18 January 1999 Internal T.I. 9803437 - POSTDATED CHEQUES CASH PURCHASE TICKETS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		January 18, 1999

	Saskatoon Tax Services Office	HEADQUARTERS
	Chief of Audit	R. Albert
		957-2100
	Attention: Sandra MacNevin
	               Business Enquiries
		980343

Post-dated Cheques for Grain

This is in response to your enquiry of February 9, 1998, in which you requested our views on when grain sales must be included in income if the vendor reports income on the cash basis and accepts a post-dated cheque for grains other than those grains specified in subsection 76(5) of the Income Tax Act (the "Act"). We apologize for the delay in our response, however, as discussed, we have not been responding to issues related to post-dated cheques and deferred cash grain tickets while these issues have been under review. Also, as discussed, although these issues remain under review, we are prepared to provide you with some comments which may be of assistance.

The issues arise as a result of a letter you received from an enquirer who described three situations relating to the sale of lentils and asked when the amount must be included in income for tax purposes under the cash basis of reporting income. The situations are as follows:

1. Lentils are delivered to an elevator on January 22, 1998. Although the date on the cheque received by the farmer at the time of delivery is January 22, 1998, there is a notation on the cheque that states: “not payable before Jan 2/99”. The issue is the effect of the notation on the current dated cheque.

2. Lentils are delivered to an elevator on January 22, 1998, stored until January 22, 1999, and on that date the vendor returns to collect the cheque. The issue relates to the storage of the lentils.

3. The cheque received for lentils delivered to an elevator on January 22, 1998 is post-dated to January 2, 1999. In addition, you have noted that a post-dated cheque is normally received as an attachment to a cash purchase ticket, whether the ticket is deferred or not. The issue relates to the post-dating of the cheque and whether subsection 76(1) of the Act will apply to the cash purchase ticket and/or post-dated cheque if the conditions in subsection 76(4) do not apply.

Our Comments

The timing of the income inclusion in respect of a post-dated cheque involves a question of fact which can only be determined after an analysis of all of the relevant facts.

1. Paragraph 5 of IT-433R states that: “The value of a cheque that is received by a taxpayer who uses the cash method to compute income is considered to be income at the time the cheque is received from a person who was indebted to the taxpayer provided the following conditions are applicable: (a) the debt is payable at the time the taxpayer receives the cheque,...{and}(c) the cheque does not have any conditions attached to it such as, for example, post-dating or an arrangement that the cheque is not to be used for a specific term.”

In Rachel Kowalczyk v M.N.R., 86 DTC 1552, Brulé, T.C. J. stated at 1553:

Courts have had to deal with this problem on a number of occasions. The conclusion generally accepted is that a payment by cheque is equivalent to a payment in cash as long as no special circumstances lead to another conclusion, and of course, that the cheque is not dishonoured on presentation for payment. Mr. Justice Thurlow, then at the Exchequer Court, said in Moody v M.N.R., 57 DTC 1050 at 1054:

`...In the absence of some special circumstance indicating a contrary conclusion such as, for example, post-dating or an arrangement that the cheque, is not to be used for a specified time, a payment made by cheque although conditional in some respects, is nevertheless presumably made when the cheque is delivered and, in the absence of such special circumstance, there is, in my opinion no ground for treating such a payment other than as a payment of cash made at the time the cheque was received by the payee.’”

In our view, the notation of “not payable before Jan 2/99” on the cheque does not affect the date that the debt is payable nor does it post-date the cheque. It is a question of fact as to whether the notation amounts to an arrangement as contemplated by paragraph 5(c) of IT-433R and, without further documentation to substantiate such an arrangement, in our view, the cheque should be reported as received and dated on January 22, 1998.

2. As noted in paragraph 5 of IT-184R, the Department’s interpretation of the term “delivered” is subsection 76(4) is that it means “delivery for sale”. Therefore, subsection 76(4) becomes applicable at the point in time when a farmer exchanges a storage ticket for a cash purchase ticket rather than when a storage ticket is received. For example, if a farmer received a storage ticket upon the delivery of grain to a primary elevator and then in the following fiscal period exchanged the storage ticket for a cash purchase ticket that was redeemable in the immediate subsequent fiscal period, the amount stated in the ticket should be included in income for the immediate subsequent fiscal period.” Alternatively, if in the following fiscal period the storage ticket was exchanged for a cash purchase ticket that was not redeemable in the immediate subsequent fiscal period, the amount stated on the ticket should be included in income for that following fiscal period.

3. As explained in paragraph 6 of Interpretation Bulletin IT-433R, Farming or Fishing - Use of the Cash Method, a post-dated cheque is normally brought into income on the earlier of the date the debt becomes payable and the date the cheque is negotiated, unless the cheque is accepted as absolute payment of the debt. However, when a post-dated cheque is received as an attachment to a cash purchase ticket, consideration must be given to the effect of the cash purchase ticket and its deferral, if any, as well as the cheque.

A cash purchase ticket is defined in the Canada Grain Act to be a document issued in respect of grain delivered to an elevator or to a grain dealer as evidence of the purchase of the grain by the elevator operator or grain dealer and entitles the holder of the document to the purchase price stated in the document. A cash purchase ticket must be issued in the form prescribed in Schedule V of the Regulations to the Canada Grain Act. Although a post-dated cheque may be attached to a cash purchase ticket, the cheque does not form part of the cash purchase ticket. A cash purchase ticket, whether deferred or not, is a certificate of indebtedness. Consequently, when a cash purchase ticket is issued to a vendor of grain, subsection 76(1) of the Act will apply unless the conditions set out in subsection 76(4) or (2) are met. Where the vendor is entitled to payment of the debt on the date of the sale and the grain is not described in subsection 76(5) of the Act, the amount of the purchase will be included in income in the year the cash purchase ticket is received.

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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