Hamlyn, T.C.J.: —For the 1984 taxation year the Minister confirmed the reassessment of Paul Charron by stating:
The fair market value of goodwill attached to your wholesale distribution business was not less than $65,000 on or about January 1, 1984, accordingly you are deemed to have received proceeds of disposition equal to that fair market value in accordance with the provisions of subparagraph 69(1)(b)(i) of the Act, as a result, the income from the sale of goodwill in the amount of $32,500 is included in your income for the 1984 taxation year in accordance with the provisions of subsection 14(1).
The taxpayer after receiving the notice of confirmation appealed the reassessment to this Court.
The position of the taxpayer at trial was:
(i) there was no disposition; but if, in the alternative, the Court finds there was a disposition then;
(ii) it was not a disposition to non-arm's length persons, and further, in the alternative;
(iii) if the Court finds there was a disposition and if it was to non-arm's length persons it happened prior to the 1984 taxation year.
Facts
Certain common ground was conceded at the outset of the proceeding. A wholesale food distribution business was begun by the appellant's father in the 19305. In or about 1960, the appellant took over the operation of the wholesale food distribution business from his father, and at such time no amount was paid by the appellant to the appellant's father in respect of goodwill.
As of December 31, 1983 the business had as tangible assets and liabilities the following:
| Assets | |
| Tractor-trailer (undepreciated capital cost) | $24,734.50 |
| Automobile | 8,837.77 |
| Equipment | 65.60 |
| Liabilities | |
| Bank Loan (tractor trailer) | $27,141.77 |
Also the appellant concedes the business had intangible assets, namely goodwill, with a fair market value of not less than $65,000.
In respect of the transfer of the business the appellant reported only the disposition of the tractor trailer and the fair market value of the tractor trailer was at least $27,141.77.
For the taxation year 1982 the appellant reported net income from the wholesale food distribution business of $88,272 and for 1983 $98,057.
The direct evidence of the taxpayer indicated that prior to Christmas 1983 he thought of retiring from the wholesale food distribution business, that he had acquired sufficient other assets to provide for his retirement and that certain conflicts between himself and his son Marc led him to the conclusion it was time to leave.
During the Christmas shutdown of 1983 he advised his family including two sons (Marc and Claude) that he was retiring and at that point the taxpayer said he did nothing more to dispose of his business; he simply walked away from it. He did transfer the tractor trailer to his son Claude because Claude had a preexisting option to buy the vehicle at an attractive price. The option existed according to the taxpayer to ensure that Claude who drove the vehicle for the business kept the vehicle in good condition.
The taxpayer's son Marc who was the salesman for 80 per cent of the businesses customers said he and his brother Claude discussed the matter over the Christmas break, at first wavered as to whether they would carry on and then decided to go ahead.
During the first week of January 1984 the two brothers gave instructions for incorporation of a company and proceeded in business. The company name was different but reasonably similar to their father's business name.
The Minister of National Revenue has taken the position that in January 1984 Paul Charron transferred the business to his sons Marc and Claude.
Analysis
The meaning of "has disposed of" within paragraph 69(1 )(b) is therefore the focal point of this proceeding. This section under the heading of "inadequate consideration” deals with the circumstance where a taxpayer disposes of anything for less than fair market value to a person with whom the taxpayer is not dealing at arm's length, the fair market value shall be deemed to have been received by the taxpayer and included [in] the determination of the taxpayer's income.
Brian J. Arnold and David A. Ward reviewed "The Meaning of "Disposition" in an article found in 28 Canadian Tax Journal No. 5, at page 559. The authors find the position of the courts has been to give broad interpretation to the term disposition and at page 561 they postulate:
Even with this broad approach to the interpretation of the term “disposition,” the fundamental requirement is that there must be a cessation, divestiture alienation, or transfer of the incidents of ownership of property. In other words, the taxpayer's interest in the property must be substantially, even if not completely, terminated whether or not such interest is acquired by any other person.
The Oxford English Dictionary defines "to dispose of" as "to put or get (anything) off one's hands".
The key question in this case is whether the taxpayer disposed of goodwill by doing little or nothing.
What did the taxpayer do? He retired from the business by telling only his family, particularly his sons. He chose to do this at the Christmas break in 1983 when his business had an annual shutdown. He did not tell his suppliers and he did not tell his customers. This involved a business that had been operating since the 1930s that he had worked in since the 1940s and he had owned since the early 19605. What his market and business world saw in January 1984, except for 20 per cent of the customers, was the same salesman, the same driver, the same truck and the same products as well as many of the same suppliers. The business was carried on in the same manner and under a similar name.
Simply for the taxpayer to say my sons received nothing from me is to deny the intrinsic historical network of family and business before, during and after January 1984. The facts speak for themselves; a disposition of the goodwill took place when the father ceased to be responsible for the business risk, and the sons gave instructions for incorporation and thereafter carried on the selling and distribution of the product.
Conclusion
On the facts and in consideration of paragraph 69(1 )(b) Paul Charron in early January 1984 disposed of the goodwill of his food distribution business to his sons Marc and Claude Charron for no proceeds when the fair market value was $65,000 and as such is deemed to have received $65,000 as that being accepted as fair market value.
Appeal dismissed.
Appeal dismissed.