[OFFICIAL ENGLISH TRANSLATION]
2000-2384(IT)I
BETWEEN:
MARTINE DROLET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 18, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Stéphane Beaudoin
Counsel for the Respondent: Stéphane Arcelin
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1995, 1996 and 1997 taxation years is allowed, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 27th day of July 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 21st day of January 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20010727
Docket: 2000-2384(IT)I
BETWEEN:
MARTINE DROLET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal for the 1995, 1996 and 1997 taxation years. The issue is whether the appellant was a member of a partnership those years. If so, I will have to decide whether the Minister of National Revenue ("the Minister") was justified in including in the appellant's income 50 percent of the partnership's income for 1995, 1996 and the first three months of 1997. If not, the appellant's appeal will have to be allowed.
[2] The appellant explained that her spouse had started operating a business in 1987; it was a business that delivered and sold dairy products.
[3] Initially, the customers were mainly people from private homes, while later they were mainly businesses.
[4] The appellant did not receive any salary from the business; however, she had an interest as someone who took part in the business, since she kept the books, made deposits and occasionally ran errands. Since she did that work from home, she also answered the telephone and took customers' orders.
[5] She explained that her main occupation was looking after her two children; she also did volunteer work and political organizing.
[6] The appellant said that she was in no way a co-owner of or partner in the business of her spouse, Michel Guillemette. She took an interest in it, she helped him and she participated not as a partner but basically as a spouse who really cared about the success of the business owned by the person on whom she depended financially, since the family's income came solely from the said business.
[7] A number of facts suggest that there was a genuine de facto partnership in which the partners were the appellant and her spouse, Michel Guillemette. The evidence brought out the following facts, inter alia:
- all of the business' banking was done through the spouses' personal account;
- the appellant was authorized to write cheques; she kept the books and made the deposits;
- the business' accountant apparently suggested to the appellant's spouse in the early 1990s that the income from the business be divided up or shared 50-50; the appellant admitted that she tacitly accepted the accountant's suggestion; she therefore completed, signed and filed her tax returns as a co-owner of the partnership.
[8] Obviously, all of these facts strongly support the existence of a partnership in which the appellant had a 50-percent interest. However, the evidence also showed that the partnership that may have existed between the appellant and her spouse ceased to exist at a certain point.
[9] The appellant said that after learning that the strategy developed by the accountant was not legitimate, she told her spouse in 1995 that she wanted to put an end to the partnership.
[10] Is that what she really told her spouse? I consider it possible and likely; moreover, she and her spouse divorced shortly thereafter because of their deteriorating relationship. This was reasonable, plausible and certainly possible behaviour, since spouses who no longer get along usually do not like or agree to share or co-operate easily.
[11] Serge Gagné, who audited the file and who testified at the respondent's request, said that the appellant's 1995 tax return was filed much later and had probably been prepared by her former spouse, since it was not signed. This confirms the appellant's version that everything was prepared for the accountant.
[12] Mr. Gagné also said that he talked to and met with Mr. Guillemette a few times concerning the business' file. He admitted that he never met with the appellant, although he spoke to her once or twice on the telephone.
[13] The witness justified his interest in Mr. Guillemette by saying that Mr. Guillemette had all the information and documents he needed for his audit.
[14] This fact alone confirms unequivocally that the appellant was excluded from the business' affairs or at least that there had been a break with the situation that existed in previous years when she looked after and had possession of information, documents and all the administrative materials.
[15] Given the atmosphere between the appellant and her spouse, I have no doubts about the answers the auditor was able to obtain from Mr. Guillemette; Mr. Guillemette had a real and considerable interest in claiming and maintaining that the appellant was a co-owner or partner with him in his business, since an answer indicating that he was the sole owner would have had significant effects on his own tax situation.
[16] The appellant said that she did not report any income for the years at issue. She submitted that the returns for the previous years had been completed by the business' accountant and that all the costs related thereto had been assumed and paid by Mr. Guillemette, who was then her spouse.
[17] Were it not for the divorce, the date of the divorce, the agreements reached and all of the facts and circumstances existing during that period, I think that the appellant, through her testimony alone, could not have proved that there was no de facto partnership between her and her spouse at one time.
[18] However, for the period to which this appeal applies, the weight of the evidence leads me to conclude otherwise, mainly for the reasons given below.
[19] First, not only were the explanations given by the appellant corroborated by the testimony of Mr. Gagné, a witness for the respondent, but, what is more, they were strengthened and supplemented.
[20] Second, the agreements reached by the parties in connection with the divorce also confirmed the appellant's claims.
[21] Third, counsel for the respondent referred to article 2186 of the Civil Code of Québec, which reads as follows:
A contract of partnership is a contract by which the parties, in a spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by combining property, knowledge or activities and to share any resulting pecuniary profits.
A contract of association is a contract by which the parties agree to pursue a common goal other than the making of pecuniary profits to be shared between the members of the association.
[22] This article thus sets out an essential and fundamental condition, namely the parties' consent to be partners.
[23] The evidence concerning certain actions showed on a balance of probabilities that such an intention existed at one time. This is not the case at all for the period at issue, namely the 1995, 1996 and 1997 taxation years. Not only does the appellant's testimony indicate the contrary, but her testimony is also confirmed by the evidence adduced by the respondent through Mr. Gagné's testimony.
[24] Was there a de facto partnership between the appellant and Mr. Guillemette? There is no doubt in my mind that such a partnership existed at one time.
[25] However, the weight of the evidence for 1995, 1996 and 1997 does not show this. A partnership is a creation resulting from facts but also from the parties' consent. When one party, here the appellant, expresses his or her intention to end the partnership, the partnership can no longer exist. In this case, the appellant's testimony that she was not her spouse's partner is confirmed by decisive facts, including the divorce and the circumstances and facts described by the respondent's witness.
[26] It is my view that the appellant has discharged the burden of proof by the explanations given but also and above all by the corroboration resulting from the documentary evidence and the testimony of the person in charge of the file, Serge Gagné.
[27] I therefore conclude that the de facto partnership that may have existed between the appellant and Michel Guillemette no longer existed during 1995, 1996 and 1997, the years at issue.
[28] Accordingly, the appeal is allowed.
Signed at Ottawa, Canada, this 27th day of July 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 21st day of January 2003.
Sophie Debbané, Revisor