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Docket: 2002-2318(IT)I |
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BETWEEN: |
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DOUGLAS DIXON, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
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Appeals heard on common evidence with the appeals of
Lloyd Dixon (2002-2319(IT)I) and Sharon Dixon (2002-2320(IT)I)
at Regina, Saskatchewan
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Before: The Honourable Judge D.W. Beaubier |
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Appearances: |
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Counsel for the Appellant: |
Melvin A. Gerspacher |
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Counsel for the Respondent: |
Michael Van Dam |
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JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1997 and 1998 taxation years are allowed, with costs, and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment.
Signed at Toronto, Canada this 12th day of March 2003.
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"D.W. Beaubier" |
J.T.C.C.
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Citation: 2003TCC102 |
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Date: 20030312 |
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Docket: 2002-2318(IT)I
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BETWEEN: |
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DOUGLAS DIXON, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent.
Docket: 2002-2319(IT)I AND BETWEEN:
LLOYD DIXON, Appellant, and
HER MAJESTY THE QUEEN, Respondent.
2002-2320(IT)I AND BETWEEN:
SHARON DIXON, Appellant, and
HER MAJESTY THE QUEEN, Respondent.
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REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] These appeals were heard together on common evidence at Regina, Saskatchewan, on February 14, 2003. The parties files an Agreed Statement of Facts as Exhibit AR-1. It was the only evidence.
[2] The only issue remaining between the parties at the hearing was whether each Appellant was required to report as income the proceeds of grain sales tickets in the gross amount of $79,481 which was received by Dixon Farms Partnership (the "Partnership") in calendar 1997 and cashed on January 2, 1998.
[3] The Agreed Statement of Facts reads as follows:
At the Tax Court of Canada hearings of these matters on February 14, 2003, the Appellants and the Respondent are permitted to enter into evidence in addition to the following facts agreed to in this Agreed Statement of Facts but only if such facts are relevant to the issues in the appeals. However, none of the parties may enter evidence which contradicts any of the facts agreed to herein.
The parties hereto, by their respective solicitors, agree as follows:
1. Douglas Dixon, Lloyd Dixon and Sharon Dixon (the "Taxpayers") reside in the Rural Municipality of Maryfield, Saskatchewan and have a postal address of Box 56, Maryfield, Saskatchewan, S0G 3K0.
2. For several years prior to 1997 and continuing until December 1, 1997, Lloyd Dixon and his wife, Sharon Dixon, carried on the business of farming as partners in a partnership ("the Lloyd and Sharon Dixon Partnership").
3. Lloyd Dixon and Sharon Dixon each held a 50% partnership interest in the Lloyd and Sharon Dixon Partnership.
4. The fiscal year end of the Lloyd and Sharon Dixon Partnership is December 31st.
5. The Lloyd and Sharon Dixon Partnership reported its income in accordance with the cash method pursuant to subsection 28(1) of the Income Tax Act (the "Act").
6. The Lloyd and Sharon Dixon Partnership and William Dixon (Lloyd Dixon's brother) each held a 50% partnership interest in a partnership ("Dixon Brothers") which carried on the business of farming.
7. On January 1, 1997, William Dixon sold his 50% partnership interest in Dixon Brothers to Douglas Dixon, the son of Lloyd Dixon and Sharon Dixon. Thereafter, the partnership was referred to as "the Dixon Farms Partnership" and Douglas Dixon held a 50% partnership interest in it.
8. The fiscal year end of the Dixon Farms Partnership is December 31st.
9. During 1997, the Dixon Farms Partnership delivered wheat, barley, oats and rapeseed (now commonly referred to as "canola") to primary elevators and was issued cash purchase tickets (the "Cash Purchase Tickets"). Such Cash Purchase Tickets entitled the Dixon Farms Partnership to receive payment of the sale price of the grain in the aggregate amount of $79,481.00, on January 2, 1998. Title to the grain was transferred to the elevators at the time of delivery.
10. The Dixon Farms Partnership reported its income in accordance with the cash method pursuant to subsection 28(1) of the Act. Pursuant to subsection 76(4) of the Act, it did not include the Cash Purchase Tickets in its income for the fiscal year ended December 31, 1997.
11. Prior to December 1, 1997, Dixon Farms Ltd. ("the Corporation") was incorporated under the provincial laws of Saskatchewan.
12. The fiscal year end of the Corporation is November 30th.
13. On December 1, 1997, Douglas Dixon transferred his 50% partnership interest in the Dixon Farms Partnership to the Corporation, for consideration that included a share of the Corporation, pursuant to a sale agreement and pursuant to subsection 85(1) of the Act. (The sale agreement did not refer to the Cash Purchase Tickets.) As a result of that transfer, the Corporation held a 50% partnership interest in the Dixon Farms Partnership.
14. Also on December 1, 1997, Lloyd Dixon transferred his 50% partnership interest in the Lloyd and Sharon Dixon Partnership to the Corporation, for consideration that included a share of the Corporation, pursuant to a sale agreement and pursuant to subsection 85(1) of the Act. (The sale agreement did not refer to the Cash Purchase Tickets.) As a result of that transfer, the Corporation held a 50% partnership interest in the Lloyd and Sharon Dixon Partnership.
15. On December 31, 1997, Sharon Dixon transferred her 50% partnership interest in the Lloyd and Sharon Dixon Partnership to the Corporation, for consideration that included a share of the Corporation, pursuant to a sale agreement and pursuant to subsection 85(1) of the Act. (The sale agreement did not refer to the Cash Purchase Tickets.) Immediately thereafter, the Corporation carried on alone the farming business that were the businesses of the Dixon Farms Partnership and the Lloyd and Sharon Dixon Partnership and continued to use, in the course of the businesses, the property that was, immediately before December 31, 1997, partnership property and that was received by the Corporation as proceeds of disposition of the Corporation's interests in the partnerships.
16. The Corporation included in its 1998 income $90,882.00 of income which was earned by the Dixon Farms Partnership and the Lloyd and Sharon Partnership for the period ending December 31, 1997. This $90,882.00 did not include any of the $79,481.00 for the Cash Purchase Tickets and was in respect of other income which the Dixon Farms Partnership and the Lloyd and Sharon Dixon Partnership earned in 1997.
17. For the fiscal year ending December 31, 1997, Douglas Dixon was allocated $30,000.00 of partnership income and Sharon Dixon was allocated $14,000.00 of partnership income, both in farm management fees paid to them from the Dixon Farms Partnership and the Lloyd and Sharon Dixon Partnership.
18. The $79,481.00 amount of the Cash Purchase Tickets was paid on January 2, 1998. That amount was deposited to the bank account of the Corporation. The Dixon Farms Partnership and the Lloyd and Sharon Dixon Partnership both ceased to exist by December 31, 1997.
19. If not for the cessation of the Dixon Farms Partnership, the $79,481.00 Cash Purchase Tickets amount would have been income of the Dixon Farms Partnership in the 1998 taxation year.
20. In 1997, the Dixon Farms Partnership reported the expenses associated with earning the $79,481.00 in calculating its partnership income. The partnership income was allocated to, and reported by the following partners:
Sharon Dixon
(by way of the Lloyd and Sharon Dixon Partnership) $14,000.00
Douglas Dixon $30,000.00
Dixon Farms Ltd. $90,882.00
21. The Corporation is a Canadian-Controlled Private Corporation and claimed the small business deduction for the 1998 taxation year.
22. The Corporation reported the amount of the Cash Purchase Tickets, being $79,481.00, as part of its income for the fiscal year ended November 30, 1998.
23. The Minister of National Revenue reassessed the Taxpayers' 1998 taxation year to include in their income the amount of the Cash Purchase Tickets paid on January 2, 1998, as follows:
Lloyd Dixon $19,870.00
Sharon Dixon $19,870.00
Douglas Dixon $39,741.00
Total $79,481.00
[4] In the Court's review the analysis comes down to subsection 76(3) and (4) and subsection 98(5) of the Income Tax Act (the "Act").
They read:
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76(3) This section is enacted for greater certainty and shall not be construed as limiting the generality of the other provisions of this Part by which amounts are required to be included in computing income.
76(4) Where a cash purchase ticket or other form of settlement prescribed pursuant to the Canada Grain Act or by the Minister is issued to a taxpayer in respect of grain delivered in a taxation year of a taxpayer to a primary elevator or process elevator and the ticket or other form of settlement entitles the holder thereof to payment by the operator of the elevator of the purchase price, without interest, stated in the ticket for the grain at a date that is after the end of that taxation year, the amount of the purchase price stated in the ticket or other form of settlement shall, notwithstanding any other provision of this section, be included in computing the income of the taxpayer to whom the ticket or other form of settlement was issued for the taxpayer's taxation year immediately following the taxation year in which the grain was delivered and not for the taxation year in which the grain was delivered.
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98(5) Where at any particular time after 1971 a Canadian partnershiphas ceased to exist and within 3 months after the particular time one, but not more than one, of the persons who were, immediately before the particular time, members of the partnership (which person is in this subsection referred to as the "proprietor", whether an individual, a trust or a corporation) carries on alone the business that was the business of the partnership and continues to use, in the course of the business, any property that was, immediately before the particular time, partnership property and that was received by the proprietor as proceeds of disposition of the proprietor's interest in the partnership, the following rules apply:
(a) the proprietor's proceeds of disposition of the proprietor's interest in the partnership shall be deemed to be an amount equal to the greater of
(i) the total of the adjusted cost base to the proprietor, immediately before the particular time, of the proprietor's interest in the partnership, and the adjusted cost base to the proprietor of each other interest in the partnership deemed by paragraph (g) to have been acquired by the proprietor at the particular time, and
(ii) the total of
(A) the cost amount of the partnership, immediately before the particular time, of each such property so received by the proprietor, and
(B) the amount of any other proceeds of the disposition of the proprietor's interest in the partnership received by the proprietor;
(b) the cost to the proprietor of each such property shall be deemed to be an amount equal to the total of
(i) the cost amount to the partnership of the property immediately before that time,
(i.1) where the property is eligible capital property, 4/3 of the amount, if any, determined for F in the definition "cumulative eligible capital" in subsection 14(5) in respect of the partnership's business immediately before the particular time, and
(ii) where the amount determined under subparagraph (a)(i) exceeds the amount determined under subparagraph (a)(ii), the amount determined under paragraph (c) in respect of the property;
(c) the amount determined under this paragraph in respect of each such property so received by the proprietor that is a capital property (other than depreciable property) of the proprietor is such portion of the excess, if any, described in subparagraph (b)(ii) as is designated by the proprietor in respect of the property, except that
(i) in no case shall the amount so designated in respect of any such property exceed the amount, if any, by which the fair market value of the property immediately after the particular time exceeds the cost amount to the partnership of the property immediately before that time, and
(ii) in no case shall the total of amounts so designated in respect of all such capital properties (other than depreciable property) exceed the excess, if any, described in subparagraph (b)(ii);
(d) [Repealed by 1986, c. 55, s. 26(4).]
(e) where any such property so received by the proprietor was depreciable property of a prescribed class of the partnership and the amount that was the capital cost to the partnership of that property exceeds the amount determined under paragraph (b) to be the cost to the proprietor of the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)
(i) the capital cost to the proprietor of the property shall be deemed to be the amount that was the capital cost to the partnership of the property, and
(ii) the excess shall be deemed to have been allowed to the proprietor in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the proprietor of the property;
(f) the partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to the partnership of the property immediately before the particular time;
(g) where, at the particular time, all other persons who were members of the partnership immediately before that time have disposed of their interests in the partnership to the proprietor, the proprietor shall be deemed at that time to have acquired partnership interests from those other persons and not to have acquired any property that was property of the partnership; and
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[5] Paragraph 96(1)(a) of the Act treats a partnership as if it "were a separate person". But a partnership is not a taxpayer under the Act. For this reason, subsection 76(4) does not apply to this matter.
[6] Therefore, pursuant to paragraph 98(5)(f), the partnership ceased to exist after Sharon transferred her interest in it to the sole remaining partner, Dixon Farms Ltd., on December 31, 1997. Then Dixon Farms Ltd. carried on alone the business of the partnership and continued to use the partnership property, namely, the cash grain tickets.
[7] Accordingly, Dixon Farms Ltd. is deemed to have acquired the partnership's interest and not its' property. Therefore, when it cashed the tickets on January 2, 1998, the income was Dixon Farms Ltd.
[8] For these reasons, the appeals are allowed. The Appellants are each awarded their costs throughout.
Signed at Toronto, Canada this 12th day of March 2003.
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"D. W. Beaubier" |
J.T.C.C.
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CITATION: |
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COURT FILE NO.: |
2002-2318(IT)I 2002-2319(IT)I 2002-2320(IT)I |
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STYLE OF CAUSE: |
Douglas Dixon v. The Queen |
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PLACE OF HEARING |
Regina, Saskatchewan |
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DATE OF HEARING |
February 14, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable D.W. Beaubier |
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DATE OF JUDGMENT |
March 12, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Melvin A. Gerspacher |
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Counsel for the Respondent: |
Michael Van Dam |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |