Bonner, T.C.J.:— This is an appeal from an assessment of income tax for the 1984 taxation year. In his return of income for the year the appellant sought to deduct in computing income the sum of $65,000 which he described as “loss on guarantee entered into for fees". In making the assessment under appeal the respondent disallowed the deduction. The appellant objected to the assessment and the respondent confirmed on the basis that the amount claimed had not been shown to have been incurred for the purpose of gaining or producing income from a business. In his notice of appeal, the appellant stated "the losses were realized as a result of agreements entered into for the purpose of earning income from a business and accordingly should be allowed as an expense incurred for the purpose of earning income under subsection 18(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The appellant now asserts that the amount deductible in computing income for the year is not $65,000 but rather is $352,758.
The appellant contends further that the respondent did not deal with his notice of objection “with all due dispatch” as required by paragraph 165(3)(a) of the Act. The appellant sent the notice of objection to the respondent on September 9, 1988. The respondent confirmed the assessment on April 19, 1990. I do not propose to set forth an account of the intervening events as revealed by the evidence. It is now well settled that where there has been a failure by the Minister of National Revenue to act with all due dispatch as required by paragraph 165(3)(a) of the Act, the taxpayer's remedy is to launch an appeal following the expiry of the 90-day period under paragraph 169(b) of the Act (Harald Apfelbaum v. M.N.R., [1991] 1 C.T.C. 2599; 91 D.T.C. 800). The existence of that remedy makes it illogical to argue that the legislation must be construed as providing that an otherwise valid assessment loses its force and validity as a result of delay on the part of the respondent in confirming. I therefore turn to the question of the deductibility of the appellant's losses under the guarantees.
The appellant is a chartered accountant practising his profession in Calgary. He and his wife Terry were sole shareholders, directors and officers of Horaceville Developments Corporation Ltd. (hereinafter "Horaceville"). That company carried on the business of real estate syndication, that is to say, it acquired rental real estate projects for resale to syndicates of investors. It derived income from the resale to investors of one of the projects. On all projects it derived income from fees for services in connection with the formation of the syndicates, from fees earned for financing the acquisitions, from fees earned for ongoing management of the projects and finally from fees earned for providing to the investors guarantees of cash flow. The appellant was in charge of the syndication and financing operations of Horaceville. Mrs. Hill was in charge of property management. On January 15, 1981 Horaceville entered into a written agreement with the appellant as follows:
WHEREAS Horaceville carries on the business of syndicating and managing real property in the City of Calgary and surrounding area, and
WHEREAS, Horaceville earns revenue in the form of fees for syndicating, managing rental properties, guaranteeing cash flows, and arranging financing of the projects, and
WHEREAS, the relation maintained by Hill with the Royal Bank of Canada, Horaceville’s bankers are critical to the success of Horaceville, and
WHEREAS, from time to time Hill is or may be required to guarantee loans provided by the Royal Bank of Canada to the projects managed by Horaceville, and
WHEREAS, it is in the interest of Horaceville to request Hill to provide guarantees to the bank in support of Horaceville’s activities,
THIS AGREEMENT WITNESSETH,
(1) that Hill shall be paid fees to be determined from time to time as full consideration for providing said guarantees, such fees to be paid in conjunction with other fees for management services provided to Horaceville by Hill.
(2) in the event that Hill is called upon by the bank to honour his guarantee, Hill shall be obliged to satisfy the bank with recourse to Horaceville or any other shareholders of Horaceville.
[Errors in spelling and grammar are from original.]
Guarantees were given by the appellant to the bank in the following circumstances. The members of the syndicate paid little or no cash to Horaceville for their interests in the syndicate. Each provided to Horaceville either a letter of credit or promissory note. Those instruments were then pledged by Horaceville to the bank as security for a loan, the proceeds of which were used to pay the cash portion of the purchase price of the project being bought by the syndicate. The appellant guaranteed three such loans. In addition he guaranteed a loan made by the bank to Horaceville to enable the company to honour its guarantees to investors relating to cash flows. Copies of the guarantees were not produced in evidence.
Horaceville paid fees to the appellant which it described in its financial statements for the 1981, 1983 and 1984 taxation years either as management fees or as management fees and bonus. The appellant testified that the fees thus paid were in part consideration for the provision of guarantees as contemplated by the agreement between him ana Horaceville. The exact amount paid as consideration for the guarantees (if any was paid) was never identified apparently because the appellant and Horaceville did not agree on any breakdown. T4 and T4A summaries of remuneration paid by Horaceville were produced. In those returns Horaceville included under the heading “other income" the amounts said to have been in part management fees and in part consideration for the guarantees. In my opinion the assertion that Horaceville paid guarantee fees to the appellant amounts to nothing more than a selfserving reinterpretation of past events. Those events viewed objectively do not bear that interpretation. It could have happened but the evidence does not show that it did happen.
It would seem that the appellant borrowed funds from the bank or at least delivered to the bank promissory notes totalling $230,000 in connection with the acquisition by him of one "investor" unit in each of the syndicates. In a schedule marked Exhibit A-16, the appellant asserts that $582,758 was demanded by the bank in relation to the guarantees of Horaceville debts of which $230,000 relates to loans arising from acquisitions made by him as a joint venture investor. The amount claimed is the difference between the two figures. However, the basis on which the $582,758 figure is calculated was not explained. The appellant appears to have asserted the $352,758 claim for the first time at the hearing of the appeal. The evidence as to the precise components of it is quite unsatisfactory.
On May 14, 1984 the bank demanded payment from Horaceville of a number of loans totalling more than $2,000,000. On the same day it demanded payment from the appellant of $610,000 under his guarantees of the debts and liabilities of Horaceville. Negotiations ensued and on May 8, 1985 an agreement was reached between the bank on the one hand and, on the other hand, the appellant, his wife, Horaceville and one other company. That agreement pro- vided for a general release by the bank of the appellant, his wife and Horaceville. In consideration payments by the appellant to the bank totalling $95,000 were to be made and other property was to be transferred. The appellant produced a schedule, Exhibit A-16, setting forth a breakdown of the sum of $140,723 said to have been the total paid by him in settlement of his liabilities to the bank. It was the appellant's position that he was entitled to a deduction in 1984 of the entire amount claimed by the bank in that year and that in 1988, when his entire liability was extinguished as a consequence of payment of the $140,723, the provisions of section 80 of the Act would apply.
The appellant, in argument, asserted that:
From the Offering circulars to the Joint Venture agreements, to the Banking arrangements, to the titles of the properties, to the financial reporting of Joint Venture and Horaceville affairs, all the evidence points to the indisputable fact that Horaceville was a general agent of the Joint Ventures, appointed to manage all aspects of the joint venture, including specifically arranging for the financing necessary for the projects. This agency was created by written agreement and by implication and confirmed by the course of conduct throughout the period of the agency.
The law of agency clearly states that the acts of the agent, when acting within the authority given to it are, in fact, acts of the principle [sic]. The four principles [sic] in this instant are the four Joint Ventures.
Inasmuch as the loans were therefore the loans of the principles, [sic] namely the joint ventures, Hill was not a guarantor of Horaceville Debts but was a guarantor of Joint Venture Debts. Hill had been contracted as a third party to provide the guarantees and had been compensated significantly for providing the guarantees.
In addressing the demand for the repayment of the loans to Horaceville, the bank was serving notice to the agent, in whose name the loans were carried for and on behalf of the Joint Ventures. Horaceville perhaps did have a defence against the liability to the bank inasmuch as the bank was aware of the agency, however, this is not relevant inasmuch as Hill's liability to the Bank under the guarantee was indisputable.
These facts clearly distinguish this case from M.N.R. v. George H. Steer (66 D.T.C. 5481). In the Steer case, the Steer guarantee was characterized by the court as a "deferred loan” to the company. The guarantee was for loan of the corporation of which Steer was a shareholder. Steer's compensation for said guarantee was in interest in a Net Royalty Unit Trust which unit had minimal value in respect to the size of the loans guaranteed. Clearly, from a practical business sense, the Steer case is also distinguishable inasmuch as the loan guaranteed was used to create capital value for the corporation owned by Steer. In the present case, all the economic benefits of the loan were for the account of the joint venture, not Horaceville, and not thereby indirectly as shareholder, Hill.
[Errors in spelling and grammar are from original.]
The short answer to all of this is that the claim made by the bank was based on guarantees given by the appellant of the indebtedness of Horaceville. Those guarantees were not known to have been given in the course of a business or adventure in the nature of trade involving the provision of guarantees for reward. There was no evidence that any such business existed. This is a case in which a claim for payment was made under a guarantee given by a shareholder to a bank to induce it to advance the capital required by the shareholder's company to carry on its business. Such a payment, when made, is an outlay of capital (M.N.R. v. George Steer, [1966] C.T.C. 731; 66 D.T.C. 5481). No such outlay was made by the appellant in 1984. Furthermore in 1984 the quantum of the liability was not fixed. The appellant resisted the claim for $610,000 originally made by the bank in May of 1984. Over the next year he succeeded in negotiating it down and settling on a total amount of $140,723. No loss was incurred until the extent of the outlay required to meet the bank's claim was ascertained (Associated Investors of Canada Ltd. v. M.N.R., [1967] C.T.C. 138; 67 D.T.C. 5096 and The Queen v. Burnco Industries, [1984] C.T.C. 337; 84 D.T.C. 6348). The appeal will therefore be dismissed.
Appeal dismissed.