Date: 20051110
Docket: A-26-05
Citation: 2005 FCA 378
CORAM: NOËL J.A.
BETWEEN:
MOHINDER BAINS AND HARBHAJAN BAINS
Appellants
and
HER MAJESTY THE QUEEN
Respondents
Heard at Vancouver, British Columbia on November 10, 2005.
Judgment delivered from the Bench at Vancouver, British Columbia on November 10, 2005.
REASONS FOR JUDGMENT OF THE COURT BY: SHARLOW J.A.
Date: 20051110
Docket: A-26-05
Citation: 2005 FCA 378
CORAM: NOEL J.A.
BETWEEN:
MOHINDER BAINS AND HARBHAJAN BAINS
Appellants
and
HER MAJESTY THE QUEEN
Respondents
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Vancouver, British Columbia on November 10, 2005)
[1] The appellants, husband and wife, were assessed under Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15 (GST) for the period from January 1, 1993 to December 31, 2000 on the basis that the rent they received from leasing their jointly owned commercial property was the income of a partnership. The assessments were upheld by a judgment of the Tax Court of Canada: Bains v. Canada, [2005] G.S.T.C. 83, 2005 G.T.C. 842 (T.C.C.). The appellants now appeal to this Court.
[2] The argument before the Tax Court Judge was framed rather differently than the arguments made in this Court. What was stated to be in issue in the Tax Court was whether the relationship between the parties was one of joint venture or partnership. In this Court, the argument focussed on whether the parties were merely co-owners of rental properties, as opposed to partners in a rental business.
[3] It is undisputed that the appellants are entitled to succeed on this appeal if the Tax Court Judge erred in law in reaching the conclusion that the rents were received by the appellants in partnership. Whether or not a partnership exists depends on the relevant provincial law. In this case, the relevant law is the law of British Columbia. Section 2 of the Partnership Act, R.S.B.C. 1996, c. 348, reads as follows:
|
2. Partnership is the relation which subsists between persons carrying on business in common with a view of profit. |
[4] In this case, the rent was derived from the leasing of property. It is not suggested that the administration of the lease and the maintenance of the property required the appellants to undertake any activity in excess of what would normally be expected of joint owners of rental property. Given that the case involves what is essentially the passive receipt of income from property, it must be presumed in the absence of evidence to the contrary that the relationship between the parties is simply that of joint owners, not partners. That is the thrust of section 4 of the Partnership Act. The relevant portions of section 4 read as follows:
|
4. In determining whether a partnership does or does not exist, regard must be had to the following rules:
(a) joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as to any property that is so held or owned, whether the tenants or owners do or do not share any profits made by the use of the property;
(b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing the returns have or have not a joint or common right or interest in property from which or from the use of which the returns are derived;
(c) the receipt by a person of a share of the profits of a business is proof in the absence of evidence to the contrary that he or she is a partner in the business, but the receipt of a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him or her a partner in the business [...]. |
[5] The Tax Court Judge concluded that the appellants were partners rather than joint venturers because, as he said at paragraph 9 of his reasons:
|
The evidence established that both of the partners (a) had an interest in the joint property; (b) a mutual right of management of the enterprise; and (c) had the authority to bind the partnership. I further note that paragraph 4(c) of the relevant Partnership Act specifies in part that "the receipt by a person of a share of the profits of a business is proof in the absence of evidence to the contrary that he or she is a partner in the business, ...". That exists in the present case since the income from the rental property was divided equally between the two and was channelled into a joint bank account. Furthermore, they filed separate income tax returns reporting this income after taking their respective shares of the expenses into account. It is not possible in the circumstances to conclude that there has been no distribution of partnership funds. |
[6] There was evidence that the property in question was jointly owned, that both appellants took part in matters relating to the administration of the lease and the maintenance of the property, that they were jointly and severally liable for the mortgage on the property, that the lease payments were paid into a joint bank account maintained by the appellants, and that the expenses of the property were paid from that account. Having regard to section 4 of the Partnership Act, those facts were not sufficient to establish that the appellants were partners with respect to the leasing of the building. On the contrary, that evidence is consistent with the appellants' contention that they were merely joint owners.
[7] The Judge found that the use of a single joint account to which rents were deposited and for which expenses were paid was evidence of the "sharing of partnership profits" within the meaning of paragraph 4(c) of the Partnership Act. In our view, that reasoning is not sound. The use of a joint account in these circumstances is nothing more than a normal way of managing the family's resources. That is consistent with the appellants' contention that they were merely joint owners.
[8] As to the Judge's conclusion that the appellants had "the authority to bind the partnership" (which we take to mean that they were entitled as a matter of law to act as each other's agent in matters relating to the property), there was no evidence that either of the appellants had the legal right to bind the other in any matters relating to the property. They were both parties to the lease, and the mortgage on the property.
[9] With respect to the filing of their income tax returns, Mr. Bains testified, on being questioned by his own counsel, that he and his wife each reported 50% of the rent in their income tax returns. Counsel for the Crown did not ask Mr. Bains to explain whether he meant that they filed their income tax returns as partners (that is, each reporting a 50% share of the net rental income, as partners would do), or whether they each reported 50% of the gross rents and deducted their respective shares of the expenses (as co-owners would do). The appellants' income tax returns were not in evidence. As the record stands, the evidence as to the manner in which the appellants filed their income tax returns is incapable of establishing that they had filed as though they were partners.
[10] We are compelled to conclude that there was no evidence before the Judge upon which he could reasonably have concluded that the appellants were anything but joint owners of the property.
[11] The appeal will be allowed with costs.
(Sgd.) "Karen R. Sharlow"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-26-05
STYLE OF CAUSE: Mohinder Bains et al v. Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: November 10, 2005
REASONS FOR JUDGMENT : Noël, Sharlow, Malone JJ.A.
RENDERED FROM THE BENCH BY: Sharlow JJ.A.
DATED: November 10, 2005
APPEARANCES:
Mr. Kim E. Johnson FOR THE APPELLANT
Ms. Lynn M. Burch FOR THE RESPONDENT
SOLICITORS OF RECORD:
Ross, Johnson & Associates FOR THE APPELLANT
Victoria, British Columbia
John H. Sims, Q.C. FOR THE RESPONDENT
Deputy Attorney General for Canada