Minister of National Revenue v. Benaby Realties Limited, 67 DTC 5275, [1967] CTC 418, [1968] S.C.R. 12

JUDSON, J. (all concur) :—The sole question in this appeal is whether a profit of $263,864.03 was properly assessed in the taxation year 1955. The judgment of the Exchequer Court holds that this profit must be excluded in assessing the profits for the taxation year 1955 on the ground that it should have been assessed in the taxation year 1954.

The facts are simple. On January 7, 1954, the Crown in right of Canada expropriated two parcels of land belonging to the respondent company, Benaby Realties Limited, on the Island of Montreal. The company’s 1954 fiscal year ended on April 30, 1954. On November 9, 1954, as a result of an agreement fixing the amount of compensation, the Crown paid the sum of $371,260. This happened during the company’s 1955 fiscal year, which ended on April 30, 1955. The profit of $263,864.03 is the difference between the cost of the land and the amount of compensation.

It was argued in the Exchequer Court that the profit was not taxable but the judgment of the Exchequer Court was against this and the appeal in this Court was argued on the assumption that this was a taxable profit. The only issue was the appropriate year of assessment.

The taxpayer’s argument in this Court is that from the moment of expropriation, the taxpayer no longer had its land but had instead the right to receive compensation. This is set out in Section 23 of the Expropriation Act, which reads:

The compensation money agreed upon or adjudged for any land or property acquired or taken for or injuriously affected by the construction of any public work shall stand in the stead of such land or property; and any claim to or encumbrance upon such land or property shall, as respects Her Majesty, be converted into a claim to such compensation money or to a proportionate amount thereof, and shall be void as respects any- land or property so acquired or taken, which shall, by the fact of the taking possession thereof, or the filing of the plan and description, as the case may be, become and be absolutely vested in Her Majesty.

The taxpayer conducted its business on the accrual basis under Section 85B(l)(b), which reads:

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.

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 ease 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.

The Exchequer Court founded its judgment on Newcastle Breweries v. C.I.R. (1927), 12 T.C. 927, which was a case involving the government’s requisitioning of a supply of rum in 1918. The company accepted the government’s price without prejudice to its right to claim a larger amount. This was subsequently granted under legislation enacted in 1920. This additional sum was received in 1922. The Inland Revenue then reopened the company’s 1918 trading account to include this additional sum and the Courts held throughout that this could be done. What happened was that in 1918 there was a compulsory sale at a fixed price with an award of additional compensation under statutory authority three or four years later.

The application of this decision to the Canadian Income Tax Act is questionable. This decision implies that accounts can be left open until the profits resulting from a certain transaction have been ascertained and that accounts for a period during which a transaction took place can be reopened once the profits have been ascertained.

There can be no objection to this on the properly framed legislation, but the Canadian Income Tax Act makes no provision for doing this. 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 (Section 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 (Section 46(4) ).

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.

Try v. Johnson, [1948] 1 All E.R. 532, is much closer to the point in issue here. The claim was for compensation under legislation which imposed restrictions on ‘‘Ribbon Development”. When the case reached the Court of Appeal, the amount of compensation was admitted to be a trade receipt. The argument in that Court was directed to the appropriate year of assessment. The judgment was that the right of the frontager to compensation under the Ribbon Development Act contained so many elements of uncertainty both as to the right itself and the quantum that it could not be regarded as a trade receipt for the purpose of ascertaining the appropriate year of assessment until the amount was fixed either by an arbitration award or by agreement.

Under the Canadian Expropriation Act, there is no doubt or uncertainty as to the right to compensation, but I do adopt the principle that there could be no amount receivable under Section 85B(l)(b) until the amount was fixed either by arbitration or agreement.

The case of M.N.R. v. Lechter, [1966] S.C.R. 655; [1966] C.T.C. 434, does not support the taxpayer’s submission. In that case, the expropriation was in the 1954 fiscal year; the settlement was in the 1955 fiscal year and, according to its terms, payment should have been made within 60 days. For some reason the Treasury Board authorization was 7 months later and the actual payment 10 months later, both events following within the 1956 fiscal year.

The judgment says no more than this, that the respondent, operating on an accrual basis, was bound to treat the profit of $234,506.91 on the disposition of part of lot 507, as having been earned prior to January 31, 1955, and that it was not taxable income in his taxation year ending January 31, 1956. The governing factor was the settlement made in the 1955 taxation year.

I would therefore allow the appeal, set aside the Judgment of the Exchequer Court and restore the assessment of the Minister, with costs in this Court and in the Exchequer Court.