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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation]
When must the retroactive increases in a pharmacist-owner's fees for services provided for in Order in Council 503-2001 approved by the Québec government be included in income?
Position:
In the fiscal period commencing June 1, 2001.
Reasons:
Based on the client's indications that the Order in Council, which took effect on June 1, 2001, is the only document establishing the right and the manner of calculating retroactive increases, the retroactive increases covering the period from January 1, 1999 to May 31, 2001 would be amounts receivable from June 1, 2001, since it is on that date that the pharmacist-owner had a definite right to those amounts and the amount was determined or determinable.
XXXXXXXXXX Sylvie Labarre, CA
2001-009297
February 11, 2002
Dear Sir,
Subject: Retroactivity of new fees charged by pharmacy owners
This is in response to your fax of July 16, 2001, in which you asked for our opinion on the taxation year in which a pharmacist-owner must include the retroactive increase in fees for services covering the period from January 1, 1999 to May 31, 2001, which were paid by the Régie de l'assurance-maladie du Québec in accordance with the Order in Council 503-2001. We apologize for the delay in responding to this request.
On March 20, 1997, the Minister of Health and Social Services and the Association québécoise des pharmaciens propriétaires agreed to negotiate an agreement on the remuneration of owner-pharmacists.
On May 2, 2001, the Conseil des ministres approved Order in Council 503-2001 (the "Order in Council"), which took effect on June 1, 2001, to the effect that the determination of the conditions of remuneration set out in the agreement reached on March 20, 1997 and appended to the Order in Council were approved.
The remuneration conditions approved by the Order in Council provided for the retroactive application of the new rates for certain services mentioned. To ensure this retroactive application, the Régie de l'assurance-maladie du Québec made three payments to the pharmacist-owner. The first retroactive payment covered the period from January 1, 1999 to December 31, 2000 and was paid within 30 days of the coming into force of the Order in Council. A second retroactive payment covered the period from January 1, 2001 to March 31, 2001 and was paid within 90 days of the Order in Council taking effect. A third retroactive payment covered the period from April 1, 2001 to May 31, 2001 and was paid within 150 days of the Order in Council taking effect.
You gave us the example of a pharmacist-owner whose taxation year ends on April 30. You are of the view that the retroactive increase in fees for services should be included in income for the taxation year ending April 30, 2002.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R4 dated January 29, 2001, it is the practice of the Canada Customs and Revenue Agency (CCRA) not to issue written opinions regarding proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to whether a completed transaction has received appropriate tax treatment, that determination rests first with our Tax Services Offices following their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may not, however, apply to your particular situation in certain circumstances.
You indicated that the agreement reached on March 20, 1997 between the Minister of Health and Social Services and the Association québécoise des pharmaciens propriétaires established the remuneration of owner-pharmacists for the period from January 1, 1997 to March 31, 1998 and that it in no way covered the period covered by the Order in Council. In addition, you indicated that there are no documents other than the Order in Council establishing the right and manner of calculating retroactive increases in fees for services for the period from January 1, 1999 to May 31, 2001.
As stated by Justice Létourneau in The Queen v. La Capitale, Compagnie D'Assurance Générale (F.C.A.), 98 DTC 6215, the concept of income in section 9 of the Income Tax Act (the "Act") includes both amounts received and amounts receivable. In addition, section 12 of the Act confirms the obligation to include amounts receivable in determining income.
According to the jurisprudence, an amount is receivable when a taxpayer has a definite right to receive it, even if it is not necessarily due. As stated by Justice Létourneau in La Capitale, "[t]his concept of a right that is certain or unconditional, although not yet immediate, was approved and applied by the Supreme Court of Canada in Maple Leaf Mills v. M.N.R.
4 In that decision, it also appears that the amount due must be determined.” (Page 6217 [para. 11])
We consider that the amount is determined when it is sufficiently determinable or where it can be reasonably estimated. Indeed, in West Kootenay Power & Light Co. v. The Queen (F.C.A.), 92 DTC 6023, the conclusion as to whether the unbilled revenues that had been estimated were amounts receivable was as follows:
I must therefore conclude that the appellant had a clear legal right to the payment: the amounts in question were sufficiently ascertainable to be receivable 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 s.12(1)(b).
(Page 6031)
Taking into account the preceding comments, we are of the view that the increases in a pharmacist-owner's fees for services for the period from January 1, 1999 to May 31, 2001 are amounts receivable as of June 1, 2001 and that they must be included in the computation of the pharmacist-owner's income in the taxation year that includes June 1, 2001. In fact, the Order in Council that provides for retroactivity and sets out the method for calculating retroactive increases took effect on June 1, 2001.
Thus, in your example, the retroactive increases would be part of the income for the taxation year ending April 30, 2002.
These comments were made based on the information you provided. They do not constitute advance income tax rulings and are not binding on the CCRA.
Best regards,
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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