INCOME TAX |
Partnerships |
Deptuck v. Canada
A-347-02
2003 FCA 177, Noël J.A.
8/4/03
11 pp.
Judicial review of Tax Court of Canada's dismissal of appeal against reassessment issued with respect to 1983 taxation year (Deptuck v. Canada, [2002] 3 C.T.C. 2396)-- Whether acquisition of specified assets by partnership subject to arm's length rule set out in Income Tax Act, s. 69(1)(a), and if so, whether transaction at issue not taking place at arm's length--Applicant maintains arm's length concept only applies as between persons and as partnership not "deemed" to be person, concept has no application with respect to partnerships--S. 96(1)(a) and (c) provide respectively where taxpayer member of partnership income therefrom shall be computed "as if the partnership were a separate person" and "as if each partnership activity (including ownership of property) were carried on by the partnership as a separate person"--Same effect as deeming provision for limited purpose contemplated by s. 96--Absent indications to contrary, partnership must be regarded as separate person for purpose of computing income with result rules prescribed in Division B of Act, including s. 69(1)(a), apply to partnership as if partnership a person--In Madsen v. Canada (2000), 196 D.L.R. (4th) 332, Federal Court of Appeal appeared to be concerned by fact s. 69(1)(a) applies to "taxpayer" and partnership, while a person, not "taxpayer"--However, concern alleviated altogether by fact s. 248(1) defines "taxpayer" as including "any person whether or not liable to tax"--No obstacle to application of s. 69(1)(a) to partnership, and simply not conceivable that Parliament, while treating partnership as person for purposes of computing income, would have disregarded application of arm's length principle, fundamental rule to computation of income--S. 96(1) clearly indicates arm's length rule operating at income computation stage must be applied to partnership rather than partners-- Question to answer when applying s. 69(1)(a): whether taxpayer acquired property from person with whom not dealing at arm's length for amount in excess of fair market value at time in question--Must identify directing mind of parties to transaction and, if directing mind of disposing party same as directing mind of acquiring party, and consideration paid excessive, provision applies--In case at bar, no doubt directing mind of purchaser partnership (ITOLP) and vendor partnership (IRRI) same--Tax Court Judge correctly concluded transaction caught by s. 69(1)(a)--Alternative argument that at time of acquisition ITOLP had additional limited partners, three of whom not related to Mr. Gill, who held 9 of 12 limited partnership units issued by ITOLP-- According to applicant, ITOLP under de jure control of these individuals on date of transaction--No evidence these additional partners had any say in decision to acquire assets at stated price--In any event, Tax Court Judge entitled to hold applicant failed to establish these individuals as partners in ITOLP on date on which assets in issue acquired--Question of whether individuals partners of ITOLP on date of acquisition in question one of fact with respect to which this Court cannot intervene in absence of patent and overriding error--No such error identified--Application dismissed-- Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1 ss. 69(1)(a), 96(1), 248(1) "taxpayer".