Besse v. Minister of National Revenue, [1996] 1 CTC 32, 95 DTC 5208

Teitelbaum J.:— This is an appeal from a reassessment of income tax wherein the Minister of National Revenue (the Minister) disallowed certain expenses related to initial costs and property taxes of Property Investment Project 79-1, Cambridge Place, an investment that qualified as a multipleunit residential building (MURB), claimed by the plaintiff in respect of his 1979 taxation year.

For the purpose of this action, the parties have agreed to the following facts:

1. In computing his income for the 1979 taxation year, the plaintiff sought to deduct an amount of $8,418.58 representing his purported share of business expenses incurred with 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	$ 635,395.00
Plaintiff’s share (.54%)	$	3,431.13
Accounting Fee		95.00
Plaintiff’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 plaintiff to disallow the amount of $3,408.89 of the expenses claimed by the plaintiff in respect of his involvement in the project calculated as follows:

Duplicate property taxes disallowed
(same as above Expenses (1))	$	20,821.53
Plaintiff’s share (.54%)	$	112.43
(Plaintiff agrees that he duplicated
this claim)
Pre-investors soft costs disallowed
(same as above Expenses (2))
Offering Sales Commissions	$ 222,160.00
Offering Costs		129,400.00

Mortgage Fees

3. In reassessing the plaintiff, 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 plaintiff;

(c) property tax was not $41,636 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 plaintiff as an expense in respect of his proportionate share of property tax was reduced by $112.43.

4. The details of the project were:

(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 “Heathcliffe”);

(d) by offer to purchase/agreement of purchase and sale dated March 20, 1979 and by amendment to agreement of purchase and sale dated August 28, 1979 Gilbert Grisé, in trust, agreed to purchase the project from Heathcliffe;

(Copy of the offer the offer to purchase/agreement to purchase and sale is filed 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 six per cent 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 the project 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 five units at $1,000 per unit plus proportionate responsibility for mortgage obligations not exceeding $5,966 per unit ($28,980 for a minimum investment of five units) was required of each investor;

(vii) in preparing and offering the project for sale to the investors certain “soft costs” of an aggregate amount of $610,455 had been incurred as detailed in paragraph 2 herein;

(Copy of the prospectus is filed herewith as Exhibit A-2.)

5. It is generally agreed by the parties that the transaction took place as described in the prospectus.

6. During November and December 1979, 192 persons, including the plaintiff offered to purchase units in the project;

(Copy of a subscription form and a typical investor’s agreement is filed herewith as Exhibit A-3.)

7. On 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.)

8. On April 9, 1980 Gilbert Grisé in trust transferred registration of ownership to Gilbert Grisé Real Estate Holdings Inc;

(Copy of the act of transfer between Gilbert Grisé in trust and Gilbert Grisé Real Estate Holdings Inc. is filed herewith as Exhibit A-5.)

On January 21, 1986, the plaintiff filed a notice of objection in respect of the reassessment, which was dated October 30, 1985.

On August 16, 1988, the Minister confirmed the reassessment by notice of confirmation.

On October 21, 1988, the plaintiff appealed the reassessment to the Tax Court of Canada. By decision dated November 7, 1990, the Tax Court of Canada dismissed the plaintiffs appeal against the reassessment.

The plaintiff maintained that the expenses at issue, namely the preinvestor soft costs referred to in paragraph 2 of the agreed statement of facts, were properly deductible under paragraph 20(1 )(e) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the “Act”). As I understand the plaintiff’s position, the plaintiff essentially argued that as the promoter incurred the expenses on behalf of the future syndicate, the investors, as members of the syndicate, were entitled to deduct these amounts. Therefore, the plaintiff as an investor and member of the syndicate was entitled to deduct his portion of the expenses. The plaintiff also argued that the Minister’s interpretation of paragraph 20(1 )(e) runs contrary to the object and spirit of the provision.

The defendant was of the view that the expenses in issue were not expenses incurred in the year in the course of selling interests in a partnership or syndicate by the partnership or syndicate within the meaning of paragraph 20(1 )(e) of the Act. Further, the defendant submitted that these initial costs formed part of the purchase price and therefore were outlays or expenses on account of capital within the meaning of paragraph 18(1 )(b) of the Act.

At the time relevant to this appeal, paragraph 20(1 )(e) of the Act read as follows:

20(1) Notwithstanding paragraphs 18(l)(a), (b), and (h), in computing a taxpayer’s income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(e) 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

(ii) in the course of borrowing money used by the taxpayer for the purpose of earning income from a business or property (other than money used by the taxpayer for the purpose of acquiring property the income from which would be exempt),

including a commission, fee or other amount paid or payable for or on account of services rendered by a person as a salesman, agent or dealer in securities in the course of issuing or selling the units, interests or shares or borrowing the money, but not including any amount paid or payable as or on account of the principal amount of the indebtedness or as or on account of interest;

As noted earlier, the amount in issue related to the pre-investor soft costs, and included expenses incurred for the sales commission on offering, offering costs, working capital commitment and mortgage negotiations and financing; and prospectus preparation fees. The plaintiff did not dispute that these expenses were capital in nature, but maintained they were deductible by virtue of paragraph 20(1 )(e).

I now turn to a more detailed review of the relevant documents and agreements. Gilbert Grisé in trust, offered to purchase from Heathcliffe the property known as Cambridge Place for $18,500,000. According to the agreement of purchase and sale, $10,000 was to be paid immediately to the vendor’s solicitor and a deposit of $30,000 was to be paid by the purchaser on August 15, 1979. The agreement was to be completed on or before December 3, 1979. The agreement was signed on March 24, 1979 although dated March 10, 1979. An amendment to the agreement, dated August 28, 1979, provided that the parties agreed that the agreement would be amended to allow the purchaser at his option to extend the closing date to December 20, 1980.

On November 6, 1979, the brokerage firm of Grenier, Ruel & Cie Inc. issued a prospectus to the public in respect of the investment in the project. According to the prospectus, ownership of the project was to be divided into 2777 units of undivided beneficial ownership. As the registered owner of the project, G.Grisé Real Estate Holdings Inc. was to act solely upon the instructions of G. Grisé Real Estate Co. Ltd., the agent for the investors. As noted above, each unit of beneficial ownership consisted of a 1/2777 undivided interest in the project.

The minimum investor subscription was for five units, at a price of $1,000 per unit, plus the proportionate responsibility for the mortgage, not to exceed $5,996 per unit. Therefore, a minimum investment of $29,980 for five units was required of each investor. Further, according to the prospectus, the units of beneficial ownership offered were undivided fractional interests in the project and the relationship of the unit holders was to be governed by the laws of the Province of Quebec under the investors agreement. The prospectus provided that if at the closing date, as defined in the investors’ agreement, (December 18, 1979) all the units were sold, the sum of $2,777,000 “(which shall then have been entrusted with Grenier, Ruel & Cie Inc., registered brokers), shall be applied in the manner provided hereafter under the heading ‘use of proceeds’ and the investors’ agreement shall then have force and effect”.

Under the heading ’’use of proceeds” the following was provided:

The gross proceeds from the sale of units offered by this prospectus will be $2,777,000. After deduction of the sales commission of $222,160 [of the per unit price of $1,000, $80 was applied as sales commission] and the expenses of the offering estimated at $129,400, the approximate net proceeds of the offering will be $2,425,440. The said approximate net proceeds shall be used as follows:

(i) $1,850,000 representing 10 per cent of the purchase price (1) will be paid to Heathcliffe Developments Ltd. (the vendors) to purchase the investment property;

(ii) $305,000 shall be remitted to Grise Management as fees for the organization of the project and for supplying working capital up to the extent of $200,000 (as defined hereafter in this prospectus under the heading “services provided by Grise Management”) as well as fees pertaining to the negotiation of the mortgages;

It should be noted that the $305,000 paid to Grisé Management Co. Ltd. for services related to the negotiating purchase price and the first mortgage financing, formed part of the $610,000 at issue, the plaintiffs share being $3,296.46.

According to the prospectus, Grisé Management Co. Ltd. was to manage the project, and received for its management services 6 per cent of the gross revenues of the project for each year of operation. The “management agreement” appointing Grisé Management Co. Ltd. was made between Grisé Management Co. Ltd. and Grisé Real Estate Co. Ltd. (the appointer). As I understand the plaintiffs argument, Grisé Management Co. Ltd. was acting as an agent.

Through the purchase agreement, G. Grisé Real Estate Co. Ltd., as agent for the investors, was to enter into a purchase agreement with Heathcliffe to provide for the purchase of the project. Subject to certain conditions precedent, the purchase agreement was to be entered into on December 18, 1979.

Also, according to the prospectus, as of the “closing date” defined in the investors’ agreement (December 18, 1979), Grisé Real Estate Co. Ltd. was to be appointed to act on behalf of the investors to purchase the investment property.

The “plan of distribution” provided as follows:

2777 units at the price of $1,000 per unit, will be offered to the public in the Province of Quebec. Under an agreement between Grisé Management Co. Ltd. and Grenier Ruel & Cie Inc. (the “sales agents”), the sales agents have agreed to use their best efforts to obtain subscriptions for the purchase of 2777

units. Grisé Management shall pay a commission of $80 per unit sold to Grenier Ruel.

[Emphasis added.]

All moneys received from subscription for units offered hereby will be deposited and held by Grenier, Ruel & Cie Inc. as depository, to be disposed of in the following manner.

If subscriptions for a total of 2777 units have not been received by December 18, 1979 (the “closing date”) all moneys will then be returned to the subscribers without deduction of any kind and without interest.

If, on the contrary, all units have been subscribed for by December 1, 1979 Grenier Ruel & Cie Inc. will pay to G. Grisé Real Estate (the agent) all the moneys received from subscriptions for units offered hereby after deduction of Grenier Ruel’s commission and organization fees payable to Grisé Management in the aggregate amount of $305,000 as defined in this prospectus [at page 21] under the heading “services provided by Grisé”.

As noted earlier, the offering sales commission was calculated by multiplying $80 by 2777 units, for a total of $222,160.

According to the investors’ agreement, between Grisé Real Estate Co. Ltd. (agent), the investors and Grisé Real Estate Holdings Inc. (the registered owner), the investors appointed the agent, Grisé Real Estate Co. Ltd., to act as their agent and attorney to act on their behalf in accordance with the agreement or in accordance with their directions. Further, the agent was to receive reimbursement for reasonable expenses incurred by it with the performance of its duties plus annual compensation.

In his argument, counsel for the plaintiff indicated that there are two types of expenses at issue. The first, the “offering sales commission” and the “offering costs” were payable from investor funds and were paid or payable on account of services rendered by the agent, and therefore fall within the ambit of paragraph 20(1)(e). With respect to the other expenses at issue, counsel for the plaintiff recognized that these expenses were incurred by Grisé Management before the formation of the syndicate. As I understand, there are two arguments in respect of these expenses. The first relates to an interpretation of the words of paragraph 20(1 )(e) in light of the “object and spirit” of the law and the second is a more technical argument.

With respect to the syndicate, the plaintiff submitted that a syndicate is an association of individuals formed for the purpose of conducting and carrying out some particular business transaction in which the members have a mutual interest. According to the plaintiff, a syndicate does not denote a separate entity in the law. Therefore, any reference to an interest in a syndicate can only mean an interest in the combined assets of the syndicate. In this case, the plaintiff became one of a group of investors, the purpose of which was to hold an “individual interest in a building”. As such, the plaintiff was part of a syndicate.

Counsel for the plaintiff also attempted to argue that the situation in the case before me was analogous to a business transaction which occurred prior to incorporation. In this regard, I was referred to Interpretation Bulletin IT-454, “Business Transactions Prior to Incorporation”, which is reproduced in part below:

1. Where a business is commenced or purchased by persons with the intention that it will be carried on by a corporation, it often happens that the commencement or the purchase of the business, and related transactions including trans- actions prior to the commencement of business, occur before the actual date of incorporation. Because the corporation does not exist in law before the date of incorporation, transactions occurring before the incorporation date can not legally, be accounted for by the corporation except as discussed in 2 below.

2. The person who entered into the contract on the corporation’s behalf (the promoter) ceases to be bound by the contract or entitled to the benefits thereof, unless a party to the contract successfully applies to court for an order fixing obligations or liability under the contract to the promoter. A corporation subject to this legislation should commence to account for transactions under such a contract from the time at which the contract is adopted by it and should in that year account for any benefits or costs arising from the contract prior to that time. Any benefits previously received by the promoter should be recovered by the corporation, and any costs incurred by the promoter should be reimbursed.

3. In respect of the other jurisdictions, which have not enacted legislation similar to that described in 2 above, the Department will normally accept the accounting for pre-incorporation transaction by a newly formed corporation if the following conditions are met:

(a) The facts clearly indicate that it is the intention of those persons who authorize the transactions in the situations described above that the business will be carried on by a corporation. This will usually be so where application for incorporation is made before or at the time the business is commenced or purchased.

(c) There is no dispute between the persons authorizing the transactions and

the newly formed corporation as to who will account for the transaction.

(e) the corporation adopts any written contract made in its name or on its behalf before it came into existence in respect of the pre-incorporation transactions it is accounting for.

To further support his position, counsel for the plaintiff referred me to the case of Commissioner of Income Tax v. Bijli Cotton Mills Ltd. (1953), 23 I.T.R. 278, which dealt with subsection 66(1) of the Indian Income Tax Act. In Bijli Cotton Mills a firm entered into an agreement to purchase a mill for a company which they intended to float and obtained possession of the mill on December 10, 1942 on behalf of the company. The company was floated on December 11, 1943 and the sale deed was executed in its favour on January 2, 1945. The company chose to accept the profits made before its incorporation and treated the promoters as accountable for all profits made during the period from December 11, 1942 to December 10, 1943. The Indian Court held that in the circumstances of that case, the income for the period in question could be legally assessed in the hands of the company. Malik C.J. made the following comments at pages 283-84:

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. If the company accepts what the promoters have done on its behalf it has a right to claim from the promoters the entire income of the property since its purchase or the entire income for the period during which the business was carried on for the benefit of the company.

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 he has floated must be deemed to be a fiduciary relationship from the day the work of floating the company started. In Lydney and Wigpool Iron Ore Co. 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 as if the relationship of principal and agent or of trustee and cestui que trust had already existed between them and the company when the money was so obtained.’’

The plaintiff maintained that a fiduciary relationship existed between the promoters of the company (Grisé Management) and the investors. Gilbert Grisé in trust made an offer to purchase the property from Heathcliffe. Further, all the documents referred to an agency relationship between Grisé Real Estate and the investors, the project was to be operated pursuant to the investor’s agreement between the investors and Grisé Real Estate Co., acting as agent for the investors and Grisé Real Estate Holdings Inc. (the registered owner). The plaintiff also argued that the documents showed that in reality it was the investors who formed the syndicate and were the true debtors.

I believe there is no dispute that pre-incorporation expenses incurred by a promoter may, in certain circumstances, be deducted by the corporation, under paragraph 20(1 )(e). Counsel for the plaintiff made the point, that by choosing a different vehicle or manner of investment, through a syndicate as opposed to a corporation, the deduction of certain expenses would still be allowed. However, I am satisfied that there is legal distinction between a corporation and a syndicate in that a corporation is a legal entity and a syndicate is not. As such, there is no requirement that they be treated similarly.

Also as noted by Brulé J.T.C.C. in Ryan v. Minister of National Revenue, [1986] 1 C.T.C. 2142, 86 D.T.C. 1108 (TCC), at page 2147 (D.T.C. 1111):

It does not seem logical to say the costs were being incurred on behalf of the ultimate investors. These people were not known at the time many of the costs were ordered. One could ask “What would happen if it turned out no investors were found?” The Rockland Development partnership would have to pay the costs.

Similarly, if no investors were found, the costs would be born by Grisé Management. If only some investors were found, without a full subscription, then the investors’ money would be returned and the costs would still be born by Grisé Management. In other words, there would be no syndicate.

Counsel for the plaintiff also argued that the fact that different means of investment are not treated similarly goes against the spirit and object of the paragraph 20(1)(e). In this regard, I note Tremblay J.T.C.C.’s comments in Baillargeon v. Minister of National Revenue, [1991] 2 C.T.C. 2525, 92 D.T.C. 1212 (T.C.C.), currently under appeal, at pages 2556 (D.T.C. 1232-33):

The principles applied in a syndication are business principles that meet the needs of our modern times.

Not everyone is able to make the purchase of real estate worth $10,000,000. However, because of economies of scale, these major projects are very often much more profitable than more humble projects and are often better investments and, conversely, represent a small financial risk in case of failure; hence the necessity for the average investor to combine with others to bring together the necessary capital and expertise for the acquisition and to minimize his risks.

The success of the real estate syndicate also depends on capital, particular expertise in identifying assets with potential, establishing its real worth, its economic potential and market trends, appropriate means of funding, the legal means to be used and the legal traps to be avoided as well as resource persons who will be able to operate the project and so on. Few people can claim to have such skills.

Raising funds for a project of this kind and scope, that is five, ten, 15 or 20 million, requires a public distribution of securities subject to the provisions of the Securities Act. All public offerings must operate in accordance with this Act, and under pain of severe penalties.

It was with an understanding of the burden and complexity of this process of multilateral negotiations, but also of the high degree of protection offered to investors that we can see why, because of the enormous costs involved for the issuer in a public offering, that Parliament wished to temper its rigour by the advantages offered in paragraph 20(1 )(e) of the Act.

The plaintiff submitted that Grisé Management incurred certain expenses to promote the project, however, based on the Minister’s interpretation of paragraph 20(1 )(e) Grisé Management could not claim the expenses of $305,000 because these expenses were not incurred by it. Applying the same reasoning, the investors could not deduct these expenses either because the expenses were incurred by another entity. Such an interpretation, argued the plaintiff, would lead to an absurdity.

Although I tend to agree that the Minister’s interpretation may, in certain circumstances, lead to an absurdity and there is no dispute that where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from the lack of explicitness in the statute should be resolved in favour of the taxpayer (Johns-Manville Canada Inc. v. R. (sub nom. Johns-Manville Canada Inc. v. The Queen), [1985] 2 S.C.R. 46, [1985] 2 C.T.C. 111, 85 D.T.C. 5373, at page 72 (C.T.C. 126, D.T.C. 5384)), however, where there is no ambiguity and I am satisfied there is no ambiguity in the language of paragraph 20(1 )(e), I am bound to follow the language, even if the result is absurd or inconvenient. To do otherwise would be to usurp the role of the legislature.

The defendant submitted that paragraph 20(1 )(e) contains two conditions, the expense must be made at the issuing or selling of units of participation in the syndicate, which means there must be a syndicate and the expense must be made by the syndicate. With respect to the existence of the syndicate, the defendant referred me to Articles 3.01 and 3.02 of the investor’s agreement, which are reproduced below:

3.01 The undertaking of the investors shall be the acquisition and development of the investment property. The investors are not intended to be, shall not be deemed to be and shall not be treated as a general partnership, limited partnership, joint venture, corporation or other association nor shall the agent of the investors, or any of them, be deemed or treated in any way to be liable as partners of joint ventures.

3.02 The relationship of the investors to each other and the investment property shall 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....

The above clearly identifies the investors as individual property owners and nothing more.

In my view, the investors formed a voluntary grouping, with a common goal, namely to hold an individual interest in a certain building. However, I am also of the view that this syndicate had no separate legal existence apart from its investor members. These investor members viewed themselves as individual property owners, albeit of a 1/2777 interest.

Although I have found that, based on the facts before me, the investors including the plaintiff, formed a syndicate, the plaintiff still has to contend with the clear wording of paragraph 20(1 )(e) which requires that the expenses be incurred by that syndicate or investor group.

The plaintiff argued that what has occurred in the case at bar is that an amount, namely $1,000 was remitted to Grisé Management, which acted in the name of the investors and made certain disbursements. In this regard, the prospectus indicated that Grisé Management acted as agent for the investors. Grisé Management acquired the property and paid the $1,850,000. The plaintiff asserted that the investors were not paying Grisé Management’s debt. With respect to the commission, the investors acted through Grisé Management to pay the commission of $80 per unit. The investors made the investment of $1,000 per unit for a total of $2,700,000. From that amount, the sales commission of $222,160 ($80 x 2,777 units) was paid to Grenier Ruel. According to the plaintiff, that money was the investors’ money, not Grisé Management’s money. In other words, the investors’ funds were used to pay the commission and therefore the money was paid by the group or syndicate, and all that is required under paragraph 20(1 )(e) is that the group pay the expenses. I would accept the plaintiff’s proposition, if at the time the expenses were paid, the plaintiff or the investors actually owned their interest in the project and the expenses were paid out of the investors’ funds, in the investors’ name. It wculd appear, from the prospectus, “plan of distribution” and “use of proceeds” that the sales commissions of $222,160 and offering costs of $129,400 was deducted from the investors’ funds, however, the prospectus also clearly provided that the sales commissions were to be paid by Grisé Management, not by the syndicate or the investor group, to Grenier Ruel.

In terms of the $350,000 paid to Grisé Management for services related to the organization of the project, the prospectus clearly specified that the amount would be remitted, I understand that to read reimbursed, as fees for the organization of the project and “for supplying working capital up to the extent of $200,000”.

Another difficulty I have with the plaintiff’s argument is that at the time the expenses were incurred by Grisé Management there was no syndicate or even an investment group formed. It was not until some time in December 1979 that all the investors were found. In fact, it was not until December 21, 1979, that all the units of the project had been subscribed to and the closing agreement was signed between Gilbert Grisé and Heathcliffe for acquisition of the project. However, the prospectus was issued on November 6, 1979, at which time there were no investors. As such, the cost of the prospectus and offering costs were incurred prior to the subscription of all the units in the project and therefore the expense could not have been incurred by the plaintiff as owner of a share in the project. Also, from a review of the agreements, there appears to be no legal obligation on the part of the plaintiff to pay the expenses in dispute.

Unlike the situation in Baillargeon, supra, I am satisfied that in the case at bar Grisé Management did not have a mandate from the investors to incur the negotiation, acquisition and floatation costs and the sales commission incurred in respect of the project.

It is also clear from the evidence before me that the expenses at issue were incurred by Grisé Management before the plaintiff acquired his share in the project.

I am satisfied on the facts of this case, that the pre-investors’ soft costs (the plaintiff’s share of which amounted to $3,296.46) were not properly deductible under paragraph 20(1 )(e). I am also satisfied that these costs formed part of the purchase price and were capital in nature and could not be deducted by the plaintiff under paragraph 20(1)(e). As well, and as above stated, it was admitted by counsel for plaintiff that plaintiff makes no claim for the sum of $112.43, his share of the property taxes as he had already taken credit for this amount.

I would also add that after a review of the plaintiffs submission, I am not satisfied that the plaintiff has discharged his burden of proving the Minister’s assessment to be wrong (March v. Minister of National Revenue, [1949] C.T.C. 250, 4 D.T.C. 649 (Ex. Ct.); R. v. Taylor (sub nom. The Queen v. Taylor), [1984] C.T.C. 436, 84 D.T.C. 6459 (F.C.T.D.)).

Accordingly, the appeal is dismissed with costs.

Appeal dismissed