Patricia M. Fraser, Ernest J. Kreiger and Monique C. Varelas v. Minister of National Revenue, [1989] 2 CTC 2443

Garon, T.C.J.: —These are cases where the respondent in reassessing the appellants disallowed the amounts deducted by the appellants as their share of the business losses of the General Mortgage Syndicate hereinafter described as "G.M.S." [1] or the "Syndicate".

These appeals were heard on common evidence and involve the reassessments for the taxation years 1982, 1983, 1984 and 1985 with respect to the appellants Ernest J. Krieger and Monique C. Varelas, and, in the case of the appellant Patricia M. Fraser, the reassessments for the 1982, 1983 and 1984 taxation years. The Court was informed that these appeals are representative of other cases involving 92 other taxpayers.

The agent for the three appellants in these appeals, Mr. J. B. Lansdell, played a key role in the arrangements leading to the formation of the G.M.S. and to the organizational structure that was set up to manage its property. There is no question that he was the driving force behind all the activities involving the G.M.S.

Mr. Lansdell practised as a solicitor in U.K. many years ago before he took up residence in Canada. He came to Canada in 1953 and he joined Yorkshire Trust Company, a well-known local trust company. Within two or three years he became Vice-President of that company. In that capacity, he served that employer for a period of seven years. He was involved in its real estate activities and in particular he was, to adopt his language, "doing this syndicating business” with a person who was to become his "partner" when both Mr. Lansdell and that former employee decided to leave the employment of Yorkshire Trust Company in 1963. They then set up two private companies and made them exactly the same in their corporate structure and in their capitalization. These companies were Marlowe Investments Ltd. and Yeoman Investments Ltd. Marlowe Investments Ltd. was involved in the acquisition of mortgages in British Columbia and Yeoman Investments Ltd. dealt with similar investments in Alberta. The lending operations of these companies were confined to those two provinces. These two corporations were amalgamated on January 2, 1985. From now on, I will generally refer to these two companies as if they were one legal entity by the name of Marlowe- Yeoman.

The prospective members of the G.M.S. had to buy 100 Class "B" voting shares in Marlowe Investments Ltd. or Yeoman Investments Ltd. at $10 a share. Several of Mr. Lansdell's clients wanted to have a larger stake in the equity of either one of these two companies and bought Class "A" nonvoting shares. Also at about the same time in 1963 when Mr. Lansdell left Yorkshire, he bought with the same, former associate in the above mentioned trust company, the shares of Griffith, Lee and Wilson Ltd., hereinafter called “Griffith”. They were both equal shareholders. Upon the retirement of that individual on June 30, 1979, Griffith became inactive. Mr. Lansdell then caused another company to be incorporated with a new associate, owing a 50 per cent interest, effective July 1, 1979. That company was Gulf Pacific Investments Ltd. and it continued until August 15, 1982. In 1982, Gulf Pacific Investments (1982) Limited came into existence. These three companies were engaged in the same business and reference will be made to the latter two corporations under the name of Gulf Pacific unless otherwise indicated.

In 1963, Mr. Lansdell became president of both Marlowe-Yeoman and Griffith. He has been president of Gulf Pacific Investments Ltd. since its incorporation in 1979. He held the same position with Gulf Pacific Investments (1982) Limited when that corporation was created. Prior to 1973, Marlowe-Yeoman, which was owned by a close group of investment clients, sponsored syndicates and administered their affairs. During that period, Griffith was engaged in a real estate business and was involved in the syndication of real estate and mortgages. Mr. Lansdell was the nominee for the real estate licence held by Griffith and later on by Gulf Pacific. During the relevant period he was also a financial consultant and held a licence as a real estate agent. From the above, it is apparent that since 1954, Mr. Lansdell has been active in Canada in setting up mortgage portfolios for investment clients.

In 1973, Mr. Lansdell created a vehicle for the “pooling” of the mortgages so that his clients who wished to participate through their financial contribution in the acquisition of the pooled mortgages would have, in the words of Mr. Lansdell, "the benefit of greater diversification of their investments and more economical administration”. The vehicle was named the General Mortgage Syndicate.

From 1973 through 1982 taxation years the G.M.S. was engaged in the acquisition of discount mortgages and in the lending [of] money to developers and others on the security of real property frequently on terms that G.M.S. would receive bonus interest calculated as a percentage of the developers' profits.

On March 16, 1973, Mr. Lansdell prepared a memorandum offering his investor-clients the opportunity to participate in the acquisition of a portfolio of mortgages on a basis that had some similarity with an accumulative mortgage mutual fund. This offering memorandum was circulated on a confidential basis to the shareholders of Marlowe Investments Ltd. and Yeoman Investments Ltd. By signing the application form attached to this memorandum each investor was entering into a contract with Marlowe- Yeoman.

The following extracts from this offering memorandum, filed as Exhibit A-1, are of particular interest:

We are pleased to advise all shareholders, and particularly those with selfadministered Registered Retirement Savings Plans (R.R.S.P.'s), of this opportunity of participating in the acquisition and continuing ownership of a portfolio of mortgages. It is intended that the General Mortgage Syndicate will be "open end" in the sense that new money, and particularly repayments from existing mortgage syndicates, may be reinvested in the General Mortgage Syndicate on the basis of a "unit" price related to the net aggregate value of the Syndicate mortgage assets at the time of reinvestment.

It is also intended that the General Mortgage Syndicate will continue indefinitely but with the right of individual participants, upon notice, to redeem their investment in whole or in part at its then value. In the meantime, and subject to the need for cash to effect redemptions, it will be the intention to reinvest the cash generated from mortgage repayments in the purchase of more mortgages.

Shareholders will recognize that the General Mortgage Syndicate has some similarity with an accumulative mortgage mutual fund operating in the manner of an investment trust in which the mortgage earnings enure to the beneficiaries pari passu with their investment.

Participants wishing to sell or redeem all or part of their investment in this Syndicate should notify the Managers in writing thirty days prior to a quarter day. It is expected that a market will always exist for the purchase and sale of participations through Marlowe-Yeoman, but if not, then participations will be redeemed by the Syndicate in order of request, out of normal cash inflow or from the disposition of some of the Syndicate mortgages. No new investments will be committed while participants are awaiting redemption. A fee of 1% of the value will be charged to cover the administrative costs involved in transfer or redemption.

On each statement date - June 30th and December 31st - we will show every shareholder's participation in the General Mortgage Syndicate at original cost and also its value on the reporting date, probably by reference to notional “units” of a par value of $10 each.

In view of the high rate of return which we hope to maintain for participants in the General Mortgage Syndicate, an investment therein must be regarded as somewhat speculative.

As usual, a condition of your participation will be that you grant your Managers full discretion in the acquisition of mortgages, and the management thereof. Such discretion would be exercised in the best interests of the investing group as a whole, and any expenses which may reasonably be incurred in the protection of such interest shall be borne by the General Mortgage Syndicate and thus, in effect, by the investors in proportion to their participation.

The contractual terms of participation in the G.M.S. were slightly modified by a memorandum dated January 10, 1979, tendered in evidence as Exhibit A-2. The relevant passages of the latter memorandum are worth noting:

GMS - HISTORY AND PERFORMANCE

The G.M.S. was constituted by Marlowe-Yeoman Memorandum # 127 on March 16, 1973 with a portfolio of mortgages of $350,000 on hand. Subscriptions were received for $600,000 and the GMS became operative on April 10, 1973 with 60,000 units allotted at a price of $10 per unit.

The GMS was created primarily as a vehicle for investment for members wishing to invest their RRSP funds in mortgages. It was recognized that there was a place for mortgages in a well balanced investment portfolio or retirement fund, and it was further recognized that there were significant tax advantages in having mortgage interest earnings accumulated tax-free, in a RRSP because such earnings were otherwise fully taxable year by year.

While the primary objective in setting up the GMS was to accommodate members with RRSPs in fact it proved attractive to other investors wishing to participate in the ownership of a well- diversified portfolio of high-interest mortgages under professional management.

The GMS is an "open-end" accumulative mortgage fund constituted to invest and reinvest the contributed funds in high-yielding, and therefore relatively speculative, mortgages secured on Canadian real property. The fund is controlled and managed by Griffith, Lee & Wilson Ltd. which seeks out the mortgage investment, provides collection services, and reports quarterly on the operation of the GMS mortgage fund.

GMS CONDITIONS OF PARTICIPATION

PURCHASE OF UNITS: The availability of units for repurchase each quarter normally depends on the offering of units for sale or redemption by existing holders of units. From time to time additional units may be created by enlargement of the number of units outstanding which are then available for purchase only by existing members of the GMS. When newly created units are sold at a price in excess of the adjusted par value i.e. the value at the preceding year-end, then the excess shows in the GMS Balance Sheet as ‘Subscription Premiums' until the ensuing year-end, and forms part of the Members' Equity in the fund.

SALE OR REDEMPTION OF UNITS: Members are required to give 30 days' notice in writing expiring on a quarter day of their wish to sell or redeem units. The net proceeds of sale or redemption are then credited to their account with Marlowe- Yeoman by the 15th of the month following the quarter day, by which time the quarter day value of the units will have been determined.

If the aggregate number of units offered for sale in any quarter exceeds the number for which we have new purchase applications, then the excess would be redeemed out of the funds of the GMS in the order in which requests for redemption are received. No new mortgage investments would be committed for the fund until all units offered for redemption have been fully redeemed.

Special arrangements can be made with Marlowe-Yeoman for periodic redemption of units to cover debit balances arising on a member's account resulting from monthly or quarterly remittances which he or she has requested.

FEES:

(iv) Administration Fees: Marlowe-Yeoman is entitled to charge a Service Fee at the rate of /sths of 1% of the value of the fund on each quarter date for all its services in operating the GMS which include the maintenance of all syndicate and members' accounting records, the housing of mortgage files, the provision of quarterly reports and financial statements to all members, and all tax reporting services. And in particular its services include the continuing supervision of the mortgage portfolio, and generally the direction of all actions taken to protect the interests of the members.

During the period from 1973 to 1985 the precise role and functions of Marlowe-Yeoman and Gulf Investments and the relationship between these two entities in connection with the operations of the G.M.S. are not easy to determine. Illustrative of this lack of precision is the heading of the offering memorandum of March 16,1973 which reads in part as follows:

J.B. LANSDELL & ASSOCIATES

Financial Consultants proprietors of

GRIFFITH, LEE & WILSON LTD. Mortgage & Real Estate Brokers

On the other hand, that offering memorandum was entitled "The General Mortgage syndicate” and was addressed to the shareholders of Marlowe Investments Ltd. and to Yeoman Investments Ltd.

One important function of Marlowe-Yeoman was to hold title to all the mortgages in the G.M.S.'s portfolio. Mr. Lansdell, in his testimony, stated that Marlowe-Yeoman was "the sponsor of syndicates where we administered them, as distinct from property management". Marlowe-Yeoman also had the responsibility to keep members of the G.M.S. properly informed about the activities and management of that "Syndicate". Another significant feature of Marlowe-Yeoman was described in the following way by Mr. Lansdell "The Marlowe-Yeoman companies had an external board of directors made up of investors who would, in some way, supervise the activities, I suppose, of the managers”. The Board of Directors of Marlowe-Yeoman was dubbed an “advisory board” at some other point in his evidence. The directors were also called by Mr. Lansdell "watchdogs for the investors". Annual and quarterly reports and financial statements were forwarded by Marlowe-Yeoman to the participants in the G.M.S. Marlowe-Yeoman maintained an operating account for every syndicate, including the G.MSS. It operated as a "banker" for the G.M.S. Also in the books of Marlowe-Yeoman every investor was a client ledger and had a Marlowe-Yeoman account. Records of all transactions involving members of the G.M.S. were kept by the latter company. Although this might appear surprising, Marlowe- Yeoman had no staff and its functions were performed by Gulf Pacific as its agent. However, it had a Board of Directors, a President and a Secretary.

Gulf Pacific was the management company which was qualified to deal in real estate and mortgages and could act as a mortgage broker. It undertook real estate developments and managed the investments. That company had full control with respect to the investments made in it by the individual investors. Gulf Pacific, apart from being involved in the syndication of mortgages for 15 to 20 real estate syndicates was a licensed real estate broker and was active in the commercial and industrial end of the real estate business. It also managed private investment companies and provided corporate management services. In a nutshell, Gulf Pacific was the real estate developer. Speaking of the relationship between Marlowe-Yeoman and Gulf Pacific, Mr. Lansdell had this interesting comment: "Yes, the full management and control was with Gulf Pacific. It was almost as if Gulf Pacific brought in Marlowe-Yeoman to see fair play, to have a board of directors who could assess fees".

It is also worth noting that it is clear from the testimonies of both the appellant, Patricia M. Fraser, and her husband, Dr. John Fraser, a physician who counselled her with respect to financial matters, that the business decisions in respect of the investments in the G.M.S. were made by Marlowe-Yeoman and Gulf Pacific and that the investors were not participating in the running of the Syndicate's business of investing in mortgages. The appellant, Patricia M. Fraser, also stated that she did "not really” feel she owned the mortgages. To both of them, the worst that could happen was that they could lose the money they had invested in the Syndicate.

The G.M.S. syndicate operated successfully for some nine years, from 1973 through 1981. The members' earnings were reported by trust return—T3 return. The earnings included all premiums, bonuses, shares of profits derived from real estate developments financed through the Syndicate lending operations. Throughout the period terminating in 1982 the earnings were reinvested in mortgages. The increment in unit value, reported as income, rose from $5 being the initial subscription value in 1973 to $13.59 by December 31, 1981. The G.M.S. earnings were reported for income tax purposes as income year by year even though there were no cash distributions to members in any year prior to 1983.

The rationale behind this manner of reporting income for the members of the G.M.S. was explained in a letter dated October 3,1973 from Griffith to the then Minister of National Revenue. The relevant portions of that letter read as follows:

INCOME TAX REPORTING

As participation in the General Mortgage Syndicate represents ownership of an undivided share in the underlying mortgages, every taxpaying participant must report as income his or her share of the mortgage earnings accumulated during each year. We have evolved a form of Tax Memorandum, a draft of which is enclosed, which will ensure that each participant is supplied with a statement of such earnings for inclusion in his or her tax return. The draft Memorandum shows at Item 1, the number and value of Multiples as at the preceding December 31st, 1972. This has no relevance in this first year and will be omitted in the actual 1973 tax Memorandum. It was included in that draft to indicate the manner in which the mortgage earnings of each participant will be calculated year by year. Since the income quotient included in value at December 31st is constructive income and reportable for the year, it then forms part of the ‘capital’ investment cost for the ensuing year.

We have adopted this form of tax reporting, i.e. by way of Tax Memorandum, in respect of Syndicate Realty Trusts under our administration since 1963. As these "trusts" represent tenancies in common of the estate in revenue properties, and are not true trusts, the procedure would seem equally appropriate to a tenancy in common in which the underlying estate comprises a portfolio of mortgages. The participants are not beneficiaries of a trust, and form T.3 is therefore inappropriate.

The reply dated December 19, 1973, came from a special assistant to the then Minister of National Revenue and reads in part as follows:

You have also asked the manner in which earnings of the syndicate and their allocation to participants should be reported. You forwarded a form similar to one you have used for several years in respect of syndicates administered by you. The Head Office officials have further advised me that subsection 204(1) of the Income Tax Regulations would appear to apply to all syndicates under your administration. This subsection reads as follows:

204.(1) Every person having control of, or receiving income, gains or profits in a fiduciary capacity, or in a capacity analogous to a fiduciary capacity, shall make a return in prescribed form in respect thereof.

Forms T3 and T3 Supplementary comprise the return required by section 204 of the Regulations.

This successful period of nine years was followed by a succession of four years of losses. As a matter of fact, in 1982, G.M.S. suffered severe losses as a result of the impact of the major recession on the relatively speculative high- yielding operations made in Alberta and British Columbia from mid-1979. Several real estate projects financed through the G.M.S. failed completely resulting in the total loss of advances made under several of the mortgage loans. From January 1, 1982 to December 31, 1985 the G.M.S. units declined in reported value by $8.67 from $13.59 to $3.92 net of cash distributions in 1983 totalling $1 per unit. Each of the three appellants claimed his or her share of these losses in the years under appeal as business losses. Hence the present litigation.

The G.M.S. was placed in liquidation effective December 31, 1986. Its lending activities had been suspended some time before as it was realized that they would never be resumed.

The assets of the G.M.S. were mainly composed of lands which had been earlier financed for development as the mortgages had gone into default. Title to the various parcels of land still held on behalf of the G.M.S. had been obtained on foreclosure or by quit claim deeds from the mortgagors.

The respondent in reassessing the appellants disallowed the business losses claimed by each of the appellants in the years under appeal.

The key assumptions of the respondent are set out in the following subparagraphs (a), (b), (c), (d), (I) and (m) of paragraph 7 of the reply to notice of appeal in the case involving Monique C. Varelas. [2]

7. In reassessing the Appellant the Respondent relied upon, inter alia, the following assumptions:

(a) during the 1982, 1983, 1984 and 1985 taxation years, GMS was a unit trust as defined in the Income Tax Act, with Marlowe-Yeoman Investments Ltd. being the trustee, the Appellant as a unit holder being a beneficiary, and various mortgages on real estate (the "Mortgages") comprising the subject matter of the trust;

(b) at all relevant times the Mortgages were held by Marlowe-Yeoman Investments Ltd. for the use or benefit of the unit holders, including the Appellant, and the unit holders could have compelled Marlowe-Yeoman Investments Ltd. in a Court of Equity to hold the mortgages for their benefit;

(c) GMS was at all relevant times an inter vivos trust;

(d) the interest of each beneficiary of GMS, including the Appellant, was described by reference to "units" of the trust;

(l) during 1982, 1983, 1984 and 1985 neither GMS nor the Appellant was engaged in the business of trading in mortgages upon real estate, nor were they in the business of real estate development;

(m) the business loss claimed by GMS and flowed-through to, inter alia, the Appellant, was a loss incurred by a trust and not a loss incurred by a business and therefore was not capable of being passed on to the unit holders including the Appellant.

In his written argument, the appellants’ agent put forward in the following passages the most important points of his submission:

. . . I submit that there was no difference in principle between an investor who owned a number of "small" mortgages outright i.e. 100% of each, and another who might acquire a percentage interest in a number of larger loans structured as a legal tenancy-in-common through a vehicle normally described as a syndicate.

The syndication of "large" loans was conducted on a contractual basis with each individual client who agreed to acquire an undivided interest in the particular mortgage. I was fulfilling an agency role and adopted the syndicating process only because such mortgages were too large - and probably too speculative - for any one client. . . The "pooling" mechanism necessary for splitting up the ownership of “large” mortgages among individuals did not, in my submission, constitute a trust. And if the investor, by participating in a number of such syndicates, had established a “trading” status for tax purposes, then his losses would be properly deductible.

Each client was in contract with my company on terms that I would find suitable mortgages for the "pooled" fund in which he would hold multiples or units, that I would manage them in the broad sense of that word, and undertake the preparation of financial statements as though the participants were in business for tax purposes - as I believed them to be. Obviously, the RRSP investors were not in business because their status as taxpayers was irrelevant to the operation of their self-administered RRSPs. Their only concern was that their investment in mortgages, or interests therein, should be eligible for RRSP investment under the Income Tax Regulations. The business format of the syndicate accounting was a convenience for the tax-paying participants, and was also acceptable as a satisfactory manner of reporting to the trustees of the RRSPs.

I submit that there is no inconsistency in permitting RRSPs to participate in the GMS on the same basis as the investors. All were owners of undivided interests in a portfolio of mortgages. For the investors, the volume of mortgage transactions in which they participated, and their speculative nature, meant that their earnings were fully taxable - and their losses could be assumed to be fully deductible.

The activities of the GMS, if conducted by a single entity - whether with independent professional management or otherwise - would surely constitute a business enterprise or an adventure in the nature of trade.

I submit that if the ownership were fragmented among a number of investors, each holding an undivided share in the ownership of the mortgage portfolio, then each such investor would be engaged in business activity. He would be in business by virtue of his own mortgage holding, not because of his relationship with the other investors.

I also wish to explain one of the functions of the Marlowe and Yeoman companies which held titles to all the mortgages as nominee for, and to the direction of, the management company in the exercise of its management and control function. The companies may have been bare trustees of the title but would be comparable to a stock brokerage house which uses a nominee company to hold securities to facilitate the purchase, sale, and delivery of such securities in "street form". I submit that such a bare trustee or nominee would have no fiduciary obligation to an owner of the shares (or the mortgage in the subject case) other than to deal with them solely at the proper direction of the investor's broker or portfolio manager.

I drafted the GMS document and did not intend to create a trust. There is no trust agreement and no trustee and my investing clients would have no reason to think that they had become beneficiaries of a trust. I was their investment manager in respect of their participation in the ownership of a defined share in a large number of speculative mortgages.

I submit that syndicates, like partnerships, are not entities in themselves in law, but rather are "conduit pipes" linking the ownership of property - mortgages in the subject case - with the tax-paying investors on a "flow through" basis. A partnership is created by a form of contract between the intending partners; a syndicate is formed by a series of contracts between the syndicator and individual investors to accomplish a common purpose. The investors have no relationship inter se, and unlike partners, have no vicarious liability for the acts of the other investors. Apart from this distinction, I submit that syndicates are treated like partnerships for tax purposes and basically reflect the position that the members of both syndicates and partnerships are tenants-in-common in the ownership of their common properties.

Analysis

The issue can be narrowed down to the matter of the exact nature of the legal relationship governing the arrangements involving the G.M.S., Marlowe-Yeoman, Gulf Pacific and the property in question mainly in the form of mortgages. The agent for the appellants contended that the members of the G.M.S. were tenants in common with respect to the subject property. Counsel for the respondent submitted that the structure set up to manage the funds contributed by the members of the G.M.S. and the property derived from the use of those funds was a trust where the members of the Syndicate are both settlors and beneficiaries and Marlowe-Yeoman is the trustee.

Both the agent for the appellants and counsel for the respondent agreed that a partnership had not been created by the Memoranda of March 16, 1973 and January 10, 1979 referred to above addressed to the members of the G.M.S. Amongst other considerations, as between themselves, the members of the G.M.S. were not in a fiduciary relationship. Each member was not having regard to the factual situation in the present appeals, the agent of the other for the purpose of managing the subject property. The management of the property rested exclusively with Marlowe-Yeoman and Gulf Pacific and not with the individual investors.

I agree with counsel for the respondent that all the constituent elements of a trust can be found in the arrangements in existence during the years under appeal relating to the role of the G.M.S., Marlowe-Yeoman and Gulf Pacific respecting the management and disposition of the subject property.

In effect we have the duality of property ownership which is characteristic of a trust. It is common ground that the title of the property in question was in the hands of Marlowe-Yeoman.

A second requirement for the existence of the trust is the existence of a fiduciary relationship. In the present case, the subscriptions from the individual members of the G.M.S. were turned over to Marlowe-Yeoman on the understanding that they are to be used for the purpose of being invested in mortgages. In the present case, the management of the property was left to Marlowe-Yeoman, which in turn, had the assistance of Gulf Pacific, and not to the individual investors or members of the G.M.S. Mr. Lansdell testified, as mentioned earlier, that the directors of Marlowe-Yeoman were fulfilling a kind of watch-dog function for the benefit of the members of the G.M.S. Marlowe-Yeoman would act as the holder, recipient, manager and controller in respect of the funds received from the members of the G.M.S. and in respect of the property acquired with those funds. Gulf Pacific lent assistance to Marlowe-Yeoman and served as the operating arm in respect of the numerous transactions involving the acquisition of mortgages and other interests in property. As explained earlier, although Marlowe-Yeoman had no staff, it had a board of directors, a president and a secretary. It also had money, held title to the property and many of the operations were carried out in its name. Marlowe-Yeoman clearly had fiduciary obligations vis-a-vis the members of the Syndicate. It was to look after the investments of the members of the G.M.S. On the other hand, there was no evidence that there was any contractual obligation between the unit holders and Gulf Pacific.

As appears from the observations made in the preceding paragraph Marlowe-Yeoman was obviously the trustee in respect of the G.M.S.'s property.

On the whole of the evidence, I am of the view that we have here the four elements of the trust. The settlors and the beneficiaries were the members of G.M.S., the trustee was Marlowe-Yeoman, the existence of the fiduciary obligation imposed on the trustee has been established and the trust property were the funds received from the members of the G.M.S., and the mortgages and other interests in property acquired with these funds. I am also of the opinion that the three certainties—certainty of intention, certainty of subject-matter and certainty of objects—which are essential to the coming into existence of a trust can be found in the arrangements devised for the management of the subject property.

Counsel for the respondent admitted that in his view it does not matter whether we have here a unit trust, as assumed by the Minister, when reassessing the appellants or a trust other than a unit trust. The income tax result would be the same in the years under appeal.

As indicated earlier, Mr. Lansdell indicated the arrangements here, as far as the property is concerned, have established a tenancy in common relationship with respect to ownership of the property coupled with an agency agreement.

I do not agree with that characterization for a number of reasons. First the unit holders have no control over the property; it is out of their hands. If they were co-owners of the property, they could assume the management of the property. This was not possible here having regard to the terms of the offering memorandum dated March 16, 1973 and the restatement of the principles relative to the participation in the G.M.S. formulated in the memorandum of January 10, 1979. Secondly, if the investors were tenants in common in respect of the mortgages, they could not withdraw from the syndicate and be entitled upon 30 days' notice to an amount representing the value of their share without the consent of the other co-owners. Here there is a right of redemption on notice entitling them to the value of their share minus certain deductions. There was a provision in the contractual arrangements that if funds were lacking, payments will be made to withdrawing members in the order in which requests for redemption were received. There is the further point that this right of repayment was cancelled directly by Marlowe-Yeoman in October 1981, without securing the consent of the members of the Syndicate. If they were co-owners, how could this be done? The arrangements I have just described are inconsistent with the notion that members of the Syndicate were tenants in common in respect of the property to which Marlowe-Yeoman had title.

On the other hand, as indicated earlier, the nature of the arrangements described above is entirely consonant with the existence of a trust.

It was not disputed by the agent for the appellants that if the arrangements involving the members of G.M.S. and Marlowe-Yeoman and the property in question constitute a trust the share of the appellants' losses could not [be] deducted in the computation in their respective incomes.

It may well be that this conclusion denying the appellants the benefit of the deduction of losses in the years under appeal would lead to an unfair result as far as they are concerned because they had — probably erroneously—included in their own income their proportional share of the profits of the G.M.S. in those seven years in respect of which the operations of the G.M.S. were successful. Although I cannot deal with the tax treatment of the profits made by the G.M.S. during those seven years, since there are no appeals before the Court in respect of such years, I am inclined to the view that the trust—and not the members of the G.M.S.—was taxable in respect of such profits having regard to the provisions of subsection 104(6) of the Income Tax Act. In this respect, I am not overlooking the broad definition of the concept of “amount payable" in subsection 104(24) of the Act. Whatever may be the result for the appellants for the totality of the years in respect of the period beginning in 1973, I am compelled to find that the appellants were properly reassessed during the years under appeal.

I have therefore come to the conclusion that the appeals should be dismissed.

Appeals dismissed.