Cummings v. The Queen, 81 DTC 5207, [1981] CTC 285 (FCA)

Heald, J:—This is an appeal from a judgment of the Trial Division allowing the respondent’s appeal from a decision of the Tax Review Board in respect of reassessments issued by the Minister of National Revenue in respect of the appellant’s 1968 taxation year. The main issue before the Tax Review Board, the Trial Division, and in this court is whether amounts totalling $790,000 are deductible in computing income for the 1968 taxation year which ended on October 31, 1968.

The appellant together with his father Maxwell, his brother Robert and his cousin Victor Levy (hereinafter referred to as “the Cummings”) entered into a 60-year emphyteutic lease with Globe Realty Ltd, a subsidiary of the Royal Bank of Canada, with respect to a parcel of land on President Kennedy Avenue, in the City of Montreal upon which they agreed to erect a 15-storey office building hereinafter referred to as “Domtar House’, with the Royal Bank leasing the ground floor of the building for branch banking purposes. The 60-year period of the lease commenced on October 1, 1967. At that time, the real estate market for office buildings in downtown Montreal appeared quite buoyant. However, shortly thereafter, there was a dramatic deterioration and the Cummings encountered difficulty in obtaining tenants for the new building. They tried to renegotiate with the Royal Bank so as to permit erection of a smaller structure containing fewer storeys which, in their view, would have been easier to lease. The bank refused to renegotiate the existing contractual arrangements. Accordingly, the Cummings were obliged to proceed and did proceed with the erection of the multimillion dollar 15-storey superstructure even though no tenants had been obtained for other than the ground floor.

The appellant’s evidence is to the effect that they were desperately in need of a major tenant. At this stage, Montreal Trust Company, in its capacity as a real estate agent, introduced Domtar Limited to the Cummings as a prospective tenant. Extensive negotiations ensued and culminated in Domtar leasing the entire building other than the ground floor. The basic rental was to be approximately $580,550 per annum plus escalations and adjustments. The term of the lease was ten years, commencing November 1, 1968, together with provisions for renewals of 4 further 10-year periods and one additional term of nine years and six months.* [1]

One of the difficulties which arose during the negotiations between the Cummings and Domtar was the fact that while Domtar wished to consolidate all of its Montreal requirements in a single building, it already occupied major space in three other Montreal buildings:— Place Ville Marie, the Canadian Imperial Bank of Commerce Building and the Sun Life Building — under varying lease obligations, some of which extended into 1972. This difficulty was resolved by the Cummings agreeing to assume certain lease “pick-ups”, that is, they agreed to pay lease rentals to Domtar’s former landlords, whose premises were being vacated. The agreement between the Cummings and Domtar is dated July 4, 1968, wherein the Cummings are described as the landlord and Domtar is described as the tenant. Paragraphs 4, 5 and 6 of that agreement read as follows:—

4. The Landlord acknowledges that the Tenant presently leases certain premises in the Sun Life Building and in the Canadian Imperial Bank of Commerce Building (all of the aforementioned premises being herein called the “Old Premises”).

The Landlord covenants with the Tenant that in the event that the Tenant pays any amounts to the lessor or lessors of the Old Premises in conection with the early vacating by the Tenant of the Old Premises, the Landlord will pay to the Tenant

(a) 100% of all amounts up to an aggregate of $300,000 paid by the Tenant to the lessor or lessors of the Old Premises:

(b) 50% of all amounts in excess of an aggregate of $300,000 but not exceeding an aggregate of $700,000 paid by the Tenant to the lessor or lessors of the Old Premises.

It is the intention of the parties that the maximum aggregate amount payable by the Landlord to the Tenant under this Clause 4 shall be $500,000. The Tenant covenants and agrees that it will use its best efforts to endeavour to minimize the amounts payable by the Landlord under this Clause 4. The Tenant shall not be entitled to claim any amounts from the Landlord under this Clause 4 unless the Tenant shall have provided proof of payment by the Tenant to the lessor or lessors of the Old Premises. The Landlord agrees that it shall within 30 days of the Tenant having provided proof of said payment by the Tenant reimburse the Tenant the amount of such payment subject to the provisions of this Clause 4.

In the event that following the payment by the Landlord to the Tenant of amounts under this Clause 4, the Tenant receives in any manner whatsoever relating to the Old Premises amounts so that the net outlays of the Tenant do not exceed $200,000, in such event the Tenant agrees that it shall thereafter make restitution to the Landlord as follows:

(a) 50% of the first $400,000 or any part thereof received as aforesaid by the Tenant shall be reimbursed to the Landlord;

and thereafter

(b) The next $300,000 or any part thereof received as aforesaid by the Tenant shall be reimbursed in whole by the Tenant to the Landlord:

and thereafter

(c) The next $200,000 or any part thereof received as aforesaid by the Tenant shall be reimbursed by the Tenant to the Landlord in consideration of the Landlord’s

undertaking set forth in Clause 5 of this agreement:

and thereafter

(d) All further amounts received as aforesaid by the Tenant shall be retained by the Tenant.

5. The Landlord agrees with the Tenant that subject to the terms hereof, it will assume to the complete exoneration of the Tenant as and from the commencement date of the Original Term all obligations of the Tenant to Place Ville Marie Corporation under and in respect of the leases between the Tenant and Place Ville Marie Corporation dated respectively the 16th day of July, 1962, the 18th day of September, 1962 and the 23rd day of October, 1963. The Landlord shall be free to negotiate amendments to, and the cancellation of, all or any of such leases with Place Ville Marie Corporation provided that no such amendments shall increase the obligations of the Tenant thereunder. If any documents are required to be entered into to give effect to the cancellation or amendment of any of such leases, the Tenant agrees that it will, at the Landlord’s cost, execute the same.

The Tenant agrees that upon vacating the premises leased to it in Place Ville Marie pursuant to the said leases, it will not without the prior written consent of Place Ville Marie Corporation remove from such premises any fixed partitions, plumbing equipment, heating equipment, air conditioning equipment, local wiring including floor ducts or telephone conduits. The Tenant shall repair any damages to the said premises resulting from the vacating thereof by the Tenant.

6. The obligations of the Landlord set forth in Clauses 4 and 5 of this agreement shall commence on the commencement date of the Original Term of the Lease and be in respect of the terms of the leases of the Old Premises and the premises in Place Ville Marie following such commencement date save if the same relate to the early vacating of the Old Premises or the premises in Place Ville Marie or the termination of the leases in respect thereof. The Landlord shall have no obligations under the said Clauses 4 and 5 of this agreement unless the Tenant (a) executes the Lease and also (b) occupies the Premises.

The lease pick-up obligations owing to the landlord of Place Ville Marie and referred to in paragraph 5 of the agreement supra, were fixed at $200,000 which amount was paid by the Cummings to Trizec Corporation, the owner of Place Ville Marie on July 31, 1968.* [2] The possiblity of recouping this amount under paragraph 4(c) of the agreement did not alter the fact that it was certain and paid in the 1968 taxation year.

The maximum obligations of the Cummings to Domtar in respect of the Canadian Imperial Bank of Commerce and Sun Life leases were fixed at $500,000 pursuant to the provisions of paragraph 4 supra. While the Domtar lease required that the rent be payable commencing only on November 1, 1968, Domtar was entitled to occupancy not later than September 15, 1968 and in fact did take occupancy prior to November 1st, 1968.

During the latter half of 1968, the appellant along with his associates in the “Domtar House” venture as well as his associates in all his other major property holdings, concluded negotiations for a public securities underwriting as a result of which, a parent holding company, Cummings Properties Ltd, was established to centralize through subsidiary-controlled corporations, ownership of the various properties involved. The plan was to offer the shares of the Cummings Properties Ltd to the public and to have the shares listed on the Montreal and Toronto Stock Exchanges. As part of the corporate reorganization plan, Halstead Holdings Limited (hereinafter referred to as “Halstead”) was incorporated on October 31, 1968. Its shareholders were the appellant, his father Maxwell, his brother Robert and his cousin Victor Levy, the identical individuals who participated in the “Domtar House” venture. Also on October 31, 1968, Halstead purchased the “Domtar House” building from the Cummings with the right to the building and lease as of November 1st, 1968, the purchase price thereof being the undepreciated capital cost of the building, ie, $3,446.970. However, this purchase price was considerably less than the liabilities being assumed by Halstead under the agreement. Accordingly, rather than receiving any payment from Halstead, the Cummings obligated themselves to pay Halstead the deficiency in the sum of $1,027,989 (see agreement — paragraph (1)(d) — Appeal Book Vol 3, pb 376) by the delivery of promissory notes aggregating that amount. Included in the Cummings liabilities being assumed was, according to the evidence, a commission obligation in the sum of $90,000 said to be owing by the Cummings to the Montreal Trust Co as commission or finder’s fee in respect of the Domtar lease and the further sum of $500,000 which, as stated earlier herein, was the maximum exposure of the Cummings to Domtar, referred to as the “lease pick-up” obligations in respect of the Canadian Impe- rial Bank of Commerce and Sun Life leases. The “lease pick-up” obligation in respect of the Place Ville Marie lease was not included since, as stated earlier herein, those moneys had been paid by Cummings on July 31, 1968. By October 31, 1969, Halstead had reimbursed Domtar the full amount of the said $500,000 lease pick-ups. In July of 1969, Halstead paid, on behalf of the Cummings, to Montreal Trust company the commission or finder’s fee moneys in the sum of $90,000 by:

(a) delivery of a cheque dated July 2, 1969 in the sum of $30,000; and

(b) delivery of a promissory note dated July 2, 1970 in the sum of $30,000; and

(c) delivery of a promissory note dated July 2, 1971 in the sum of $30,000.

In the document evidencing this payment (Appeal Book Vol 3, pp 409 and 410), Montreal Trust Company expressly aknowledged that said payment was not to be considered an admission by the Cummings “. . . that they were in any way responsible or liable to Montreal Trust Company but that to the contrary, any such liability is denied and the payment of the said sum is being made for the purpose of settling a doubtful and disputed claim by way of a contract of transaction.”

Counsel for the appellant submitted that the expenditure of $790,000 was not a capital expenditure but was rather a current expenditure of the business. The Tax Review Board so held in concluding

.. . that the expenditure of $790,000 was made by the appellant in the normal course of managing his rental property for the purpose of obtaining a long-term lease, . . . (Appeal Book, Vol 1, p. 117).

However, the learned trial judge did not make a finding on this issue since he disposed of the matter on a different basis. In my view, having regard to the factual situation in this case, subject expenditure of $790,000 was clearly an expenditure on account of income. The evidence is clear and uncontradicted that, due to existing market conditions in downtown Montreal at the time, the Cummings were facing a loss of income for a period of approximately 30 to 36 months from a building costing approximately 4 million dollars and due to be completed in 1968. To eliminate this loss, they opted for the lease pick-up procedure where their total exposure was a maximum of $790,000. Obviously much less than the loss of income they were facing.

The relevant jurisprudence applicable to this issue is, in my view, accurately summarized in the judgment of Thurlow, (ACJ) (as he then was) in the case of Oxford Shopping Centres Ltd v The Queen, [1980] 2 FC 89; [1980] CTC 7; 79 CTC 5458; [1981] CTC 128; 81 DTC 5065. In that case, the taxpayer, the owner of a shopping centre, made a lump-sum payment of approximately $490,000 to a municipality to assist in the cost of certain road changes which the municipality agreed to construct in such a way as to improve the access to the parking area of the taxpayer’s shopping centre. After reviewing the authorities, the learned Associate Chief Justice had this to say at 13 and 14:

I have summarized all this because it seems to me to point up some of the many facets of a complex situation that it may be necessary to take into account ana weigh in reaching a conclusion in a case that does not readily or clearly fall into the one category or the other but exhibits characteristics some of which point in one direction and others in the other direction.

In the present case, the plaintiff’s business, as I appreciate it, on such materials

as are before the court, consists in the letting of shops on its premises tenants who carry on their businesses therein, the provision of P g?[eas for use by the tenants’ customers and perhaps the provision of some services to the tenants. The returns consist of rentals which are in part calculated on the revenues of the tenants’ businesses. The success of the plaintiff's business is thus very much dependent on the popularity of its premises as a place for its tenants’ customers to do their shopping.

In such a business, it seems to me that while money spent by the plaintiff to enlarge or improve the shopping centre premises or the buildings thereon or in organizing the business structure would be expenditures of capital, annual expen- ditures for taxes on the premises, including assessments for local street improve- ments, as well as moneys spent to popularize the centre as a place for customers to do their shopping, whether by way of advertising or gimmicks of one kind or another or otherwise, not resulting in the acquisition of additional plant or machinery for use in the business, would be revenue expenses.

Turning now to the several matters to be considered, in my view, it is the nature of the advantage to be gained which more than any other feature of the particular situation will point to the proper characterization of the expenditure as one of capital or of revenue expense. That the payments viewed by themselves were In a sense made once and for all is apparent. But so is almost any item which in isolation may be somewhat unusual in one way or another. That advantage what- ever it was, was expected to be of a lasting or more or less permanent nature Is also apparent. This is perhaps the strongest feature suggesting that the P ?d'

ture was capital in nature. But the advantage is more P T t VK nature than that expected to be realized from the geological survey which had been made in the Algoma case. In the test of “what the expenditure is calculated to effect from a practical and business point of view” such features, while carrying weight, are not conclusive.

For if, as I think, the expenditures can and should be regarded as having been laid out’as a means of maintaining, and perhaps ^ "9^

shopping centre with the tenants’ customers as a place to shop and of ^bnng

the shopping centre to meet the competition of other shopping ® j’ pn the same time avoiding the imposition of taxes for street P ! .!^ expen- diture can, as it seems to me, be regarded as a revenue expense notwithstanding the once and for all nature of the payment on the more or less long term character of the advantage to be gained by making it.

Then, on the question as to whether, In computing income for tax pur- poses, the taxpayer was required to apportion the expenditure over a period of years, after reviewing the applicable jurisprudence, he stated, at 18 of the report:

I think it follows from this that for income tax purposes, while the “matching principle” will apply to expenses related to particular items of income, and in particular with respect to the computation of profit from the acquisition and sale of inven- tory, it does not apply to the running expense of the business as a whole even though the deduction of a particularly heavy item of running expense in the year in which it is paid will distort the income for that particular year. Thus while there is in the present case some evidence that accepted principles of accounting recognize the method adopted by the plaintiff in amortizing the amount in question for corporate purposes and there is also evidence that to ^ the ^ ’® T^ in 1973 would distort the profit for that year, it appears

amount is that of a running expense that is not referable or related to any particu- lar item of revenue the footnote to the Associated Industries case and the

ties referred to by Jackett, P, and in particular the Vallambrosa Rubber case and the Naval Colliery case, indicate that the amount is deductible only in the year in which it was paid. All that appears to me to have been held in the Tower Invest- ment case and by the trial judge and LeDain, J in the Canadian Glassine case that it it was nevertheless open to the taxpayer to spread the deduction there in question over a number of years. It It was not decided that the whole expenditure might not be deducted in the year in which it was made, as the earlie authorities hold. And there is no specific provision in the Act which prohibits deduction of the full amount in the year it was paid. I do not think. therefore, that the Minister is entitled to insist on an amortization of the expenditure or on the plaintiff spreading the deduction in respect of it over a period of years.

In my view, the double rationale of the Oxford Shopping Centre case, set out supra, applies equally to the case at bar. On its facts the case at bar is, in my view, a stronger case in support of the appellant’s position that subject expenditure is on account of income. In Oxford, the advantage accruing to the taxpayer as a result of the payment, was of a lasting or more or less permanent nature. That is not true of the $790,000 expended for “lease pick-ups” in this case. The evidence in this case was clear and uncontradicted that, at the most, it would likely take from 30 to 36 months to achieve economic occupancy. Furthermore, the only expert accounting witness who gave evidence at the trial, having been called to testify on behalf of the respondent, one Emmanual Veinish, a chartered accountant practising as a partner in the firm of Peat, Marwick, Mitchell, testified (Transcript 180 to 187) that expenses of the kind in issue in this case were deductible for tax purposes on an immediate basis and entirely in the year they were incurred. It seems clear to me that subject expenditure was a “running expense” and in the same category as for example, an extensive advertising campaign to obtain tenants or an offer to a prospective tenant of a rent-free period as an inducement to enter into a long-term lease or a finder’s fee for obtaining tenants and leases. As Mr Vineberg characterized it, the $790,000 was spent to “prevent a hole in income”, said moneys being spent “to plug the hole”.

Accordingly, and for the foregoing reasons, I have concluded that the said sum of $790,000 was a current expenditure.

This conclusion does not, however, finally dispose of the matter, in view of the respondent’s submission that as of October 31, 1968, the end of the appellant’s 1968 taxation year the liability to pay the amount of subject expenditure was contingent and, therefore, no amount in respect thereof was deductible in the appellant’s 1968 taxation year. In support of this submission, the respondent relies on the provisions of paragraph 12(1)(e) of the Income Tax Act applicable to the 1968 taxation year. That section reads as follows:—

12. (1) In computing income, no deduction shall be made in respect of

(e) an amount transferred or credited to a reserve, contingent account or sinking fund, except as expressly permitted by this Part

In my view, the contingency submission does not apply to the $200,000 paid by the Cummings on July 31, 1968 to the owners of Place Ville Marie since, as of October 31, 1968, it cannot be said to be a contingent liability, having actually been paid some three months earlier. The submission does, however, I believe, refer both to the $500,000 later paid by Halstead in respect of the Canadian Imperial Bank of Commerce and Sun Life leases and the $90,000 paid as commission to Montreal Trust Company. I will deal initially with the contingency submission in so far as it relates to the $500,000. In order to do so, it is important to consider paragraph 4 of the agreement dated July 4, 1968 between the Cummings’as landlord and Domtar as tenant, said paragraph 4 being quoted earlier herein.

Paragraph 4 provides, at the outset, that any liability by the Cummings to Domtar accrues only “. . . in the event that the tenant pays any amounts to the lessor or lessors of the Old Premises in connection with the early vacat-

ing by the tenant of the Old Premises. . .”. The clause further provides: that the Cummings’ maximum exposure under clause 4 was to be $500,000; that Domtar will use its best efforts to endeavour to minimize the amounts payable by the Cummings under Clause 4; and that Domtar is not entitled to reimbursement from the Cummings until Domtar has furnished them with proof of payment to the lessor of the old premises. Clause 4 goes on to provide for reimbursement to the Cummings of moneys paid by them to Domtar in the event that Domtar receives “in any manner whatsoever relating to the old premises amounts. . .” in excess of $200,000. This restitution to the Cummings was to be on the basis of 50% of the first $400,000 and 100% of the next $300,000 received by Domtar after the first $200,000. Thus restitution of the entire $500,000 was possible under said paragraph 4. Accordingly, in the submission of the respondent, since there was no certainty that the Cummings would, in the final analysis, have to pay any of the $500,000 and since Domtar had no clear legal right to receive any particular amount from the Cummings, the liability of Cummings as of October 31, 1968, must be considered to be contingent within the meaning of paragraph 12(1 )(e) of the Act supra.

In reply to this submission, counsel for the appellant makes the initial point that the Domtar liabilities on the Canadian Imperial Bank of Commerce and Sun Life leases for the period from November 1, 1968 until the termination dates thereof totalled $2,250,000. He makes the further point that, according to the evidence (Transcript pp 40 and 41) while Domtar had some success in subletting some of its Sun Life space, they had no success in subletting any of the space in the Canadian Imperial Bank of Commerce building at least up until October 31, 1969. He then went on to remind us that pursuant to the October 31, 1968 agreement between the Cummings and Halstead, Halstead was being paid $500,000 that is — one hundred cents on the dollar of the liability — to assume the liability. Thus, in his Submission, the Cummings had no legal right of recovery, since by the October 31, 1968 agreement, Cummings had, in effect, paid $500,000 to Halstead in discharge of their obligation and the Cummings liability was therefore no longer conditional or contingent.

In respect of the first submission set forth supra, it is my view that the evidence established partial subletting in respect of one building and in respect of the other building, only covered the situation until October 31, 1969. There was no evidence as to what happened later on during the balance of the period covered by these leases. This evidence would not, in my view, establish any certainty with respect either to the fact of liability or the quantum thereof. Then, in so far as the “payment” of the liability to Halstead and the assumption thereof by Halstead is concerned, one should not lose sight of the fact that the issue here relates to the Cummings’ liability to Domtar, not its liability to Halstead. The fact that the Cummings paid $500,000 to Halstead is, at best, an indication that the Cummings were reasonably sure that the $500,000 liability was certain. It does not, in my view, operate so as to change the nature of the character of the liability as set out in paragraph 4 of the agreement supra.

Applying the relevant jurisprudence to this factual situation, it is my view that subject $500,000 liability was contingent as at October 31, 1968 and that its deduction from income in the appellant’s 1968 taxation year is prohibited by the provisions of paragraph 12(1 )(e) of the Income Tax Act, supra.

The decision of Noel, ACJ as he then was, in the case of J L Guay Ltée v MNR, [1971] FC 237; [1971] CTC 686; 71 DTC 5423* [3] has relevance to the situation in the case at bar. In that case the issue was in the nature of a hold-back by a general contractor from subcontractors in a construction contract. The hold-back was for a period of 35 days after the architect’s final approval of the work. At the close of the general contractor’s taxation year, the amount of the hold-back was over $277,000 which he sought to deduct as an expense in computing his taxable income. The court refused the deduction, holding that the said moneys were a reserve or contingent amount within the meaning of paragraph 12(1 )(e) of the Income Tax Act. The basis of the decision was that since the amounts in question were withheld to ensure payment of any damages the general contractor might sustain from the sub-contractors’ breach of contract, there was, therefore, no certainty that these amounts would be paid in full to the sub-contractors.

One of the most recent decisions of this Court which I have found helpful in determining this issue is the case of Lawrence H Mandel v The Queen, [1979] 1 FC 560; [1978] CTC 780; 78 DTC 6518; [1980] 1 SCR 318; [1980] CTC 130; 80 DTC 6148. In that case the appellant along with others purchased a film in an advanced state of production. The purchase price was the audited cost of production to the date of purchase, payable by a cash payment of $150,000, the balance to be paid out of earnings. The question for determination was whether the appellant could claim, by way of capital cost allowance, his share of the total stipulated price, or whether he was limited to his share of the cash payment, bearing in mind that the balance would be payable only if and when there would be earnings. The answer to that question depended on whether the liability to pay the balance of the price was a “real” or a “contingent” liability. The court dismissed the appeal. It held that the purchasers incurred a liability both in respect of the cash payment and the balance. However, as to the balance, the liability was a liability to become subject to an obligation to pay the balance if an event occurred which was by no means certain to occur. The obligation was thus contingent on the happening of the uncertain event. Ryan, J, in delivering the reasons of the court, quoted extensively from the decision of the House of Lords in Winter et al v IRC, (1963) AC 235. I refer particularly to the quotation from the speech of Lord Reid at 569 of the judgment of Ryan, J wherein “contingent liabilities” are defined as

. . . sums, payment of which depends on a contingency, that is, sums which will only become payable if certain things happen, and which otherwise will never become payable .. .

I also refer to the quotation from the speech of Lord Guest, also on 569 of the judgment of Ryan, J. That quotation reads as follows:—

Contingent liabilities must, therefore, be something different from future liabilities which are binding on the company, but are not payable until a future date. I should define a contingency as an event which may or may not occur and a contingent liability as a liability which depends for its existence upon an event which may or may not happen.

Applying the rationale of the above-quoted decisions to the facts of this case, I conclude that the liability of the Cummings to pay the said sum of $500,000 was dependent upon the following events coming to pass:

(a) Domtar must furnish proof to the Cummings that they had paid the lessor of the old premises;

(b) non-recovery by Domtar of amounts in excess of $200,000 from subleases of the Old Premises.

The record before us clearly discloses that as of October 31, 1968, neither of the above contingencies had occurred. Accordingly, in my view, this factual situation requires that the Cummings’ liability be characterized as a contingent liability on the basis of the authorities above discussed. Before leaving this $500,000 item, I should deal with the reference by counsel for the appellant to the evidence of Emmanuel Veinish, the expert witness called by the respondent, to the effect that, on the facts as established in this case, it would have been in accordance with generally accepted accounting principles to show the $500,000 on the balance sheet as a fixed or certain rather than a contingent liability. The answer to this submission is that the fact of the acceptability in accounting practice of dealing with a particular item in a particular manner, cannot, by itself, make that practice a proper deduction for income tax purposes*. [4] Notwithstanding the evidence of accounting practice, the fact remains that, on the facts here present, the deduction is prohibited by paragraph 12(1 )(e) of the Act. A similar situation was dealt with by Noel ACJ, in the J L Guay case discussed earlier herein. At 245 of the report, the learned ACJ said:

In most tax cases only amounts which can be exactly determined are accepted. This means that, ordinarily, provisional amounts or estimates are rejected, and it is not recommended that data which are conditional, contingent or uncertain be used in calculating taxable profits. If indeed, provisional amounts or estimates are to be accepted, they must be certain. But then it is always difficult to find a procedure by which to arrive at a figure which is certain. Accountants are always inclined to set aside reserves for unliquidated liabilities, for, if they do not do so, the financial statement will not reflect the true position of the client’s affairs. The difficulty arises from the fact that making it possible to determine the taxpayer’s tax liability is not the main purpose of accounting. The accountant’s report, is, in fact, intended to give the taxpayer a general picture of his affairs so as to enable him to carry on his business with full knowledge of the facts. To achieve this end, it is not necessary for the profit shown to be exact, but it must be reasonably close, while the Income Tax Act requires it to be exact, and it is thus necessarily arbitrary.

I adopt that statement as applying with equal force to the situation in the case at bar.

Turning now to the question of the $90,000 commission or finder’s fee paid to the Montreal Trust Company, it is my opinion that this item is in the same category as the 500,000 earlier considered herein. Halstead paid this item on behalf of the Cummings but not until October 31, 1969. The document evidencing this transaction (Appeal Book Vol 3, pp 409-410) is entitled “Receipt, Release and Discharge” and, as stated earlier, states that the payment “. . . is being made for the purpose of settling a doubtful and disputed claim . . .”. Likewise the evidence is unclear as to when the figure of $90,000 was arrived at. Victor Levy, one of the Cummings partners said (Transcript pp 58-59) that this figure was a negotiated amount resulting from lengthy negotiations with Montreal Trust who had originally claimed a much higher fee. However, based on Levy’s evidence and on the settlement document itself, the most reasonable inference to draw from the evidence would appear to be that the final amount of the settlement was not arrived at until July of 1969. In my view, it cannot be concluded from the record that, as of October 31, 1968, this liability was in any way a certain liability nor was the amount thereof certain or determined before July of 1969. Accordingly, it must be characterized as of October 31, 1968, as a contingent liability as well. Appellant’s submission in respect of this item was the same as in respect of the $500,000 item — that is, that the Cummings paid to Halstead on October 31, 1968, 100 cents on the dollar in respect of this liability, which, in his submission, quantified and made certain the liability on that date. The answer to this submission is the same one as set forth supra in answer to the $500,000 item and need not be repeated here.

In conclusion, and to summarize the disposition I would propose to make of this appeal, it is my opinion that the Minister was correct in disallowing as expenses deductible from 1968 income the lease pick-ups item of $500,000 and the commission item of $90,000. However, in my view the Minister erred in disallowing the expense item of $200,000 paid to the owners of Place Ville Marie. I would therefore allow the appeal and refer the matter back to the Minister for reassessment on the basis that the sum of $200,000 paid by the Cummings to Trizec Corporation Ltd, the parent company of Place Ville Marie Corporation, on July 31, 1968 is properly deductible in computing the income of the Cummings for the 1968 taxation year.

As to costs, since my proposed disposition of the appeal results in substantial success to the appellant, I would award the appellant his costs both here and in the Trial Division.

Lalande, DJ:—I agree with the judgment and reasons proposed by Mr Justice Heald.