Laurentide Rendering Inc. v. The Queen, 88 DTC 6331, [1988] 2 CTC 200 (FCA)

Desjardins, J. [Translation]:—The only point at issue is whether the trial judge erred in law when, in a judgment dated November 19, 1982, he held that an amount of $171,496.13 received by the appellant as recaptured capital cost allowance on class 19 property was taxable in the taxation year 1975, not 1969.

Facts

The facts were admitted by the parties in a document titled 'Agreement on the Facts" reproduced in its entirety by the trial judge (AB 75). \

In brief these facts are as follows: in 1969 the respondent, represente by the Department of Public Works, expropriated the appellant's existing property for the purpose of building the Mirabel airport facilities. No action, appeal or other proceedings were instituted by the appellant in any court or tribunal of competent jurisdiction with a view to fixing the amount of compensation for the expropriated property. In 1975 an agreement was concluded between the respondent and the appellant fixing compensation for the expropriation at $954,282. By a resolution dated October 9,1975 the appellant ratified the agreement. Of this amount $171,496.13 represented recaptured capital cost allowance on class 19 property. The final paragraph of the "Agreement on the Facts" reads as follows:

The only point at issue is in which taxation year the sum of $171,496.13 is taxable as recaptured capital cost allowance on plaintiff's class 19 property, that is, in the 1969 taxation year or in the 1975 taxation year.

Applicable Legislation

Paragraph 44(2)(a) of the Income Tax Act, which was added to that Act by s. 18 of S.C. 1974-75-76, c. 26, reads in part as follows:

44. (2) For the purposes of this Act, the day on which a taxpayer has disposed of a property, the proceeds of disposition from which are described in subparagraph 13(21)(d) . . . (iv) . . . and the day on which an amount has become receivable by that taxpayer as proceeds of disposition of such a property shall be deemed to be

(a) the day the taxpayer has agreed to an amount as full compensation to him for the property . . . taken . . .

and he shall be deemed to have owned the property continuously until the day so determined.

Paragraph 13(21)(c) of the Act reads as follows:

13. (21) In this section and any regulations made under paragraph 20(1)(a),

(c) "disposition of property" includes any transaction or event entitling a taxpayer to proceeds of disposition of property . . .

Paragraph 13(21)(d)(iv) of the Act reads as follows:

13. (21) In this section and any regulations made under paragraph 20(1)(a),

(d) "proceeds of disposition” of property includes

(iv) compensation for property taken under statutory authority or the sale price of property sold to a person by whom notice of an intention to take it under statutory authority was given . . .

However, s. 18 of S.C. 1974-75-76, c. 26 contains in subsection (2) a transitional provision reading as follows:

18. (2) This section is applicable in respect of amounts that have become receivable after May 6, 1974.

Analysis

In my opinion the trial judge did not err in law in his interpretation of paragraph 44(2)(a) of the Income Tax Act and of the transitional provision contained in subsection 18(2) of S.C. 1974-75-76, c. 26.

Paragraph 44(2)(a) creates a presumption which delays to the day the taxpayer has agreed to an amount as compensation what would otherwise be

the day on which a person has disposed of property

and

the day on which an amount has become receivable as proceeds of disposition of such a property.

This presumption, which covers the two cases mentioned in the introductory paragraph of subsection 44(2) (namely the day on which a person has disposed of property and the day on which an amount has become receivable as the proceeds of disposition of such property), applies, under the transitional provision, “in respect of amounts that have become receivable after May 6,1974".

The judgments of the Supreme Court of Canada in M.N.R. v. Benaby Realties Limited, [1967] C.T.C. 418; 67 D.T.C. 5275; Vaughan Construction Company Limited v. M.N.R., [1970] C.T.C. 350; 70 D.T.C. 6268; and Maple Leaf Mills Limited v. M.N.R., [1977] S.C.R. 558; [1976] C.T.C. 324 leave no doubt as to the meaning that should be given to the words "amounts that have become receivable" in the context of compensation resulting from an expropriation.

In Benaby supra, the Crown in right of Canada on January 7, 1954 expropriated two pieces of land owned by Benaby Realties Limited. The company’s 1954 fiscal year ended on April 30, 1954. Under an agreement dated November 9,1954 the Crown paid an amount of $371, 260 as compensation during the company's 1955 fiscal year, which ended on April 30, 1955. The Minister taxed the profit in the company’s 1955 fiscal year.

Paragraph 85B(1)(b) of the Income Tax Act as it then stood read as follows:

85B. (1) In computing the income of a taxpayer for a taxation year,

(b) every amount receivable 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 receivable until a subsequent year unless the method adopted by the taxpayer for computing income from the business and accepted for the purposes 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.

Judson, J, for the Court, said the following (at 419-20; D.T.C. 5276):

The Crown's argument is that the general rule under the Income Tax Act is that taxes are payable on income actually received by the taxpayer during the taxation period; that there is an exception in the case of trade receipts under Section 85B(1)(b), which include not only actual receipts but amounts which have become receivable in the year; that the taxpayer's profit from this expropriation did not form part of its income for the year 1954 because it was not received in that year and because it did not become an amount receivable in that year.

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.

These principles applied in Vaughan, supra, were restated as follows by de Grandpré, J. for a majority of the Court in Maple Leaf Mills Limited, supra, (C.T.C. 330-331) S.C.R. at 566:

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 year, two conditions must coexist:

(1) a right to receive compensation;

(2) a binding agreement between the parties or a judgment fixing the amount.

The principle is to be found in The Minister of National Revenue v Benaby Realties Limited [6] and in Vaughan Construction Company Limited v The Minister of National Revenue. [7]

[My emphasis]

Although the expropriation in the case at bar occurred in 1969, the amount representing the proceeds of disposition was not fixed until 1975. The amount representing compensation thus became receivable after May 6,1974

The effect of this presumption is that the transitional provision in subsection 18(2) has no retroactive effect, since the 1975 agreement making the presumption applicable is subsequent to the amendment.

The effect of this presumption is not to impose double taxation. The taxpayer was not taxed in 1969. The effects of subsection 18(2) of the transitional provision is that he will never be taxed again for the taxation year 1969.

The correct taxation year is 1975.

I would accordingly dismiss the appeal with costs.

Appeal dismissed.