INCOME TAX |
Income Calculation |
Deductions |
Witkin v. Canada
A-382-98
2002 FCA 174, Rothstein J.A.
10/5/02
7 pp.
Appeal from Tax Court's dismissal ((1998), 98 D.T.C. 1933) of appeal from reassessments--Minister disallowing losses claimed as partner in Texas partnership--Appellant acquired interest in Claridge Holdings No. 1, sole asset of which 99% interest in Texas partnership owning right to acquire 5.4% of unsold condominium units, option to purchase balance of unsold units, and tax loss of US$34 million or C$45 million--Allocation, use of portion of tax loss giving rise to reassessment--Tax Court holding as appellant not having reasonable expectation of profit, Claridge Holdings No. 1 not partnership; appellant not entitled to deduct losses--Tax Court's decision released prior to decisions of Supreme Court of Canada in Continental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298; Spire Freezers Ltd. v. Canada, [2001] 1 S.C.R. 391; Backman v. Canada, [2001] 1 S.C.R. 367--Now well-established that threshold question in cases such as this whether appellant partner in partnership according to definition of partnership that exists under relevant provincial law, even in respect of foreign partnerships--Continental Bank stating three essential ingredients of partnership in Ontario: (1) business; (2) carried on in common; (3) with view to profit--As Tax Court decision issued before Supreme Court of Canada decisions, erred in law by applying wrong test--Finding of whether facts such as to satisfy legal test (in this case, test for partnership), finding of mixed fact, law--Once error of law extricated from conclusion of mixed fact, law, Appeal Court, on basis of facts found by trial judge untainted by error of law, must reach own conclusion applying correct legal test--Court must enquire whether objective documentary evidence, surrounding facts, including what parties actually did, consistent with subjective intention to carry on business in common with view to profit--According to Tax Court's findings of fact, no plan to make condominium complex profitable--Appellant not demonstrating any palpable or overriding error in respect of findings of fact--While taxpayer's primary motivation in entering purported partnership may be to secure tax loss, must at least be ancillary intention to carry on business in common with view to profit for test for partnership to be met--Only evidence accepted by Tax Court that appellant intending to, and in fact purchasing tax loss--Appellant not carrying on business in common with view to profit in respect of participation in Claridge Holdings No. 1--Not partner in partnership and not entitled to avail himself of partnership rules in Income Tax Act, s. 96, deduct losses--Appeal dismissed--Income Tax Act, S.C. 1970-71-72, c. 63, s. 96 (as am. by S.C. 1974-75-76, c. 26, s. 60; 1983-84, c. 1, s. 43; 1984, c. 45, s. 32; 1986, c. 55, s. 25; 1987, c. 46, s. 32; 1988, c. 55, s. 66; 1991, c. 49, s. 72).