3 October 2002 External T.I. 2002-0151005 - 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 CCRA.

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

Principal Issues:

How are post-dated cheques treated for farmers using the cash method?

Position TAKEN:

General information provided. Post-dated cheques included in income / deducted from income on date payable.

Reasons:

Cash not received / paid until cheque is payable unless post-dated cheque given in absolute payment of debt.

XXXXXXXXXX 		2002-015100
T. Young, CA
October 3, 2002

Dear XXXXXXXXXX:

Re: Hog Sales - Post-dated Cheques

This is in reply to your letter of October 15, 2001, which you sent to us by facsimile on July 5, 2002, requesting our views on the treatment of post-dated cheques by cash-basis farmers in a number of scenarios as follows:

Scenario 1:

A cash-basis farmer ("Farmer A") delivers hogs to another cash-basis farmer ("Farmer B") in November 2002 and receives a cheque post-dated to January 2, 2003, in return.

Scenario 2a:

Assume the same facts as in Scenario 1 except that, instead of giving Farmer A a post-dated cheque in November 2002, Farmer B writes a cheque on January 2, 2003, and gives it to Farmer A the same day.

Scenario 2b:

Assume the same facts as Scenario 1 except that Farmer B does not give Farmer A the post-dated cheque until the date the cheque is payable, i.e., January 2, 2003.

Scenario 3:

Assume the same facts as in Scenario 1 except that the purchaser is a marketing association.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. However, we are prepared to provide the following comments, which may be of assistance to you.

In the scenarios outlined above, the amounts would normally be considered to have been received on January 2, 2003, by Farmer A, who would include the income on that date pursuant to paragraph 28(1)(a) of the Income Tax Act (the "Act"). Likewise, Farmer B would be considered to have paid for the hogs and be entitled to a deduction pursuant to paragraph 28(1)(e) of the Act on the same date. See paragraph 6 of interpretation bulletin IT-433R, "Farming or Fishing - Use of Cash Method", for the Canada Customs and Revenue Agency's position on this matter.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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