West Kootenay Power and Light Co. Ltd. v. The Queen, 91 DTC 5214, [1991] 1 CTC 327 (FCTD), aff'd supra.

MacKay, J.:—In this action the plaintiff corporation appeals the reassessments made by the Minister of National Revenue of its income for income tax for the 1982, 1983 and 1984 taxation years. The statement of claim, and an amended statement filed with consent at trial, appealed the reassessment in relation to three aspects of taxation of the plaintiff but before trial two of those were resolved. Those two are dealt with briefly at the end of these reasons and in the judgment issued are included in accord with arrangements agreed on by counsel.

The outstanding issue between the parties dealt with at trial is whether estimates of "unbilled revenue” at December 31, the plaintiff's year end, should be included in its income from business in its 1983 and 1984 taxation years as the reassessment of the Minister would provide. The plaintiff contends that this should not be; rather its income should be based on revenues actually billed and receivable in its taxation year. The plaintiff had reported income for tax purposes using the latter basis of accounting for revenue until 1979 when it changed its accounting method to an accrual basis, estimating revenues for power delivered but not yet billed at year end. Then in 1983 and in 1984, while maintaining the accrual method for its financial statements, it reported income for tax purposes, as it had done prior to 1979, on the basis of revenues for accounts actually billed in the year in question. The effect of this change was to defer income and tax to the following taxation year, a process which the plaintiff submitted was permissible within generally accepted accounting principles (GAAP) and under paragraph 12(1)(b) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") as amended effective as of the 1983 taxation year, S.C. 1980-81-82-83, c. 140, subsection 4(1).

Provisions of the Act at the centre of argument between the parties are subsections 9(1), 12(1)(b) and 12(2) which provide:

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.

There is no dispute about the amounts in issue as "unbilled revenue". A partial agreed statement of facts, submitted at the hearing, provides as follows, so far as it relates to the issue dealt with at trial.

1. At the fiscal year-end the Plaintiff had delivered some electricity to consumers which had not yet been billed to the consumers as of the fiscal year-end.

2. The estimated sale price of the delivered but as yet unbilled electricity at yearend was $3,939,176 as of the end of 1983 and $3,874,834 as of the end of 1984 (hereinafter referred to as "the unbilled revenue").

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 revenues 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 revenue constituted earned income in the year in which the electricity was delivered.

The plaintiff is an investor-owned public corporation engaged in the business of generating and distributing hydro-electric power in southeastern Brit- ish Columbia, with its headquarters in Trail. Its operations are subject to regulation by the British Columbia Utilities Commission. The terms and conditions of service provided by the company, and the rates chargeable by it, are set by the Commission after public hearings, and these set the bases for contracts between the plaintiff and electricity users. The consumers include residential, corporate and industrial users, as well as municipalities, and different rate structures were approved by the Commission for various categories of users.

Until 1979 the accounting practice followed by the plaintiff did not take account of electricity supplied to customers but which had not been billed at year end, either for financial statements of its operations or for tax purposes. At that time it billed customers on a monthly basis, and with a number of regular billing dates in each monthly cycle, there was at the end of its fiscal year a portion of the supply to customers not yet billed. In 1979 on the advice of accountants, the plaintiff changed its practice and accrued income based on estimates of the revenue anticipated to be received, when billed, related to the electricity supplied but not yet billed to customers. This change was duly noted in its 1979 annual report and was there carried back to 1978 for comparative purposes. The change was effected primarily to improve the financial accounts of the company's operations for the benefit of shareholders and for purposes of raising capital. A secondary reason was to bring the financial statements into accord with the basis of accounting followed in submissions to the provincial Utilities Commission in which the company was required to forecast revenues and expenditures, apparently on an accrual basis for revenues.

In making this change for financial statement purposes, the plaintiff adopted the same practice for income tax purposes as well. It declared as income for the 1979 year the amount it estimated as" unbilled revenue”, and it adjusted its return for the 1978 taxation year in the same way. Its adjusted calculations for 1978 and the change in the plaintiff's method of calculating income for the taxation year were accepted by the Minister of National Revenue.

The accrual basis for calculating income for purposes of its annual statements and its income tax returns was continued for the years through to 1982. In that year, coincidentally, the plaintiff changed its billing practice from a onemonth to a two-month cycle for most customers.

In 1983, while maintaining the accrual basis for calculating income for its annual statements, the plaintiff, for income tax purposes, changed from the accrual basis, eliminating from its income the estimate of revenue unbilled at year end, and reported revenues on the receivable basis. It did the same for the 1984 taxation year. In doing so the company acted upon tax advice; in its view it had been prepaying tax on the unbilled revenue portion of its income from business and it sought to revert to its prior method of calculating income for tax purposes, as, it discovered, other utilities in a similar situation did. Thus, in calculating its income for the 1983 taxation year, the plaintiff deducted the amount of $3,939,176, and for the 1984 taxation year $3,874,834, which represented its estimates of "unbilled revenue" at the end of each year as included in its financial statements. The effect of the change was to defer taxation of that portion of the plaintiff's income, though income receivable on the basis of accounts billed to customers in each taxation year remained taxable. As it had done in 1979, the plaintiff reported the change in method of calculating revenue in 1983 with its tax return.

By reassessments dated May 21, 1987, the Minister included the amount estimated as unbilled revenue in the plaintiff's income for 1983 and 1984 taxation years, in effect disallowing the change in method of calculating income for tax purposes. In later reassessments for those years the Minister did not alter reassessments with respect to the unbilled revenue despite notices of objection to those reassessments filed by the plaintiff.

Before considering argument of the parties the background of the plaintiff's practices in billing customers and in estimating revenues should be summarized. As noted, the terms of service and rates chargeable by the plaintiff are subject to approval by the British Columbia Utilities Commission. At trial the company's vice-president, finance, Mr. Stephen Anthony Ash, testified that pursuant to section 3 of the terms and conditions of service approved by the provincial Commission, service to customers commenced on the day when service was connected to the customer's installation for the purpose of supplying electrical energy. Pursuant to section 5 of the terms of service the plaintiff billed its customers on a one-month or two-month billing cycle depending on the history of service to that location by the company, practical considerations such as operating costs and the type of customer involved. In 1982, as noted earlier, the company had moved to a two-month billing cycle for the majority of its customers, primarily in an effort to reduce operating costs, though there were still a small number of large industrial customers whose meters were read on the last day of each month. Except for that small number, only by coincidence would a particular billing cycle end on December 31, the company's year end, for example, if service to a customer were terminated on that date. Under the terms of service approved by the provincial Commission the company is authorized to compute bills and to render these to the customer in accordance with the applicable rate schedule on the basis of meter readings made by the company. The plaintiff did have the right to enter lands in order to perform repairs and to read meters, and the right to "estimate energy consumption . . . where a meter has not been installed or is not registering, or where the meter reader is unable to read the meter on his regular meter reading trip". For purposes of billing customers Mr. Ash testified that the company was required to read meters and that estimates might only be relied upon if for any reason the meter could not be read.

Rate schedules approved by the provincial Commission generally provided for different rates, not only for each category of customer but for customers of the same class, with different rates based on the volume of energy consumed in a billing period. Thus, for example, after September 1, 1982, the rate schedule for residential users was as follows:

While slight changes were made to the rates chargeable in 1983 and 1984 the pricing structure remained consistent with that outlined for 1982.

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 20 billing dates within each month so that to read all meters on any one day would require more than 400 meter readers. He was also of the view that the differential rate structures applicable to consumption by customers precluded the company from rendering an accurate bill for energy consumed by a customer but not billed at December 31. Billing at that date even if based on a meter reading would, in his view, result in an overcharge to the customer because it was impossible to know how much electricity a customer would consume in the balance of the applicable billing cycle and the per unit cost of electricity delivered could thus not be established until the end of that period.

Against that background of billing practices based on terms of service approved by the provincial Commission, the plaintiff company estimated revenues unbilled but considered accrued for services delivered at December

31. It adopted this practice in 1979 for purposes of its financial statements and for its income tax returns and the practice was continued for financial statements in 1983 and 1984, though it will be recalled that unbilled revenue was deleted from income by the plaintiff for income tax purposes in those latter years. Mr. Ash testified that the company used two methods in estimating 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, to provide a forecast of the estimated amount for the period ending December 31. A 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 which was reduced by estimated line losses related to factors for energy lost through transmission. Mr. Ash testified that the estimated amount for unbilled revenues was a rough estimate only.

In cross-examination counsel for the Crown pressed Mr. Ash to acknowledge that, based on approved rates, an actual amount could be determined for billing each customer for electricity supplied but not yet billed at December 31. The witness disagreed. In his view that practice was not feasible, either in terms of meeting the essential condition of reading all meters on that day, an impossibility if reasonable business practices were followed, or in terms of fairness to customers who, if they were residential customers, for example, would be charged the rate for the first block of power consumed, the high cost rate applicable in each billing cycle for consumption of the first 40 kwh of electricity. While it would be possible in a theoretical sense to determine actual amounts owed 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 revenues 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.

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. The plaintiff contends that the change in 1983 accounting for tax purposes is consistent with and permitted by subsection 12(1)(b) of the Act.

With respect to generally accepted accounting principles (GAAP) the defendant called as an expert in accounting practice, Mr. Dennis Culver, a chartered accountant. His report was tendered as evidence with objections by counsel for the plaintiff only to references therein to telephone conversations with unnamed and unavailable officials of two electric utility companies about their practices, which were objected to as hearsay; further, counsel objected to any portion of the report that might be considered as a conclusion of law. I acknowledge and accept both objections, though in my view, these do not significantly affect the evidence presented.

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. His examination of financial reports of utility companies including electricity suppliers was limited, but supplemented by financial reports of other companies presented in cross-examination there is no doubt that in the industry some companies do follow the practice of accruing revenue on an estimated basis for unbilled accounts and others follow the alternative practice of accounting for revenues on the basis of accounts rendered. That goes little further than acknowledged by the parties in the agreed statement of facts that under GAAP it would be acceptable to treat unbilled revenues in either of two ways. The evidence did indicate a tendency for Crown-owned electricity utilities to follow the accrual method and for a number of investor-owned companies to follow the alternative method of accounting revenues when billed and recorded as accounts receivable. Mr. Culver also confirmed his understanding that for regulatory purposes the provincial Utilities Commission required the plaintiff and similar companies to file financial statements and forecasts reflecting revenues estimated on the accrual method, an understanding that was not disputed.

A key aspect of Mr. Culver's evidence was his view that following GAAP by accruing revenues for financial purposes and adopting an alternative method for accounting for revenues for tax purposes did not satisfy GAAP, in particular section 1506.02 of the Canadian Institute of Chartered Accountants Handbook, which states:

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.

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.

That opinion he held, though in cross-examination he could not point to GAAP rules other than 1506.02 which so specified, and of course, GAAP has no application if the Act provides otherwise than the principles do (Newfoundland Light and Power Co. v. The Queen, [1986] 2 C.T.C. 235; 86 D.T.C. 6373 at 238 (D.T.C. 6375) (F.C.T.D.); affd [1990] 1 C.T.C. 229; 90 D.T.C. 6166 at 231 (D.T.C. 6167) (F.C.A.)). The latter is the basis of the plaintiff's argument.

In reliance upon judicial precedents concerning the predecessor to subsection 12(1)(b), counsel for the plaintiff submits that an "amount receivable" under that provision is an amount defined or fixed which the taxpayer has a legal right to receive whether payment is then due or not (M.N.R. v. John Colford Contracting Company Ltd., [1960] C.T.C. 178; 60 D.T.C.1131 (Ex.Ct.); M.N.R. v. Benaby Realties Ltd., [1967] C.T.C. 418; 67 D.T.C. 5275 (S.C.C.)). In this case it was submitted that none of the unbilled revenue was received at year end, nor was it receivable then, either in accord with GAAP, or under the plaintiff's contracts with consumers which by regulation required customers to pay at the rate determined for consumption only when billed at the end of a two-month cycle and then within the time specified by regulation. Moreover, the plaintiff had no legal right or entitlement to the unbilled revenue as estimated at year end, it could not take legal action to recover an estimated amount and it could not bill in advance of the close of the billing period. Until the expiry of that period for supply by the company and billing to the customer on the basis of a meter reading which determined consumption and thus the regulated rate applicable, the unbilled amounts were estimates which did not represent exact amounts owed by any customer or all customers.

As for consistency in accounting methods the plaintiff urges that while GAAP recognizes as revenue amounts which are not received, or receivable in the sense of paragraph 12(1)(b), the Act provides for certainty and precision in quantifying revenue for tax purposes. In adopting the change in method, to exclude unbilled amounts for tax purposes while including them for financial statement purposes the plaintiff is merely ensuring its computation of taxable income conforms to the Act, particularly paragraph 12(1)(b) as construed by the courts.

In the alternative the plaintiff submits that if the unbilled revenue is deemed "receivable" within paragraph 12(1)(b), the concluding words of that provision require the inclusion of the amounts payable in respect of service only at the earlier of the date an account is rendered and the date it would have been rendered had there been no undue delay in billing.

The defendant's position is that subsection 9(1) of the Act is the basic provision for accounting for income from business for a taxation year. While admitting that for electrical utilities companies either method of accounting for revenue satisfies GAAP, having chosen one method based on those principles for financial statements, signed by officers of the company and reported by its auditors as presenting fairly the financial position of the company at year end, any change from that method must be made in accord with GAAP or be required by the Act. In the view of the defendant the change here adopted by the plaintiff in 1983 does not comply with section 1506.02 of GAAP, nor is it required by the Act.

The defendant also submits that the unbilled amounts estimated, could have been ascertained at December 31, and therefore should be considered as receivable within paragraph 12(1)(b). I have indicated that while that may have been theoretically possible, as a reasonable practical business practice it is not possible to fix amounts owed by individual customers or all customers with any precision. I conclude that the unbilled estimates of revenue are not receivable amounts within paragraph 12(1)(b).

The final submission of the defendant is that paragraph 12(1)(b) must be read in light of subsection 12(2) as not "implying that any amount not referred to therein [i.e., in 12(1)(b)] is not to be included in income from a business for a taxation year whether it is received or receivable in the year or not”. In sum, paragraph 12(1)(b) is enacted for greater certainty in circumstances to which it is applicable but it does not exclude from income any amounts not referred to in it.

In another case, determined by my colleague Madame Justice Reed after this case was argued, paragraph 12(1)(b) has recently been construed. In Maritime Telegraph and Telephone Co. v. Canada, [1991] 1 C.T.C. 28; 91 D.T.C. 5038 (F.C.T.D.) the learned justice dealt with argument relating to the application of this provision in relation to unbilled revenues at year end included in financial statements and in reports and forecasts to the provincial Public Utilities Board by the taxpayer, an investor-owned telephone utility, which that company had deducted from revenues in reporting income for tax purposes in 1984. In that year a change was made from consistent previous practice only for purposes of reporting for income tax. The basic operating circumstances of that company were generally similar to those of the plaintiff in this case, except that the billing cycle was monthly and the rates authorized were apparently not related to consumption or use except, I assume, for long distance and service calls. The accrued method, or there described as the earned method, of estimating unbilled revenue at year end was the historic practice of the telephone company, until the change for tax purposes in 1984.

Madame Justice Reed there found that the unbilled revenue was not an amount receivable within paragraph 12(1)(b). She commented at pages 31-32 (D.T.C. 5040):

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. The 1984 amendment was not intended to allow or require taxpayers to change their method of accounting for profit from the earned to the billed method and thereby accomplish a significant deferral of taxes. It seems clear the amendment's purpose was entirely the opposite. It was intended to require taxpayers who report on a billed method, when there is undue delay in billing, to account for the income which has not yet been billed. . . .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.

Paragraph 12(1)(b) requires only that amounts receivable be included in income. It does not require the converse—that other amounts not falling within the meaning of ” receivable" be excluded from income. In commenting on the predecessor provision of paragraph 12(1)(b) in Wilchar Construction Ltd. v. The Queen, [1981] C.T.C. 415; 81 D.T.C. 5318 (F.C.A.). Heald, J.A., for the Court of Appeal, commented at 418-19 (D.T.C. 5320):

All that Co/ford . . . is authority for, in my opinion . . . is that the Minister could not require the taxpayer to take subject amounts into income. As stated earlier herein, the method chosen by the appellant and accepted by the Minister had the effect of anticipating rather than deferring tax liability. I can find nothing in the Colford. . . judgment nor in the provisions of the Act which prohibit the adoption of this method of anticipating tax liability. Subsection 85B(1)(b) does not, in my view, prohibit such a method. All that section provides is that where an amount is, at law, (I use the phrase "at law” having regard to the Colford decision), receivable, the taxpayer is required to include that amount. The section is silent with respect to other amounts.

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 Cyprus Anvil Mining Corporation v. The Queen, [1990] 1 C.T.C. 153; 90 D.T.C. 6063 (F.C.A.); rvg [1985] 2 C.T.C. 74; 85 D.T.C. 5306 (F.C.T.D.), 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, supra.

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.

Conclusion

For the reasons set out, I dismiss the plaintiff's appeal of the Minister's reassessments in relation to unbilled revenue for the 1983 and 1984 taxation years.

As agreed by the parties the judgment to follow also deals with issues raised in the statement of claim but not pursued at trial. Thus, the plaintiff's claim for additional investment tax credits of $1,316 for the 1982, $3,328 for the 1983, and $1,747 for the 1984 taxation years, is dismissed. Further, as agreed by the parties, the plaintiff's appeal from reassessments of income tax for the 1982, 1983 and 1984 taxation years is allowed and is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:

(a) the contributions in aid of construction received by the plaintiff in 1982, 1983 and 1984 are neither income nor amounts to be deducted from the capital cost of property; and

(b) there shall be added to the undepreciated capital cost of property in Class 2 of Schedule II to the Income Tax Regulations at January 1, 1982 the aggregate of contributions in aid of construction received by the plaintiff in years prior to 1982 previously deducted from the capital cost of the property. The parties agreed that costs in this matter should follow the result of the issue tried. Thus, costs are awarded to the defendant.

Appeal dismissed.