West Kootenay Power and Light Co. Ltd. v. The Queen, 92 DTC 6023, [1992] 1 CTC 15 (FCA)

MacGuigan, J.A.:—The issue in this case is one of tax timing: whether estimates of unbilled revenue at December 31, the end of the taxpayer appellant's taxation year, must be included in its income from business in that year.

I

The appellant is an investor-owned corporation engaged in the business of generating and distributing hydro-electric power in southeastern British Columbia and subject to regulation, including as to its rates, by the British Columbia Utilities Commission ("the BCUC”). Its residential customers were on a two-month billing cycle, and meter readings were made on a bi-monthly basis.

At the relevant fiscal year-ends, 1983 and 1984, the appellant had delivered some electricity for which, as of those year-ends, the customers had not yet been billed. In fact, the BCUC-approved tariff did not permit the appellant to issue bills for electricity supplied to December 31 until the completion of the billing cycle ending after that date.

Until 1979, the accounting practice followed by the appellant did not take account of unbilled revenue, but in that year, on the advice of accountants, the appellant changed its practice and recorded income based on estimates of the revenue anticipated to be received, both for financial statements of its operation and for tax purposes. This accrual basis was continued through 1982.

In 1983, while maintaining the accrual basis for calculating income for its annual statements, the appellant changed from an accrual to a “billed” basis for its income tax return, eliminating from its income the estimate of revenue unbilled at year-end, and reported revenues only as billed.

The estimated sale price of the delivered but as yet unbilled electricity at year-end was $3,919,176 as of the end of 1983, and $3,874,834 as of the end of 1984 ("the unbilled revenue"). This unbilled revenue was added to the appellant's income by the Minister of National Revenue for the 1983 and 1984 taxation years by reassessments dated May 21, 1987.

The impact of generally accepted accounting principles ("GAAP") on this fact situation was partially covered by the partial agreed statement of facts, as follows (Appeal Book IV, at 495-96):

3. Under generally accepted accounting principles as applied to the particular facts of this case, it would be acceptable to treat the unbilled revenues in either of the following ways:

(a) either the plaintiff could include the unbilled revenues as of year-end in its computation of income for financial statement purposes (as the plaintiff in fact did in its Financial Statements for the years in issue); or

(b) the plaintiff could exclude the unbilled revenue as of year-end from its computation of income for financial statement purposes. If the plaintiff chose this second option, the unbilled revenues would be included in the computation of its income for financial statement purposes in the following year when the amounts were billed and recorded as accounts receivable.

4. Under generally accepted accounting principles accounting policies followed by an enterprise should be consistent within each accounting period and from one period to the next. Changes in accounting policy should be made in a manner consistent with section 1506 of the Canadian Institute of Chartered Accountants Handbook, a copy of which is annexed hereto.

5. Nothing in this agreement precludes either party from leading evidence as to whether, for generally accepted accounting principles, the unbilled revenues constituted earned income in the year in which the electricity was delivered.

The relevant part of section 1506 of the C/CA Handbook, section 1506.02, is as follows:

CHANGE IN AN ACCOUNTING POLICY

Accounting policies encompass the specific principles and the methods used in their application that are selected by an enterprise in preparing financial statements. There is a general presumption that the accounting policies followed by an enterprise are consistent within each accounting period and from one period to the next. A change in an accounting policy may be made, however, to conform to new Handbook Recommendations, Accounting Guidelines published by the Accounting Standards Steering Committee, Abstracts of Issues Discussed by the CICA Emerging Issues Committee or legislative requirements or if it is considered that the change would result in a more appropriate presentation of events or transactions in the financial statements of the enterprise.

The relevant provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) as amended by S.C. 1980-81-82-83, c. 140, subs. 4(1) ("the Act"), are as follows:

9. (1) Subject to this Part, a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year.

12. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable:

(b) any amount receivable by the taxpayer in respect of property sold or services rendered in the course of a business in the year, notwithstanding that the amount or any part thereof is not due until a subsequent year, unless the method adopted by the taxpayer for computing income from the business and accepted for the purpose of this Part does not require him to include any amount receivable in computing his income for a taxation year unless it has been received in the year, and for the purposes of this paragraph, an amount shall be deemed to have become receivable in respect of services rendered in the course of a business on the day that is the earlier of

(i) the day upon which the account in respect of the services was rendered,

and

(ii) the day upon which the account in respect of those services would have been rendered had there been no undue delay in rendering the account in respect of the services;. . .

(2) Paragraphs (1)(a) and (b) are enacted for greater certainty and shall not be construed as implying that any amount not referred to therein is not to be included in computing income from a business for a taxation year whether it is received or receivable in the year or not.

The rate schedule approved by the BCUC for residential users at the beginning of 1983 was as follows (Appeal Book I, at page 126):

The tariff amounts were increased twice during the relevant tax years (Appeal Book I, at pages 127-28) but the general scheme of different rates based on the volume of energy consumed remained throughout. Indeed, the same points of consumption volume (40 K.W.H., 360 K.W.H. and 400 K.W.H.) were retained on each occasion as the thresholds for the rated differentials.

The appellant used two methods in estimating for its financial statements the amount of unbilled revenue. The first was the "prorate method", in which by means of a computer program each customer's account was computed on the basis of consumption to date, previous rates of consumption and allowances for changing weather conditions or other factors. The second method, used primarily for checking purposes, was the "gross load method", in which an amount was determined based on production output to December 31, reduced by estimated line losses for energy lost in transmission.

MacKay, J. at trial found as follows on the facts (Appeal Book IV, at pages 588-90) :

It was Mr. Ash's view that as a practical matter the company did not have resources that would be required if it were to attempt to read all meters on December 31 of any year. It retained approximately 20 meter readers and utilized some twenty billing dates within each month so that to read all meters on any one day would require more than 400 meters readers. . . . While it would be possible in a theoretical sense to determine actual amounts owned to that date by "unbilled" customers, I accept that it was not possible in any reasonable, practical sense to do so. Even if it were possible it would be contrary to the principles approved by the provincial commission for billing and recovery of revenues in one or two month cycles utilizing a differential pricing structure relating to the volume of consumption. Moreover, it would result in distributing a higher portion of customers' accounts and thus of the company's revenue to the company’s year end than would be warranted on an earned basis averaged over the billing cycle as a whole. Thus, I accept that revenue attributable to unbilled accounts at year end could only be estimated on a reasonable basis without pretence that the estimate was accurate for any customer or for all customers.

This finding as to unbilled revenue does not, of course, determine the issue.

The trial judge went on to state the issue as he saw it (Appeal Book IV, at page 590):

In essence the issue presented by argument of the parties is whether a taxpayer who uses the accrual method of accounting for revenues, in accordance with GAAP, for purposes of its financial statements and general accounting, can utilize another method of accounting also consistent with GAAP, for purposes of its reporting for income tax purposes. Counsel for the Crown acknowledged that if in 1983 the company had reverted to its practice prior to 1979, accounting for revenues on the billed account basis for purposes of both its financial statements and its reporting for income tax purposes, the issue presented by the Minister's reassessments would not have been raised.

Since he analyzed the issue in terms of consistency between the financial statement and the tax return, the trial judge devoted a great deal of attention to the evidence of a chartered accountant, Dennis Culver, given on behalf of the respondent. Culver relied in particular on the CICA Handbook, section 1506.02, cited above. The trial judge summarizes Culver's evidence as follows (Appeal Book IV, at page 592) :

In the opinion of Mr. Culver the change in method of calculating revenue for income tax purposes only, while retaining the accrual method for financial statement purposes, was akin to trying to ride "two GAAP horses at one time”. Having adopted the accrual method for accounting for financial statement purposes, Mr. Culver's opinion was that it would be inconsistent with GAAP to utilize another method, and that the method adopted for basic financial purposes is then applicable for all other financial reporting purposes for the same period.

In arriving at the applicable law, the trial judge followed the decision of Reed, J. in Maritime Telegraph and Telephone Co. v. Canada, [1991] 1 C.T.C. 28, 91 D.T.C. 5038, where the corporate taxpayer, whose business was the provision of telephone and other telecommunication services, adopted for tax purposes the “billed” method of reporting income, although for general accounting purposes and for reporting to its regulatory agency it continued to use the accrual method. Reed, J. held that unbilled but earned revenues are not receivables under paragraph 12(1)(b) of the Act, but are caught rather under subsection 9(1), since this method gives a truer picture of income for the year then the alternative method.

MacKay, J. therefore concluded (Appeal Book IV, at pages 596-98):

If the exclusion of unbilled revenue in accounting for profits for tax purposes is not required by the Act, is there a basis for support of the plaintiff's position that its exclusion, following a method consistent with one phase of generally accepted accounting principles, is permissible under the Act? The expert evidence of Mr. Culver, questioned but maintained in cross-examination, was clearly to the effect that adopting one method for financial statement accounts and another for reporting income for tax purposes is not supportable under GAAP, for that does not comply with the principle of consistency, particularly section 1506.02, applicable within each accounting period and from one period to the next. Further, the principles underlying the decisions of the Court of Appeal in Neonex International Ltd. v. The Queen [[1978] C.T.C. 485, 78 D.T.C. 6339 (F.C.A.)], and Canada v. Cyprus Anvil Mining Corporation [[1990] 1 C.T.C. 153, 90 D.T.C. 6063 (F.C.A.)], in my view, support the conclusion that the Act does not permit reporting revenues for tax purposes on a different basis than that adopted for purposes of accurately portraying the financial picture of a company for shareholders and creditors, aside from provisions of the Act which specifically require different treatment. In Neonex, in relation to claimed deductibility of expenses incurred in making unfinished signs under contract for payment upon completion, the Court relied on the principle of matching expenses and revenues to preclude a different treatment for tax purposes than that followed by the company in financial statements prepared for shareholders and general public purposes. In Cyprus Anvil, relying on the principle requiring consistency in accounting, the Court precluded calculation of profit on a basis different for tax purposes from that followed for the corporation's own financial accounting in a tax exempt period which affected the tax situation of the company in the succeeding period. While the facts of both cases are easily distinguished from the case before this Court, the general principle supports the conclusion set out that the Act does not permit reporting for tax purposes as the plaintiff here seeks to do. That conclusion is also supported by the interpretation of subsection 12(2) together with subsection 9(1) in the decision of Madame Justice Reed in Maritime Telegraph.

I conclude that the Income Tax Act does not require or permit a taxpayer to account for revenues, and thus profits, on a billed basis for a taxation year when at the same time it accounts for financial statement purposes on an earned or accrued basis, including estimates of unbilled revenue in its account at year end. It may well be that the taxpayer could opt to calculate income on the billed basis, at least in the plaintiff's industry where either of the two treatments appears to be followed by individual companies, assuming appropriate reasons for so doing are supportable within GAAP, if it does so for purposes of both financial statements and for reporting for income tax purposes. That would simply put the plaintiff in this case in the same position that it followed prior to 1979.

II

In the submission of the appellant, the trial judge erred in two respects: (1) in deciding that the estimates of unbilled revenue were revenue for income tax purposes, even though they were not receivable under paragraph 12(1)(b) of the Act; and (2) in deciding that profit for tax purposes must be computed on the same basis used for computing profit for general financial purposes, even though there are two alternative generally accepted accounting principles. I shall deal with these errors in reverse order. For ease of reference, I shall describe the trial judge's conclusion that the Act requires a taxpayer to utilize the same method for tax returns and financial statements as expressing a principle of consistency.

The appellant argued that consistency as referred to in section 1506.02 of the CICA Handbook required only the consistent use of a particular accounting principle for a specific purpose, and not the use of the same principle for different purposes. Moreover, it was said that there is no Canadian authority for the trial judge's principle, while there is an English authority, Willingale (Inspector of Taxes) v. International Commercial Bank Ltd., [1978] 1 All E.R. 754 (H.L.) to the contrary. In short, the appellant contended that it was entitled to use either of the two accounting methods in question, as provided for in the partial agreed statement of facts.

In the Willingale decision, where the taxpayer included income respecting discounted bills of exchange calculated on a daily basis in its financial statement, but excluded the discounts for tax purposes until the bills matured or were sold, the House of Lords, by a bare 3-2 margin, decided in favour of the taxpayer. Lord Fraser of Tullybelton may be said to have expressed the majority view, as follows (at pages 761-62):

. . . I am of opinion that the bank's accounts prepared for commercial purposes are drawn up on the principle of anticipating future profits from its holding of bills and notes. There are no doubt excellent commercial reasons for preparing the accounts in that way . . . . But they are not a proper basis for assessing the bank’s liability to corporation tax.

In my opinion, Willingale cannot be interpreted, as the appellant would have it, as rejecting the principle of consistency, because it decided only that a taxpayer is not required to anticipate future profits.

The trial judge cited Neonex International Ltd. v. The Queen, [1978] C.T.C. 485, 78 D.T.C. 6339 and Canada v. Cyprus Anvil Mining Corporation, [1990] 1 C.T.C. 153, 90 D.T.C. 6063, in support of the principle of consistency. Neonex had to do with the deductibility of expenses incurred in making unfinished signs, and the trial judge accurately stated that "the Court relied on the principle of matching expenses and revenues". But with respect, that is not the same as the asserted principle of consistency, which must amount to a rule of law rather than a factual determination. In Neonex, Urie, J.A. wrote for the Court (at pages 500-501 (D.T.C. 6349)):

In my opinion, the method used by the appellant in calculating its taxable income neither accorded with generally accepted accounting principles nor with the proper method of computing income for tax purposes . . . . The expenses incurred in connection with the partially completed signs were laid out to bring in income in the next or some other taxation year, not in the year in which they were claimed. As a result, the income of the appellant would not be portrayed fairly nor accurately if it were permitted to adopt this method for tax purposes while for the purposes of its own creditors and shareholders it used the generally accepted accounting method presumably because that method fairly and accurately provides them with the profit or loss information to which they are entitled.

The decision made by this Court in Neonex was in the interests of the fair and accurate presentation of the company's income, and was based upon a factual determination that a different method from that used in its financial statement would not on the facts portray its position fairly and accurately.

In Cyprus Anvil this Court applied a principle of consistency, but that principle related to the taxpayer's own previous tax returns as well as to its financial statements, and was based on sound business or commercial principles. Urie, J.A. said (at pages 58-59 (D.T.C. 6068-69)):

The three-year exempt period granted by subsection 83(5) of the Act and section 28 of the I.T.A.R. was provided as a tax incentive for the development of new mines and, according to the respondent, its purpose was to exempt from tax the fruits of the income earning process carried on in the prescribed three years. . . .

In essence what this submission means is that no matter how the respondent calculates its profit for either financial statement or tax purposes, it is entitled by virtue of the intention of the incentive legislation to maximize its profits for that exempt period.

It seems to me that when the issue is stated succinctly and baldly in that way, it immediately discloses the fallacy in the respondent's position. The tax exempt period cannot exist in isolation and the rules to be applied in determining the profit which the company earns from its production of concentrates during the exempt period must be determined, as was said by this Court in a different factual and statutory context in Denison Mines Ltd. v. M.N.R., [1972] 1 F.C. 1324, [1972] C.T.C 521, 72 D.T.C. 6444 at page 524 (D.T.C. 6446).

. . . must be determined by sound business or commercial principles and not by what would be of greatest advantage to the taxpayer having regard to the idiosyncrasies of the Income Tax Act.

The undoubted fact that subsection 83(5) is incentive legislation does not, as I see it, entitle the recipient of the statutory beneficence to propose a method of computing the profit it purported to derive during the exempt period in a manner which is contrary to its method of computing its income before, during and after the exempt period both for its own financial reporting purposes and for its tax reporting purposes. To permit the taxpayer to change its usual accounting practices solely to maximize its profits during the exempt periods distorts not only the income during that period but also that in the periods before and after it. This is neither logical, authorized by statute nor consistent with good business or accounting practice.

This is a different concept, it seems to me, than the principle of consistency as between financial and tax statements. It has to do, rather, with fairly and accurately portraying income on the basis of sound business or commercial principles.

Again, in Maritime Telegraph Reed, J. relied on the method which accords a “truer picture" of the company's income (at page 30 (D.T.C. 5039)):

It is clear from the evidence that both methods of accounting are in accordance with generally accepted accounting principles (GAAP). At the same time, while there is some evidence that the billed method is used by some utility companies, there was no evidence that any large Canadian telephone company uses the billed method for its general financial statements. Also, it is fair to conclude that the earned method accords a "truer" picture of the company's income for the year in question than does the billed method. The plaintiff is engaged in providing a continuing service which by its very nature results in revenues accruing daily. [1]

Apart from the judicial authorities, I find myself in agreement with the following analysis by Professor Brian J. Arnold,"Conformity Between Financial Statements and Tax Accounting" (1981), 29 Can. Tax J. 476 at page 487, as to the policy considerations involved:

Any requirement of conformity between financial statements and income tax accounting is undesirable basically for two reasons. First, it will result in distinctions in the tax burdens on taxpayers on the basis of a criterion that is largely irrelevant to the tax system. The determination of business profit in accordance with ordinary accounting principles and practices entitles taxpayers occasionally to choose between alternative methods or practices. If this flexibility is unacceptable for income tax purposes (and it is very questionable that it is unacceptable), detailed provisions of the Act should be adopted to prescribe the rules that must be used for computing tax profit. But requiring conformity between a taxpayer's financial statements and his tax return simply shifts the flexibility from the tax return to the financial statements. Taxpayers in the same situation should be treated in the same way for income tax purposes whether or not they happen to use different accounting methods and practices for financial statement purposes. Second, any conformity requirement will operate unevenly with respect to different types of taxpayers. Corporations whose financial statements must be audited or are required by legislative enactment to follow prescribed accounting practices and methods will have less flexibility in reporting their income for income tax purposes than private corporations or individuals who will be more able to adopt alternative accounting practices in their financial statements.

Many accountants have expressed the view from time to time that a requirement of conformity between the computation of profit for income tax purposes and the computation of profit for financial accounting purposes would have the undesirable effect of constraining the development of generally accepted accounting principles. The pressure of the development of financial accounting will be even greater if there is a requirement of conformity between financial statements and tax reporting. In order to reduce taxes, owners and managers are likely to attempt to persuade accountants to prepare the financial statements of the business on a basis that results in less tax being paid but that does not result in the disclosure of the best or most reliable information to other users of the financial statements.

In my view, it would be undesirable to establish an absolute requirement that there must always be conformity between financial statements and tax returns, and I am satisfied that the cases do not do so. The approved principle is that whichever method presents the "truer picture" of a taxpayer's revenue, which more fairly and accurately portrays income, and which "matches" revenue and expenditure, if one method does, is the one that must be followed.

The result often will not be different from what it would be using a consistency principle, but the" truer picture" or” matching approach" is not absolute in its effect, and requires a close look at the facts of a taxpayer's situation.

Because the practical results of the two principles are so closely related, it may be that the trial judge implicitly reached a conclusion as to the application of the truer picture approach, even though he did not do so clearly and unequivocally. For instance, he said of Culver's testimony, which he clearly found persuasive as a whole (Appeal Book IV, at page 591):

From the examination and cross-examination of Mr. Culver I conclude the following. It is his view that the accrual method of accounting better reflects the financial situation of a corporation because it is intended to match expenditures with revenues, and thus net income, for a given period, consistent with one of the basic tenets of GAAP.

Culver himself was very directly on point in his expert report (Appeal Book, appendix /, at page 6):

Faced with a choice between the alternative of accruing or not accruing the unbilled income, I would opt for the former. In my opinion, the accruing of unbilled income more closely matches the revenues of the organization with its relevant costs (see CICA Handbook Sections 1000.41 to 1000.43) and therefore produces a more accurate determination of net income for a particular period.

This conclusion of Culver's is less significant than two admissions by Stephen A. Ash, the Vice President of Finance of, and the only witness called by, the appellant. The more general admission was made in the context of the 1979 change of policy with respect to unbilled revenues (Transcript of Verbal Testimony at page 91):

Q. Would it be fair to say that by taking into account the unbilled revenues, you would more accurately reflect the profit picture for the company during the fiscal period?

A. We were trying to reflect what the revenue would be—ultimately what the revenue would be in the fiscal year.

Q. And would that be more accurate if you included unbilled revenues than if you excluded them?

A. That's why we did it, yes.

Ash made a parallel admission with respect to expenditure (Transcript at page 85):

Q. Would you agree that, therefore, in reporting your income for tax purposes in 1983, that income would be reduced by certain expenses that were incurred in order to earn a so-called unbilled revenue?

A. Included in our expenses would be those items, yes.

Finally, there is an acknowledgement by Ash as to the appellant's primary motive in its 1979 change of policy, which I believe is tantamount to an acceptance that the accrual method presents a truer picture of the company's income (Transcript at page 33):

Q. Why was the company seeking to improve its income for financial statement to [sic] purposes at that time, for whose benefit?

A. It was for the benefit of the shareholders and we were in a serious position of potentially recording losses. We had a serious concern that we would be unable to raise capital if we got into a worse position. So we were seeking ways to improve our earnings at that time.

On the basis of this evidence I can conclude only to the fact that, even in the opinion of the appellant's directing mind, the accrual method of accounting adopted in 1979 for both financial and tax purposes presented a truer picture of the appellant's revenue because it more accurately and fairly matched revenue and expenditure—this, despite the fact that the estimate of revenue for the "stub-end" of the year could be only an approximation of the actual revenue.

Although, in my view, the learned trial judge was in error as to the legal principle to be applied, the approach which I propose to this problem leads to the same result, one which I believe he reached implicitly and in any event one to which he would inevitably have come if he had clearly directed his mind to the question.

Ill

The principal question remaining is as to whether the unbilled revenues in question come under the provisions of paragraph 12(1)(b) of the Act as an amount receivable, and, if so, whether they are exempted from that provision by the unless clause.

The word receivable” is nowhere defined in the Act. The respondent's witness Culver acknowledged that, under GAAP, unbilled revenue at the end of a year is not considered an amount receivable for that year (Transcript at pages 129-30). That is, of course, relevant, but not decisive, as to the legal concept.

In Maritime Telegraph Reed, J. held that the unbilled telephone charges there were not receivable under paragraph 12(1)(b), and that the case should be decided under subsections 9(1) and 12(2) (at pages 31-32 (D.T.C. 5040-41)):

I do not think the unbilled but earned revenues are "receivable" in the sense governed by paragraph 12(1)(b). It seems to me that that paragraph refers to amounts which have been billed as is the case with "accounts receivable”. The paragraph is particularly applicable to businesses who deal in the sale of goods or the sale of services when those services are performed at a discrete time or times. The business in which the plaintiff engages is not of this nature. The service it provides to its customers is a continuous one and its profit therefrom is earned on a continuous basis . . . .

The earned but unbilled revenues of the taxpayer at year end are brought into income pursuant to subsection 9(1) of the Act and there is no need to rely upon paragraph 12(1)(b) for this purpose. They were being accounted for by the taxpayer under subsection 9(1) prior to 1984 and they should equally be accounted for, pursuant to that subsection, after that date . . . .

Lastly, it is my view that subsection 12(2) is pertinent. That subsection makes it very clear that paragraph 12(1)(b) is not to be construed as implying that amounts not referred to therein are "not to be included in computing income”. It seems to me the taxpayer's argument in the present case would require one to ignore that directive.

The trial judge in the case at bar seems to have been in agreement with Reed, J.

The locus classicus for the concept of "receivable" is M.N.R. v. John Colford Contracting Co., [1960] C.T.C. 178, 60 D.T.C. 1131, at pages 186-87 (D.T.C. 1134-35), where Kearney, J. said:

As "amount receivable" or receivable" is not defined in the Act, I think one should endeavour to find its ordinary meaning in the field in which it is employed. If recourse is had to a dictionary meaning, we find in the Shorter Oxford, Third Edition, the word "receivable" defined as something "capable of being received." This definition is so wide that it contributes little towards a solution. It envisages a receivable as anything that can be transmitted to anyone capable of receiving it. It might be said to apply to a legacy bestowed in the will of a living testator, but nobody would regard such a legacy as an amount receivable in the hands of a potential legatee. In the absence of a statutory definition to the contrary, I think it 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. A second meaning as mentioned by Cameron, J., is “to be received,” and Eric L. Kohler, in A Dictionary for Accountants, 1957 edition, page 408, defines it as “ collectible, whether or not due." These two definitions, I think, connote entitlement.

The appellant argued that an amount which is not capable of quantification in any reasonable or practical sense and for which a claim of payment could not be made by virtue of the tariff comprising the contractual basis upon which the appellant supplied, and the customers consumed, electricity, is not receivable within the meaning of that Act. The Act was said to be concerned with certainty rather than estimation, and the opinions that such estimates necessarily entail.

Of the cases cited by the appellant, I do not find that /.L. Guay Ltée v. M.N.R., [1971] C.T.C. 686, 71 D.T.C. 5423 (F.C.T.D.), and Newfoundland Light and Power Co. v. The Queen, [1986] 2 C.T.C. 235, 86 D.T.C. 6373 (F.C.T.D.), add anything to Colford. In Consolidated Textiles Ltd. v. M.N.R., [1947] C.T.C. 63,3 D.T.C. 958 (Ex. Ct.), Thorson, P. held that expenses are claimable only against the income of the year in which they are expended, and could not be appor tioned against the year in which the income resulting from them was earned. He declared (at page 67 (D.T.C. 959)):

. . . at best such apportionment could only be an approximation dependent on the auditor's opinion. I am unable to believe that Parliament could have intended that the deductibility of expenses should depend on such an indefinite factor.

As I see it, this is the counterpart to Colford on the expense side, and adds nothing of substance.

In M.N.R. v. Benaby Realties Ltd., [1968] S.C.R. 12, [1967] C.T.C. 418, 67 D.T.C. 5275, Judson, J. held for the Supreme Court of Canada that compensation following expropriation must be attributed to the year in which it was received (at pages 420-21 (D.T.C. 5276-77)):

In my opinion, the Minister’s submission is sound. 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.

For income tax purposes, accounts cannot be left open until the profits have been finally determined. Taxpayers are required to file a return of income for each taxation year (subsection 44(1)) and the Minister must “with all due despatch" examine each return of income and assess the tax for the taxation year. However, in many cases, compensation payable under the Expropriation Act is not determined until more than four years after the expropriation has taken place and, in many of these cases, the Minister would be precluded from amending the original assessment because of the four-year limitation for the assessment.

My opinion is that the Canadian Income Tax Act requires that profits be taken into account or assessed in the year in which the amount is ascertained.

Benaby is somewhat diminished by the Supreme Court decision in Maple Leaf Mills Ltd. v. M.N.R., [1977] S.C.R. 558, [1976] C.T.C. 324, 76 D.T.C. 6182, cited by the respondent, where Judson, J. dissented, citing Benaby and emphasizing “the year when the amount was ascertained" (at page 332 (D.T.C. 6187)). The majority of the Court reaffirmed the Colford test, about which it said (at pages 330-31 (D.T.C. 6186)):

This test is the one this Court has applied in income tax cases resulting from expropriations; for an amount to become receivable in any taxation years, two conditions must coexist: (1) a right to receive compensation; (2) a binding agreement between the parties or a judgment fixing the amount. . . . In the case at bar, we are admittedly faced with a very different set of facts; still as to the guaranteed minimum income, the prescribed conditions exist: the right to receive that minimum income is not contested and the binding agreement between the parties stipulates the quantum thereof.

Applying the Colford rule to the facts at hand, at first blush the unbilled revenue would seem to qualify as receivable because based on appellant's “clearly legal, though not necessarily immediate, right to receive it." Electricity produced, sold and consumed is a commodity or good: Quebec Hydro- Electric Commission v. D./M.N.R., [1970] S.C.R. 30, [1969] C.T.C. 574, 69 D.T.C. 5372 (S.C.C.). It also falls under the definition of property in subsection 248(1) of the Act. Where property is sold, delivered and consumed, the rendering of an account is not a precondition to the right to payment: sections 31 and 32, Sale of Goods Act, R.S.B.C. 1979, c. 370.

The language of paragraph 12(1)(b) itself makes a distinction between receivable" and due” so that an amount may be receivable even though not due until a subsequent year. As this Court said in The Queen v. Derbecker, [1984] C.T.C. 606, 84 D.T.C. 6549 per Hugessen, J.A. "the words due to him look only to the taxpayer's entitlement to enforce payment and not to whether or not he has actually done so" (at page 607 (D.T.C. 6549)).

The only contrary argument is that the unbilled revenue was not receivable because, for practical purposes, it could not be known exactly. Viscount Simon

in Commissioners of Inland Revenue v. Gardner Mountain & D'Anbrumenil, Ltd. (1947), 29 T.C. 69, at page 93 was willing to accept "an estimate of what the future remuneration will amount to" and even "a discounting of the amount to be paid in the future.” In my opinion the amount here is sufficiently ascertainable to be included as an amount receivable.

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 prorated method.

I must therefore conclude that 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, and therefore had to be included in income for the year then ending, provided only they are not exempted by the "unless" clause in paragraph 12(1)(b).

In my opinion, this clause does not provide an exemption because of the words "accepted for the purpose of this Part.” As previously set forth, I believe the principle to be applied for purposes of this Part of the Act is the “truer picture” or "matching" principle, which, as applied here, has the effect of denying the appellant the right to use the billed account method.

In the light of this holding, it would be inappropriate to consider the applicability of subsection 9(1) taken apart from paragraph 12(1)(b) or of subsection 12(2).

IV

In the result the appeal should be dismissed with costs.

Appeal dismissed.