Hamlyn
T.C.J.:
This
is
in
the
matter
of
Sandra
Desrochers
and
Her
Majesty
the
Queen.
The
appellant
appeals
her
assessment
for
the
1990
taxation
year.
The
appellant’s
husband
purchased,
on
September
9th,
1986,
property
in
Oakville,
known
hereafter
as
the
“Property.”
According
to
the
appellant,
title
to
the
Property
was
in
the
husband’s
name
alone.
The
purchase
of
the
Property
was
financed
by
mortgaging
the
matrimonial
home,
title
to
which
was
held
by
the
wife.
The
appellant
agreed
to
this
arrangement.
The
appellant
submits
that
the
husband
purchased
the
Property
but
the
respondent
denies
this.
The
respondent
submits
that
the
appellant
was
actively
involved
in
the
renovation
of
the
Property
and
designed
the
interior
of
it.
The
respondent
also
submits
that
on
February
1st,
1987,
the
appellant
began
an
interior
design
business.
In
1990,
the
husband
sold
the
Property
and
reported
a
capital
gain
in
the
amount
of
$167,160.00.
In
1994,
the
Minister
of
National
Revenue
received
a
request
that
the
tax
returns
of
the
appellant
and
her
husband
be
amended
to
reflect
that
the
Property
was
held
in
partnership.
The
appellant
submits
that
her
husband
made
this
request,
but
the
respondent
states
that
it
was
made
by
both
the
appellant
and
her
husband.
By
reassessment,
dated
July
20th,
1995,
the
respondent
reassessed
the
appellant,
including
her
income
for
1990,
an
allocation
of
partnership
income
of
$83,605.00.
It
was
the
respondent’s
position
that
the
profit
from
the
sale
of
the
Property
was
business
income
and
not
a
capital
gain.
The
appellant
now
maintains
that
she
was
not
in
partnership
with
her
husband
and
had
no
legal
or
beneficial
interest
in
the
property.
She
claims
that
her
only
role
was
in
allowing
the
matrimonial
home
to
be
mortgaged.
At
the
commencement
of
the
trial,
the
assumptions
of
the
Minister
were
reviewed
with
the
appellant
in
her
capacity
as
a
witness.
From
the
Reply,
I
will
review
these
assumptions
by
reference
to
the
paragraph
number
and
the
subparagraph
number
and,
where
appropriate,
I
will
give
the
appellant’s
response
to
that
assumption.
The
first
one
was
paragraph
12(b):
At
all
material
times,
Onil,
nil
being
the
husband,
was
the
majority
shareholder
of
592052
Ontario
Limited,
which
was
in
the
contracting
and
home
improvement
business
(the
“Corporation”);
the
Corporation
operated
as
Alvinyn
Home
Improvements
and/or
nil
Contracting.
The
appellant
agreed
with
this
assumption.
Assumption
12(c):
“In
September,
1986,
the
appellant
and
Onil
purchased
the
Property
for
$192,000.00.”
The
appellant
disagreed
with
this
and
said
that
the
Property
was
purchased
by
her
husband,
Onil.
Paragraph
12(d):
The
Property,
which
was
located
in
an
affluent
residential
area
of
Oakville,
required
major
renovations.
The
appellant
agreed
with
this
assumption.
Paragraph
12(e):
Extensive
renovations,
costing
approximately
$80,000.00
were
made
to
the
Property,
including
gutting
the
interior
of
the
house
and
installing
a
new
kitchen,
dining
room,
powder
room
and
staircase;
on
the
exterior,
new
windows
and
aluminum
siding
were
added
and
a
garage
was
built.
The
appellant
agreed
with
this
assumption.
Paragraph
12(f):
The
appellant
was
actively
involved
in
the
renovations;
she
designed
the
interior
of
the
house
and
chose
the
decorating
scheme.
The
appellant
disagreed
with
this.
She
said
that
she
was
not
actively
involved
in
the
renovations;
that
she
sketched
the
floor
plan
and
gave
it
to
her
husband,
for
him
to
follow,
and
that
she
chose
the
paint
colours
and
spent
only
a
few
hours
on
the
property.
Paragraph
12(g):
The
appellant
commenced
her
own
interior
design
business
on
February
1st,
1987.
The
appellant
agreed
with
this
assumption.
Paragraph
12(h):
To
purchase
the
Property,
the
appellant
and
Onil
borrowed
$187,000.00
from
a
credit
union;
the
said
amount
was
secured
by
the
appellant,
giving
a
second
mortgage
on
the
matrimonial
home
in
the
amount
of
$159,000.00,
and
the
appellant
and
Onil
each
giving
assignments
of
their
wages
from
Onil
Contracting
and
Alvinyn
Home
Improvements,
respectively,
in
respect
of
a
loan
for
$28,600.00.
The
appellant
did
not
exactly
disagree
with
this
paragraph,
but
she
did
give
me
the
evidence,
saying
that
the
financing
on
the
matrimonial
home
was
at
the
request
of
her
husband
and
that
he
had
told
her
it
was
to
finance
a
property
purchased.
Paragraph
12(i):
In
May,
1990,
the
Property
was
sold
for
$440,000.00.
The
appellant
said
that
she
was
not
sure
about
the
sum,
but
she
thought
it
was
correct.
Paragraph
12(j):
The
appellant
represented
to
the
Minister
that
she
was
in
partnership
with
nil
in
the
purchase
and
sale
of
the
Property,
that
she
had
a
one-half
interest
in
the
Property,
and
that
one-half
of
the
gain
on
the
sale
of
the
Property
should
be
included
in
her
income
in
the
1990
taxation
year
with
the
intention
that
the
Minister
reassess
both
her
and
Onil’s
1990
taxation
years
to
include,
in
each
of
their
1990
taxation
years,
one-half
of
the
gain
from
the
sale
of
the
Property.
In
response
to
this
assumption,
the
appellant
said
that
she
never
represented
herself
as
a
partnership
with
Onil;
she
did
not
know
that
her
husband
was
asking
for
a
reassessment;
that
she
was
simply
responding
to
his
request
to
come
to
meet
with
Revenue
Canada.
I
do
note
that
in
evidence,
that
I
will
review
later
on,
the
respondent’s
witness,
the
auditor,
who
was
representing
Revenue
Canada
at
the
meeting,
his
evidence
indicated
that
the
assumption
was
absolutely
what
happened.
Paragraph
12(k):
In
purchasing,
renovating
and
selling
the
Property,
the
appellant
and
Onil
were
in
partnership
on
a
%o
basis.
The
appellant
indicated
she
disagreed
with
this
statement
and
that
she
was
never
involved
in
any
way.
Paragraph
12(1):
The
partnership’s
intention
was
to
purchase
the
Property,
renovate
it
and
then
sell
it
for
a
profit
as
quickly
as
possible.
The
appellant
said
that
her
husband,
Onil,
wanted
to
sell
the
property
but
also
to
advertise
his
new
company.
He
would
rent
it
for
a
while,
and
maybe
one
possibility
would
be
that
they
might
move
into
it.
Paragraph
12(m):
Upon
completion
of
the
renovations,
the
Property
was
advertised
for
sale
and
it
remained
listed
for
sale
until
it
was
sold
in
1990.
The
appellant
said
she
had
no
knowledge
of
this.
Paragraph
12(n):
The
Property
was
rented
for
approximately
one
and
a
half
years
to
defray
the
carrying
costs
until
it
was
sold.
The
appellant
said
that
she
had
no
knowledge
of
this,
but
then
she
went
on
to
say
it
was
rented
for
a
while,
but
she
did
not
know
how
long.
Paragraph
12(0):
Onil
had
considerable
experience
both
personally
and
through
his
corporations
in
purchasing
and
then
renovating
and
improving
and
selling
real
estate
for
a
profit.
The
appellant
disagreed
with
this,
said
that
her
husband
had
very
little
experience
in
renovating,
that
he
was
changing
his
business
from
a
siding
business
to
a
home
improvements
business
and
this
was
one
of
his
first
endeavours.
Paragraph
12(p):
At
the
time
of
the
acquisition
of
the
Property,
the
appellant
and
Onil
had
in
mind
the
possibility
of
resale
at
a
profit
and
that
possibility
was
the
operating
motivation
for
the
acquisition
of
the
Property.
She
said
no,
this
was
not
the
purpose.
The
purpose
was
to
expose
Onil’s
company,
and
she
did
not
believe
it
was
her
husband’s
intent
to
sell
it
and
at
one
point
he
had
said
that
they
might
move
into
it.
Paragraph
12(q):
The
profit
from
the
sale
of
the
Property
in
the
amount
of
$167,161.00
was
on
an
income
account.
The
appellant
did
not
offer
her
opinion
of
this
paragraph.
Paragraph
12(r):
The
appellant’s
one
half-share
of
the
profit
from
the
sale
of
the
Property
was
$83,605.00.
She
said
she
disagreed;
that
she
did
not
get
any
of
the
profits;
and
that
she
was
not
entitled
to
the
then
business
venture
of
her
husband.
From
that,
the
trial
moved
to
other
viva
voce
evidence.
I
will
review
now
what
I
consider
to
be
the
significant
evidence
at
trial.
Two
witnesses
were
called
by
the
appellant,
the
appellant
herself
and
her
husband,
and
the
respondent
called
one
witness,
the
auditor
involved
for
Revenue
Canada.
The
appellant’s
evidence
was
that
she
exaggerated
her
role
in
the
meeting
with
Revenue
Canada
in
the
alleged
partnership.
The
affect
of
her,
and,
in
part,
her
husband’s
representations
led
the
Minister
to
reassess
on
the
basis
that
there
was
a
partnership
between
herself
and
her
husband
in
relation
to
the
Property.
After
the
appellant
found
that
this
reassessment
would
work
against
her
monetary
interests,
she
sought
to
change
her
position
and
said
that
she
was
not
a
partner
and
that
the
reassessment
was
wrong.
The
documentation
given
to
Revenue
Canada
before
and
at
that
meeting
to
support
the
partnership
concept
was
considerable.
That
documentation
included
a
letter
from
Onil
Desrochers
to
Revenue
Canada,
requesting
the
reassessment;
a
copy
of
financial
statements
by
the
proprietorship
operated
by
the
appellant
“Designs
by
Sandra;”
a
copy
of
the
mortgage
or
charge
on
the
land
at
5076
Lakeshore
Road,
which
is
their
home;
a
copy
of
the
Royal
Trust
offer
of
the
mortgage
loan
secured
by
the
property
known
as
1503
Lakeshore
Road
East,
Oakville,
Ontario;
a
copy
of
the
reporting
letter
from
Brian
D.
Woodley
to
Sandra
Desrochers,
related
transaction
at
5076
Lakeshore
Road,
Burlington;
a
copy
of
the
loan
agreement
between
Onil
and
Sandra
Desrochers
and
CUNA
of
the
Ontario
Credit
Union
Limited;
assignment
of
wages
to
CUNA
of
Ontario
Credit
Union
Limited
by
Sandra
Desrochers,
that
was
dated
September
the
8th;
a
copy
of
assignment
of
wages
to
CUNA
of
Ontario
Credit
Union
by
Sandra
Desrochers,
dated
September
the
9th;
a
copy
of
the
demand
note
in
the
amount
of
$159,000.00
signed
by
S.
Desrochers
and
O.
Desrochers;
a
copy
of
the
continuing
personal
guarantee
to
Maurice
Richard
Desrochers
and
Shelagh
Anne
Desrochers,
lender,
demand
loan
to
Onil
Desrochers
and
Sandra
Sonia
Desrochers,
borrowers,
that
was
dated
September
30th
1996;
a
copy
of
the
deed
of
transfer
of
the
land
re:
1503
Lakeshore
Road
East,
Oakville,
dated
September
9th,
1986,
and
a
document
dated
February
9th,
1993,
a
copy
of
an
agreement
between
Michael
Leon
Desrochers
and
571118
Ontario
Limited,
Sandra
Sonia
Desrochers,
Daniel
Leon
Desrochers
and
Diane
Desrochers.
These
documents,
as
well
as
other
documents,
show
a
paper
trail
of
involvement
of
the
appellant,
leading
to
a
conclusion
of
a
partnership.
The
financial
documentary
evidence,
combined
with
the
presentation
by
the
appellant
and
her
husband
to
Revenue
Canada,
on
the
22nd
of
February,
1994,
including
the
appellant’s
assertion
that
at
that
time
of
her
involvement
in
the
interior
design
of
the
property
was
the
basis
of
the
Minister’s
reassessment
on
a
partnership
basis.
I
also
heard
evidence
around
the
transaction
itself
and
it
included
the
following:
That
the
husband
stated
to
Revenue
Canada
the
intention
of
the
purchase
was
to
renovate
the
property
and
sell
it;
further,
that
the
whole
transaction
was
in
large
part
financed
with
borrowed
funds;
the
loans
acquired
for
the
property
acquisition
were
short-term
borrowings;
the
demand
loan
from
CUNA,
only
interest
payments
were
required;
the
wage
assignments
were
signed
as
collateral
security
to
the
monies
borrowed;
the
renovations
were
extensive;
and,
to
some
degree,
one
greater
than
the
other,
both
the
appellant
and
her
husband
applied
their
skills
to
the
project;
further,
there
was
a
history
of
property
transfers
in
relation
to
the
husband,
including
some
property
in
Florida.
I
further
heard
evidence
that
leads
to
the
conclusion,
the
operating
and
directing
mind
of
the
project
was
the
husband,
and
the
appellant
participated
and
followed
his
instructions
without
question,
and,
indeed,
to
Revenue
Canada,
held
herself
out
to
be
a
partner.
By
way
of
general
comment
on
the
evidence,
the
evidence
of
the
husband
and
the
evidence
of
the
appellant
on
some
issues
was
conflicting
and
not
compelling.
For
example,
the
appellant
stated
that
she
was
asked
by
her
husband
to
exaggerate
her
role
in
the
project
in
the
representations
to
Revenue
Canada;
whereas,
when
the
same
question
was
put
to
the
husband,
he
said
he
did
not
ask
her
to
exaggerate;
he
asked
her
to
tell
what
she
did.
On
the
other
hand,
the
auditor’s
evidence,
called
on
behalf
of
the
respondent,
in
relation
to
the
events
around
the
meeting
and
around
the
reassessment,
was
clear
and
credible.
So
the
issues
before
the
court
are
as
follows:
(1),
is
the
appellant
estopped
from
claiming
she
was
not
in
partnership
with
her
husband;
and
(2),
if
not,
was
she,
in
fact,
in
partnership
with
her
husband
in
the
purchase
of
the
Property;
and
(3),
were
the
profits
on
the
sale
on
account
of
income
or
capital?
I
will
first
deal
with
the
question
of
estoppel.
The
respondent
submits
that
the
appellant
should
not
be
allowed
to
claim
that
she
was
not
in
partnership
with
her
husband
because
she
had
previously
represented
that
she
was
and
the
Minister
had
relied
on
that
to
his
detriment.
The
doctrine
of
estoppel
has
been
set
forth
in
Greenwood
v.
Martins
Bank
Ltd.
(1932),
[1933]
A.C.
51
(U.K.
H.L.).
Lord
Tomlin,
in
that
case,
defined
the
three
essential
elements
that
give
rise
to
estoppel.
(1)
A
representation
or
conduct
amounting
to
a
representation
intended
to
induce
a
course
of
conduct
on
the
part
of
the
person
to
whom
the
representation
is
made.
(2)
An
act
or
omission
resulting
from
the
representation
whether
actual
or
by
conduct
by
the
person
to
whom
the
representation
is
made.
(3)
A
detriment
to
such
person
as
a
consequence
of
the
act
or
omission.
I
have
concluded
from
the
facts
of
this
case
that
the
appellant,
in
the
case
at
hand,
is
estopped
from
changing
her
claim.
The
three
elements
appear
to
be
satisfied.
In
filing
the
request
indicating
that
the
Property
had
been
held
in
partnership,
the
appellant
made
a
representation
intended
to
induce
a
course
of
conduct
on
the
part
of
the
Minister.
The
request
resulted
in
an
act
by
the
Minister.
The
Minister
reduced
the
income
from
the
sale
attributed
to
her
husband
and
increased
the
income
attributed
to
the
appellant,
and
there
was
also
a
detriment
to
the
Minister
as
a
consequence
in
the
Act
that
statutory
limitations
have
run.
As
all
three
elements
are
present,
it
is
concluded
that
the
appellant
is
estopped
from
claiming
she
was
not
in
partnership
with
her
husband.
With
this
finding,
it
is
not
necessary
to
find
in
fact
that
she
was
in
partnership
with
her
husband
in
the
purchase
of
the
Property.
However,
on
the
totality
of
all
the
evidence
that
I
have
heard,
I
have
concluded
that
there
was
a
partnership
with
her
husband.
The
last
question
to
determine
in
this
case
is,
were
the
profits
in
the
sale
on
account
of
income
or
capital?
An
often
used
test
for
determining
whether
profit
from
the
sale
of
an
asset
is
business
income
or
capital
gain
is
set
forth
in
California
Copper
Syndicate
Ltd.
v.
Harris
(Surveyor
of
Taxes)
(1904),
5
T.C.
159
(Scot.
Exch.),
F-6
session
cases,
894.
And
the
test
used
by
the
Supreme
Court
of
Canada
in
R.
v.
Anderson
Logging
Co.,
which
is
(1924),
52
D.T.C.
1209
(S.C.C.).
Lord
Mcdonald
in
that
case,
in
the
California
Copper
case,
stated:
Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realizing
the
security,
or
is
it
a
gain
made
in
an
operation
of
a
business
in
carrying
out
a
scheme
for
profit
making?
The
Canadian
case
that
has
been
cited
at
length
in
many
cases
of
this
nature
is
Happy
Valley
Farms
Ltd.
v.
Minister
of
National
Revenue
(1986),
86
D.T.C.
6421
(Fed.
T.D.).
There,
the
Federal
Court,
Trial
Division,
set
out
a
number
of
factors
that
must
go
to
such
determination.
In
particular,
at
pages
6423
to
6424,
Justice
Rouleau
has
reviewed
those
several
tests,
and
they
include:
The
nature
of
the
property
sold,
the
length
of
ownership
of
the
property,
the
frequency
or
number
of
other
similar
transactions
by
the
taxpayer,
the
work
expended
on
or
in
connection
with
the
property
realized,
the
circumstances
that
were
responsible
for
the
sale
of
the
property,
and
the
motive.
The
motive
of
the
taxpayer
is
never
irrelevant
in
these
cases.
The
intention
at
the
time
of
acquiring
the
asset,
as
inferred
from
the
surrounding
circumstances
and
direct
evidence,
is
one
of
the
most
important
elements
in
determining
whether
a
gain
iS
a
Capital
or
income
nature.
So
with
that
background,
I
look
at
the
facts
of
this
case
and
I
come
to
the
following
conclusion.
(1)
,
as
stated
earlier,
the
operating
and
directing
mind
was
the
appellant’s
husband,
and
that
the
appellant
followed
his
direction.
As
such,
he
is
bound
by
his
motivations
and
his
conduct.
(2)
,
the
Property
was
acquired
to
be
renovated
and
sold.
(3)
,
the
appellant’s
husband
was
in
the
renovating
business.
(4)
,
the
financing
was
short
term
in
nature
and
was
of
a
high
ratio
basis.
(5)
,
the
whole
transaction
was
conducted
in
a
very
professional
and
business-like
manner.
(6)
,
the
period
of
acquisition,
renovation
and
eventual
disposition
was
short.
(7)
,
the
borrowings
required
collateral
security
from
the
appellant
and
her
husband
by
way
of
wage
assignments
from
the
husband’s
business;
that
is,
in
relation
to
the
CUNA
borrowings.
(8)
,
the
appellant’s
husband
had
a
history
of
other
property
transactions.
(9)
,
I
conclude
that
the
appellant
and
her
husband
both
contributed
work
and
skill
to
the
project,
although,
albeit,
not
in
equal
proportions.
(10)
,
in
consideration
of
the
intention,
the
course
of
conduct,
the
ownership,
time/lenghth,
the
work
and
skill
expended,
the
financial
arrangements
lead
this
court
to
the
conclusion
that
the
appellant’s
partnership
share
from
the
sale
of
the
property
was
income
from
a
business;
that
1s,
on
income
account.
The
decision,
therefore,
is
the
appeal
is
dismissed
with
costs.
Thank
you.
MS.
THORN:
Thank
you,
Your
Honour.
Appeal
dismissed.
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