had no taxable income for the 1979 taxation year (Exhibit R-3). The appellant, at schedule 10 of his wife’s 1979 tax return (Exhibit R-3), certified on March 14, 1980 that his wife had no income for the 1979 taxation year.

The appellant, at some undetermined period of time, retained the services of Mr John F Quigley, a chartered accountant, who suggested that the appellant and his wife should enter into a partnership agreement. He drafted an agreement which states that, as of January 1, 1979, the profits and losses of the business would be shared by the appellant and his wife on a 60/40 basis (Exhibit A-2). The agreement is alleged to have been signed on December 15, 1978.

On April 30, 1980 Mr Quigley prepared an amended return for the appellant’s 1979 tax return (Exhibit R-1) and an amended return for Mrs. Wright’s 1979 income (Exhibit R-4), both on the basis that a partnership existed between the appellant and his wife during the 1979 taxation year.

The evidence of both the appellant and his wife is that the partnership agreement was signed at Mr Quigley’s office in December 1978 but it is Mrs Wright’s testimony that the agreement was signed at the same time as she turned over to Mr Quigley the books and records of Ken Wright Carpentry for the preparation of the 1979 return.

On Mrs Wright’s own evidence, the partnership agreement could not have been signed on December 15, 1978. There is no evidence to support the allegation that an oral agreement of partnership had been entered into between the appellant and his wife in 1977. There is evidence that Mrs Wright encouraged the appellant to go into business for himself when his employment with C J Molten Construction Company was no longer available, but there is no evidence that a partnership was ever contemplated at that time.

When asked by counsel for the respondent when the partnership with her husband commenced, Mrs Wright unhesitatingly replied “1966”, the year she married the appellant. In 1966 no partnership existed for purposes of the Income Tax Act, SC 1970-71-72, c 63, as amended, between the appellant and his wife, both of whom were employees at the time. The joint ownership of their residence, which the appellant and his wife went to considerable pains to point out, arises out of a normal marital relationship, and is not of itself proof of the existence of a bona fide partnership in the legal sense of the word.

It is not uncommon among married couples who are not partners in business to have joint bank accounts; the appellant’s and his wife’s joint bank account does not establish that a business partnership existed between them.

In 1979 Mrs Wright’s participation in the business operations consisted principally in keeping the books and records; answering the phone, and typing estimates for which she had no special qualifications and which was done at an office in their home. Her evidence was that she spent two to three hours a day and two to three days at the end of the month performing duties related to the business. While no doubt helpful to the appellant in carrying out his business, Mrs Wright’s contribution is not a major factor in the appellant’s business and does not convince me of the existence of a partnership between the appellant and his wife. Mrs Wright’s activities with respect to the appellant’s business arise out of a normal marriage relationship in which the spouses, as part of their family life style, help one another.

There is no evidence of any intention on the part of the appellant and his wife of forming a legal partnership in 1979 and I do not accept, on the basis of Mrs Wright’s testimony, that the partnership agreement was signed and entered into on December 15, 1978. I conclude therefore that no partnership agreement existed between the appellant and his wife in the 1979 taxation year and the Minister properly added to the appellant’s 1979 income the amount of $7,051 representing that portion of the carpentry business income attributed to the appellant’s spouse.

Judgment will go dismissing the appeal.

Appeal dismissed.