11 July 1986 Income Tax Severed Letter 7-0674 - [860711]

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

REVENUE CANADA TAXATION

DATE July 11, 1986

TO-A VICTORIA DISTRICT OFFICE    FROM-DE HEAD OFFICE
                                         Ruling Directorate 
                                         M. Siegel
                                         (613) 995-2455
R.R. MacKinnon                 
ATTENTION: Acting Chief of Audit

This is in rcplv to your memorandum of May 26, 1986 concerning the applicability of paragraph 12(1)(b) of the Income Tax Act (the "Act"). Section 9 of the Act states that, subject to the specific rules contained in Part I, a toxraver's income for. a taxation year is his profit therefrom for tre year. Paragraph 12(1)(b) of the Act requires that any amount receivable by a taxpayer in respect of services rendered in the course of a business irn a year shall be included in computing the income of the taxpayer for the year notwithstanding that the amount or any part thereof is not due until a subsequent year. In our view, there is no doubt that the unbilled amounts in question are in respect of services rendered in the course of a business. The more uncertain question is whether an amount is receivable in the taxpayer's taxation year in respect of the unbilled amounts. In MNR v. Colford Contracting Co. Ltd., 60 DTC 1131 at 1135, the Exchequer Court adopted the following definition of the word "receivable" as used in the Act:

"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 test as to whether an amount is receivable was set out in Benaby Realties Limited v. MNR, 67 DTC 5275; 68 SCC12, and Vaughan Construction Company Limited v. MNR, 20 DTC 6288; 71 SCC55, and must coexist with the test set out above. This is that there must be a binding agreement between the parties or & judgment fixing the amount.

In our opinion, the first test is satisfied on February 28 with respect to the unbilled amounts which are billed, on March 1, as the amounts are determinable and due. The second test would appear to be satisfied as there would appear (from the billings provided) to be agreements between the parties governing the work to be done, although the total cost might not actually be known by the client until bills are rendered. The amount of the bill would probably, however, be ascertainable on February 28.

It is to be noted that subsection 12(2) of the Act indicates that paragraphs 12(l)(a) and (b) of the Act were enacted for greater certainty and do not limit the application of section 9. It is our further opinion that subparagraphs 12(l)(b)(i) and (ii) add to the situations to which paragraph 12(1)(b) of the Act applies, and do not limit them. The fact that there has been no undue delay in the rendering of the accounts does not, therefore, exclude these amounts from the application of paragraph 12(l)(b) of the Act.

Chief Leasing and Financing Section Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs ranch