Goetz,
T.C.J.:—The
appellant,
in
computing
his
income
for
his
1979
taxation
year,
sought
to
deduct
certain
expenses
relating
to
"soft
costs"
in
a
multiple-unit
residential
building
project
known
as
"Cambridge
Place”.
These
initial
costs
were
incurred
by
a
management
company
in
preparing
and
offering
the
project
for
sale
to
potential
investors.
The
Minister
in
reassessing
the
appellant
disallowed
certain
of
these
expenses
on
the
grounds
that
the
expenses
were
incurred
prior
to
the
appellant
acquiring
an
interest
in
the
project
and
that
they
were
capital
costs
that
were
not
deductible
as
a
business
expense
of
the
appellant.
The
appellant
now
appeals
against
this
assessment.
The
facts
are
set
out
fully
in
the
agreed
statement
of
facts
as
filed.
Agreed
Statement
of
Facts
For
the
purpose
of
this
Appeal
(before
the
Tax
Court
of
Canada
only
and
not
binding
the
parties
in
the
event
of
any
further
appeal
in
this
matter),
the
Parties
hereby
agree
to
the
following
facts:
1.
In
computing
his
income
for
the
1979
taxation
year,
the
Appellant
sought
to
deduct
the
amount
of
$8,418.58
representing
his
purported
share
of
business
expenses
incurred
in
respect
of
his
involvement
as
an
Investor
in
Property
Investment
Project
79-1
Cambridge
Place
(hereinafter
referred
to
as
"the
project”)
calculated
as
follows:
|
Revenues
of
the
project
|
$111,435.00
|
|
(1)
Expenses
of
the
project-
|
|
|
Interest
on
Mortgages
|
$
81,137.00
|
|
Property
Taxes
|
41,643.00
|
|
Interest
and
Bank
Charges
|
1,887.00
|
|
Administration
Fees
|
7,465.00
|
|
Repairs
and
Maintenance
|
3,192.00
|
|
Wages
|
251.00
|
|
Audit
Fees
|
800.00
|
|
$136,375.00
|
|
Net
loss
|
$
24,940.00
|
|
(2)
Expenses
of
the
project-
|
|
|
Incurred
for
sales
Commissions
on
offering,
|
|
|
offering
costs,
working
capital
commitment
and
|
|
|
mortgage
negotiations
and
financing
|
$610,455.00
|
|
Net
loss
for
tax
purposes
|
$635,395.00
|
|
Appellant's
share
(.54%)
|
$
3,431.13
|
|
Accounting
Fees
|
95.00
|
|
Appellant's
share
of
C.C.A.
|
4,892.45
|
|
$
8,418.58
|
2.
By
Notice
of
Reassessment
dated
October
30,
1985
the
Minister
of
National
Revenue
hereinafter
referred
to
as
(the
"Minister")
reassessed
the
Appellant
to
disallow
the
amount
of
$3,408.89
of
the
expenses
claimed
by
the
Appellant
in
respect
of
his
involvement
in
the
project
calculated
as
follows:
|
Duplicate
property
taxes
disallow
(same
as
above
|
|
|
Expenses
(1))
|
$
20,821.53
|
|
Appellant's
share
(.54%)
|
$
|
112.43
|
|
Pre-investors
soft
costs
disallowed
(same
as
above
|
|
|
Expenses
(2))
|
|
|
Offering
Sales
Commissions
|
$222,160.00
|
|
|
Offering
Costs
|
129,400.00
|
|
|
Mortgage
Fees-1st
|
103,845.00
|
|
|
-2nd
|
35,050.00
|
|
|
Working
Capital
Commitment
|
60,000.00
|
|
|
Prospectus
Preparation
Fees
|
60,000.00
|
|
|
$610,455.00
|
|
|
Appellant's
share
(.54%)
|
$
3,296.46
|
|
Total
disallowed
|
$
3,408.89
|
3.
In
assessing
the
Appellant,
the
Minister
presumed,
inter
alia,
the
following
facts:
(a)
the
initial
costs
referred
to
in
paragraph
2
hereof
were
in
effect
expenses
incurred
by
the
management
company
prior
to
the
date
at
which
the
Appellant
acquired
an
interest
in
the
project
and
accordingly
were
not
expenses
incurred
by
the
Appellant
for
the
purpose
of
gaining
or
producing
income;
(b)
the
initial
costs
were
on
account
of
capital
and
represented
part
of
the
capital
cost
of
the
project
and
were
not
deductible
as
a
business
expense
of
the
Appellant;
(c)
property
tax
was
not
$41,643.00
as
set
out
in
the
Statement
of
Loss
of
the
project,
but
was
in
fact
$20,821.47
and
accordingly
the
amount
claimed
by
the
Appellant
as
an
expense
in
respect
of
his
proportionate
share
of
property
tax
was
reduced
by
$112.43.
4.
The
details
of
the
project
are:
(a)
a
Multiple-Unit
Residential
Building
(MURB)
Certificate
for
the
project
was
issued
by
the
Central
Mortgage
and
Housing
Corporation
on
February
26,
1975;
(b)
it
consisted
of
the
ownership
and
operation
of
a
22-floor
tower
high-rise
apartment
building
which
has
573
residential
units
as
well
as
commercial
and
office
space
in
the
lobby
and
basement
levels
and
which
is
located
at
30
Denton
and
Macey
Avenues,
Scarborough,
Ontario
known
as
"Cambridge
Place";
(c)
Cambridge
Place
was
completed
during
December
1977
and
was
initially
owned
by
Heathcliffe
Developments
Ltd.
(hereinafter
referred
to
as
"Heath-
cliffe");
(d)
by
Offer
to
Purchase/Agreement
of
Purchase
and
Sale
dated
March
20,
1979
and
by
Amendment
to
Agreement
of
Purchase
of
Sale
dated
August
28,
1979
Gilbert
Grisé,
in
trust,
agreed
to
purchase
the
project
from
Heathcliffe;
(copy
of
the
Offer
to
Purchase/Agreement
of
Purchase
and
Sale
dated
March
16,
1979
with
the
Amendment
dated
August
28,
1979
are
filed
en
liasse
herewith
as
Exhibit
A-1).
(e)
On
November
6,
1979
the
brokerage
firm
of
Grenier,
Ruel
&
Cie
Inc.
of
Montréal
issued
a
prospectus
to
the
public
in
respect
of
investment
in
the
project
and
units
of
the
project
were
offered
to
investors
during
November
and
December
1979,
on,
inter
alia,
the
following
terms:
(i)
G.
Grisé
Real
Estate
Co.
Ltd.
was
to
act
as
agent
for
the
investors
by
holding
title
to
the
project
through
an
Ontario
corporation
called
G.
Grisé
Real
Estate
Holdings
Inc.
entering
into
all
agreements
and
mortgages
referred
to
in
the
prospectus;
(ii)
the
project
was
to
be
operated
pursuant
to
an
agreement,
"the
Investor's
Agreement"
between
the
investors,
G.
Grisé
Real
Estate
Co.
Ltd.
as
agent
for
the
investors
and
G.
Grisé
Real
Estate
Holdings
Inc.
(the
registered
owner);
(iii)
the
project
was
to
be
managed
by
Grisé
Management
Co.
Ltd.
(hereinafter
referred
to
as
"the
management
company")
who
charged
a
fee
of
6%
of
the
gross
revenues
collected
for
each
year
of
operation
of
the
project
as
management
fees;
(iv)
ownership
of
the
property
was
divided
into
2777
units
of
undivided
beneficial
ownership;
(v)
the
relationship
of
the
investors
to
each
other
and
to
theproject
was
to
be
that
of
undivided
owners
of
the
real
property
held
on
their
behalf
by
the
registered
owner
with
each
investor
holding
an
undivided
1/2777
beneficial
interest
in
the
project
for
each
unit
held;
(vi)
a
minimum
initial
subscription
of
5
units
at
$1,000.00
per
unit
plus
proportionate
responsibility
for
mortgage
obligations
not
exceeding
$5,996.00
per
unit
($28,980.00
for
a
minimum
investment
of
5
units)
was
required
of
each
investor;
(vii)
in
preparing
and
offering
the
project
for
sale
to
the
investors
certain
initial
"soft
cost"
of
an
aggregate
amount
of
$610,455.00
had
been
incurred
by
the
management
company
as
detailed
in
paragraph
2
herein;
(copy
of
the
prospectus
is
filed
herewith
as
Exhibit
A-2).
(f)
it
is
generally
agreed
by
the
parties
that
the
transactions
took
place
as
described
in
the
prospectus.
5.
During
November
or
December
1979,
192
persons,
including
the
Appellant
offered
to
purchase
units
in
the
project;
(copy
of
a
subscription
form
and
a
typical
Investor's
Agreement
are
filed
herewith
en
liasse
as
Exhibit
A-3).
6.
On
or
about
December
21,
1979,
after
all
units
of
the
project
had
been
subscribed,
closing
date
agreement
was
signed
between
Gilbert
Grisé
in
trust
and
Heathcliffe
for
acquisition
of
the
project;
(copy
of
the
Act
of
transfer
between
Gilbert
Grisé
in
trust
and
Heathcliffe
is
filed
herewith
as
Exhibit
A-4).
7.
On
April
9,
1980
Gilbert
Grisé
in
trust
transferred
registration
of
ownership
to
Gilbert
Grisé
Real
Estate
Holdings
Inc.
The
appellant
put
forward
three
main
arguments
in
support
of
his
position.
First,
he
argued
that
the
promoter
(the
agent)
incurred
expenses
on
behalf
of
the
future
syndicate
(the
future
principal)
and
the
investors,
as
members
of
the
syndicate,
are
thus
entitled
to
deduct
these
amounts.
No
agency
argument
can
be
made
out,
in
this
case,
for
the
simple
reason
that,
at
the
time
Grisé
Management
Co.
(GM)
incurred
the
soft
costs,
no
principal
(syndicate),
on
behalf
of
which
such
expenses
were
allegedly
made,
existed.
The
case
of
Edwards
Real
Estate
Ltd.
v.
Bamtar
Holdings
Ltd.
(1978),
11
A.R.
(2d)
589
is
directly
on
point
and
at
589-91
Dea,
D.C.].
stated:
The
defendant
listed
its
real
property
for
sale
with
the
plaintiff
real
estate
company.
The
listing
agreement
is
dated
the
26th
of
March,
1975,
and
was
to
expire
on
the
15th
of
September,
1975.
The
employee
of
the
plaintiff
who
dealt
with
the
defendant
was
Les
Edwards,
a
real
estate
salesman
and
the
controlling
shareholder
of
the
plaintiff.
Early
attempts
made
by
the
plaintiff
to
find
a
buyer
for
the
land
were
without
success.
Discussions
between
the
defendant
and
the
plaintiff
suggested
that
a
sale
might
be
effected
if
a
group
of
buyers
rather
than
a
single
buyer
could
be
found
to
make
an
offer
of
purchase.
The
plaintiff
attempted
to
find
such
a
group
of
investors
to
purchase
the
property
and
to
organize
them
into
a
syndicate.
On
the
18th
of
August,
1975,
an
offer
in
writing
to
purchase
the
land
was
made
to
the
defendant
and
accepted
by
the
defendant
the
same
day.
The
purchaser
was
"L.
Edwards
on
Behalf
of
Investment
Group”.
The
evidence
is
uncontroverted
that
on
the
18th
of
August,
1975
there
was
no
"investment
group”
in
existence.
Subsequently,
Edwards
lined
up
some
investors
to
join
in
on
a
syndicate
but
no
written
syndicate
agreement
was
executed.
The
case
for
the
plaintiff
is
that
it,
in
accordance
with
the
listing
agreement,
produced
to
the
defendant
within
the
term
of
the
listing
agreement
a
buyer
ready,
willing
and
able
to
purchase
the
listed
property.
But
who
is
the
buyer?
The
first
issue
before
me
is
to
determine
the
identity
of
the
buyer.
Les
Edwards
shows
himself
on
the
sale
agreement
as
the
representative
of
an
investment
group.
In
fact
there
was
no
investment
group.
This
is
not
the
case
of
an
unnamed
principal
or
even
of
an
undisclosed
principal
but
instead
the
case
of
a
non-existing
principal.
In
my
view,
the
fact
that
Edwards
was
subsequently
successful
in
finding
investors
does
not
change
the
situation.
Those
persons
cannot
ratify
a
contract
made
by
Edwards
prior
to
the
time
that
Edwards
became
their
agent.
In
The
Law
of
Agency
by
Fridman,
at
pg.
43
the
author
paraphrases
the
three
conditions
given
by
Wright,
J.,
in
Firth
v.
Staines,
[1897]
2
Q.B.
70
as
prerequisites
for
valid
ratification
(page
43
of
Fridman):
.
.
.
first,
the
agent
whose
act
is
sought
to
be
ratified
must
have
purported
to
act
for
the
principal.
Secondly,
at
the
time
the
act
was
done
the
agent
must
have
had
a
competent
principal.Thirdly,
at
the
time
of
the
ratification
the
principal
must
be
legally
capable
of
doing
the
act
in
question
himself.
Further
on
that
page,
the
author
states:
The
principal
must
be
in
existence
at
the
time
the
act
was
done
by
the
agent.
No
one
can
purport
to
act
as
an
agent
for
a
person
who
will
come
into
existence
at
some
future
date
even
if
the
agent
can
reasonably
expect
that
his
act
will
be
adopted.
“Ratification
can
only
be
.
..
by
a
person
in
existence
either
actually
or
in
contemplation
of
law.”
This
means
that
the
principal
must
be
a
live
human
being
or
a
juristic
person.
Accordingly,
it
is
my
view
that
insofar
as
the
claim
of
the
plaintiff
is
based
on
the
proposition
that
the"
investment
group”
is
a
buyer
ready,
willing
and
able,
that
the
claim
must
fail
as
at
18
August,
1975
the
"investment
group”
did
not
exist
and
any
subsequent
purported
ratification
is
not
effective.
Similarly,
GM
incurred
soft
costs
on
behalf
of
a
syndicate
of
investors
which
did
not
exist
at
the
time
such
expenses
were
made.
Because
the
syndicate
did
not
exist
at
the
relevant
time,
then
it
cannot
ratify
GM's
acts
and,
therefore,
cannot
deduct
any
expenses
claimed
to
have
been
incurred
on
its
behalf
(of
course,
the
same
applies
to
the
investors
who
comprise
the
syndicate).
Most
helpful
is
a
statement
of
Brulé,
T.C.J.
in
Ryan
v.
M.N.R.,
[1986]
1
C.T.C.
2142;
86
D.T.C.
1108
at
2147
(D.T.C.
1111):
It
does
not
seem
logical
to
say
the
costs
were
being
incurred
on
behalf
of
ultimate
investors.
These
people
were
not
known
at
the
time
many
of
the
costs
were
ordered.
One
could
ask:
“What
could
happen
if
it
turned
out
that
no
investors
were
found?”
The
Rockland
Development
partnership
would
have
to
pay
the
cost.
Therefore,
because
of
the
lack
of
a
principal
at
the
time
the
expenses
were
made,
the
agency
argument
must
fail.
Secondly,
the
appellant
argues
that
since
expenses
incurred
on
behalf
of
a
company
to
be
floated
are
subsequently
deductible
by
the
company
when
ratified,
then,
by
analogy,
the
same
should
apply
to
expenses
incurred
on
behalf
of
a
syndicate
to
be
formed
later.
This
argument
differs
from
the
agency
argument
in
that,
at
least
in
theory,
its
validity
does
not
depend
on
the
existence
of
a
corporation
or
syndicate
at
the
time
the
soft
costs
were
incurred:
It
is,
however,
well
settled
that
if
the
promoters
of
a
company
buy
a
property
or
carry
on
a
business
on
behalf
of
a
company
which
they
intend
to
float,
on
the
incorporation
of
the
company,
the
company
has
a
right
to
either
accept
what
has
been
done
on
its
behalf
by
the
promoters
or
repudiate
the
same
.
.
.
The
question
whether
the
promoters
can
be
said
to
be
trustees
for
a
company
not
in
existence
and
what
exactly
is
the
relationship
between
a
promoter
and
a
company,
which
comes
into
existence
later,
has
been
the
subject-matter
of
several
decisions.
Though,
strictly
speaking,
it
cannot
be
said
that
a
person
is
a
trustee
for
a
beneficiary
not
in
existence,
it
has
been
held
that,
on
the
company
being
floated,
the
relationship
between
a
promoter
and
the
company
that
he
has
floated
must
be
deemed
to
be
a
fiduciary
relationship
from
the
day
the
work
of
floating
the
company
had
been
started.
In
Lydney
and
Wigpool
Iron
Ore
Company
v.
Bird
Lord
Justice
Lindley
said
that
although
the
promoter
is
"not
an
agent
of
the
company
nor
a
trustee
for
it
before
its
formation,
the
old
familiar
principles
of
the
law
of
agency
and
of
trusteeship
have
been
extended,
and
very
properly
extended,
to
meet
such
cases;
and
using
the
word
‘promoter’
to
describe
a
person
acting
as
James
Bird
did,
it
is
perfectly
well
settled
that
a
promoter
of
a
company
is
accountable
to
it
for
all
moneys
secretly
obtained
by
him
from
it
just
as
if
the
relationship
of
principal
and
agent
or
of
trustee
and
cestui
que
trust
had
really
existed
between
them
and
the
company
when
the
money
was
so
obtained.”
C.I.R.
v.
Bijli
Cotton
Mills
Ltd.
(1953),
23
I.T.R.
278
at
283-84
(Allahabad
High
Court).
It
is
proper
to
simply
transpose
the
law
regarding
pre-incorporation
transactions
to
a
pre-syndication
situation.
I
believe
that
this
would
be
improper
for
several
reasons:
First,
the
general
rule
is
that
“The
principal
must
be
in
existence
at
the
time
the
act
was
done
by
the
agent
(Fridman,
Fridman's
Law
of
Agency,
5th
ed.
(1983),
page
74).
Otherwise,
such
act
cannot
be
ratified.
As
has
been
seen,
this
rule
applies
to
an
"agent's"
transactions
on
behalf
of
a
future
syndicate
(Edwards
Real
Estate
Ltd.,
supra)
and,
contrary
to
the
statement
by
the
Allahabad
High
Court
above,
normally
applies
to
an
agent's
transactions
on
behalf
of
a
company
to
be
formed:
The
subsequent
ratification
of
pre-incorporation
contracts
is
an
exception
to
the
general
rule.
The
legal
basis
for
the
ratification,
by
future
corporations,
of
acts
done
on
their
behalf,
rests
primarily
with
the
various
Corporations
Acts.
As
a
result,
Revenue
Canada,
Taxation
has
based
its
policy
of
accepting
post-incorporation
ratifications,
for
tax
purposes,
on
these
specific
statutory
provisions
(see
IT-454).
It
follows
that
since
there
is
no
specific
statutory
or,
for
that
matter,
general
common
law
authority
permitting
the
ratification
of
pre-syndication
expenses,
then
no
such
ratification
is
possible
for
purposes
of
income
tax
or
otherwise.
Secondly,
and
quite
simply,
a
corporation
is
a
legal
entity
whereas
a
syndicate
is
not
(Romano
v.
M.N.R.
(1966),
Tax
A.B.C.
302;
66
D.T.C.
490)
and,
therefore,
they
needn't
be
treated
similarly
for
tax
purposes
or
otherwise.
Thirdly,
a
corporation
can
always
be
floated
by
its
promoter—that
is
not
so
in
the
case
of
a
syndicate
whose
very
existence
depends
on
the
volition
of
the
individual
investors
who
comprise
it.
Hence
Brulé,
T.C.J’s
query
in
Ryan,
supra:
"What
could
happen
if
it
turned
out
that
no
investors
were
found?"
The
answer
is
simple:
There
would
have
been
no
syndicate
and
thus,
no
deductions
under
paragraph
20(1)(e).
For
these
reasons,
I
would
not
extend
the
so-called
pre-incorporation
exception
to
the
situation
where
expenses
are
incurred
on
behalf
of
a
future
syndicate.
In
his
third
argument
the
appellant
claims
that
the
Minister's
interpretation
of
paragraph
20(1)(e)
of
the
Act
runs
contrary
to
the
object
and
spirit
of
that
provision
and
leads
to
an
absurdity.
Such
interpretative
arguments
are
unhelpful
unless
we
can
point
to
an
ambiguity
in
paragraph
20(1)(e)
of
the
Act.
Where
words
are
ambiguous,
the
courts
select
that
interpretation
which
best
promotes
the
smooth
working
of
the
system
and
avoid
an
interpretation
that
produces
an
absurd,
unjust,
anomalous
or
inconvenient
result.
It
warrants
emphasis,
however,
that
courts
only
avoid
interpretations
that
produce
absurd,
inconvenient
and
unjust
results
where
the
words
used
in
a
statutory
provision
are
ambiguous.
Where
the
statutory
language
is
clear
and
unambiguous,
a
court
will
usually
follow
it
even
if
the
result
of
such
an
interpretation
is
absurd,
anomalous
or
inconvenient.
To
do
otherwise
would
have
the
judiciary
usurp
the
function
of
the
legislature.
Krishna,
The
Fundamentals
of
Canadian
Income
Tax,
3rd
ed.
(1989),
pages
43-44,
Is
there
an
ambiguity
in
paragraph
20(1)(e)?
Do
the
words
admit
of
two
interpretations?
No
matter
the
definition
we
give
to
the
word
syndicate”,
the
fact
remains
that
paragraph
20(1)(e)
clearly
provides
that
a
syndicate
must
exist
at
the
time
the
financing
expenses
are
made
in
order
that
a
deduction
be
granted.
There
may
be
deducted:
2O.(1)(e)
Expenses
of
issuing
or
selling
units,
interests
or
shares
or
borrowing
money.—
an
expense
incurred
in
the
year
(i)
in
the
course
of
issuing
or
selling
units
of
the
taxpayer
where
the
taxpayer
is
a
unit
trust,
interests
in
a
partnership
or
syndicate
by
the
partnership
or
syndicate,
as
the
case
may
be,
or
shares
of
the
capital
stock
of
the
taxpayer,
or.
.
.
Both
the
Minister
and
the
appellant
agree
that
no
syndicate
existed
at
the
time
the
expenses
were
incurred
and,
therefore,
no
deduction
is
available
to
the
appellant
under
paragraph
20(1)(e)
of
the
Act,
even
if
this
result
can
be
said
to
lead
to
an
absurdity.
Although
several
cases
were
cited
at
the
Court
in
authority
for
various
positions,
the
most
helpful
judgment
is
that
of
Ryan,
supra,
a
judgment
of
my
learned
colleague
Brulé,
T.C.J.
At
page
2144
(D.T.C.
1109)
of
that
judgment
he
says:
For
a
trust
to
be
created
there
is
no
need
for
any
technical
words
or
expressions.
It
must
be
established
that
the
person
involved
had
an
intention
to
create
a
trust,
that
the
subject
matter
of
the
trust
be
in
existence
and
identifiable
and
that
the
objects
of
the
trusts
or
beneficiaries
may
be
ascertainable.
To
be
ascertainable
these
objects
must
be
capable
of
being
determined
by
name
or
by
class,
and
if
by
class
the
totality
of
the
membership
of
the
class
must
be
known.
Brulé,
T.C.J.
states
at
page
2147
(D.T.C.
Tm):
In
the
alternative
it
was
suggested
that
the
promoter
incurred
these
expenses
on
behalf
of
a
group
to
be
identified
later
and
to
be
paid
by
them
after
they
formally
became
investors.
It
does
not
seem
logical
to
say
the
costs
were
being
incurred
on
behalf
of
ultimate
investors.
These
people
were
not
known
at
the
time
many
of
the
costs
were
ordered.
The
associate
must
be
developing
the
property
to
qualify
for
"soft
costs”,
not
merely
agreeing
to
pay
for
these
after
he
obtains
an
interest
in
the
Project.
Before
the
joint
venture
agreement
is
signed
he
has
no
obligation
vis-a-vis
the
“
soft
costs”.
The
appellant
fails
on
his
three
main
arguments
and
the
appeal
is
dismissed.
Appeal
dismissed.
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