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):
For
a
two-month
period
|
|
First
|
40
K.W.H.
|
$10
|
Next
|
360
K.W.H.
|
4.270¢
per
K.W.H.
|
All
over
|
400
K.W.H.
|
2.398¢
per
K.W.H.
|
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.
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.