30 June 1995 Internal T.I. 9503907 - TAX STATUS OF CHEQUE RETURNED BY CASH METHOD FARMER?

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

TAX STATUS OF CHEQUE RETURNED BY CASH METHOD FARMER FOR REISSUE AT LATER DATE?

Position TAKEN:

TO BE INCLUDED IN INCOME WHEN ORIGINAL CHEQUE RECEIVED.

Reasons FOR POSITION TAKEN:

DEPARTMENT'S POSITION RE RECEIPT OF CHEQUE.

		June 30, 1995

	Meredith Staples	HEADQUARTERS
	Chief	Wm. P. Guglich
	Information Returns	(613) 957-8953
	Assessment of Returns Directorate
		950390

Cheque Deferrals

This is in reply to your memorandum of February 9, 1995 concerning the cheque deferral practice of the Canadian Wheat Board.

You informed us that it is the practice of the Canadian Wheat Board to allow recipients to return uncashed cheques for reissue at a later date (presumably in the next taxation year of cash basis farmers). You attached a copy of a cheque and stub from the Canadian Wheat Board which states: "RETURN THIS CHEQUE AND STUB IF YOU WANT TO HAVE IT REISSUED AT A LATER DATE". Where such cheque is returned and reissued in a subsequent taxation year the member would presumably include the amount of the cheque in income in that subsequent taxation year. This results in a deferral in the reporting of income by the Wheat Board members. Agriculture Canada in respect of crop insurance and the gross revenue insurance program, follow the practice of deferring the issuance of cheques only where the farmer requests a deferral of payment prior to the cheque being generated.

OUR VIEWS

The Department's views concerning the receipt of a cheque by a cash method taxpayer are described in paragraph 5 of Interpretation Bulletin IT-433R.

There is also considerable jurisprudence on this issue. Brul, T.C.J. stated in Rachel Kowalczyk v. M.N.R., 86 DTC 1552 at 1553:

"Courts have had to deal with this problem on a number of occasions. The conclusion generally accepted is that a payment by cheque is equivalent to a payment in cash as long as no special circumstances lead to another conclusion, and of course, that the cheque is not dishonoured on presentation for payment. Mr. Justice Thurlow, then at the Exchequer Court, said in Moody v. M.N.R., 57 DTC 1050 at 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 a payment of cash made at the time the cheque was received by the payee.'

Similar conclusions can be found in Nourse v. M.N.R., 61 DTC 571, Frankish v. M.N.R., 56 DTC 178, Furk v. M.N.R., 59 DTC 205 and Johnston v. M.N.R., 51 DTC 226. The solution in the case at bar then depends on whether there were any "special circumstances" to lead to the conclusion that the cheques were not payments equivalent to cash. If no such circumstances exist then the Appellant fails in her appeal."

Returning the original cheques and requesting the Wheat Board to reissue the cheques at a later date would not in our view be considered a "special circumstance". Therefore, the members would be required to include in income the amount of the cheque at the time the original cheque is received. As stated in paragraph 4 of Interpretation Bulletin IT-433R, pursuant to subsection 248(7) of the Income Tax Act a cheque sent by first class mail or its equivalent shall be deemed to have been received by the person to whom it was sent on the day it was mailed.

We trust our comments will be of assistance to you.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch