(a)-(c)

The taxpayers, which had incurred various expenses in respect of the second phase of a pipeline project which had not yet been constructed, were permitted by the National Energy Board to levy a special charge to Alberta producers of natural gas in respect of those costs. Collier J found that ss.12(1)(a) and (b) did not apply as the taxpayers did not receive the special charges as part of their income earning process, as none of them were rendering any service to the Alberta producers.

Since s. 12(1)(a)(ii) covers deposits, s. 12(1)(a)(i) was not intended to apply to deposits. Deposits received by a vendor of land were subject to the contingency of possible repayment, and so did not become part of its income until its right to them became absolute.

The taxpayer, which was a real estate developer, agreed with each of three partnerships to construct and complete a MURB project and provide certain initial services essential to the project pursuant to a development agreement, including the provision of ongoing financial guarantees, in consideration for the partnership's promise to pay stipulated amounts to the taxpayer in instalments as evidenced by promissory notes and, in the case of two of the three projects, wrap-around mortgages. Rothstein J.A. found that the fact that the notes and wrap-around mortgages stated that they were "subject to" the development agreement did not establish that the right of the taxpayer to be paid did not become absolute at the time the debt instruments were made; and rights of set-off also were not inconsistent with the obligations to the taxpayer being absolute. Accordingly, the amounts stipulated in the debt instruments were receivable for purposes of paragraph 12(1)(b).

The taxpayer issued insurance policies on an annual basis to its individual customers, and gave them the option of paying their annual premium pursuant to a written form authorizing their employer to make the requisite periodic deductions from their salary. Pinard J. found that the taxpayer had a clear legal right in these circumstances to receive the full premium (with the result that the full premium was "receivable" by it) because the insured individual had taken out an insurance policy giving him the desired protection for a year. However, a portion of the premium amount related to insurance protection provided during the subsequent calendar year, i.e., to a service to be provided beyond the taxation year in question. Accordingly, the portion of each premium that related to the subsequent year was not required to be included in the taxpayer's income under s. 12(1)(b).

Before going on to find that a federal sales tax refund did not represent income in the taxation year in question on another basis, Hugessen J.A. found that it was not receivable by the taxpayer in that year because the Minister had not yet given some public and irrevocable indication thereof.

Contingent profit commissions, which an insurance broker was entitled to receive from insurance companies in respect of its 1983 fiscal year and that were contingent on the insurance companies' profitability on policies sold by the broker, did not constitute amounts receivable by the broker at the end of that fiscal year given the impossibility of coming to a reasonable estimate of the amount of those commissions at the end of the fiscal year. Rothstein J. stated (p. 5132):

"While estimates and, where necessary, discounting of amounts to be paid in the future appear to be acceptable practice, they must be predicated on an ability to approximate what is expected or knowledge of the amount to be discounted."

The taxpayer was unsuccessful in arguing that the 1983 amendments to s. 12(1)(b) implied that amounts earned for the provision of services do not become income until the billing date, provided that there is no undue delay in billing. S.12(1)(b) operated so as to expand the ambit of s. 9(1), rather than to exclude items which otherwise would be income under s. 9(1).

A hydro-electric utility included in its income for financial statement purposes an estimate of the value of electricity which have been consumed by its customers between the time they last had their metres read and the year-end and for which they had not yet been billed. In finding that such unbilled amounts were "receivable" by the utility and therefore to be included in its income for purposes of s. 12(1)(b), MacGuigan J.A. stated (pp. 6030-6031):

"I can have no doubt that the Appellant was absolutely entitled to payment for any electricity delivered, and in an amount reasonably estimated. Suppose, for example, that a customer's residence was destroyed by fire at midnight on December 31. The Appellant would surely have a legal right as of the due date to reimbursement for the electricity supplied since the previous billing, viz, through December 31, and a Court would be prepared to fix the amount of entitlement, probably using something like the appellant's pro-rated method....[T]herefore...the appellant had a clear legal right to payment: the amounts in question were sufficiently ascertainable to be receivables even though not yet billed or due...."

A real estate developer which sold condominiums for consideration consisting in part of mortgages of the purchasers bearing interest at a below-market rate was required to include the face amount of the mortgages in its income, notwithstanding that under GAAP it was required to include only their fair market value in computing income.

Before finding that an electric utility was not permitted to exclude from its income the value of electricity consumed by its customers for which it had not yet billed them, MacKay J. stated (p. 5220):

"Paragraph 12(1)(b) requires only that amounts receivable be included in income. It does not require the converse - that other amounts not falling within the meaning of 'receivable' be excluded from income."

An agreement of purchase and sale of land provided for payment of $20,000 of the $844,250 purchase price on the execution of the agreement on October 29, 1968, and for the payment of $50,000 on the "nominal" closing date of October 31, 1968. Since the purchaser could not obtain beneficial ownership of the lands under the agreement until a condition precedent relating to compliance with the Planning Act (Ontario) was fulfilled, and this condition was not fulfilled until 1970, the balance of the purchase moneys (after the receipt of $70,000 in 1968) did not become an "amount receivable" by the vendor until 1970.

(Obiter) In s."12(1)(b), it was thought necessary, or at least desirable, to make it clear that the word 'receivable' was to include sums which would not, in ordinary language, be considered to be receivable within the particular taxation year".

Although the Minister cannot require a construction company to include in its income the amount of holdbacks prescribed under the Mechanic's Lien Act (now the Construction Lien Act) and of progress claims for which architect's certificates have not yet been issued, s. 12(1)(b) does not prohibit a construction company from choosing to include such amounts in its income.

In finding that the taxpayer realized income from land inventory in its 1955 taxation year (when an agreement was reached with the Crown fixing the amount of compensation for the expropriation of the land, and that amount was paid) rather than its 1954 taxation year (when the land was expropriated) Judson J. stated (p. 5276):

"It is true that at the moment of expropriation the taxpayer acquired a right to receive compensation in place of the land but in the absence of a binding agreement between the parties or of a judgment fixing the compensation, the owner had no more than a right to claim compensation and there is nothing which can be taken into account as an amount receivable due to the expropriation."

Judson J. also noted (at p. 5276) the principle that "for income tax purposes, accounts cannot be left open until the profits have been finally determined".

Holdbacks on contracts for the installation of heating and plumbing systems became "receivable" when the architect's or engineer's certificates were executed, thereby resulting in an absolute entitlement of the taxpayer to receive the holdbacks at a later due date. "[I]t is not enough that the so-called recipient have a precarious right to receive the amount in question, but he must have a clearly legal, though not necessarily immediate, right to receive it."

Cameron, J. held that the full amounts covered by interim progress certificates of the supervising engineer became "receivable" for the purposes of the application of s. 85B(1)(b) to long-term sewer installation contracts having a fixed price per lineal foot of work done, notwithstanding that 10% of the amounts covered by the interim certificates were required to be held back until the time that the project was certified to have been completed. "Parliament has extended somewhat the ordinary concept of 'income' in relation to a business in which property is sold or services rendered and ... every amount to be received in respect of property sold or services rendered in the course of the business in the year shall be included notwithstanding that the amount is not to be received until a subsequent year ..."

The taxpayer, when it sold cottages it had constructed, usually accepted second mortgages from the purchasers which it would subsequently sell at a substantial discount from their face amount. In finding that s. 85B(1)(b) of the pre-1972 Act required the principal of the second mortgages to be included in the computation of the taxpayer's income at the time of the sale, Cameron J. noted that because the second mortgages were expressed in terms of money, it was that amount which was to be included in income in light of the definition of "amount" in s. 139 of the pre-1972 Act.

The taxpayer agreed to settle a loan owing to it of over $8 million plus accrued but unpaid interest through the payment to it by the debtor of $1 million. The settlement agreement provided that the $1 million repayment proceeds were to be "applied on account of the principal amount of the loan." This was enough to make out a prima facie case that the taxpayer did not receive payment of any of the unpaid interest. As the Minister had not provided evidence to contest this case, the taxpayer was entitled to a bad debt deduction in respect of the unpaid interest.

In the course of concurring reasons provided in finding that a interest income on a deposit with an on-reserve credit union represented property of the taxpayer (a status Indian) that was situated on the reserve, Deschamps J. stated (at para. 89):

...it would be pointless to try to determine the location at which the interest accrued. The accrual of interest results not from an activity, but solely the passage of time.

In finding that the difference between the purchase price of notes and of commercial paper acquired by the taxpayer in the secondary market and their redemption price was interest to the taxpayer, Bédard, J. rejected the taxpayer's submission (at para. 6) that s. 12(9) of the Act and Regulation 7000(2) applied only to taxpayers who held prescribed debt obligations that were acquired at the time of their issue. He then went on to find that even in the absence of the above provisions, the discounts received by the taxpayer would have been interest income to him on general principles given that the taxpayer did not establish that the rate of return for these obligations reflected a risk premium.

Notwithstanding the taxpayer's allegations to the contrary, there had never been an agreement (verbal or otherwise) between the taxpayer and a debtor that the whole of a $1 million payment made to the taxpayer was to be treated by it as a payment on account of capital. Accordingly, the Minister was correct in applying provisions of the Civil Code which required that where interest on a debt was in arrears, any payment prima facie had to be applied first to interest, then to capital.

Twelve years after Ontario Hydro expropriated some farm lands of the taxpayer, it reached an agreement with the taxpayer to pay him $44,425 of compensation plus interest (computed at 18½%) on the compensation amount over the 12-year period. Wetston J. found that because the interest amount was calculated as a discrete sum, after an agreement was reached as to the total compensation to be paid to the taxpayer, it was attributable to a delay in the payment of that capital sum and, therefore, was taxable as interest income.

Interest earned by the taxpayer (a German corporation carrying on a reinsurance business throughout the world, including through a branch in Canada) on income tax instalments which it had overpaid, were included in its income under s. 12(1)(c) and, therefore, were not subject to tax under Part XIII of the Act.

An award of "additional interest" received by taxpayer pursuant to s. 66(4) of the Expropriation Act (Alberta) (a provision which required the payment of such amount in circumstances where an expropriating authority offered less than 80% of the amount ultimately awarded and the Expropriation Board was of the opinion that such lower figure was due to the fault of the expropriating authority) did not, by its nature, constitute compensation for the lands that had been taken, nor compensation for the loss of use of money. Instead, its true nature was in the nature of a punitive damage award intended to discourage token or unrealistic payments from being tendered. Accordingly, the payment was simply a windfall and, therefore, not income under s. 3(a).

The difference between the $152,078 purchase price for a Government of Canada Treasury Bill, which the taxpayer acquired on May 2, 1989, and its face value of $170,000, which the taxpayer received on the maturity of the treasury bill on April 27, 1990 was correctly treated by Revenue Canada as interest income for the taxpayer's 1990 taxation year, rather than as a payment of principal to which s. 39(4) applied. Stone, JA noted (at p. 5343) that "it is well established that, as a general rule, compensation for the use of money represents interest," that there was "no suggestion of any accretion to capital between the date the bill was acquired and the date it was redeemed," and that it was apparent that a holder of a treasury bill is paid a blend of principal and interest upon its redemption.

The farm lands of the taxpayer were expropriated pursuant to the Expropriation Act (Alberta) in 1977. Following the settlement in 1986 of an action against the Province of Alberta, the taxpayer received the sum of $1,020,368 which was calculated as a replacement of interest income which the plaintiff would have earned if he had been paid the full value of his land at the time of the expropriation.

Because the character of this sum under the Expropriation Act was compensation for the government's failure to pay promptly the balance of the value of the land that had been taken, rather than compensation for the expropriation of the land, that sum also constituted interest for purposes of the Act rather than proceeds of disposition of the land. With respect to the finding of the Trial Judge that because s. 44(2)(a) deemed the taxpayer to have disposed of the land in 1986, therefore there was no interest that had accrued to the taxpayer prior to that date, the Court found that s. 44(2)(a) was merely a timing provision that did not recharacterize the nature of the sum received.

Interest owing to the taxpayer as a result of the acceptance by his co-shareholders of his offer to sell his shares in a corporation, was found to be received by him at the end of 1990, when he received the cheque for the purchase price (including the interest) and accepted that cheque as payment (as evidenced by his deposit of the cheque to his bank account), rather than early in 1991 when the amount was credited by the bank to his bank account at another branch.

As part of the restructuring of a company in financial difficulty, the taxpayer received Class C preference shares of the company having a par value of approximately $28.2 million in exchange for surrendering unsecured subordinated debentures with a principal amount of approximately $25.1 million and accrued but unpaid interest thereon of approximately $3.1 million. At the time of the exchange, the taxpayer had no entitlement to demand payment of the interest due to a failure of the company to satisfy various financial tests governing the debentures.

The taxpayer, in the light of expert valuation evidence, was able to demolish the implicit assumption of the Minister that the Class C preference shares had a value equal to their par value, with the result that the taxpayer was not required to include any amount in income under s. 12(1)(c) in respect of the unpaid interest on the subordinated debentures.

Following binding arbitration, the appellant was awarded a salary increase retroactive to the beginning of the preceding year together with "interest" calculated at a specified rate on that "principal" amount. It was held that the "interest" was in fact such, since there is no requirement that the principal amount in relation to which the interest is paid be ascertainable at the beginning of the period in respect of which the interest is calculated.

A mortgage with a term of July 1979 to December 31, 1984 provided that the present value of the interest which would have accrued over the balance of the term of the mortgage was due and payable in three equal instalments ending on March 31, 1980. Since the taxpayer mortgagee had the right to receive in 1980 the whole of the interest, that interest was "receivable" by it in the year, and was included in its 1980 income.

An option agreement, in addition to granting the Grantee the option to acquire lands for a price of $240,000, provided that:

"[T]he Grantee agrees to pay to the Grantor $1,800,000 per month from May 18, 1973. This sum being 9% on $240,000. The said payments are to accumulate and be paid upon the exercising or expiry of the Option."

It was held that the monthly amounts of $1,800 were not interest to the Grantor "but merely the means of measurement of the increment to the purchase price payable to the plaintiff [Grantor] consequent upon the extension of the time to exercise the option or the delay in exercising that option."

It was stated, obiter, that s."12(1)(c) require[s] accounting [for interest] in conformity with ordinary commercial practices and/or generally accepted accounting principles". It was further suggested that such practices or principles may permit a "hybrid system" wherein some interest income is accounted for by the taxpayer on an accrual basis, and some on a cash basis.

The deceased taxpayer sold a company in 1968 in consideration for an initial payment of $660,000 and three additional annual payments based on the audited net profits of the company for the three subsequent years, but with such additional payments not to exceed $1,200,000. The share purchase agreement provided that "interest", calculated at a rate of 7% per annum from the closing date to the date of payment, would be added to the amounts of the subsequent annual additional payments.

Taxpayer's counsel argued that the "interest" amounts were payments of capital as they did not accrue from day to day on an existing principal amount: the principal amount on which the "interest" was calculated did not come into existence until it had been determined on the basis of subsequent audited financial statements. In rejecting this submission, Le Dain J noted (at p. 6085) that it was open to the parties to treat the subsequent determination of the amounts owing as having retrospective effect to the closing date of the purchase, and that this is what they had done by providing for the accrual of 'interest" on the additional amounts from the closing date. After referring to Huston & Whitehead v. MNR [1962] Ex CR 69, where an award in 1958 of compensation out of the War Claims Fund for a loss suffered in 1945 plus "interest" was found not to contain any element of interest because there was no entitlement to compensation until the award was given, Le Dain J stated (at p. 6085):

I think it is the existence on the closing date of a conditional obligation or contingent liability to pay the balance of price which the parties were entitled to treat as having become absolute with retroactive effect, for purposes of interest, that distinguishes the present case from Huston.

Accordingly, the "interest" amounts also were interest income for purposes of the Act.

The taxpayer made a second mortgage loan to a real esate developer ("Clearstream"). After Clearstream defaulted, the taxpayer arranged for an affiliated company ("Ontra-Desar") to purchase the mortgaged property, doing so (without the knowledge of Clearstream) as nominee and agent for the taxpayer. The consideration paid by Ontra-Desar was stated to include the discharge by it of the second mortgage liability of Clearstream to the taxpayer including the arrears interest. (The taxpayer did not want Clearstream to realize that it was the true purchaser, so that the second mortgage would automatically be extinguished as a result of the purchase.)

In finding that the taxpayer had received the arrears interest (and, therefore, was taxable on that amount under s. 6(1)(b) of the pre-1972 Act), Walsh J stated (at p. 5037) that the taxpayer "actually received the interest due to it on its loan as a result of paying less in cash to the vendor [through its nominee] to the same extent when the purchase price was paid." Walsh J further stated that even if the value of the lands (net of the first mortgage liability) had been insufficient to pay the amounts (including interest) owing to the appellant, the value of the lands acquired (net of the assumed first mortgage) would be attributed first to interest, with any remaining balance attributed to capital, so that any value shortfall would not have the effect of reducing the amount of interest considered to have been received by the taxpayer under s. 6(1)(b) of the pre-1972 Act.

Under a contract with the Canadian Scholarship Trust Fund it was agreed that interest on funds deposited by the taxpayer would be transferred to the Trustee on the maturity of the plan, to be applied to the education costs of the taxpayer's son if certain conditions were met, or otherwise for the benefit of other beneficiaries. Since the taxpayer would not receive the interest regardless of the circumstances under which the plan matured or was terminated, accrued interest was not includible in the taxpayer's income.

An individual taxpayer, who in two successive years clipped and sold overdue coupons in the amount of $10,000 on his Canada bonds to the trustee for five RRSPs for a sale price of $9,000, was held to have (1) received the sale proceeds as interest and (2) as a payment "in lieu of payment of... interest."

With respect to the first ground, Sheppard DJ stated (at p. 6335, DTC):

Interest includes comp[ensation for the use of money...,The Appellant's right under the bonds was to receive interest as compensation for the use of his money and that right could be realized by surrendering the coupons to any agent of Canada or equally by selling to the trust company by delivering the matured coupons; in either event, the proceeds in the Appellant's hands represent the sum received by him as compensation for the use of his moneywhich he had lent to Canada.

With respect to the second ground "the words 'in lieu of' mean 'instead of' ... and therefore the sums of $9,000 have been received by the appellant 'instead of' the sums to be received from an agent of Canada on presenting the coupons".

Before finding that bonuses or discounts received by the taxpayer (a dentist), on on a large portfolio of risky first mortgages acquired by him as his principal source of income and held by him until maturity, constituted business profits when received, Noël J. stated (p. 1354):

"With regard to respondent's contention that appellant's bonuses or discounts here should be regarded as interest and taxable therefore under s. 6(b) of the [pre-1972] Act, I cannot agree. Indeed, it is now settled (cf. Lomax v. Peter Dickson...) that where a loan is made at or above a reasonable commercial rate of interest as is applicable to a reasonable sound security, there is no presumption that a 'discount' at which the loan is made or a premium at which it is payable is in the nature of interest.

Now the interest rate in the present instance...is far above the conventional rate to a point where one cay say in determining the true nature of these discounts by looking at all the relevant circumstances such as the term of the loan, the rate of interest, the nature of the capital risk, the extent to which, if at all, the parties expressly took, or may reasonably be supposed to have taken the capital risk into account in fixing the terms of the mortgage, that such discounts are not in the nature of interest...."

An award which the taxpayers received in 1958 from the War Claims Commissioner as compensation for the confiscation of their Czechoslovakian factory during World War II included notional interest of 3% per annum for the period from January 1, 1946 to the date of the award. The notional interest was not "received as interest" within the meaning of s. 12(1)(c). "[T]here was neither interest accruing in fact on the 'principal' amount during the material period nor any right to the 'principal' amount vested in the taxpayer during that period." The payments here simply were grants to individuals, and payments "take their nature not from the motives for making them or from what they are called, but from what in substance they are."

S.20 of the Succession Duty Act (Ontario) provided that where succession duty was paid before the due date, the Treasurer of Ontario was authorized to "allow interest upon the amount so paid at a rate not exceeding three per cent per annum from the time of payment until the time so provided for payment." A reduction in succession duty pursuant to this provision was not interest income for purposes of s. 6(1)(b) of the pre-1972 Act, even if the purpose of s. 20 was to compensate for the loss of the opportunity to use money between the payment date and the due date.

Thurlow, J. stated:

"I find it impossible to regard the allowance either as a payment for the use of money or as an amount earned or gained by the prepayment of the duty ... [I]t is allowable simply because the statute so states, without regard for the reasons which may have prompted the legislature to provide for it and regardless, as well, of the executors' purpose in making the payment. In my opinion, the allowance is, in fact and in law, nothing more nor less than a statutory reduction ... of the duty which otherwise would be payable."

The same conclusion would have obtained if the allowance was made by way of refund to the taxpayer, rather than by deduction from the duty.