A
W
Prociuk:—The
appellant,
a
corporation
incorporated
in
1957
pursuant
to
the
laws
of
the
Province
of
Alberta,
appeals
from
the
respondent’s
reassessment
dated
July
18,
1973
of
its
income
for
the
taxation
year
ended
February
29,
1972
wherein
the
sum
of
$17,500
was
added
to
its
income.
The
appellant
claims
that
this
is
a
capital
receipt
in
respect
of
damages
it
received
from
the
Department
of
Public
Works
of
the
Province
of
Alberta
for
impairment
of
its
earning
structure
when
the
said
department
cancelled
a
construction
contract
it
had
entered
into
with
the
appellant.
The
respondent’s
position
is
that
this
was
compensation
for
loss
of
profits
resulting
from
non-performance
of
a
contract
and
therefore
taxable
as
income.
The
facts
are
brief
and
not
in
dispute.
The
appellant
called
two
witnesses—R
Barkauskas,
one
of
the
principal
shareholders
and
secretary
treasurer
of
the
appellant,
and
Ed
Kattler,
an
insurance
underwriter
of
General
Accident
Group
from
whom
the
appellant
obtained
all
of
its
performance
bonds.
The
appellant
was
and
is
in
the
field
of
commercial
and
institutional
construction,
and
bonding
is
required
in
99%
of
its
work.
Evidence
establishes
that
the
appellant’s
maximum
bonding
capacity
in
the
years
1971
and
1972,
based
on
its
working
capital
at
the
end
of
each
previous
fiscal
year
and
on
other
factors
such
as
capacity
to
do
the
job,
and
the
character
and
reputation
of
the
individuals
concerned,
was
$500,000.
This
maximum
was
subsequently
increased
and
recently
the
limit
was
removed
entirely.
General
Accident
Group
now
considers
each
of
the
appellant’s
jobs
individually.
In
June
1971
the
appellant
tendered
a
bid
in
the
sum
of
$208,000
to
the
Department
of
Public
Works
of
the
Province
of
Alberta
for
the
construction
of
a
Youth
Development
Centre
in
Calgary,
Alberta.
It
filed
Bid
Bond
#204971
in
the
said
sum,
issued
by
General
Accident
Group.
The
tender
was
formally
accepted
on
June
28,
1971
by
the
Minister
of
Public
Works
(Exhibit
A-1).
The
appellant
was
authorized
to
proceed
with
the
work.
Before
any
actual
construction
work
had
commenced,
the
appellant
was
notified
by
the
said
Department
of
Public
Works
that
there
would
be
some
delay
in
the
project
by
reason
of
the
fact
that
some
residents
in
the
area
had
voiced
objection
to
the
nature
of
the
development
and
that
the
Department
of
Health
and
Social
Development
was,
as
a
result,
reconsidering
its
policy
(Exhibit
A-2).
The
contract
was
cancelled
by
the
Department
of
Public
Works
on
November
2,
1971.
In
August
1971
the
appellant
wanted
to
tender
a
bid
of
some
$400,000
for
the
construction
of
a
motel
complex
but
was
unable
to
do
so
because
its
available
bonding
had
already
been
decreased
by
the
above-mentioned
bond
(Exhibit
A-5).
As
stated
above
the
contract
was
cancelled
on
November
2,
1971
by
letter
from
the
Deputy
Minister
of
Public
Works
to
the
appellant,
filed
as
Exhibit
A-3
and
which
reads
as
follows:
I
am
now
able
to
formally
advise
you
that
the
contract
for
the
above-noted
project
is
hereby
terminated.
I
regret
very
much
that
it
has
taken
some
time
to
determine
the
status
of
this
project,
however,
a
policy
decision
has
only
just
been
reached
by
the
government.
No
doubt
your
company
will
wish
to
make
some
representation
to
the
Minister
of
Public
Works
in
respect
to
this
cancellation,
and
I
would
appreciate
being
kept
advised
of
your
intentions.
Shortly
thereafter
the
appellant
instructed
its
solicitor,
William
Hawley,
Esq
to
negotiate
on
its
behalf.
By
January
28,
1972
a
settlement
was
reached
in
the
sum
of
$17,500
(Exhibit
A-4).
This
sum
was
paid
over
to
the
appellant
and
forms
the
subject
matter
of
this
appeal.
The
appellant
did
no
actual
work
on
the
site
apart
from
preliminary
administrative
work
in
the
office.
It
did
not
increase
or
decrease
its
staff
and
equipment
by
reason
of
its
commitment
to
this
project,
nor
by
reason
of
the
ensuing
delay
and
eventual
cancellation
thereof.
Its
principal
point
is
that
its
bonding
capacity,
and
consequently
its
earning
structure,
was
impaired.
In
cross-examination
Mr
Barkauskas
Stated
that
according
to
his
estimate,
the
profit
if
the
project
had
been
proceeded
with
could
have
been
in
the
vicinity
of
$14,000
to
$16,000.
There
is
no
evidence
that
there
was
any
destruction
or
crippling
of
the
appellant’s
earning
structure.
Apart
from
the
delay,
for
which
it
was
compensated,
on
the
evidence
adduced,
the
appellant
would
not
have
been
able
to
tender
sizeable
bids
on
other
projects
if
it
had
proceeded
with
the
construction
of
the
Youth
Centre.
Furthermore,
its
bonding
Capacity
was
increased
subsequently,
which,
in
my
humble
opinion,
is
indicative
of
the
fact
that
there
was
no
impairment
in
that
regard.
In
view
of
my
findings
as
stated
above,
I
must
conclude
that
the
sum
of
$17,500
received
by
the
appellant
was
compensation
for
loss
of
profits
and
taxable
as
income.
The
appeal
accordingly,
is
dismissed.
Appeal
dismissed.
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