Charron v. MNR, 87 DTC 98, [1987] 1 CTC 2135 (TCC)

Tremblay, T.C.J. [Translation]:—This appeal was heard at Montréal, Quebec, on May 15, 1986 on common evidence with the appeals of Denis Charron (84-1853(IT)), Jacques Doyon (84-1854(IT)), Jean-Jacques Pare (84- 1855(IT)), Guy Poulin (84-1856(IT)), Henri-Louis Robert (84-1857(IT)) and Marcel Arel 84-1710(UI)).

Decision was reserved on September 23, 1986, the date on which the Court received the final document submitted by counsel in support of their written argument.

1. The Point at Issue

The issue is whether, in computing his income for the 1979 taxation year, the appellant is entitled to claim $3,600, representing one twenty-eighth of an account in the amount of $100,800 submitted by Gagnon, Delisle et Associés, a real estate brokerage firm, for professional fees, or syndication costs relating to the purchase of a multiple-unit residential building. The $3,600 is claimed as a front-end fee pursuant to paragraphs 18(1 )(a), 20(1)(e) and 20(1)(bb) of the Income Tax Act.

The respondent argues that only $457.14 is deductible since that is the portion relating to the cost of finding tenants. The $3,242.86 balance, covering the profitability study, project evaluation and so forth, is a capital expenditure that should be added to the cost of acquiring the interest in the property under paragraph 18(1)(b) of the Income Tax Act, and paragraphs 20(1 )(e) and 20(1 )(bb) do not apply.

The legal issue is the same in the case of the other appellants, except that the amounts disallowed by the respondent are as follows: Denis Charron, $3,242.86; Jacques Doyon, $6,485.72; Jean-Jacques Paré, $6,485.72; Guy Poulin, $25,943.00; Henri-Louis Robert, $6,485.72 and Marcel Arel, $3,242.86. These amounts vary depending on the extent of each appellant’s interest in the property.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent's assessment is incorrect. This burden of proof results in particular from several judicial decisions, including the judgment delivered 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 that judgment, the Court also decided that the assumed facts on which the respondent based his assessment or reassessments are deemed to be correct until proved otherwise. In this case, the facts assumed by the respondent are set out in subparagraphs (a) to (e) of paragraph 7 of the respondent's reply to the notice of appeal as follows:

7. In assessing the appellant for the 1979 taxation year, the respondent, the Minister of National Revenue, relied, inter alia, on the following facts:

(a) By a deed of sale dated December 24, 1979, the appellant, together with nine others, acquired Ciné-Parc de Trois-Rivières ouest Limitée, a multipleunit residential building located at 2605, Côte Vertu, Ville St-Laurent;

(b) Each purchaser thereby became the owner of an undivided share of the property, corresponding to the size of his investment;

(c) The appellant’s share was 1/28 of the whole;

(d) On December 11, 1979, the appellant received an account from Gagnon,

Delisle et Associés for $3,600 representing his share of a total fee of $100,800;

(e) The account submitted by Gagnon, Delisle et Associés had various headings as follows:

— Investigation into tax shelters

— Identification of a real estate project for the property located at 2605, Côte Vertu, Ville St-Laurent

— Profitability study for the property located at 2605, Côte Vertu, Ville St-Laurent

— Project evaluation

— Recommendation based on a pro forma professional income statement and projected personal income from the investment

— Cost of finding tenants

3. The Facts

3.01 The material facts are fairly simple.

The quantum of the amounts disallowed by the respondent to the various appellants is not in dispute.

The facts set out by counsel for the appellants in paragraphs 1.1 to 1.17 of the pleadings are in keeping with the evidence placed before the Court. They read as follows:

1.1 In this appeal, the appellants are appealing from a decision of the Minister of National Revenue, disallowing the deduction with respect to the appellants’ 1979 taxation year, of an amount totalling $90,800 paid by each member of a syndicate, the Domaine Vertu project, in a manner proportionate to the extent of his interest, as costs and syndication and consultation fees, to Gagnon, Delisle et Associés for services rendered in the acquisition of an immovable asset.

1.2 The syndicate’s asset is a multiple-unit residential building (MURB), a Class 31, 127-unit building, located at 2605, boulevard Cote Vertu, at Ville St-Laurent, Province of Quebec, which was purchased by the syndicate as a going concern from Ciné-Parc Trois-Rivières ouest Limitée on December 24, 1979 at a cost of $3,772,000, consisting of a down payment of approximately $500,000 and the assumption of a $3,272,000 mortgage.

1.3 The Domaine Vertu syndicate consists of ten investors brought together by Gagnon, Delisle et Associés to purchase and operate Domaine Vertu.

1.4 The legal structure used by the investors to purchase the asset was undivided co-ownership, the latter being subdivided in unequal fractions, with a reference share equal to 1/14 of the undivided interest in the asset.

1.5 The initial investment required of the investors was $750,000 divided into $50,000 portions; each portion giving right to 1/14 of the undivided co-ownership represented by a share. As a condition of entering into this agreement, each investor also agreed to personally assume a total mortgage debt of $3,272,000.

1.6 Proceeds from the investors’ initial investment went to defray the following expenses:

(a) syndication costs	$100,800
(b) deposit for realty taxes	112,500
(c) transfer fees	22,650
(d) legal costs	9,000
(e) cash payment	500,000
	$744,950

1.7 Of the total expenditure of $100,800, the Minister of National Revenue disallowed $90,800, arguing that this amount should be treated as an outlay on account of capital.

1.8 Since April 1978, Gagnon, Delisle et Associés, together with its branches and affiliates, has been actively involved in promoting real estate syndicates; since its formation, the Gagnon et Associés Group, which comprises a number of entities, including Les Propriétés FNI Inc., Les Investissements FNI Inc., Les Immeubles Mafran Inc., Progestim Inc. and Gagnon, Delisle et Associés, has put together more than twenty real estate syndicates at costs far exceeding $100,000,000.

1.9 As a syndicate promoter, Gagnon, Delisle et Associés advises investors on the acquisition of publicly marketed securities related to various building schemes and in addition it also syndicates its own securities.

1.10 The nature of the securities marketed by the Gagnon, Delisle et Associés Group varies depending on the nature and the purposes of the projects being syndicated, eg., corporate shares in the case of the Complexe Hull/Aylmer, a common law trust in La Fiducie Nationale d’immeuble, or undivided co-ownership as in the present instance.

1.11 Since 1982, an affiliated firm, Les Investissements FNI, also active in the area of real estate syndication, has been registered as an investment dealer with the Commission des valeurs mobilières du Québec.

1.12 Syndication fees of $100,800 were invoiced to the appellants between December 8 and 11, 1979.

1.13 For the purposes of their 1979 income tax returns, each of the appellants deducted this amount paid to Gagnon, Delisle et Associés from income.

1.14 By notice of reassessment, the Department of National Revenue disallowed $90,800 from the expenses claimed by the appellants on the grounds that such an expense was an outlay of a capital nature.

1.15 Pursuant to these notices of reassessment, the appellants filed notices of objection in accordance with the provisions of the Income Tax Act.

1.16 In 1984, the Department of National Revenue handed down its decision, maintaining the said assessments as having been established in compliance with the provisions of the Act.

1.17 The appellants therefore appealed to the Tax Court of Canada.

3.02 At the commencement of the hearing, counsel for the appellants filed a series of six exhibits as a joint exhibit, marked A-1:

Exhibit A-1, No. 1

This is a contract of sale dated December 24, 1979 for a property consisting of 56,696 sq. ft. and a building with 127 rental units, situated at 2605, chemin Côte Vertu at Ville St-Laurent. The vendor was Ciné-Parc Trois-Rivières ouest Limitée and the purchasers were ten persons, seven of whom were the appellants plus three other purchasers who were not present at the time this document was signed.

Exhibit A-1, No. 2

This is a 45-page agreement with an additional six pages for Schedule A and B signed on December 22, 1979 by the ten new purchasers of Domaine Vertu.

Exhibit A-1, No. 3

This is a liquidity and management guarantee agreement entered into on December 22, 1979 by the ten owners of the Domaine Vertu project and the management firm of Gagnon, Delisle et Associés, consisting of a 13-page contract with schedules.

Exhibit A-1, No. 4

These are memorandums of fees dated December 11, 1979, addressed to each of the owners of the Domaine Vertu project by the management firm of Gagnon, Delisle et Associés. These memorandums, entitled “Consultation Fees” offered the following particulars in respect of the fees which, incidentally, were reproduced above (para. 2.02) in the presumed facts of the respondent:

— Investigation into tax shelters

— Identification of a real estate project for the property located at 2605, Côte Vertu, Ville St-Laurent

— Profitability study for the property located at 2605, Côte Vertu, Ville St-Laurent

— Project evaluation

— Recommendation based on a pro forma professional income statement and projected personal income from the investment

— Costs of finding tenants

Exhibit A-1, No. 5

This is the analysis of the Domaine Vertu project that was presented at the time to prospective investors to interest them in the purchase, the whole consisting of nine pages of figures describing various financial aspects and the projected revenues from 1979 to 1984.

Exhibit A-1, No. 6

These are two decisions, No. S-8-79 and 238-D-79, issued by the Commission des valeurs mobilières du Québec and addressed to the Gagnon, Delisle et Associés management company. The first decision, S-8-79, dated December 17, 1979, prohibits the said management company from marketing securities because it participated “in the sale and offer for sale to the public of shares in a real estate project known as “Promenade des Iles”. The evidence showed that the Promenade des Iles project was similar to the Domaine Vertu project.

The second decision, 238-D-79, dated December 28, 1979, exempted the management company from registration under section 67 of the Loi sur les valeurs mobilières with respect to the sale of 36 shares at $50,000 per share in the said real estate project.

This was not done to block the realization of the Promenade des Iles project which, for all practical purposes, was terminated, but to allow the said management company to register subsequently with the Commission des valeurs mobilières and thus continue selling shares in real estate projects.

3.03 During the hearing, two other Exhibits were introduced into evidence: Exhibit A-2, a book entitled “L’Immobilier aux frais de l'impôt", by Messrs. Gilles Delisle and Jean Gagnon and Exhibit A-3, the May 5, 1986 issue of “Commerce" magazine, mentioning the book described in Exhibit A-2.

3.04 Mr. Gilles Delisle, an engineer and partner of Gagnon, Delisle et Associés, maintained that following the intervention by the Commission des valeurs mobilières (CVM) in December 1979 in the Promenade des Iles project (Exhibit A-1, No. 6 at para. 3.02) and the discussions that followed, it was decided by the CVM that the division into shares and the sale of a property (which the witness called “syndication immobilière", based on the English term), was an activity falling under the jurisdiction of the CVM. Each share would in fact be a security under the Loi des valeurs mobilières. According to the witness, he had previously regarded himself as a real estate broker, but then became persuaded that he was selling securities, one of the reasons being that the purchasers of the shares had no control over management (Transcript, p. 43, 44). The witness later took courses at the Canadian Securities Institute. In 1982 Les Investissements FNI Inc. was licenced by the CVM. Gagnon, Delisle et Associés is a firm consisting of two other companies, Gilles Delisle et Associés Ltée and Sogafim (Jean Gagnon's company) (Transcript p. 45).

3.05 Delisle also testified that in the management contract between the owners and Gagnon, Delisle et Associés (Exhibit A-1, No. 3 at para. 3.02), the latter promised to guarantee the property's current operating deficits for the first five years of operation, not including losses resulting from natural disasters (such as earthquake, etc.) or from a decision to sell the building at less than cost.

3.06 On cross-examination, Delisle testified that, according to clauses 15 and 18 of the agreement between Gagnon, Delisle et Associés and the owners of Domaine Vertu (Exhibit A-1, No. 3), the management fees paid to Gagnon, Delisle et Associés by the owners were $181.10 per month for 60 months in respect of each undivided share of the building, which was equal to one twenty-eighth of the total undivided shares in the building, or $21,735.60 for each one twenty-eighth share. Over a five-year period, Gagnon, Delisle et Associés took in approximately $1 million, if the $100,800 fee is included.

The witness said that the management function was in fact performed by Progestim Inc., but Gagnon, Delisle et Associés was a sub-contractor of Pro- gestim Inc. The latter has seven shareholders including Messrs. Gagnon and Delisle (T, p. 55, 56).

3.07 In 1979, Gagnon, Delisle et Associés gave no advice respecting the purchase of listed shares, bonds or securities, etc. (Transcript, p. 64).

3.08 The appellant, Paul-Yvon Charron, testified that, following the purchase of the Domaine Vertu property, he had nothing to do with the management of that property. After the management contract with Gagnon, Delisle et Associés terminated in 1984, the co-owners appointed three of their number to take over the management function.

Mr. Charron also testified that since purchasing the building, one or two of the co-owners had sold their interest to other co-owners.

4. Law — Case Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved in the present case are paragraphs 18(1)(a), 18(1)(b), 20(1)(e), 20(1)(bb). They read as follows:

18.(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;

20.(1) Notwithstanding paragraphs 18(1)(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;

(bb) an amount other than a commission paid by the taxpayer in the year to a person

(i) for advice as to the advisability of purchasing or selling a specific share or security to the taxpayer, or

(ii) for services in respect of the administration or management of shares or securities of the taxpayer,

if that person’s principal business

(iii) is advising others as to the advisability of purchasing or selling specific shares or securities, or

(iv) includes the provision of services in respect of the administration or management of shares or securities;

4.02 Case Law and Doctrine

Counsel referred the Court to the following case law and doctrine:

Case law

1. Farmers Mutual Petroleums Ltd. v. M.N.R., [1967] C.T.C. 396; 67 D.T.C. 5277;

2. Johns-Manville Canada Inc. v. The Queen, [1985] 2 C.T.C. 111; 85 D.T.C. 5373;

3. Sherbrooke Street Realty Corporation v. M.N.R., 3 Tax A.B.C. 376; 51 D.T.C. 105;

4. Goodhall-Gunn v. M.N.R., [1985] 2 C.T.C. 2378; 85 D.T.C. 663;

5. The Queen v. Sylvio Marchand, [1978] C.T.C. 763; 78 D.T.C. 6507;

6. No. 233 v. M.N.R., 12 Tax A.B.C. 200;

7. Canadian & Foreign Securites Co. Limited v. M.N.R., [1972] C.T.C. 391; 72 D.T.C. 6354;

8. Morguard Properties Ltd. et al v. City of Winnipeg, [1983] 2 S.C.R. 493; 3 D.L.R. (4th) 1;

9. Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; [1984] C.T.C. 294;

10. Edmonton Liquid Gas Limited v. The Queen, [1984] C.T.C. 536; 84 D.T.C. 6526;

11. Re Shelter Corporation of Canada Ltd. and S. 59 of the Securities Act, 1 B.L.R. 25;

12. M.N.R. v. Algoma Central Railway, [1968] C.T.C. 161; 68 D.T.C. 5096;

13. Canada Starch Co. Ltd. v. M.N.R., [1968] C.T.C. 466; 68 D.T.C. 5320;

14. M.N.R. v. M.P. Drilling Ltd., [1976] C.T.C. 58; 76 D.T.C. 6028;

15. Adamson et al v. Melbourne and Metropolitan Board of Works, [1929] A.C. 142;

16. Lanston Monotype Machine Company v., Northern Publishing Company, [1922] 63 S.C.R. 482.

Doctrine

17. How to syndicate property, Real estate review portfolio, Portfolio No. 11, Warren, Gorham and Lamont, Boston, Mass.

18. P.A. Côté, Interprétation des Lois, Les Editions Yvon Blais Inc., Cowansville

19. E.A. Driedger, The Construction of Statutes (2nd ed. [1983]), Butterworths, Toronto

20. K.A. Lahey/'The Taxation of Securities Transactions — Il: Recent Legislation”; 1980 McGill Law Journal, vol. 26, no. 1, pp. 46-81, p. 73

21. W.H.E. Jaeger, “Joint Venture: origin, nature and development”, (January 1960), 9 The American University Law Review 1, p. 3

22. P.A. Cossette, "Les groupements momentanés d'entreprises (joint venture): nature juridique en droit civil et en common law”, Revue du Barreau, vol. 44, no. 3, p. 463, p. 501

23. L.R. Hepburn, Limited Partnerships, Richard De Boo, Toronto, pp. 1-16

24. Phipson on Evidence, 12th Edition, The Common Law Library, Sweet & Maxwell, London, p. 24

25. J.R. Robertson, "Tax Aspects of Real Estate Transactions: A Perspective of Revenue Canada”, Income Tax Aspects of Real Estate Transactions, Corporate Management Tax Conference 1983, pp. 416-418.

4.03 Analysis

4.03.1 Is paragraph 20(1)(bb) applicable in light of the evidence?

There are three prerequisites for the application of this section.

1. First, the amount paid by the appellant in the year to Gagnon, Delisle et Associés must not be a commission.

2. Next, the amount must be paid to obtain advice as to the advisability of purchasing or selling specific shares or securities.

3. Finally, the principal business of Gagnon, Delisle et Associés must be advising others as to the advisability of purchasing or selling specific shares or securities.

4.03.1.1 With regard to the first point, as to whether the amount paid was a commission, the evidence shows that it was fees. Moreover, in the assumed facts (para. 2.02, 7(d)), the respondent speaks of “an account for professional fes”. The point is not therefore in issue.

4.03.1.2 As for the second point, whether the amount was paid for advice as to the advisability of purchasing securities, the respondent claims that it is not a matter of shares or securities.

He referred to the contracts marked Exhibit A-1, No. 1, No. 2, No. 3 (para. 3.02) and alleged that the said contracts showed that the purchasers bought undivided shares of a property. Exhibit 1 moreover reveals that the wife of one of the co-purchasers, Pierre-Paul Gagnon, showed up with her husband to sign in order to comply with art 1292 of the Civil Code because they were married under the regime of community of property. This article provides that the husband may not “without the concurrence of his wife . . . hypothecate any immovable property of the community . . .”

According to the respondent, this was obviously a case of a property being mortgaged and therefore requiring the wife's consent. Such consent would not have been required had it been a question of shares or securities. That kind of property is considered a movable and does not require the wife's consent.

4.03.1.3 Moreover, according to the respondent, since the term “security" is not defined in the Act, we must look to its ordinary dictionary meaning. In le Grand Robert, “security” is defined as follows:

(one or more securities). Security or securities: generic term for all negotiable instruments whether or not listed on the Stock Exchange. 2. Share, 2. bill (Treasury), bonds, share, interest. The securities market (ref. 21). Securities officially accepted for trading (ref. 2), negotiable at a bank (ref. 2). Securities portfolio (ref. 4). 3%, blue chip securities (ref. 8). A sure thing (gold bullion*). Hedge against inflation*, family securities. Dealing in securities (-Boursicoter, ref. 2). Rise, fall in securities. —Commercial paper Note, instrument, paper. Securities, instruments of credit. Discount* of a security. Security to recoup — Fig. “The easiest security to realize on . . . is a work of art” (Goncourt, Journal, May 25, 1865).

According to the respondent, therefore, the concept of securities extends only to negotiable instruments such as shares, government bonds, bills, warrants, etc.

4.03.1.4 Counsel for the respondent further argued that the English word “security” has two possible meanings. The first, which in French is security in the legal sense, namely a mortgage or lien and so forth, obviously does not apply in this case.

The other meaning, the ordinary meaning, is that of an instrument providing for the payment of money, with or without collateral obligation, generally entered into for purposes of financing or investment, such as promissory notes or bonds.

Counsel for the respondent quoted Collier, J. in Canadian & Foreign Securities Co. Limited v. M.N.R., (para. 4.02(7)):

I am, however, satisfied that Parliament used the word in a popular sense, so as to

include instruments for the payment of money with or without some collateral obligation and which are commonly dealt in for the purpose of financing and investment. [Emphasis added.]

Therefore, according to counsel for the respondent, the term “security” clearly excludes the acquisition of a property whether alone or with others, whether in the form of undivided co-ownership or in sole ownership.

In support of his contention, counsel for the respondent argued that, in interpreting a statutory provision, one should look to the ordinary meaning of its terms and not the meaning that such terms might have in a technical context. In that connection, he quoted from the book Interprétation des lois by Professor Pierre André Côté (para. 4.02(18)) at page 214.

As it is presumed that the lawmaker expected to be understood by those for whom the law was enacted, namely the class of people governed by the law, the statute is deemed to have been drafted in accordance with the rules of the language in use among that class.

In particular, it must be presumed that the lawmaker understands the terms in the same way as the citizen, as the “man in the street”.

Counsel for the respondent also relied upon a second canon of construction, naemly that a definition in one statute is not applicable to the same word in another statute. He cited Anglin, J. in Adamson et al. v. Melbourne and Metropolitan Board of Works, supra at 147.

Moreover, their Lordships would observe that it is always unsatisfactory and generally unsafe to seek the meaning of words used in an Act of Parliament in the definition clauses of other statutes dealing with matters more or less cognate, even when enacted by the same Legislature. A fortiori must it be so when resort is had, as in the Swinburne case (4), for this purpose to the enactments of other Legislatures. [Emphasis added.]

He also cited Duff, J. in Lanston Monotype Machine Company v. Northern Publishing Company, supra at 497:

. .. and it is always dangerous, as Sir George Jessel in Hack v. London Provident Building Society (1) pointed out, to construe the words of one statute by reference to the interpretation which has been placed upon words bearing a general similarity to them in another statute dealing with a different subject matter. [Emphasis added.]

Counsel thus concluded that recourse in this case may not be had to the meaning of “security” found in the Loi sur les valeurs mobilières. .. . provincial securities legislation,” he said, “has a very specific aim, that is, to protect the investor in all forms of investment contracts: accordingly, the definitions of "security’ contained therein are very broad, and clearly go far beyond the ordinary meaning of the term.”

4.03.1.5 As for the third requirement of paragraph 20(1)(bb), namely that the principal business of Gagnon, Delisle et Associés must be advising others as to the advisability of purchasing or selling specific shares and securities, counsel for the respondent referred to Mr. Delisle’s testimony that the said firm gave no advice in 1979 regarding the purchase of shares on the stock exchange, bonds, or other (para. 3.07).

He concluded therefore that the third requirement of paragraph 20(1)(bb) had also not been satisfied.

4.03.1.6 With respect to the second requirement of paragraph 20(1)(bb), however, counsel for the appellant alleged that the theory that only the ordinary or grammatical meaning may be considered when the word is not defined in the statute in question nowadays admits of exceptions. He also quoted from Professor Pierre André Côté’s Interprétation des lois, at page 219.

Respect for the ordinary meaning is not however an absolute rule: if the circumstances are such as to suggest that the technical or scientific meaning is préféra- ble, then that meaning should be used . . . Among other things, it depends on the class of people the law is intended to reach: the population as a whole or a limited section of it, such as an occupational or professional sub-group.

He also cited Professor Driedger’s The Construction of Statutes:

This [the “grammatical meaning” rule] is not an absolute rule, for in the end the meaning of a word is governed by the context.

Professor Driedger quotes a discussion by Atkinson, J. in Victoria City v. Bishop of Vancouver Island (1921), 2 A.C. 384 at 387.

In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense . . .

He also cited Lord Esher in Unwin v. Hanson (1891), 2 Q.B. 115 at 119.

If the Act is one passed with reference to a particular trade, business, or transaction and words are used which everybody conversant to that trade . . . knows and understands to have a particular meaning in it, then the words are to be construed as having that particular meaning . . .

Counsel for the appellant refers, inter alia, to the decision of the Supreme Court of Canada in Morguard, Properties Ltd. et al v. City of Winnipeg, (para. 4.02(8)), at 508. Estey, J. cited Nicholls and Robinson v. Cumming (1877), 1 S.C.R. 395. Ritchie, J. said at 422:

When a statute derogates from a common law right and divests a party of his property, or imposes a burthen on him, every provision of the statute beneficial to the party must be observed. Therefore it has been often held, that acts which impose a charge or a duty upon the subject must be construed strictly and . . . it is equally clear that no provisions for the benefit or protection of the subject can be ignored or rejected.

Estey, J. went on to say:

In more modern terminology the courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the Legislature must do so expressly. Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced. This principle of construction becomes even more important and more generally operative in modern times because the Legislature is guided and assisted by a well-staffed and ordinarily very articulate Executive. The resources at hand in the preparation and enactment of legislation are such that a court must be slow to presume oversight or inarticulate intentions when the rights of the citizen are involved. The Legislature has complete control of the process of legislation, and when it has not for any reason clearly expressed itself, it has all the resources available to correct that inadequacy of expression. This is more true today than ever before in our history of parliamentary rule.

In Stubart Investments Ltd. v. The Queen, (para. 4.02(9)), Estey, J. said at 575-76 (C.T.C. 314-15):

Income tax legislation, such as the federal Act in our country, is no longer a simple device to raise revenue to meet the cost of governing the community. Income taxation is also employed by government to attain selected economic policy objectives. Thus, the statute is a mix of fiscal and economic policy. The economic policy element of the Act sometimes takes the form of an inducement to the taxpayer to undetake or redirect a specific activity.

Counsel for the appellant referred to Shelter Corporation of Canada Ltd. (para. 4.02(11)) in which the Ontario Securities Commission ruled in 1977 that the sale of shares held in undivided ownership in a multiple-unit resi- dential building (MURB) constituted an issue of securities and was subject to the Ontario statute when certain criteria were met.

In its decision, the Commission made reference to two leading tests from American case law: the Howey test ("1. investment income; 2. in a common enterprise; 3. with the expectation of a profit; 4. solely from the efforts of others”) and the State of Hawaii risk capital test, also consisting of four elements, the last of which is that the investor has no practical or actual control over the business’ management decisions.

The issue of shares in the Domaine Vertu project demonstrated features similar to those in Shelter Corporation of Canada Ltd.

4.03.1.7 In his article "The Taxation of Securities Transactions”, Professor K.A. Lahey (para 4.02(20)) emphasized that, depending on the context, the term "security” should be given a broad interpretation in the Income Tax Act.

The factors which connect the types of securities named in the Act are not articulated, and thus the salient criteria in defining the term are not expressed. There are two approaches that can be used, in the first, the meaning of securities in tax jurisprudence may be used to show that the definition has been widened where the context of the statute so requires. The second is patterned after that employed in securities legislation, and it assumes that the policies underlying securities legislation and the election provision (s 39(4)) are sufficiently similar to warrant analogy.

4.03.1.8 Counsel for the appellant also advanced an argument based on the extrinsic and intrinsic circumstances of paragraph 20(1 )(bb), that the federal lawmaker intended the term "security” to be interpreted broadly.

As an extrinsic factor, there is the fact that the field of investment securities is largely unoccupied by the federal Power, which has de facto left it up to the provincial authorities to develop the substantive rules in this area.

Next, there is the fact that, although it emanates from various levels of government, securities legislation is uniform across Canada (the legislative enactments of three Canadian provinces having stock exchanges contain the same broad definition of the word securities, which includes in particular public offerings of co-ownership shares). Such uniformity, together with the universal channels of distribution used by the financial sector in Canada, ensures the unified and co-ordinated diffusion of governing principles. What motive could justify tinkering with investors' general understanding of the term “‘securities’’?

Finally, there is the enormous weight exercised by this block of legislation relating to investment securities exercises over economic behaviour and activities.

Intrinsic factors include the obligation created by the statute for the investor to consult a professional broker if he wishes to use the deduction, exposing him thereby to a variety of investment opportunities; there is also the evidence of the recent broadening of the scope of s 20(1 )(e) by the Legislator to include trusts and syndicate securities, the only explanation for which is an obvious desire to make the law reflect current economic realities.

4.03.1.9 The Court believes that the term "security” or “valeur mobilière” in paragraph 20(1)(bb) has a broad meaning. In sum, these terms have the meaning given them in the securities legislation in the three Canadian provinces.

4.03.1.10 As for the third requirement set out in paragraph 4.03.1, which the respondent rejected (para. 4.03.1.5), the Court believes that this condition is also met. Despite the testimony of Mr. Delisle (para. 3.07) that in 1979 the firm did not sell securities, the Court believes that, while Gagnon, Delisle et Associés did not think it was selling securities, in fact it was.

The two decisions issued by the CVM (Exhibit A-1, No. 6) (para. 3.02) and my finding with regard to the second requirement (para. 4.03.1.9), inexorably lead me to the conclusion that the third requirement has been satisfied and that accordingly paragraph 20(1 )(bb) of the Income Tax Act applies to the facts under appeal.

4.03.1.11 Since the appeal has been allowed under paragraph 20(1)(bb), the Court does not need to decide whether it would also have been allowed under paragraphs 20(1)(e) and 18(1)(a).

5. Conclusion

The appeal is allowed with costs and the matter referred back to the respondent for reconsideration and reassessment in accordance with the above reasons for judgment.

Appeal allowed.