Société Immobilière SSQ Inc. v. Minister of National Revenue, [1993] 1 CTC 2029, [1992] 1 CTC 2622

Tremblay, T.C.C.J.:— This appeal was heard on November 1, 1990 and January 24, 1991, in Quebec City, Quebec.

7. Point in issue

The point for determination was whether the appellant, the Société Immobilière SSQ Inc., can validly deduct the sum of $175,336.71 as current expenses under paragraph 18(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") for its 1982 taxation year.

The appellant claims it is possible to benefit retroactively from the deduction for incidental expenses incurred by Immeubles Cadev Inc., a subsidiary of the Caisse de dépôt et de placement du Québec, during the period preceding its involvement in the Rockland project.

The respondent contends, for his part, that the sum of $175,336.71 can not be deductible as current expenses. Those expenses constitute only a fraction of the total acquisition cost of a 6.58 per cent interest in the rights to the Rockland Centre. Consequently, according to the respondent, only a capital cost allowance deduction could be applicable to the amount of $175,336.71 for the 1982 taxation year.

2. Burden of proof

2.01 The burden is on the appellant to show that the respondent's assessments are incorrect. This burden of proof results from a number of judicial decisions, including the judgment by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.

2.02 In the same judgment, the Court ruled that the facts found by the respondent in support of assessments or reassessments must also be presumed to be true until proven otherwise. In the instant case, the facts assumed by the respondent are described in subparagraphs 10(b) to (I) of the reply to the notice of appeal, which read as follows:

10. In determining the appellant’s loss for its 1982 taxation year, the respondent, the Minister of National Revenue, relied, inter alia, on the following facts:

(b) During 1982, a “Rockland Shopping Centre reconstruction and retrofit

project" [Translation] (hereinafter called ^the project") was initiated;

(c) The construction began in June 1982, without the appellant's being one of the participants in the project;

(d) The participants at the time were the Caisse de dépôt et de placement du Québec, Ivanhoe Inc. and Les Gérances Westcliff Ltée, which, for the purposes of the project in question, acted through the following subsidiary corporations:

- Immeubles Cadev Inc. (Caisse de dépôt et de placement du Québec);

- 1849-6208 Québec Inc. (Ivanhoe Inc.);

- 102077 Canada Inc. (Les Gérances Westcliff Ltée);

(e) On December 17, 1982, the appellant accepted an offer from the Caisse de

dépôt et de placement du Québec to acquire an interest in the said project;

(f) On December 28, 1982, the price of the appellant's interest was established at $1,775,698.76, this amount was established as a percentage of accumulated expenditures as of December 28, 1982 for the entire project: 7.75 per cent X $22,912,244.75= $1,775,698.76, the whole as appears in Appendix A hereto (to have effect as if stated at length);

(g) On December 29, 1982, the appellant paid the price of the transaction in question to Immeubles Cadev Inc.;

(h) The appellant became owner of an interest in the said development project only on December 29, 1982;

(i) The minutes of the meeting of the appellant's directors held on June 16,1983 indicate that a resolution was passed to approve and ratify “all documents pertaining to the execution of agreements reached concerning the Rockland Shopping Centre. . .” [Translation];

(j) The amount of $175,336.71 claimed by the appellant as so-called “ incidental expenses" [Translation] does not represent expenses which it incurred during its 1982 taxation year, but rather represents various expenses which were incurred and paid by the initial promoters of the project between June 25,1982 and December 15, 1982, the whole before the appellant became owner of an interest in the said project;

(k) The amount of $175,336.71 was included in the price of $1,775,698.76 mentioned in subparagraph (f) above;

(1) The so-called“ incidental expenses" [Translation] claimed by the appellant in 1982 represent the following items:

Incidental expenses for the entire project (including the	$937,474.20
amounts appearing in Appendix A under the first, second,	x 7.57%
third, fourth, fifth and sixth claim headings)	$72,654.25

Interest paid to the Caisse de dépôt et de placement at the rate of 19 per cent on sums advanced prior to the appel

lant’s participation:	102,682.46
lant's participation:
TOTAL	175,336.71
	[Translation.]

3. Law—cases at law and doctrine

3.01 Law

Paragraphs 18(1)(a) and 20(1)(a) of the Act were submitted in the present appeal. Articles 1013, 1015, 1018 and 1020 of the Civil Code of Lower Canada were also used in the treatment of the question in issue.

3.02 Cases at Law and Doctrine

1. Malkin, W.H. v. M.N.R., [1942] Ex. C.R. 113, [1942] C.T.C. 135,2 D.T.C. 587;

2. Ouellette et Brett v. M.N.R., [1971] C.T.C. 121, 71 D.T.C. 5094;

3. Knox. H. Ltd. v. M.N.R., [1973] C.T.C. 2053, 73 D.T.C. 50;

4. Alepin v. The Queen, [1979] C.T.C. 360, 79 D.T.C. 5259;

5. Compagnie d'assurance Guardian du Canada v. Victoria Tire Sales Ltd., [1979] 2 S.C.R. 849;

6. Adam, S. v. M.N.R., [1985] 2 C.T.C. 2382, 85 D.T.C. 667;

7. Richer Jack v. La Mutuelle du Canada, [1987] R.S.Q. 1703;

8. Brodeur, G. v. M.N.R., [1987] 2 C.T.C. 2049, 87 D.T.C. 347;

9. Gingras, R. v. M.N.R., [1988] 2 C.T.C. 2368, 88 D.T.C. 1730;

10. Cormier, M. v. M.N.R., [1991] 1 C.T.C. 410, 90 D.T.C. 1167;

Tl. Roy, Raymond v. Géométra Inc. Québec Appeal Court, March 19,1990 (unreported).

12. Régnier et Coulombe. L'article 1234 en matière fiscale, 1971 Revue du Barreau 472;

13. Colin, Ambroise and Capitan, Henri. Cours élémentaire de droit français, 1953, 10 edition, Tome 2, par. 113;

14. Planiol, Marcel et Ripert, Georges. Traité pratique de droit civil français, 1952, 2 édition, Tome 6, paragraphe. 373;

15. Baudoin, Jean-Louis. Les obligations, 1983, 2 édition, Éditions Yvon Blais, 693 pages.

4. Facts

4.01 The appellant’s investments at the origin of the present dispute are related to the reconstruction and renovation of the Rockland Shopping Centre (hereinafter called “the Rockland project”).

4.02 The implementation of the Rockland project was initiated by Les Gérances Westcliff Inc. (hereinafter called "Westcliff"). Preliminary discussions were actually undertaken between Westcliff and the Caisse de dépôt et de placement du Québec (hereinafter called "the Caisse") toward the end of the year 1981. Ivanhoe Inc. subsequently became involved in these negotiations. In the light of these discussions, the responsibilities to be taken over by the Caisse were essentially of a financial nature, whereas Westcliff and Ivanhoe Inc. were to ensure the promotion and development of the Rockland project (S.N. pages 14-17).

4.03 On June 25, 1982, a contract entitled "co-operative agreement" [Translation] was finally signed by Immeubles Cadev Inc. (hereinafter called "Cadev"), 102077 Canada Inc. (hereinafter called "102077") and 1849-6208 Québec Inc. (hereinafter called "1849"), respectively subsidiaries of the Caisse, Westcliff and Ivanhoe Inc. (Exhibit A-1).

4.04 The purpose of this agreement was to establish the terms and conditions of development and management of the Rockland project, as well as the terms and conditions of the detention and disposal of interests in the said project.

4.05 An analysis of the main provisions of the co-operative agreement (Exhibit A-1) clearly shows the following:

4.05.1 The vast majority of the tasks of planning, organizing, constructing and promoting of the Rockland project were taken over by 102077 (paragraphs 3.4, 3.5, 3.12 and 3.16, Exhibit A-1).

4.05.2 Cadev, 102077 and 1849 clearly defined the extent of their rights and their obligations with regard to profits, expenses and losses relative to the Rockland project. In this regard, it is clear that, as of June 25, 1982, Cadev is, to all intents and purposes, the sole backer involved in the project's implementation. In exchange for this financial involvement, Cadev holds nearly 82 per cent interest in the Rockland project (paragraphs 2.2 and 5.3, Exhibit A-1).

4.05.3 Cadev, 102077 and 1849 expressly envisaged the possible involvement of fiscal agents in exchange for the transfer of a share of Cadev's interests in the Rockland project. It is also appropriate to emphasize that Cadev is still responsible for the obligations of the assignees with respect to 102077 and 1849. The financial liability of Cadev with respect to the obligations inherent in the Rockland project therefore remains intact, despite possible transfers of interests that must theoretically give rise to the payment of monetary considerations (paragraphs 1. 1.9,5.3,.6.1 and 6.2, Exhibit A-1).

4.05.4 The period of construction work on the Rockland project begins on June 28, 1982 and ends on August 30, 1983 (paragraph 3.6, Exhibit A-1).

4.06 The economic situation that prevailed in 1982 was characterized by a sharp increase in interest rates prescribed by the financing institutions. The risks incurred by the investors were such that the Caisse's board of directors allegedly required Cadev to share the financial risk of the Rockland project with other investors. Apparently, the idea of such a sharing was constantly in the minds of the Caisse's officers during the negotiations with the initial promoters, Westcliff and Ivanhoe Inc. (S.N. pages T1, 12, 28, 35).

4.07 The dynamics that characterized the involvement of the various investors in the Rockland project proved to be essentially an evolutionary process in which an exchange of information then gave way to a process of negotiation, ultimately culminating in the signing of formal agreements. The passages cited from pages 42, 43, 47 and 48 of the testimony of Jean Labrecque, head of the bonds, mortgages and immoveable property department of the Caisse de dépôt et de placement du Québec during the period in issue, very clearly illustrates the main aspects of this process:

Q. Is it correct to say that, at that time, the police, that is, the Benevolent Society, the SSQ and La Laurentienne are not involved in any way in the month of June?

A. In the signing of the contract or in the project?

Q. In the signing of the contract?

A. In the project, yes; in the signing of the contract, no. . .

JUDGE: You just made a distinction; you said: in the SSQ contract, it is no, then in the project, it is yes. Why do you say it is yes?

A. What I told you is that, if you remember, Your Honour, at the start, I told you it was a Situation, it was a dynamic situation in which, on the one hand, the promoters have to solve their business problem between them, and, on the other hand, the Caisse de depot, knowing from the outset that it wanted to share the risk, had begun discussions with other partners, the partners that it had chosen.

MR. VERDON: Who were those other partners?

A. The people that, essentially the people that you have here. (S.N. pages 42-43)

A. So what you do in firming up a project like that is to manage to make attitudes change so that people get closer and closer to an agreement, then say, ” Yes, we’ll do it.”

Then, what happens is, first, at the start, information, then tracing out the general business parameters and, after that, firming it up.

Then, before telling people," Right, you are going to sign this", once again, you have to be able to determine: are the construction costs reasonable; does the rental income have a chance of being there?

In the same way the Caisse de dépôt did it by asking inside partners for guarantees, you keep your possible partners on the financial side [sic] of developments in these affairs by saying, "Yes, it's going well; construction should cost roughly so much; revenues should cost [sic] roughly so much.”

So, that kind of thing . . . In any case, I was a relative neophyte as well, but it seemed to me to be going normally, given what I knew about real estate values elsewhere. Yes, it was information, but it was more than information; it is really bringing along the transaction so that the parties are prepared to enter into it. (S.N. pages 47-48)

[Translation.]

4.08 On June 25, 1982, the signatories to the co-operative agreement (Exhibit A-1), Cadev, 102077 and 1849, gave 102428 Canada Inc. (hereinafter called "102428") a mandate to have the Centre d'achats Rockland Inc. sign an emphyteutic lease for their benefit (paragraphs 1.1.13 and 2.5, Exhibit A-1).

On June 25, 1982, these last parties also drafted an agreement designating 102428 as agent charged with making expenditures pertaining to the implementation of the Rockland project, as well as the expenditures inherent to the detention of the Centre. 102428 was also charged under this agreement with collecting on behalf of Cadev, 102077 and 1849 the sums paid to them in respect of the Rockland project (paragraphs 1,5, 6 and 7, Exhibit A-2).

4.09 Exhibit 1-8 contains a table which, in the opinion of this Court, clearly summarizes the situation that prevails on June 25, 1982, regarding the agents involved in the Rockland project. In this table, the percentages appearing in square brackets represent the financial liability of each corporation with regard to expenditures that had to be made in order to ensure the project's implementation. The percentages not appearing in square brackets represent the proportional interest held by the said corporations in respect of profits generated by the Rockland Shopping Centre.

4.10 The testimony of Claude Beaudet, who, in 1982, was manager of mortgage investments at the appellants parent corporation, Société Immobilière du Québec, shows that an analytical document (Exhibit I-14) was produced at the end of November 1982 to recommend to the parent company's investment committee an involvement in the Rockland project through its subsidiary, Société Immobilière SSQ Inc. (S.N. pages 134-39).

4.11 Société Immobilière SSQ Inc., which was created to be the “real estate arm" of Société Immobilière du Québec, was incorporated on August 24, 1982 (Exhibit 1-6).

4.12 On December 29, 1982, a document was produced by the Caisse for the appellant's attention. This document presents the main features of the agreement which the Caisse and the appellant had reached as a result of the negotiation process that occurred during the year 1982. It sets out the rights forming the subject of the transfer, the consideration to be paid to secure the transfer of ownership of the assigned interests and the proportion of the amounts to be paid without delay in consideration of the assignment and transfer (Exhibit A-3A).

4.13 On December 29, 1982, Cadev transferred to the appellant 6.58 per cent of its rights and interests held in the Rockland Shopping Centre. In consideration of the acquisition of those rights, the appellant agrees to assume, saving Cadev harmless therefrom, 7.75 per cent of expenses to be incurred in order to implement the Rockland project. The appellant also agrees to remit to Cadev the sum of $1,568,572, representing 7.75 per cent of expenses other than real estate expenses incurred by the latter from June 25, 1982 to December 29, 1982. Those amounts, which are listed in Exhibit I-1, represent expenses related to the project's financing, to the construction of the Rockland Shopping Centre, as well as to total interest on all investments made by Cadev during that period. Lastly, one clause in the agreement requires that an amendment be made to the contract of agency (Exhibit A-2) in order to take into account the appellant's involvement in the Rockland project. It is also required that an agreement be produced in order to meet the requirements of paragraph 6.2.1 of the cooperative agreement (Exhibit A-1) (paragraphs 2, 3, 4 and 13, Exhibit A-3).

4.14 On December 29, 1982, the appellant acquired from Cadim Inc., real estate subsidiary of the Caisse, 6.58 per cent of the rights to a lot on which the Rockland Shopping Centre had been built. The appellant also acquired 6.58 per cent of the rights as emphyteutic lessor under the emphyteutic lease signed by 102428 on June 25, 1982 (paragraph 4.08). The transfer of those rights was made in consideration of the sum of $207,126, representing 7.75 per cent of the total cost of the lot under emphyteutic lease, as well as of total interest applying to the value of the said lot during the period from June 25 to December 29,1982 (Exhibit A-4).

4.15 Paragraph 5.3 of the co-operative agreement A-1 includes interest expenses assumed by Cadev as financier of the Rockland project within the definition of the concept of "construction costs”. Such interest expenses, as shown above (paragraphs 4.13 and 4.14), actually have to be assumed by the investors involved in the Rockland project after June 25, 1982. The imposition of these interest expenses was to help offset Cadev's liquidity loss before its financial partners became involved. Pages 81, 82, 83, 86 and 87 of the testimony of Jean Labrecque clearly illustrate the reasons why the investors who joined the Rockland project following the signing of the co-operative agreement on June 25, 1982 assumed a share of the interests:

Q. Now we see here another table: "Interest at 19 percent". Can you say what that represents in reality?

A. That seems to me to be just basic common sense. Today, one might consider 19 per cent as perhaps a usury rate, but, at that time, that must have been the rate that the bankers charged their best customers.

So what you do. . . Well, there was no use in the Caisse wanting to do economic development, then to adjust to the financial capability of its partners; it did not want to be providing charity either.

So it is too easy if you say to the guy,” I am going to spend, I am going to spend, I am going to spend,” and then you delay for one year before signing the contract, then you are not involved, and during that year, I will have put in money; if you just count the amount that I have paid out, and do not take into account the interest on that, it is completely absurd. So.

Q. In reality, you did not lend that money?

A. No, no. (S.N. pages 81-82).

JUDGE: Wait. Look, 187 days there; that is starting from June 25, and it goes to December 28? Is that it, or does it go from June 25 and go even further, coming back to the month of January?

A. No, around. . . The Caisse could not. . . If it wanted not to make a profit at the expense of its partners, it could not charge it [sic] interest on what it had not disbursed.

Since the Caisse disbursed only on June 25, it had to charge its partners a capital cost based on the disbursement of June 25.

Before that, the entry. .... The Caisse, in the same way, had discussions, then oral agreements with the promoters, just as it had with its eventual partners, and as long as there is no cash, the interest is not counted. (S.N. page 83)

MR. VERDON: If I understand correctly, to come back to the question of interest, you calculated as though the Caisse had advanced the funds since either June or, well, the various dates are there?

A. What was probably taken at that time. . . That must have been the rate; I do not remember, but the banks’ prime rate. . .

Q. That was really to offset progressively the opportunity cost to you of the money that you had disbursed?

A. The Caisse, if it had kept. . .

Q. It could have invested it at 19 per cent, but, in reality, there was never a loan advance or anything else from the Caisse to the SSQ from the month of June to the month of December?

A. No, once again, it was in order to avoid providing to charity. (S.N. pages 86-87)

[Translation]

4.16 On August 4, 1983, an agreement was reached between Cadev, 102077 and 1849 and the group of investors having acquired an interest in the Rockland project from Cadev, that is the appellant, La Laurentienne Mutuelle d'assurance (hereinafter called "La Laurentienne") and the Montreal Police Benevolent and Pension Society (hereinafter called the “ Police Society") (Exhibit A-5). The main purpose of this agreement is to amend the co-operative agreement of June 25, 1982 in order to take into account the new division of rights and obligations with respect to the Rockland Shopping Centre. The amendments made emphasize the involvement of new investors in the project in accordance with paragraph 6.2 of the co-operative agreement.

Given the importance which counsel for the appellant gives to the clauses of that agreement, it is definitely appropriate to present some of its whereas clauses, as well as paragraphs 3 and 6:

WHEREAS Cadev, 102077 and 1849 have, this 25th day of June 1982, signed an agreement (the"agreement") establishing the terms and conditions of the development, administration and detention of an immoveable property known under the name of "Rockland Shopping Centre";

WHEREAS, on the 29th day of December 1982, Cadev assigned and transferred to SSQ a part of the rights, title and interests held by Cadev in the said Shopping Centre and in the agreement;

WHEREAS the parties wish to amend the agreement in accordance with the terms and conditions hereinafter set forth;

3. SSQ hereby agrees, in favour of Cadev, 102077 and 1849, to pay and assume, starting on June 25, 1982, (i) to a maximum undivided interest of 7.75 per cent, the construction costs and (ii) to a maximum undivided interest of 6.58 per cent, all Cadev's other obligations under the terms of the agreement and of any other related document, and SSQ hereby expressly acknowledges having read the terms and conditions of the agreement and of all other related documents and acknowledges that it is bound by such terms and conditions to the extent of the percentages established under the terms of this paragraph 3.

6. Cadev, for good and valid considerations received, receipt whereof is hereby acknowledged, and in compliance with the provisions of paragraph 6.2.2 of the Agreement, stands surety jointly and severally, without benefit of discussion, division or subrogation, for SSQ's obligations and commitments resulting from the terms and provisions of paragraph 3 of these presents.

[Translation]

4.17 On August 26, 1983, an agreement was signed by Cadev, 102077and 1849 and the investors recently involved in the Rockland project, that is the appellant, La Laurentienne and the Police Society. The purpose of that agreement is to amend the initial contract of agency (Exhibit A-2) in order to take into account the interest acquired by the new financial partners. The agent will consequently have to take into account the new division of interests in the Rockland project in the distribution of emphyteutic rents and profits from the Rockland Shopping Centre. The agent will also act on behalf of all the financial partners and promoters of the Rockland project with respect to expenses having to be incurred in order to ensure its implementation (paragraphs 2, 6, 7 and 9, Exhibit A-6).

4.18 On May 16, 1983, the appellant deposited the amount of $3,498.31 and the amount of $53.06 (Exhibit A-7). These amounts represent the total emphyteutic rents to which the appellant is entitled under the agreements A-4 and A-6 for the period from July 1 to January 1, 1983. The testimony of Richard Mathieu and Claude Beaudet, respectively treasurer and vice-president of the appellant during its 1982 taxation year, supports the content of this assertion:

MR. ROY: So you have before you Exhibit A-7, deposit slip. Would you examine it and, once you have examined it, explain how you were involved in the process which led to this deposit?

A. In fact, I am going to concentrate on the specific deposit of $3,498.31. I believe that it is of greater concern to us.

This deposit represents the repayment, the payment of the emphyteutic rent for the period prior to the date of the documents, of January, of December 1982, that is from the 1st of July 1982 to the 29th of December 1982, that is $548.33 per month, prorated for the number of days in December, as well as interest accumulated at the rate of 19 per cent. (S.N. page 111)

A. The second deposit, $548.33, being the emphyteutic rent for the month of January 1983.

The amount of $53.06 being the emphyteutic rent from the month of December 1982, but for the period between the 29th of December and the 31st of December, thus for a period of three days. (S.N. pages 107-108)

[Translation]

4.19 The incidental expenses claimed by the appellant as current expenses constitute a special class of disbursement among all the expenses incurred for the purposes of the Rockland project. The calculation of such incidental expenses was made by means of Exhibit 1-2, which constitutes a detailed description of all expenses incurred by Cadev, 102077 and 1849 from June 28 to December 29, 1982. The share of 7.75 per cent of incidental expenses to be assumed by the appellant constitutes the deduction which gives rise to the present dispute (Exhibit 1-3). Without any doubt, pages 190, 191, 192 and 193 of the testimony of Richard Mathieu help further clarify the source of the deduction in issue:

Q. Then what did you rely on in establishing incidental expenses of $175,337? (S. N. page 190)

A.. . . Incidental expenses are normally special expenses, which are foreseen and which one is entitled to claim as current expenses in the year in which they are paid, and those expenses are normally charges for initial rentals, financing costs and other charges, special fees.

Q. In practice, in this project, where were the incidental expenses?

A. What was done is that this document was supported by a listing of payments that were made to cover the construction costs, which listing was filed, I believe, earlier this morning.

Q. Would you go to Exhibit 1-2 and tell me, then, whether it is that listing?

A. On the whole of Exhibit 1-2, that is it. (S.N. pages 191-192)

Q. Good.

A. The expenses which are incidental are identified, were identified by a small check mark, which was red on the initial sheets. Well, here, on the photocopy, they are of course black.

Q. Ah, so in other words, where there are check marks, those are incidental expenses?

A. That's it. So, if all the check marks were added, they would total $937,474, broken down by claim numbers because the listings are produced according to claim numbers. Claim one, two, three, up to six. (S.N. page 193)

[Translation]

4.20 Lastly, it should be noted that the sums invested by the appellant in the Rockland project appear under the heading "Real Estate Investments in Joint Ventures" [Translation] in the balance sheet for the company’s 1982 fiscal year. It was in fact considered that the share of the interests which the appellant acquired in the Rockland project in 1982 constituted an interest in the framework of an ordinary co-ownership. The price of that interest was consequently to constitute an investment to be included in the appellant company's assets. These comments drawn from pages 184-86 of Richard Mathieu's testimony help illuminate this aspect of the recorded evidence submitted to this Court:

Q. Did the $175,337 go to expenses?

A. No.

Q. Why?

A. Well, what I think needs to be explained is how these financial statements are prepared.

Q. Hum, hum?

A. We wondered how this document came to be. So when we came to December 31, at the end of the fiscal year of the company, Société Immobilière, the financial statements had to be prepared, and we necessarily had an investment at the end of the year in a, in the Rockland Shopping Centre, which had to be presented in the financial statements.

Obviously, given the complexity of the transaction, it was difficult to find the way in which we had to present that investment in our financial statements, hence the discussions with our auditors, and it was at that time that I began to work on a project to break down the transaction, and we contended, at that time, that we had an ordinary co-ownership.

Q. Hum, hum?

A. So, obviously, there is an emphyteutic lease there, but we summed up for accounting purposes for the financial statements . . . What we held was an ordinary co-ownership, and, in the financial statements, that co-ownership was considered, from the point of view of assets, as a joint venture, and it was. . .the sums thus disbursed to cover the construction costs of the project were presented as an investment in a joint venture. That is what was done in 1982.

[Translation]

Production of the balance sheet forming the subject of the preceding comments, as well as certain notes pertaining to the balance sheet, will provide a better understanding of the accounting treatment of the appellants investment with respect to the Rockland project (Exhibit I-5):

Société, Immobilière SSQ INC.

(Incorporated under the statutes of Québec).

BALANCE SHEET

December 31, 1982

ASSETS

Real Estate Investments in Joint Ventures (notes 2 and 3)	$2,053,300
Cash	26,500
Certificate of deposit	100,000
	2,179,800
LIABILITIES
Demand note—Parent company	$1,800,000
Accounts payable	14,300
	$1,814,300
SHAREHOLDER EQUITY
Capital stock (note 5)-
Issued and paid:
600,000 class A shares	$600,000
Reduction of capital	234,500
	$2,179,800
Société Immobilière SSQ INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1992

3. Real Estate Investments in Joint Ventures

In order to acquire, develop, lease and resell immoveable properties, the company has invested in incorporated and unincorporated joint ventures with other partners operating in the real estate field.

The equity basis of capital investments in joint ventures is composed of the following:

Incorporated joint venture—Société

Immobilière Parc Samuel-Holland Inc.

Purchase price of shares	$450,051
Costs associated with the acquisition of the shares	52,249
Share in net profit	43,500
Share of dividend paid solely to another shareholder	(225,000)
Dividends received	(50,000)
	$270,800
Unincorporated joint venture—
Rockland Shopping Centre
Purchase price of a share in an	$1,776,900
ordinary co-ownership
Costs associated with acquisition	5,600
of the co-ownership	1,782,500
	1,782,500
	$2,053,300
	[Translation]

5. ANALYSIS

5.01 The question for determination is thus whether the appellant may, in light of the recorded evidence and testimony provided by the parties, deduct the sum of $175,336.71 as current expenses during its 1982 taxation year. The special nature of the problem arises from the fact that the appellant tries to benefit retroactively, that is, before its involvement in the Rockland project, from the deductibility of expenses incurred by Cadev.

5.02 The question at issue may be treated in two parts:

(a) Can it be contended that the will of Cadev and the appellant was to make the latter retroactively holder of deductible expenses incurred by Cadev before its involvement in the Rockland project?

(b) To the extent that this Court is of the view that the interpretation of all the agreements signed by the appellant was intended [sic] to effect a retroactive transfer of all deductible expenses incurred by Cadev in 1982, is such a position legally acceptable?

5.03 First, it is therefore necessary to determine the intention of the Appellant and Cadev at the time the contracts A-3, A-4, A-5 and A-6 were signed.

5.03.1 The Appellant claims that it is necessary to take the subsequent agreements signed in 1983 into consideration, as well as certain events that occurred during that same year in order to determine the true significance that be attached to the 1982 transfer of interests in the Rockland project.

5.03.1(1) Indeed, contract A-5, signed on August 4, 1983, would have the effect of retroactively making the Appellant the debtor for expenses incurred by Cadev before December 29, 1982. The following passages drawn from pages 106 and 107 of the oral argument illustrate this position:

[Translation]

MR. ROY: . . .When the clocks were reset, they brought that back to the 25th; it is as though I had been there on the 25th. That is what I claim.

Do you remember the clause of the contract of the 4th of August, the clause which I quoted? Where is the contract of the 4th of August? Ah, here it is.

"SSQ hereby agrees, in facour of Cadev", etc., "to pay and assume, starting on June 25, 1982, to a maximum. . .and SSQ". . .

JUDGE: What do you have in your hands?

MR. ROY: This . . . I am in the contract, in Exhibit A-5. I am at the very basis of my argument, Exhibit A-5, contract of August 4, 1983.

JUDGE: Yes.

MR. ROY: . . .in which SSQ hereby agrees, in favour of Cadev, 102077 and 1849 to pay and assume, starting on June 25, 1982, to a maximum of.

JUDGE: That is at the end?

MR. ROY: That is clause three.

JUDGE: Paragraph three.

MR. ROY: Yes, on page three.

JUDGE: "To a maximum undivided interest of 7.75 per cent, the construction costs and (ii) to a maximum undivided interest of 6.58 per cent, all of Cadev's other obligations.

MR. ROY: Yes.

[Translation]

5.03.1 (2) Furthermore, the appellant allegedly received emphyteutic rents covering the period from July 1, 1982 to January 1, 1983. The testimonies of Richard Mathieu and Claude Beaudet, cited above (paragraph 4.18) should be reproduced, given their importance:

MR. ROY: So you have before you Exhibit A-7, deposit slip. Would you examine it and, once you have examined it, explain how you were involved in the process which led to this deposit?

A. In fact, I am going to concentrate on the specific deposit of $3,498.31. I believe that it is of greater concern to us.

This deposit represents the repayment, the payment of the emphyteutic rent for the period prior to the date of the documents, of January, of December 1982, that is from the 1st of July 1982 to the 29th of December 1982, that is $548.33 per month, prorated for the number of days in December, as well as interest accumulated at the rate of 19 per cent. (S.N. page 111 of Mr. Beaudet's testimony)

A. The amount of $53.06 being the emphyteutic rent from the month of. December 1982, but for the period between the 29th of December and the 31st of December, thus for a period of three days. (S.N. pages 107-108 of Mr. Mathieu's testimony)

[Translation]

Such reception would clearly confirm the appellant's position that it retroactively became party to the co-operative agreement of June 25, 1982, pursuant to the wording of Exhibit A-5. Paragraph 19D of the re-re-amended" [sic] notice of appeal clearly illustrates this position:

19D. The payment to the appellant, as joint emphyteutic lessor, by Centre d'Achats Morgan Rockland Inc., as emphyteutic lessee, of amounts representing emphyteutic rents for the periods ranging respectively from July 1, 1982 to December 29, 1982 and from December 29, 1982 to December 31, 1982 confirms that the appellant became party to the co-operative agreement of June 25, 1982 (Exhibit A-1) and to the related agreements, starting on that date of June 25, 1982 and that, more generally, the appellant's legal involvement in the Rockland Shopping Centre project dates from that date of June 25, 1982;

[Translation]

5.03.1 (3) Lastly, the various testimonies gathered during the hearing of the present case would confirm the scope that must be given to all the contracts signed by Cadev and the appellant. Pages 111 and 112 of the testimony of Claude Beaudet would appear to support such a claim:

The scheme of the transaction, then the actual transaction was that Société Immobilière SSQ Inc. became a participant in the shopping centre retroactive to June 25, 1982; it was entirely normal that, when we signed a land acquisition contract, we became owner of the land from June 1982; by virtue of that ownership title, we have to receive an emphyteutic rent.

We told the Caisse de dépôt, “Give us the emphyteutic rent which you collected on our behalf; we are entitled to 6.58 per cent, and you are also going to pay us interest on the basis of 19 per cent.”

According to the same principle on which you charged us interest on the sums which you advanced on our behalf, we claim interest from you on the same basis, tit for tat. Unfortunately, the amount was less.

[Translation]

This excerpt from pages 127 to 130 of the examination of Claude Beaudet would also seem to show that the appellant was involved in the Rockland project starting on June 25, 1982:

MR. ROY: I am showing you Exhibit 1-4. Could you identify this document?

A. That document is the document that I drafted to present the analysis of the transaction.

Q. Now I am showing you page three, chapter three, Payment Schedule". (S.N. pages 127-28)

Could you tell the Court about paragraphs one and two?

A. What the Caisse de dépôt et de placement is asking us is to participate in the Rockland project to a percentage of 6.58 per cent, and, for that, we must agree, inter alia, to pay 7.75 per cent of construction costs.

On November 15, total disbursements represent $18,286,000 for the entire project. These disbursements were made gradually from June 1982.

[Translation]

5.03.2 The respondent claims, for his part, that the appellant has never had a legal interest in the Rockland project before December 29, 1982. Before that date, there had been only negotiations and exchanges of documents enabling the appellant to conduct a better evaluation of the project.

5.03.2(1) The respondent, on the one hand, supports his claim with a series of textual arguments drawn from Exhibits A-3 and A-5, where it is expressly stated that the appellant became owner of 6.58 per cent of the rights in the Rockland Centre starting on December 29, 1982.

A resolution of the appellant's board of directors dated December 17, 1982 also indicated that the offer of Cadev and Cadim to acquire an interest in the Rockland project was accepted. That resolution allegedly showed that, from a strict legal point of view, the contract of transfer of a share of the interests in the Rockland Centre could have been effective only as of December 17,1982. The constituent elements of the contract were put together only as of that date.

5.03.2(2) The respondent also supports his claim with the fact that no mention is made of the appellant in the breakdown of the six claims raised by the construction of the Rockland Shopping Centre (Exhibit 1-2).

5.03.2(3) The respondent also claims that the appellant could not have been involved in the Rockland project as of June 25, 1982, since it was incorporated only on August 24, 1982 (Exhibit 1-6).

5.03.2(4) Lastly, the respondent contends that the date on which the document I-4 was constituted shows that the appellant could not have been legally involved in the Rockland project on June 25, 1982. Document I-4, which was allegedly executed around the end of November 1982, constitutes only an analysis of the main features of the Rockland project in order to recommend co-operation in the said project. It was therefore clear that the appellant was still undecided as to the terms and conditions of its involvement in the Rockland project in November 1982. Consequently, it cannot be contended that the appellant was in any way involved in the Rockland project in June 1982.

5.03.3 The respondent claims, second, that the purpose of documents A-3 to A-6 was only to establish the price of the acquisition of 6.58 per cent of the rights in the shopping centre and in the land on which the said centre was built. Thus, the repayment by the appellant of a share of the deductible expenses incurred mostly by Cadev before its involvement in the Rockland project would allegedly constitute only the payment of a capital good, that is an interest in the said project.

5.04 The appellant filed an exhaustive list of authorities on the interpretation of contracts and the admissibility of testimony in interpreting and even amending the scope of a valid written instrument. This Court will comment briefly on the authorities that were submitted to it in order to determine the major principles of interpretation which it intends to use in the first part of its analysis.

5.04.1 First, it may be asserted without any doubt that the law [1] and the doctrine [2] favour an interpretation of contracts based on a search for the meaning of the parties, as well as on a comprehensive analytical approach ensuring logic and harmony between the various parties of a contract.

5.04.2 Furthermore, the application of article 1234 of the Civil Code, which generally recognizes the predominance of written instruments over testimony, has caused a certain confusion, which has led the courts to circumscribe its use.

The case law (see Guardian Insurance Co, supra, pages 849, 869, 870, 871; Richer, supra, pages 1703-05; Roy, supra, pages 6-7) now recognizes that article 1234 of the Civil Code does not apply where testimony is intended only to interpret the terms of the written instrument.

The courts and doctrine have also recognized, not without some reluctance, that article 1234 of the Civil Code cannot receive application where a third party attempts to give testimony designed to show that the text of the written agreement does not reflect the true meaning of the parties. Likewise, a party to a written contract could validly provide testimony to show a third party that the content of the written instrument does not faithfully represent the meaning of the parties. (See Ouellette, Knox, Brodeur, Gingras and Cormier, all supra. See also Régnier and Coulombe, "L'article 1234 C.C. en matière fiscale,” 1971 R. du B. 472.)

5.04.3 Generally speaking, this Court concludes from the legislative, case law and doctrinal sources cited above that the courts must show openness with respect to the admissibility of testimony to the extent that such evidence makes it possible to determine the true meaning of the parties to the contract. Such an approach is a reflection of the predominance of the search for the will of the contracting parties in the analysis of the effect to be given to contracts.

5.05 This Court can hardly accept the appellant's claim concerning the scope that should be given to the contracts signed by the appellant.

5.05.1 The appellant appears to attach inordinate importance to the terms "starting on January 25, 1982“ in contract A-5 (paragraph 5.03. 1 (1)). In fact, using these few terms to interpret all the contracts signed by the appellant and Cadev is an interpretation grossly dissociated from the context and scheme in which those agreements were drafted.

Using these few terms in order to evaluate the significance that must be given to all the contracts also goes against the analytical approach that arises from the case law submitted by the appellant, that is an approach favouring a search for the will of the parties through a comprehensive analysis of the contracts in question.

5.05.2 The true significance to be given to agreements A-3, A-4, A-5 and A-6 must be derived from the relation which these agreements have one to the other as well as to the co-operative agreement A-1. The importance attached by Cadev to the necessity of sharing the financial burden of the Rockland project following the conclusion of negotiations with the promoters 102077 and 1849 also helps determine the scheme underlying the agreements signed by Cadev and the appellant following the co-operative agreement.

5.05.2(1) In this regard, agreements A-3 and A-4, which guarantee a separate treatment of the rights pertaining to the shopping centre and to the land on which it was built, concern only the transfer of an interest in the profits generated by the Rockland Centre and in the emphyteutic rents generated by the emphyteutic lease signed with Cadev, 102077, 1849 and any future partners (paragraphs 2.2, 5.3 and 5.4, Exhibit A-1).

The consideration which the appellant agreed to pay pursuant to this contract of transfer may be separated into two separate categories. On the one hand, the appellant must make two payment orders before the opening of the Rockland Centre, that is on August 30, 1983 (paragraph 4.05.3). First, the appellant must repay 7.75 per cent of the construction costs incurred by Cadev before its involvement in the Rockland project, as well as an amount of interest calculated by applying an interest rate of 19 per cent to the total construction costs to be assumed by the appellant. The appellant will subsequently have to assume 7.75 per cent of the construction costs to be paid starting from its involvement until the opening date of the shopping centre.

Second, the purchaser will also have to assume a percentage in the order of 6.58 per cent of expenses arising from the centre's being put into operation following its opening date (paragraphs 5.3, 5.4, 6.2. 1, Exhibit A-1).

5.05.2(2) The relation between contracts A-5 and A-6 and contracts A-1 to A-4 makes it possible to limit their scope considerably. It was emphasized on a number of occasions during the testimonies that agreement A-5 would help "reset the clocks” [Translation] following the signing of contracts A-3 and A-4. The wording of the whereas clauses of agreement A-5 also clearly shows that the main object of this contract is to amend agreement A-3 in order to take into account the involvement of new investors in the Rockland project (paragraph 4.16). Exhibit A-6, for its part, constitutes only an amendment to the contract of agency A-2, once again making it possible to take into account the involvement of new investors in order to state more clearly the responsibilities of agent 102428 with respect to the distribution of the emphyteutic rents and the profits generated by the centre, as well as with respect to the collection [sic] of the expenses relative to the Rockland Centre. In fact, this Court is of the view that Exhibits A-5 and A-6, production of which was expressly required by paragraph 13 of Exhibit A-3, constituted only a form of advertising, enabling the appellant to inform third parties of the vested rights and the responsibilities which it agreed to assume in the context of the Rockland project. The production of Exhibits A-5 and A-6 thus appears to have responded more to the imperatives of the form than the substance of the contracts forming the subject of our analysis.

5.05.2(3) Consequently, it appears more than likely, in the light of the arguments submitted by the respondent (paragraph 5.03.2),that the appellant never [sic] had a legal interest in the Rockland project before December 29, 1982. Furthermore, this Court is convinced that Cadev's main, indeed even sole, concern at the time of the transfer to the appellant of a share of the interests in the Rockland project was to reduce its financial liability (paragraph 4.06). The vehicle chosen by Cadev to reduce the financial risks inherent in the said project was to dispose of a part of its right to the profits that will be generated by the Rockland Centre, as well as of a part of the emphyteutic rents produced by the emphyteutic lease, of which Cadev is the main beneficiary. The appellant nevertheless agreed to pay a share of the expenses incurred by Cadev before the appellants involvement in the project, as well as the expenses that would be incurred prior to the shopping centre's opening. It therefore appears entirely plausible that, on December 29, 1982, the appellant acquired only an interest in the Rockland project in consideration of the payment of certain sums of money. In the context of such an acquisition, the special nature of the methods used to set the price of the interest acquired makes it possible without any doubt to assert that the terms "starting on June 25,1982" drawn from paragraph 3 of Exhibit A-5, are intended only to circumscribe the period during which the expenses incurred by Cadev before the appellant's involvement in the Rockland project would be summed. Thus, the cost of the interest acquired by the appellant will be set at 7.75 per cent of all expenses incurred by Cadev from June 25 to December 29, 1982.

It cannot therefore be contended that Cadev's intent was to make the appellant retroactively debtor for sums disbursed by Cadev before its involvement in the project. To confirm such a proposition would be to negate the logic and scheme that seem to underlay the transactions conducted by Cadev in sharing with its partners the financial burden generated by the Rockland project.

5.05.3 Lastly, the filing of deposits [sic] pertaining to the receipt of an emphyteutic rent covering the period from July 1, 1982 to January 1, 1983 (paragraph 5.03.1(2)),as well as the admitting in evidence of certain excerpts of the testimony of Claude Beaudet (paragraph 5.03.1(3)), although of a certain interpretive value, constitute only a fraction of the evidence likely to be taken into consideration with regard to the appreciation of the recorded evidence and testimony.

5.05.3(1) On the one hand, the probative force which the appellant attempts to derive from the receipt of emphyteutic rents is scarcely significant if this evidence is reviewed in its context.

It is necessary to remember that the economic situation that prevailed during the taxation year in issue was characterized by a sharp increase in interest rates (paragraph 4.06). Starting on June 25, 1982, the Caisse de dépôt et de placement, through its subsidiary Cadev, had to bear virtually the entire financial burden generated by the Rockland project before the involvement of future financial partners. The financial burden consisted of amounts obtained through various sources of financing, as well as interest in the order of 19 per cent applying to loans taken out. The sharing of Cadev's financial burden, as certain testimonies reflect (paragraph 4.15), consequently had to include the amounts of interest borne by Cadev. It is therefore not surprising that the concept of “construction costs", which forms the basis of the method of setting the prices in the case of the transfer of interests by Cadev, includes payments of principal and interest made before the involvement of the financial partners (paragraphs 5.3 and 6.2.1, Exhibit A-1). Exhibit 1-1 also shows interest payments in the order of $1,324,934.93, 96.4 per cent of which are to be made by Cadev on December 29, 1982.

The commercial basis for imposing such interest expenses is to offset Cadev's loss of liquidity before the appellant repays a share of the amounts disbursed before its involvement. However, it would have been just as logical to remit to the purchaser the profits generated by the interest acquired before its involvement in the Rockland project. In the same way, if the interest had been acquired after the opening of the shopping centre, a share of the profits generated by the centre's start-up would also have had to be paid by Cadev in order not to create an imbalance in the payment of benefits [sic]. The contractual logic underlying the financing of the Rockland project requires that there be a form of reciprocity between the assignee of the shares of interests and the beneficiary of such a transfer. There is nothing surprising in the present affair in the appellant's receipt of emphyteutic rents covering the period from July 1, 1982 to January 1, 1983.

Furthermore, the mere act of imposing interest payments on investors for the period between the start of the construction period and the date of their involvement in the Rockland project demonstrates the inadmissibility of the appellant's claim. Why would one require the appellant to pay interest expenses if one had the intention of making the latter retroactively the debtor for deductible expenses incurred by Cadev before its involvement? This Court is of the view that the mere posing of such a question removes all probative force from the receipt of emphyteutic rents.

5.05.3(2) Furthermore, as a result of the preceding exposition concerning the significance to be attached to the various agreements signed between the appellant and Cadev (paragraph 5.05.2),it is certainly not necessary to comment on the impact of the excerpts from the testimony of Claude Beaudet.

5.06 The first part of the question in issue, which is more a matter of the interpretation of the evidence than of the legal validity of the parties' claims, makes it possible to dismiss the appeal without further consideration.

However, the interest which the judicial treatment of this affair raises calls for a brief exposition by this Court. Even taking for granted that the interpretation of the contracts which the appellant suggested to us is valid, could one contend that such a position would be legally acceptable?

In this regard, this Court is of the view that the Alepin case, supra, (see also Adam, supra, and Malkin, supra,) must apply in order to reject the legal validity of the appellant's claim.

This Court is also of the view that the scope which the appellant is attempting in its argument (paragraph 5.03.1(1)) to give to contract A-5 is prohibited by the principle that arises from the Alepin case.

That case law principle is that a taxpayer may not amend the tax treatment of an expense for a given taxation year through an act committed in a subsequent taxation year. This excerpt from pages 143-44 of the Malkin decision clearly presents the reasons for such a principle:

The appellants contention is that while the rentals in question received by him in 1937 and 1938 constituted income, yet by virtue of the oral agreement of November 3, 1938, and the conveyance of the warehouse to the Malkin Company on November 19, 1938, these income receipts were converted into capital receipts.

The rentals received by the appellant and his brothers since 1935 might be treated as capital receipts as between themselves and the Malkin Company, by reason of the terms of the contract of sale of the warehouse in November, 1938, but this would not be binding upon the Crown, and particularly in respect of such asubject-matter as the one under discussion. The appellant had the right, of course, to deal with his income as he saw fit after its receipt by him, but such income would remain taxable income under the taxing statute. The appellant could not by any ex post facto act alter the destination of these moneys, or the purpose for which they were paid to and received by him. I know of no principle of law or equity which the appellant can summon to his aid to support his contention. I am therefore of the opinion that all the rental receipts in question constituted income in the hands of the appellant and were therefore taxable as such.

The Alepin decision presents an entirely similar order of reasons. Marceau, J., then Federal Court Justice, Trial Division, writes as follows, at pages 363 and 364:

The contract under resolutory condition acquires full legal force from the moment it is signed, and it produces all its effects before the event provided for occurs. When the payment was received in 1970, a part of that payment covered the interest due pursuant to the contract and was immediately taxable, and this legal situation could not be subsequently altered or nullified by the effect of a subsequent repudiation of the contract itself. The accomplishment of the resolutory condition to which a contract is subject may well nullify the obligations resulting from the contract, but it can affect third parties who have acquired rights in the meantime on the basis of the contract only to the extent that those rights were created conditionally. Moreover, the resolution in this case was not to occur independently of the parties; it required a voluntary and free act by one of them, and it was in fact effected by a contract of dation in payment freely subscribed : can one reasonably believe that a resolution effected ex post facto in 1975 could alter the destination of the payments made in 1970 and nullify the consequences with regard to the taxation authorities (cf Malkin v. M.N.R., [1942] Ex. C.R. 113; [1942] C.T.C. 135; 2 D.T.C. 587).

[Translation.]

The fact that the alleged retroactive effect which the appellant attempts to attribute to paragraph 3 of Exhibit A-5 is foreseeable under paragraph 6.2. 1 of Exhibit A-1 changes nothing in the injustices which the appellants position could cause. In fact, permitting all taxpayers to alter the tax treatment of certain expenses at any time during a subsequent taxation year would create veritable chaos in the tax collection system. This Court obviously cannot support an argument provoking such effects.

6. Conclusion

For all of these reasons, the appellants appeal must be dismissed.

Appeal dismissed.