18 July 1996 External T.I. 9624775 - POST-DATED CHEQUES

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:

Timing of income to a cash basis farmer with respect to postdated cheque received for payment of grain. The cheque includes an interest factor based on time (date grain was delivered to the date of the cheque 2 or 3 years later) and current investment rates.

Position:

Subsection 76(4) provides for a deferral to the following year "where a cash purchase ticket or other form of settlement prescribed pursuant to the Canada Grain Act or by the Minister is issued to a taxpayer in respect of grain delivered in a taxation year of a taxpayer to a primary elevator or process elevator and the ticket or other form of settlement entitles the holder thereof to payment by the operator of the elevator of the purchase price, without interest, ..." While a Deferred Cash Purchase Ticket for Grain is essentially a cheque, (though it has been described as a negotiable instrument, with additional prescribed information) in our view, a bare post-dated cheque that is not as described above would not qualify, even without interest, for deferral under subsection 76(4) and certainly a post-dated cheque, with interest, would not. Hence, no deferral under subsection 76(4). The amounts would be income under 76(1) when post-dated cheque is received in full settlement of the debt that was payable at the time the grain was delivered. This position is set out in paragraph 6 of IT-433R.

Reasons:

In substance the taxpayer effectively receives his payment and invests it with interest by agreeing to do so with the grain company.

		962477
XXXXXXXXXX	A.M. Brake
(613) 957-2133
Attention:  XXXXXXXXXX

July 18, 1996

Dear Sirs:

Re: Post-Dated Cheques for Grain Deliveries

This is further to our meeting (Brake/XXXXXXXXXX) of July 16, 1996 regarding the timing of reporting income from grain sales where the producer requests and receives post-dated cheques, dated one, two or possibly three years in the future, in full settlement of a debt in respect of grain deliveries together with a deferral premium ("interest") computed on the debt by reference to current investment rates and the time from the date of delivery to the date of the post-dated cheque. We have been informed by an enquirer that there is an understanding amongst some members of the farm community that because there is interest included in the payment, subsection 76(4) of the Act would not apply to bring the amount into income in the year after delivery and that the amounts in question would only be income on the date of the post-dated cheque.

Our comments

Paragraph 6 of Interpretation Bulletin IT-433R sets out the Department's position with respect to a post-dated cheque accepted in absolute payment of a debt and reads, in part, as follows:

"... where a post-dated cheque is accepted in absolute payment of debt, the value of the post-dated cheque is normally considered to be income at the time it is received subject to a subsequent adjustment if it is not honoured on subsequent presentation for payment. In this situation the taxpayer accepts the post-dated cheque as full payment of the debt and as such accepts the risk of it being dishonoured with the only recourse being an action against the maker of the cheque for failure to honour the cheque."

A post-dated cheque settling a debt that was payable at the date of delivery together with an interest element thereon, would be an instrument described within the wording of subsection 76(1) of the Act and the amount in question would be required to be brought into income at the time the post-dated cheque was received, in settlement of the debt then payable, and would be income in the year the grain was delivered.

Subsection 76(1) requires that "in the year a person receives a security or other right or a certificate of indebtedness or other evidence of indebtedness wholly or partially as payment of, in lieu of payment of or in satisfaction of, a debt that is then payable, the amount of which debt would be included in computing the person's income if it were paid, the value of the security, right or indebtedness or the applicable portion shall, notwithstanding the form or legal effect of the transaction, be included in computing the person's income for the taxation year in which it is received." In this regard, we would like to point out that subsection 76(4) of the Act is not a charging provision but rather it is a deferral provision that applies to defer, to the following year, amounts described therein that would otherwise be required to be brought into income in the year, by virtue of subsection 76(1) of the Act.

Subsection 76(4) provides for a deferral only to the following year "where a cash purchase ticket or other form of settlement prescribed pursuant to the Canada Grain Act or by the Minister is issued to a taxpayer in respect of grain delivered in a taxation year of a taxpayer to a primary elevator or process elevator and the ticket or other form of settlement entitles the holder thereof to payment by the operator of the elevator of the purchase price, without interest, ..." While a deferred cash purchase ticket for grain is essentially a cheque (though it has been described to us as a negotiable instrument, with additional prescribed information), in our view, a bare post-dated cheque that does not satisfy the requirement as described above would not qualify, even without interest, for deferral under subsection 76(4) and certainly a post-dated cheque, with interest, would not.

We trust our comments will be of assistance to you.

Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch