Marcel Piché v. Minister of National Revenue, [1993] 2 CTC 166, 93 DTC 5283

Létourneau, J.A.:—This is an application for judicial review of a decision of the Tax Court of Canada dismissing the taxpayer's appeal, thereby upholding the notice of assessment issued by the Minister of National Revenue.

The facts out of which this appeal arises are very simple. In October 1988, the applicant offered to sell his shares in the company of management consultants to which he belonged to his co-shareholders. This offer was valid until December 30, 1990. The co-shareholders ultimately accepted the offer and on December 21, 1990 they sent the applicant a cheque in the amount of $152,151.78, $34,042.82 of which was interest and was taxable income. The cheque, which represented the balance owing since an advance of $5,000 had already been paid earlier, was payable on December 31, 1990. The letter accompanying the cheque indicated that cashing the cheque would constitute final payment for the transaction and would complete the release set out in the transaction document dated October 18, 1988.

The applicant received the cheque on December 27, 1990 and deposited it that day in the branch of the Bank of Montreal located in Galeries Duplessis in Ste-Foy. At that time he gave instructions to the bank's employees to deposit it in his account at the same bank, but at the Sainte-Adèle branch, on December 31, 1990, that is, the date when it became-payable. It seems that December 31 was not a working day at the Sainte-Adèle branch, this not being the case in Ste-Foy, and that the cheque could not be deposited until January 3, 1991.

Because the amount of the cheque was not credited to his account until 1991, the applicant did not include the $34,042.62 interest in his 1990 income tax return, even though he had received a T-5 supplementary covering this amount from his former associates in 1990. He contends that this amount should be included in computing his 1991 income. Accordingly, he appealed the decision of the Minister of National Revenue to include this amount in the 1990 taxation year and to assess him accordingly, to the Tax Court of Canada.

The applicant's appeal was dismissed by the Tax Court of Canada on August 20, 1992. The Court concluded that the interest had been received by the applicant in 1990 and that the fact that the cheque was not deposited until January 3,1991, in no way altered the time when the money was received. Judge Garon of the Tax Court of Canada wrote, in respect of the applicant's argument:

The fact that the cheque in question could not be deposited to his personal account at the Sainte-Adèle branch of the Bank of Montreal until January 3, 1991 is a personal circumstance which does not in any way determine the time the appellant received the money represented by this cheque which he got on December 27, 1990.

There are two completely separate operations here: the first involves payment by Piché, Charron & Associés Inc. by means of a cheque for $152,151.78 and acceptance by the appellant of the cheque in question. The second operation involves the appellant and someone else, the Bank of Montreal. We are only concerned here with the first operation, since among other things the cheque was honoured when it was presented for cashing.

[Translation.]

I agree with the distinction made by the judge of the Tax Court of Canada.

The applicant argued before us that the judge of the Tax Court failed to take into consideration the statement that appears in the letter accompanying the cheque, indicating that cashing the cheque would constitute evidence of acceptance thereof. Moreover, he concluded that an offer to purchase the shares was made to him by his partners, that he accepted the offer to purchase, and that this acceptance of the offer to purchase took place on January 3, 1991, by his cashing the cheque.

With respect, I believe that the applicant is mistaken in law as to the actual effect of that statement and as to the procedure followed in respect of the sale of his shares. First, this was not an offer to purchase, made by the co- shareholders and accepted by the applicant on January 3, 1991. Rather, it was an offer to sell the shares, made by the applicant in October 1988 and accepted by the co-shareholders in 1990. The cheque issued in payment in December 1990 and accepted as such by the applicant on December 27,1990 resulted from that offer and acceptance. Moreover, the applicant testified to this effect at the hearing before the Tax Court of Canada, as is apparent in this passage taken from the stenographic notes:

Q. Or that there was in fact an agreement under which your shares of Groupe Planus would be sold at a later date?

A. I had indicated to my partners my desire to leave the business and I wanted to sell my shares. So I offered to sell my shares because the shareholders in the company had a right of preemption on the purchase of my shares. [1]

[Translation.]

Second, the statement that cashing the cheque would constitute final payment for the transaction does not mean that cashing constitutes evidence of acceptance of the cheque. That statement, which is moreover also found, in different forms, in transactions of this nature (for example, this cheque constitutes final payment, this payment constitutes full and final release), simply means that the payment discharges and extinguishes the debt; in this case, the debt in question was the debt created by the shareholders' acceptance of the offer to sell that had been made.

The applicant received the cheque on December 27, 1990, and undoubtedly accepted it as payment. The steps he undertook the same day to have it put into his bank account are evidence of this. The applicant seems to believe, wrongly, that there was no acceptance of the payment so long as the money had not been credited to his account. Unless there are special circumstances, payment by cheque constitutes payment, even though it is subject to a resolutory condition, and the payment is then presumed to be made at the point when the cheque is received by the payee. These comments by Thurlow, J. in Moody v. M.N.R., [1957] C.T.C. 110, 57 D.T.C. 1050 (Exch. Ct.) clearly describe the law that applies in such a case at page 117 (D.T.C. 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 payment of cash made at the time the cheque was received by the payee. [2]

Later, he added, in respect of cheques received in payment at pages 117-18 (D.T.C. 1054):

. . . I do not think it was optional either for the appellant or the Minister to treat them as income when cashed, as opposed to when they were received, or to include them as income in any year other than the year in which they were received.

Acceptance of a cheque by its payee is, contrary to what the applicant believes, a different step from the banking operation by which moneys are deposited to the credit of the bearer. In this case, the applicant could, for example, have endorsed the cheque he had received and accepted to the order of a third party, and the money would then never have been deposited to his credit. And yet there would be no doubt that he would then be presumed to have received payment of the moneys that were owing to him and to have accepted that payment.

I am of the opinion that the Tax Court of Canada was correct to conclude that paragraph 12(1)(c) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") applied [3] and that the $34,042.82 was taxable income in the 1990 taxation year. Accordingly, the application for judicial review should be dismissed.

Appeal dismissed.