Executive Summary: Key Legal and Evidentiary Issues

• Dispute over calculation of partnership net profits during a distribution contract with The Milkman Inc. between 2013 and 2017, including multiple corporate income streams and adjustments.
• Controversy regarding whether “notional” income taxes should be deducted from various income components (corporate and personal) when fixing net partnership profits and damages.
• Evidence and treatment of diverted wages, personal credit card charges, unreconciled cash, shareholder receivables, and arrears of delivery invoices as partnership income.
• Unresolved factual question about whether 2296411 Ontario Inc. actually remitted income taxes, due to inconsistent figures and missing income statements in the appeal record.
• Appellate scrutiny of the trial judge’s refusal to apply tax offsets in the absence of substantiating records and the limits on fresh evidence and new calculations on appeal.
• Procedural directions for further affidavit and documentary evidence (income statements and CRA notices) to finalize any tax deduction from 2296411 Ontario Inc.’s income and the resulting adjustment to damages and costs.

Background and business structure

The litigation arises from a dispute between two brothers, Abdul Razak Alyousef and Anes Alyousef, and related corporate entities, over profits generated by a distribution business operating under a contract with The Milkman Inc. during the years 2013 to 2017 (the “contract period”). The business was conducted through numbered Ontario corporations, principally 2390246 Ontario Inc. (“239”) and 2296411 Ontario Inc. (“229”), with Abdul Razak asserting a partnership interest entitling him to 50 per cent of the net profits for the contract period. The case eventually reached the Court of Appeal for Ontario, where Abdul Razak was the respondent and Anes, other family members, the related companies, and a John Doe defendant were the appellants. The appeal was from a judgment of the Superior Court of Justice that had conducted a detailed financial and accounting inquiry into the parties’ business dealings and calculated the respondent’s share of net partnership profits. The Court of Appeal first released main reasons on February 6, 2026 (2026 ONCA 78), dismissing the appeal and cross-appeal subject to refinement of one remaining issue, and then issued this addendum (2026 ONCA 280) to address that outstanding question.

Financial findings at trial and the profit calculation

The trial judge’s central task was to determine the partnership net profits for the contract period and the respondent’s 50 per cent entitlement. To do so, the judge concluded that several categories of funds and benefits that had flowed through 239 and 229, or to Anes personally, should be treated as income of the partnership business. Those amounts included 239’s net income after tax, 229’s net income, diverted wages, personal credit card charges, unreconciled cash, shareholder receivables of 239, and a substantial sum in arrears of delivery invoices owing by The Milkman Inc. In addition, the court took into account the respondent’s own $63,000 of business income during the contract period, which was deducted from the total in arriving at net partnership profits. When these items were aggregated, the trial judge reached a total net profit figure of $948,246 for the contract period. On the premise that the parties were partners on a 50/50 basis, the trial judge allocated half of this net profit—$474,123—to Abdul Razak as his damages for the contract period, reflecting his unpaid share of profits.

The issue of notional income taxes on appeal

On appeal, the parties did not contest the existence of the various income components themselves so much as the question of how income tax should be treated in the net profit calculation. The chart relied on by the trial judge showed that 239’s net income figure of $274,777 was already stated after income tax, but the additional amounts added into 239’s income (diverted wages, personal credit card charges, unreconciled cash, shareholder receivables, and arrears of delivery invoices) did not reflect any corresponding notional tax deductions. Similarly, 229’s net income and the respondent’s $63,000 of business income were not reduced by any tax amounts in the calculation. The appellants argued that failing to apply notional taxes across the board rendered the calculation “lopsided.” They submitted revised calculations purporting to adjust all relevant components to after-tax figures, thereby reducing the partnership net profits and the respondent’s 50 per cent share. The respondent opposed these adjustments. He maintained that introducing notional tax deductions would effectively require fresh evidence on appeal, that the trial judge and the court-appointed inspector’s expert evidence had not addressed such notional tax effects, and that there was no evidence 239 had actually paid tax on the newly included amounts, which the trial judge had found were diverted for Anes’s personal use. As to his own $63,000 income, he further argued that it was not corporate income and should not be treated as subject to corporate tax rates.

Appellate treatment of corporate and personal income components

The Court of Appeal accepted the respondent’s position that notional income taxes should not be deducted from the amounts the trial judge ordered to be included in 239’s income. For diverted wages, personal credit card charges, unreconciled cash, and shareholder receivables, there was no evidence the appellants had remitted tax, and they appeared to have enjoyed the full benefit of those sums. Under those circumstances, the court considered it fair that the respondent share equally in those amounts as partnership profits, without a speculative downward adjustment for hypothetical tax. For the $400,000 representing arrears of delivery invoices owed by The Milkman Inc. to 239, the trial judge had found that this liability was satisfied not through an ordinary payment, but by offsetting it against the purchase price of a property acquired by Anes from The Milkman Inc. after the contract period. The Court of Appeal held it was reasonable in these circumstances not to deduct notional taxes from this $400,000; the benefit had effectively been realized in kind, and there was again no reliable evidence of tax remittances to support any adjustment. To maintain consistency, the court also decided not to deduct notional income tax from the respondent’s $63,000 of business income. There was no evidence he had paid tax on this income, and he appeared to have received it in full, just as the appellants had with the disputed corporate and diverted amounts. The addendum therefore confirms that the gross figures initially used in the trial judge’s calculation, aside from 239’s already after-tax net income, remain appropriate for the purposes of computing partnership profits and damages.

The unresolved question of 229’s income taxes

The only outstanding tax issue concerned 229’s net income. In earlier reasons, the Court of Appeal had noted that the appellants wanted to reduce 229’s net income by offsetting alleged income tax payments, which they said were reflected in the company’s income statements. The trial judge refused this request, explaining that no records had been led at trial to substantiate any proposed tax offsets. After the appeal hearing, the court sought further submissions and clarifications. The appellants then provided new calculations of tax remittances for 229, which were inconsistent with the figures they had previously relied on in their appeal factum and in materials placed before the trial judge. Compounding the problem, 229’s income statements did not appear in the appeal record, and no other reliable documentation was before the appellate court to verify what income taxes, if any, were actually remitted. The respondent maintained that there was no evidence to support 229’s claimed remittances. Faced with conflicting numbers and missing primary documentation, the Court of Appeal was unable to resolve whether 229 had in fact paid any income taxes and, if so, in what precise amount. The court nonetheless emphasized that the issue was a straightforward factual one that should be easy to prove. It held that if 229 did remit income taxes, those amounts should properly be deducted from 229’s net income when calculating partnership net profits, in the same way the trial judge had treated 239’s net income as already being after tax. This would ensure consistency and fairness in the damages calculation.

Procedural directions and the final outcome

To resolve the narrow outstanding point, the Court of Appeal directed the appellants to provide 229’s income statements and the relevant Canada Revenue Agency notices of assessment and reassessment, proving the remittance of 229’s income taxes. These documents are to be attached as exhibits to an affidavit, to be served and filed within seven days of the release of the addendum reasons. The respondent is allowed five days thereafter to respond in written submissions of no more than two pages, with no reply submissions to follow. Subject to this limited income tax issue for 229, the Court of Appeal otherwise dismissed both the appeal and the cross-appeal in their entirety. The court reserved the question of costs until after the 229 tax issue is determined, meaning that the final quantum of any cost award is not yet known. Overall, the successful party at this appellate stage is the respondent, Abdul Razak Alyousef, who retains the benefit of the trial judge’s damages calculation for the contract period, including a 50 per cent share of the partnership net profits quantified at $474,123, although this figure may be adjusted slightly downward if the appellants later prove 229’s actual tax remittances; the total final monetary award and costs, however, cannot yet be determined from this decision alone.