Backman v. Minister of National Revenue, 2001 SCC 10

• Judge: McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Iacobucci, Bastarache, Binnie and LeBel, JJ.
• Court: Supreme Court (Canada)
• Case Date: November 10, 2000
• Jurisdiction: Canada (Federal)
• Citations: 2001 SCC 10;(2001), 266 N.R. 246 (SCC);11 BLR (3d) 165;[2001] 2 CTC 11;55 DTC 5149;266 NR 246;[2001] 1 SCR 367;196 DLR (4th) 193

Backman v. MNR (2001), 266 N.R. 246 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2001] N.R. TBEd. MR.001

Philip Douglas Backman (appellant) v. Her Majesty the Queen (respondent)

(27561; 2001 SCC 10)

Indexed As: Backman v. Minister of National Revenue

Supreme Court of Canada

McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Iacobucci, Bastarache, Binnie and LeBel, JJ.

March 1, 2001.

Summary:

The Minister of National Revenue dis­allowed the partnership losses claimed by Backman. Backman filed a Notice of Objec­tion. The Minister confirmed the reassess­ment. Backman appealed.

The Tax Court of Canada dismissed the appeal. Backman appealed.

The Federal Court of Appeal, in a decision reported 246 N.R. 309, dismissed the appeal. Backman appealed.

The Supreme Court of Canada dismissed the appeal.

Income Tax - Topic 5021

Partnerships - Creation - General - The Supreme Court of Canada stated that a "determina­tion of whether there exists a 'view to profit' requires an inquiry into the inten­tions of the parties entering into an alleged partnership.... a tax motivation will not derogate from the validity of a partner­ship where the essential ingredients of a part­nership are otherwise present... The ques­tion at this stage is whether the taxpayer can establish an intention to make a profit, whether or not he was motivated by tax considerations.... It will be suffi­cient for a taxpayer to show that there was an ancil­lary profit-making purpose." - See para­graphs 22 and 23.

Income Tax - Topic 5021

Partnerships - Creation - General - [See [See third and fourth Income Tax - Topic 5061 ].

Income Tax - Topic 5061

Partnerships - Losses - General - The Supreme Court of Canada stated that "where a taxpayer seeks to deduct Cana­dian partnership losses through s. 96 of the [Income Tax] Act, the taxpayer must sat­isfy the definition of partnership that exists under the relevant provincial or territorial law.... It follows that even in respect of foreign partnerships, for the purposes of s. 96 of the Act, the essential elements of a partnership that exist under Canadian law must be present" - See paragraph 17.

Income Tax - Topic 5061

Partnerships - Losses - General - The Supreme Court of Canada stated that "In determining whether there is a view to profit courts should not adopt or employ a purely quantitative analysis. The amount of the expected profit is only one of several factors to consider. The law of partnership does not require a net gain over a deter­mined period in order to establish that an activity is with a view to profit.... There­fore, where a partnership is formed with the predominant motive of acquiring a tax loss, it is not necessary to show an inten­tion to profit by the amount necessary to recoup the acquired losses or produce a net gain." - See paragraph 24.

Income Tax - Topic 5061

Partnerships - Losses - General - An American limited partnership owned an apartment complex in Texas - Backman and other Canadians became assignees of the American partners' interests in, inter alia, the complex - Backman et al. owned the complex for only minutes before it was disposed of in an attempt to create deduct­ible partnership losses (Income Tax Act, s. 96) - The Minister of National Revenue disallowed Backman's claimed losses - The Supreme Court of Canada agreed with the trial judge's finding that Backman was not a member of a partnership because there was no business being carried on in com­mon with a view to profit - See paragraphs 27 to 34.

Income Tax - Topic 5061

Partnerships - Losses - General - An American limited partnership owned an apartment complex in Texas - Backman and other Canadians became assignees of the American partners' interests in, inter alia, the complex - Backman et al. owned the complex for only minutes before it was disposed of in an attempt to create deduct­ible partnership losses (Income Tax Act, s. 96) - The Minister of National Revenue disallowed Backman's claimed losses - On appeal, Backman argued, inter alia, that, notwithstanding the criteria for a valid partnership, he was a partner by reason of the assignment of partnership interests in an existing partnership - The Supreme Court of Canada rejected the argument - For a person to become a partner by as­signment there had to be a valid partner­ship at the time of entry of the new partner - The criteria of a valid partnership had to be reaffirmed in order for the partnership to continue in its new form - See para­graphs 35 to 40.

Partnership - Topic 10

General - Partnership - What constitutes - The Supreme Court of Canada stated that "The existence of a valid partnership does not depend on the creation of a new busi­ness because it is sufficient that an existing business was continued. Partnerships may be formed where two parties agree to carry on the existing business of one of them. It is not necessary to show that the partners carried on a business for a long period of time. A partnership may be formed for a single transaction." - See paragraph 20.

Partnership - Topic 10

General - Partnership - What constitutes - The Supreme Court of Canada stated that "to ascertain the existence of a partnership the courts must inquire into whether the objective, documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit. Courts must be pragmatic in their approach to the three essential ingredients of partnership. Whether a partnership has been established in a particular case will depend on an analysis and weighing of the relevant factors in the context of all the surrounding circumstances. That the alleged partnership must be considered in the totality of the circumstances prevents the mechanical application of a checklist or a test with more precisely defined parameters." - See paragraphs 25 and 26.

Partnership - Topic 10

General - Partnership - What constitutes - The Supreme Court of Canada stated that "It follows from fundamental principles of partnership law that in order for a person to enter and become a new partner of a valid and pre-existing partnership, that person and the existing members of the partnership must satisfy the essential elements of a valid partnership at the time of the entry of the new partner. That is, they all must be carrying on business in common with a view to profit." - See paragraph 41.

Partnership - Topic 10

General - Partnership - What constitutes - [See third and fourth Income Tax - Topic 5061 ].

Partnership - Topic 101

Tests of existence - General - [See second Partnership - Topic 10 ].

Partnership - Topic 103

Tests of existence - General principles - Carrying on business "in common" - [See third Income Tax - Topic 5061 and first Partnership - Topic 10 ].

Partnership - Topic 104

Tests of existence - General principles - Carrying on business with a view of profit - [See first Income Tax - Topic 5021 and second and third Income Tax - Topic 5061 ].

Partnership - Topic 343

Tests of existence - Evidence - What evi­dence may be considered - [See second Partnership - Topic 10 ].

Cases Noticed:

Spire Freezers Ltd. v. Minister of National Revenue (2000), 266 N.R. 305 (S.C.C.), refd to. [para. 1].

Continental Bank Leasing Corp. v. Minis­ter of National Revenue, [1996] 3 F.C. 713; 199 N.R. 9 (F.C.A.), refd to. [para. 9].

Continental Bank Leasing Corp. v. Minis­ter of National Revenue, [1998] 2 S.C.R. 298; 229 N.R. 58, refd to. [para. 12].

Will-Kare Paving & Contracting Ltd. v. Minister of National Revenue, [2000] 1 S.C.R. 915; 225 N.R. 208, refd to. [para. 17].

Economics Laboratory (Canada) Ltd. v. Minister of National Revenue (1970), 70 D.T.C. 1208 (T.A.B.), refd to. [para. 17].

Gordon v. R., [1961] S.C.R. 592, refd to. [para. 19].

Hickman Motors Ltd. v. Minister of Na­tional Revenue, [1997] 2 S.C.R. 336; 213 N.R. 81, refd to. [para. 20].

Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; 247 N.R. 19, refd to. [para. 22].

Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16, refd to. [para. 22].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241, refd to. [para. 22].

Tara Exploration and Development Co. v. Minister of National Revenue (1970), 70 D.T.C. 6370 (Ex. Ct.), refd to. [para. 31].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 96(1) [para. 16].

Authors and Works Noticed:

Canada, Department of National Revenue, Taxation, Interpretation Bulletin IT-90, What is a Partnership (1973), generally [para. 17].

Lindley and Banks on Partnership (17th Ed. 1995), pp. 9 [para. 21]; 10, 11 [para. 23]; 73 [para. 25]; 556, 557 [para. 39]; para. 3-04 [para. 41].

Manzer, Alison R., A Practical Guide to Canadian Partnerships Law (Looseleaf Ed.) (2000 Update, Release 6), paras. 7.150, 7.60 and 7.70 [para. 38].

Nathanson, David C., Tax Motive Kills Partnerships: Spire Freezers (cf. Conti­nental Bank) (1999), 7 Tax Litigation 458, generally [para. 22].

Tobias, Norman C., Taxation of Corpora­tions, Partnerships and Trusts (1999), p. 21 [para. 17].

VanDuzer, J. Anthony, The Law of Part­nerships and Corporations (1997), p. 26 [para. 37].

Counsel:

C.D. O'Brien, Q.C., Al Meghji and Michel Bourque, for the appellant;

Paul Malette and Naomi Goldstein, for the respondent.

Solicitors of Record:

Bennett Jones, Calgary, Alberta, for the appellant;

The Deputy Attorney General of Canada, Winnipeg, Manitoba, for the respondent.

This appeal was heard on November 10, 2000, by McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Iacobucci, Bastarache, Binnie and LeBel, JJ., of the Supreme Court of Canada. The following joint reasons for judgment were delivered for the court in both official languages on March 1, 2001, by Iacobucci and Bastarache, JJ.