Payment & Receipt

Cases

Canada v. Innovative Installation Inc., 2010 DTC 5175 [at 7317], 2010 FCA 285

indirect receipt through debt repayment

In order to ensure payment of a loan owing by the taxpayer ("Innovative") to a bank (RBC) on the death of Innovative's principal (Mr Peacock), Innovative purchased key man insurance from Sun Life with RBC as the policyholder and funded the payment of premiums on the policy. When Mr Peacock died, Sun Life paid the insurance proceeds to RBC, which was contractually obliged to apply them to discharge the loan.

Evans JA found (at para. 6) that, for the purposes of determining Innovative's capital dividend account, "Innovative 'received' 'proceeds of a life insurance policy' when RBC applied them, as the contract required, to discharge Innovative's debt," and stated (at para. 9):

Paragraph 89(1)(d) does not require that a corporation receive the proceeds directly from the insurer or that it be named as the beneficiary of the policy. It only had to have "received" them in consequence of Mr Peacock's death.

Words and Phrases
receive
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account receipt of insurance proceeds through debt repayment 148

Wannan v. Canada, 2003 DTC 5715, 2003 FCA 423

application of payment by creditor

The quantum of the taxpayer's liability under s. 160 turned upon whether a bankruptcy dividend received by the Crown from the trustee in bankruptcy for her husband should be considered to reduce the tax liability of her husband at the time he made contributions to her RRSP rather than being applied to more recent tax liabilities. The taxpayer argued that Clayton's case should be applied to deem the dividend to be applied to the oldest debt. Sharlow J.A., however, was not satisfied that the Crown was precluded from applying the bankruptcy dividend, as it did, to the newest of the tax liabilities of the taxpayer's husband.

Banner Pharmacaps NRO Ltd. v. Canada, 2003 FCA 367, 2003 DTC 5642 (FCA)

promissory note accepted as payment

The wholly-owned Canadian subsidiary of the taxpayer declared a dividend, with the resolution stipulating that the dividend was "to be payable by the Corporation by the issuance of a demand promissory note". Sharlow J.A., before finding that the dividend was paid by means of delivery of the promissory note given that this was the expressed intention in the resolution, stated (at para. 7):

"The legal effect of delivery of a promissory note depends upon all the relevant facts, the most important fact being the intention of the maker of the note as determined by the evidence. For example, in some circumstances a promissory note may be evidence of a debt to be paid at some future time. In other circumstances, delivery of a promissory note may itself be payment of a particular obligation."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(j) dividends recognized on cash basis 111
Tax Topics - Income Tax Act - Section 133 - Subsection 133(8) - Non-Resident-Owned Investment Corporation dividend received when note issued/such note not a money-lenidng business 219

Canada v. Gillette Canada Inc., 2003 DTC 5078, 2003 FCA 22

replacement with different currency note

The replacement of a French-franc note by a Canadian-dollar note with an equivalent principal amount did not give rise to a payment or crediting for purposes of s. 212(13.1)(b) given that the Canadian-dollar note was issued and accepted as replacement for the French-franc note in circumstances where the terms remained the same except for the currency of payment.

Hickman Motors Ltd. v. Canada, 97 DTC 5363, [1997] 2 S.C.R. 336

unrecorded revenues

In connection with finding that the taxpayer had generated revenues, which were not reflected in its financial statements, from holding leasing assets for five days, L'Heureux-Dubé J. stated (at para. 87):

The law is well established that accounting documents or accounting entries serve only to reflect transactions and that it is the reality of the facts that determines the true nature and substance of transactions: Vander Nurseries Inc. v. The Queen, 95 D.T.C. 91 (T.C.C.); Mountwest Steel Ltd. v. The Queen (1994), 2 G.T.C. 1087 (T.C.C.); Uphill Holdings Ltd. v. M.N.R., 93 D.T.C. 148 (T.C.C.); M.N.R. v. Wardean Drilling Ltd., 69 D.T.C. 5194 (Ex. Ct.); M.N.R. v. Société Coopérative Agricole de la Vallée d'Yamaska, 57 D.T.C. 1078 (Ex. Ct.).

Piché v. MNR, 92 DTC 5295 (FCA)

payment when cheque accepted as payment

Interest owing to the taxpayer as a result of the acceptance by his co-shareholders of his offer to sell his shares in a corporation, was found to be received by him at the end of 1990, when he accepted the related cheque as payment (as evidenced by his deposit of the cheque to his bank account), rather than early in 1991 when the amount was credited by the bank to his bank account at another branch.

Coppley Noyes & Randall Ltd. v. The Queen, 91 DTC 5291 (FCTD), varied on appeal 93 DTC 5196, 5508 (FCA).

presumed application to oldest debt

The taxpayer's practice, in determining its allowance for doubtful accounts at the end of its taxation year on November 27, 1082, included having regard to payments made by trade debtors during the three months after that its year end, but treating receipts as going to the oldest receivables first. Reed J stated (at p. 5294):

When neither the debtor nor creditor designates that a payment is to be applied to a specific invoice, it is assumed that the payment is being made to pay off the earliest debt: [citing inter alia Dunlop, Creditor-Debtor Law in Canada.]

Minsham Properties Ltd. v. Price, [1990] BTC 528 (Ch. D.)

mere addition of accrued interest not payment

Although "there can be no doubt that a book entry can constitute payment" (p. 540), in the case of an informal loan from the taxpayer's parent corporation to the taxpayer, the mere addition of accrued interest to the principal owing by the taxpayer to the parent did not constitute payment.

Cumberland Properties Ltd. v. The Queen, 89 DTC 5333 (FCA)

receipt by unauthorized agent not payment

On November 24, 1980 the Department of Supply and Services issued a refund cheque to "Cumberland Properties Ltd. c/o John Church", which was the manner in which Cumberland's 1978 return had been completed. This was not sufficient to clothe Church with ostensible authority to negotiate the cheque (as opposed to certifying the return). In addition, any authority of Church was revoked when Cumberland's 1979 return (showing a different address and making no mention of John Church) was received by Revenue Canada on September 2, 1980, and by a letter of Cumberland enquiring as to the refund cheque which Revenue Canada received on March 3, 1981, which was before the negotiation of the cheque by Church on July 24, 1981. [C.R: Agency]

C. & E. Commissioners v. Faith Construction Ltd., [1989] BTC 5121 (C.A.)

receipt even though obligation to lend back

In response to the proposed repeal effective 1 June 1984 of the zero rating of building alteration services, four building companies with existing contracts for building alterations arranged with their customers for payment by the customers before that date subject (in one case) to the condition that the building company would immediately lend back an equivalent sum, to be repaid as the work was done or subject (in the other case) to that money being paid into an account of the building company for release only as the work was done.

Although the use of the money was fettered, the payments discharged the liability of the customers under the building contracts. Accordingly, the building companies had "receive[d] a payment" before 1 June 1984.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 341 - Subsection 341(1) 120

Parkside Leasing Ltd. v. Smith, [1985] BTC 25 (HC)

receipt only when cheque deposited

Interest paid by cheque was not received on the date that the cheque was received. Instead, the interest was not received until either the date that the recipient deposited the cheque, or the date that the cheque cleared.

Narich Pty. Ltd. v. Commissioner of Pay-roll Tax, [1984] BTC 8019 (PC)

indirect receipt of wages

An argument was rejected to the effect that fees received by employees of a company were not wages because they were collected directly from clients of the company.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) 74

Western Union Insurance Co. v. The Queen, 83 DTC 5388, [1983] CTC 363 (FCTD)

sending of cheque to sender's lawyers

The sending of a cheque by the lender to (its) solicitors did not constitute the payment of a sum to the borrower.

The Queen v. Ans, 83 DTC 5038, [1983] CTC 8 (FCTD)

receipt by set-off

A company's shareholder was held to have received a bonus when the amount of the bonus payable by the company was credited against the balance outstanding on the loan by the company to the shareholder.

Mendels v. The Queen, 78 DTC 6267, [1978] CTC 404 (FCTD)

payment by mutual book entry

The taxpayer was partner with another dentist in the partnership for their professional practice and tey also jointly owned a corporation (the "Company"), which initially only leased laboratory and dental equipment to the partnership. For the 1970 taxation year, they decided that the partnership also should pay a management fee of $20,000 to the Company. The taxpayer's pro rata portion of the fee was denied as an artificial deduction from income on the ground that there was no change in practices following the new fee arrangement, and thus no evidence that the supposed services of the Company were not being performed by the two individuals in their capacities of partners of the partnership rather than as officers of the Company. Before so concluding, Cattanach J stated (at p. 6270):

[The Crown contended] that there was no actual payment by cheque or cash from the partnership to the Company. That is so but the exchange was effected by journal entries. There was a credit entry in the records of the Company indicating a credit of $20,000 and I take it that there was a corresponding debit entry in the records of the partnership.

There is no need, in my opinion, to go through the formality of handing actual money or a cheque over. The transaction is necessarily bilateral and in my view those journal entries constitute actual, nor merely notional or constructive payment. The evidence or material embodiment of the transaction may consist of book entries made in pursuance of the arrangement but what has happened is, if so intended, equivalent to the receipt of money (see Lord Wright in Trinidad Lake Asphalt…[1945] AC 1 at 10… .)

The Queen v. Canadian-American Loan and Investment Corp. Ltd., 74 DTC 6104, [1974] CTC 101 (FCTD)

receipt of sums collected by affiliate

The taxpayer, which operated a boat storage business in a storage building, subleased a portion of the leased premises to an affiliate ("Georgia") with accumulated losses, but continued to operate the business the same as before. However, the customer receipts were booked as revenues of Georgia, and the stipulated sublease rents were booked as revenues of the taxpayer. Cattanach J stated (at para. 6108):

All that Georgia did was to pay the monthly rental of $500 to the defendant and to receive in each month the amounts paid to the defendant by the customers which in the nine months in the defendant's taxation year totalled $14,028.60.

...The mere fact that there was no handing of money back and forth and the embodiment of the transactions consisted of book entries is still the equivalent of the payment and receipt of money. (See...Trinidad Lake Asphalt...[1945] A.C. 1)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4) 81

Blauer v. MNR, 71 DTC 5113, [1971] CTC 154 (F.C.T.A.), briefly aff'd 75 DTC 5076, [1975] CTC 112 (SCC)

post-dated cheque

A post-dated cheque was payable for purposes of ss. 12(1)(l) and 76(1) on its date rather than the date of delivery.

Hall v. MNR, 70 DTC 6333, [1970] CTC 510 (Ex Ct), briefly aff'd 71 DTC 5217 (SCC)

interest coupons required to be presented

An individual following the cash method for the recognition of interest income received interest represented by interest coupons on the due dates. "On the due date ... the obligation to pay vested subject only to the 'presentation and surrender of the ... interest coupons'. Hence the presentation and surrender of the coupons was a condition precedent to the obligation to pay ... but the appellant having the coupons could readily present and surrender them and thereby satisfy the condition precedent."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c) sale of matured interest coupons gave rise to interest receipt or amount in lieu 194

Robwaral Ltd. v. MNR, 60 DTC 1025, [1960] CTC 16 (Ex Ct), briefly aff'd 64 DTC 5266 (SCC)

dividend not received until cheque received

A dividend was "received" by a shareholder in the year in which the cheque was drawn and received by him, rather than in the previous year in which the dividend was declared and in which the record date occurred.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(1) 65

Flinn. v. MNR, 3 DTC 1157 (Ex Ct)

note issued evidencing payment obligation

Dividends on preference shares of a corporation, including those held by the taxpayer, were substantially in arrears. The corporation declared a dividend in the amount of the aggregate arrears on such shares, but postponed payment of the dividend for a period of 20 years and issued interest-bearing "dividend notes" to shareholders evidencing the right to receive such dividend. Angers J. found that the taxpayer had not received interest, dividends or profits ... from stocks, or from any other investment" in the year in which the dividend was declared.

See Also

Blott v. The Queen, 2018 TCC 1 (Informal Procedure)

giving a spouse access to a joint account was not payment to her

The taxpayer was a market dealer with a securities dealer (“WCM”), which provided support in the form of an assistant, shared with others and it answered “no” to the question in the T2200 as to whether the contract of employment required the taxpayer to pay for an assistant. For 2011 and 2013, the taxpayer claimed that he paid his wife $12,000 annually for the handling of administrative and expense related matters. The Minister denied an employment expense deduction.

C. Miller J dismissed the case, finding (at paras 11, 13 and 14):

… There are no cheques to Ms. Thériault. Mr. Blott’s income went into the joint account and Ms. Thériault could simply access it. Is there any amount paid to Ms. Thériault in such circumstances? I conclude there is not. … I do not see how anything has been paid or expended to Ms. Thériault. She has received nothing more than what she already had.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(i) - Subparagraph 8(1)(i)(ii) retaining an assistant was not a requirement of employer 109

Markou v. The Queen, 2016 TCC 137

funds in leveraged donation scheme essentially advanced by lender directly to charity

A Quistclose trust (as described by C. Miller J ) provides an equitable remedy to a lender where it has lent to a borrower for a specific purpose and it is exposed to the risk of other creditors snatching the advanced funds before the borrower uses them for the intended purpose. C. Miller J made a Rule 58(1) determination that no Quistclose trust attached to the funds advanced by the lender under a leveraged donation arangement because the funds essentially were advanced by the lender directly to the charity rather than, on a realistic view, passing first through the hands of the borrower taxpayers.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) TCC had jurisdiction to determine that no lender equitable remedy (under Quistclose trust doctrine) attached to leveraged donation advances 393
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 TCC has jurisdiction to determine existence of equitable remedy 90

M. Soutar Decor 2000 Ltd. v. The Queen, 2016 TCC 62 (Informal Procedure)

seizure of a guarantor’s security constituted a transfer

Bocock J found that when a bank seized the security (a GIC) provided by a tax debtor to secure his guarantee of a bank loan to his son’s company, this constituted a transfer of property by him to that company for s. 160 purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) transfer from guarantor by virtue of seizure of security by tax debtor’s bank 282

Blank v. Commissioner of Taxation, [2015] FCAFC 154, aff'd [2016] HCA 42

payments under phantom units not received when they vested

In 1994, a non-resident executive was granted units which entitled him, on retirement, to receive payments calculated by reference to the consolidated profits of Glencore International AG, a Swiss corporation ("GI"). He retired at the end of 2006, and became entitled to receive U.S.$160 million in instalments commencing in July 2007. He and Glencore then agreed (pursuant to an agreement which was not executed until January 2008) that the first four instalments would be paid by GI to the Swiss taxing authority (the FTA) in satisfaction of Swiss withholding tax on the U.S.$160 million. This remittance occurred in 2008.

The relevant Australian tax law provided that, in the case of a reward for personal service, the income “derived” by the taxpayer is the “amount…actually received in the year in question” (Brent, 125 CLR 418, at para. 13), and a deeming provision specified that “you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct."

The Full Court of the Australian Federal Court held that although two of the four instalments were due to him in 2007, they were not income to him until 2008 when they were paid on his behalf to the FTA, stating (at para. 95):

The… Commissioner’s submission… postulates that income is relevantly “dealt with” on behalf of a taxpayer when the debtor (here GI) refrains from making payment of a debt due to the taxpayer at the creditor’s request. Brent v Federal Commissioner of Taxation [1971] HCA 48; 125 CLR 418 ...indicates that more is required… . There was therefore no derivation of income in the 2007 income year when the first two instalments, though due, were merely withheld from payment to the appellant. … The applicant derived the first two instalments as income when, in January 2008, they were paid, with his agreement, to the FTA by GI on his behalf.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) phantom profit participation unit amounts not income until paid by employer rather than when due 700
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(i) no apportionment possible between resident and non-resident services 270

Great-West Life Assurance Company v. The Queen, 2015 TCC 225

constructive receipt by relieving obligation to pay pharmacist

The appellant ("Great-West") provided prescription drug plans to the employees of various employers. The claims were processed by a third party ("Emergis") using its "Assure Card System." The plan members' claims were adjudicated electronically immediately upon being charged for filling a prescription at a participating pharmacy. Emergis would then reimburse the pharmacies for the claim amount, and submit periodic invoices to Great-West.

In explaining his finding (at para. 81) that "the essential character of the supply provided by Emergis to Great-West is the payment to the plan member of the drug benefit claimed by the plan member under a group health benefits plan," Owen J stated (at para. 82):

In the past, the entitlement to the benefit would have been satisfied by the issuance of a cheque to the plan member. Under the Assure Card system, the entitlement is satisfied by relieving the plan member of the obligation to pay the amount of the benefit to the pharmacy at the point of sale. The result is the same. The plan member constructively receives at the pharmacy counter the benefit payable to him or her under the terms of the group health benefits plan.

See summaries under Financial Services and Financial Institutions (GST/HST) Regulations, s. 4(2) and s. 123(1) – financial service – (f.1) and (r.4).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Regulations - Financial Services (GST/HST) Regulations - Subsection 4(2) electronic drug plan adjudication and processing was "quintessentially administrative in nature" 265
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (f.1) essential character of drug claim processing service was providing payment to the claimant 276
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) services described in (r.4) did not represent the essential character of drug claim processing service 241
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.5) essential character of drug claim processing service was providing payment to the claimant 162

Dimane Enterprises Ltd. v. The Queen, 2015 DTC 1013 [at 64], 2014 TCC 334

payments not received where children "recipients" had no control over funds

Purported distributions out of a purported EPSP to children employees of the taxpayer were to a bank account controlled by the father, so that the participants "never had control of these funds" (para. 40), and so that the "real transactions" were "the payment of amounts by the corporation to the father" (para. 42). See detailed summary under General Concepts –Sham.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham purported recipients of trust distributions had no control over funds 236
Tax Topics - Income Tax Act - Section 144 - Subsection 144(1) - Employee Profit Sharing Plan purported recipients of trust distributions had no control over funds 236

Transalta Corporation v. The Queen, 2012 DTC 1106 [at 3044], 2012 TCC 86

past services

Margeson J. accepted (at para. 99) that employees to whom the taxpayer issued shares in payment of bonuses to them gave consideration equal to the full value of those share "on the basis of past unremunerated services rendered to the Appellant."

McKenzie v. The Queen, 2011 DTC 1216 [at 1274], 2011 TCC 289

payment through back-to-back promissory notes

In settlement of a suit by the taxpayer, who was an income beneficiary, the settlement agreement provided for the payment by the trust to her of $1.7 million in satisfaction of her interest in the trust. Through a numbered company, the capital beneficiary issued a promissory note to the trust for $1.7 million in exchange for shares held for the taxpayer. The trust issued a promissory note to the taxpayer in the same amount. The trust's law firm then gave the taxpayer a certified cheque for $1.7 million to discharge the trust's promissory note.

In finding that these transactions qualified as a distribution by the trust, Boyle J. rejected the Minister's argument that the money was never the property of the trust, but rather was property of the beneficiary's numbered company. The transfer of promissory notes was a transfer of trust property. He stated (at para. 21):

Surely [the Minister] would not seriously have contested a bill of exchange involving a bank and I have been provided with no persuasive argument that enforceable promissory notes from solvent entities should be treated any differently.

Boyle J. also found that the property had been distributed to the taxpayer. He stated (at para. 22) that "[t]here is no apparent reason put forward to suggest that the term 'distributed' should not be given its ordinary meaning."

Words and Phrases
distributed

Newmont Canada Corporation v. The Queen, 2011 DTC 1117 [at 628], 2011 TCC 148, aff'd 2012 DTC 5138 [at 7292], 2012 FCA 214 supra

no implied set-off

The taxpayer acquired a 100% undivided interest in a property (the "Quarter Claim") adjoining its "Golden Giant" mine subject to a 50% net profits royalty in favour of the vendor ("Teck/Corona"). In finding that the payment by the taxpayer of 50% of the net profits from the mining operations it conducted on the Quarter Claim did not entail a "reimbursement" by Teck/Corona for 50% of the mining taxes that the taxpayer paid as an expense of that operation, D'Arcy J. stated (at para. 77):

The allocation of revenue from the Golden Giant Mine to the calculation of the Quarter Claim Royalty was not payment of an amount by Teck/Corona. [The taxpayer] as the owner of the Golden Giant Mine (including the Quarter Claim) realized all revenue from mining the Golden Giant Mine. This revenue was not the revenue of Teck/Corona. Teck/Corona was only entitled to receive an amount as a royalty. Further, such royalty was only payable if the Royalty Account showed a credit balance.

Words and Phrases
reimbursement

Sochatsky v. The Queen, 2011 DTC 1065 [at 346], 2011 TCC 41, 2012 TCC 65

bonus booked as loan back/constructive receipt

The individual taxpayer was found to have received a bonus from a closely-held corporation in the year that the corporation declared the bonus rather than in the subsequent year of payment in light of the withholding and remittance of source deductions on the full amount of the bonus in the first year, the booking by by the corporation in that year of a loan back to it of the net bonus proceeds and the absence of any evidence that this was done without his knowledge or consent. Jorré J. also quoted (at para. 78) with apparent approval a statement of commentators that "when money is paid by an employer to a third party for the benefit of the taxpayer, the payment constituted constructive receipt in the hands of the taxpayer."

Johnson v. The Queen, 2010 DTC 1213 [at 3568], 2010 TCC 321 (Informal Procedure)

frequent flyer points

Frequent flyer points applied by the taxpayer to purchase air tickets to Chicago for medical treatment there constituted "an amount paid" for purposes of s. 118.2(2)(g).

Innovative Installation Inc. v. The Queen, 2009 DTC 1388 [at 2135], 2009 TCC 580, aff'd supra

receipt when payment to creditor

After noting (at para. 21) that "the case law is clear that an amount may be included in income even where it is only notionally or constructively received", McArthur, J. went on to find that the taxpayer had received insurance policies under a policy that had been assigned by it to a bank given that it benefited from the insurance proceeds being applied to pay off a loan owing by it to the bank.

O'Dea v. The Queen, 2009 DTC 912, 2009 TCC 295

no evidence of payment through off-settable cash

Promissory notes owing by the taxpayers, which were consideration for their acquisition of units of a limited partnership, provided that the interest thereon was to be paid by way of set-off against distributions otherwise payable by the partnership to the taxpayers. In fact, the partnership did not generate distributable cash and, particularly for the first taxation year in question, there was no evidence that interest was paid through the making of timely journal entries. Accordingly, the amounts represented by the notes were limited recourse amounts.

Collins & Aikman Products Co. v. The Queen, 2009 DTC 1179 [at 958], 2009 TCC 299, aff'd 2010 DTC 5164 [at 7293], 2010 FCA 251

payment by direction
aff'd on other grounds 2010 DTC 5164 [at 7293], 2010 FCA 251

A Canadian corporation ("C&A") paid two dividends to its Canadian-resident parent ("Holdings"), which distributed the same amounts to its U.S.-resident parent ("Products") as distributions of paid-up capital. Boyle J. noted (at para. 21) that there was no dispute that a distribution of stated capital by a Canadian corporation, that did not have a bank account, to its non-resident shareholder had been paid by it through directions in respect of a dividend payable to it by its subsidiary:

Since Holdings did not have a bank account, in each case the amount of Holdings' return of capital to Products was distributed electronically from C&A's bank account directly to Products' bank account. There was no dispute that C&A was acting as Holdings' agent in this regard with satisfactory directions and financial reporting.

WPH Mechanical Services Ltd. v. The Queen, 2007 DTC 263, 2006 TCC 677

payment by demand loan

t was found that bonuses declared payable by the taxpayer to its two directors were paid by it within the 180 day period referred to in s. 78(4) pursuant to a demand loan agreement (notwithstanding that the directors did not report the portion of the demand loan that was not paid in cash until the subsequent year as employment income until that subsequent year).

Aprile v. The Queen, 2005 DTC 585, 2005 TCC 216 (Informal Procedure)

payments in kind

Bell J. rejected the Crown's submission that the taxpayer can only make a deduction under s. 8(1)(i) for amounts paid in cash or by cheque with proof of payment, and found that the taxpayer was entitled to a deduction under s. 8(1)(I)(ii) for snowmobiles, motorcycles and gasoline that he had purchased for his sons as payment for their services in performing mailings to 2,500 people on five different occasions in the year.

Hill v. The Queen, 2002 DTC 1749 (TCC)

funds to support cheques

Miller T.C.J. noted that with respect to the situation where the taxpayer, which owed approximately $60 million in accrued interest, paid $60 million to the creditor at the same time that the creditor paid $60 million to the taxpayer as an addition to the advances owing by the taxpayer, that he had difficulty identifying any moment in time at which the taxpayer did not owe $60 million to the creditor. Nonetheless, the transaction was found to constitute a payment of $60 million by the taxpayer to the creditor because, unlike the Cox case (71 DTC 5150), in this case both the taxpayer and the creditor had arranged for sufficient funds such that the cheques would be honoured, and in fact were honoured:

"It was not a matter of each side relying on the other side's funds for their cheques to be honoured."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) 207
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) no Crown explanation of different treatment of simple interest 233

MacNiven v. Westmoreland Investments Ltd., [2001] 1 All ER 865 (HL)

interest paid with loan

In order to generate an interest deduction for accrued interest owing by an insolvent company ("WIL") to its shareholder (a pension fund) pursuant to a provision of the Corporation Taxes Act 1988 (U.K.) which required that interest be paid in order to be deductible, the pension fund lent money to WIL with WIL using the borrowed proceeds to pay the outstanding arrears of interest. In finding that this arrangement was effective, Lord Nicholls stated (at pp. 868-869) that "prima facie, payment of interest in s. 338 has its normal legal meaning, and connotes simple satisfaction of the obligation to pay ... . Leaving aside sham transactions, a debt may be discharged and replaced with another even when the only persons involved are the debtor and the creditor".

Fleishman v. The Queen, 98 DTC 1836 (TCC) (Informal Procedure)

creditor may apply payment as it determines if debtor does not

'The taxpayer received two cash payments of $10,000 and $25,000 on an interest-bearing promissory note for $525,000 owing by an arm's length debtor. The payments were found by Mogan J not to have been appropriated by the debtor as between interest or principal, and to have been applied by the taxpayer to principal. Mogan J found (at para. 11) that the payments were of interest rather than of principal on the basis of the doctrine that "in the absence of any appropriation made by the debtor, the creditor may direct his payment to be applied as he thinks fit."

Gibson v. The Queen, 95 DTC 749 (TCC)

payment in kind

The taxpayer transferred his equity in a house to his former spouse in satisfaction of arrears of alimony or maintenance owing to her of $19,946. In finding that this constituted a payment of such arrears, O'Connor TCJ. stated (at p. 752) that "payment in kind, provided there has been an agreement or a binding determination of the value in money of the object given, will suffice ... . To do otherwise would seem to run counter to the definition of 'amount' in subsection 248(1)".

Phillips v. The Queen, 95 DTC 194 (TCC)

book entry did not give rise to receipt

In finding that the redesignation of a 'bonus payable' to 'due to shareholder' did not constitute the receipt of an amount giving rise to income in the taxpayer's hands, Bowman TCJ. stated (at p.196):

"Nor can I accept that the mere bookkeeping entry of moving the amount of bonus owing to Mr. Phillips from 'bonus payable' to 'due to shareholder' connotes receipt. Accounting entries are supposed to reflect realities, not create it ...".

and went on to refer to the decision in Gresham Life Society Co., Ltd. v. Bishop (1902), 4 TC 464 (HL) [below].

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) 97

Blais v. MNR, 92 DTC 1497 (TCC)

payment references funds transfer

A taxpayer was ordered in 1984 to retain arrears of alimentary allowance that had accumulated from March 1983 onward to be applied against an amount owing to him by his estranged wife. In finding that the alimentary allowance was not "paid" by him for purposes of s. 60(b), and was not "received" by her for purposes of s. 56(1)(b), Garon J. stated (p. 1499):

"... The verb 'pay' in the context of that paragraph means a transfer of money, a handing over of funds ... [and] the expression 'received' involves the idea of being put in possession of something."

Ed Sinclair Construction & Supplies Ltd. v. MNR, 92 DTC 1163 (TCC)

book entry

Bowman J. stated:

A mere bookkeeping entry in a loan account by itself does not constitute a taxable event unless there is something more, such as receipt. In Gresham Life Society Co., Ltd. v. Bishop (1902), 4 TC 464 at 476 [sic, 475 - see also summary below], Lord Brampton said:

My Lords I agree with the Court of Appeal that a sum of money may be received in more ways than one e.g. by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by business men. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money may pass; and I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the Statute which your Lordships have to interpret. But to constitute a receipt of anything there must be a person to receive and a person from whom he receives and something received by the former from the latter, and in this case that something must be a sum of money. A mere entry in an account which does not represent such a transaction does not prove any receipt, whatever else it may be worth.

Re Charge Card Services Ltd., [1988] 3 All E.R. 702 (C.A.)

card acceptance was payment

A company issued charge cards to cardholders who would obtain petrol from garages by presenting the card and signing a sales voucher completed by the garage. Because the acceptance of the card by the garage constituted unconditional payment for the petrol, the garages following the insolvency of the company had no entitlement to receive payment for the petrol directly from cardholders.

Associated Insulation Products, Ltd. v. Golder (1944), 26 TC 231, [1944] 2 All E.R. 203 (C.A.)

issuance of debt certificates not payment

An American corporation passed a resolution providing "'that a distribution of seven per cent on the capital stock of this corporation, amounting to $52,500 dollars, be and the same is hereby declared, payable on the 15th December, 1936'" and went on to provide that the distribution should not be payable in cash, but in the form of certificates of indebtedness bearing interest at 4%, and payable approximately four years later. In finding that there was no "income arising from possessions out of the United Kingdom" to the U.K. shareholder, Scott L. J. concluded that "the reality of the transaction was the declaration of a money dividend payable not presently, but only on a future date", rather than "a distribution by way of dividend not of money but of money's worth" (at p. 203, All E.R.).

Cross v. London Provincial Trust Ltd., [1938] 1 All E.R. 428 (C.A.)

no payment on capitalization of interest

The taxpayer, who held bonds in which the payment of interest had been suspended, exchanged his matured interest coupons on the bond for interest-bearing 20-year funding bonds of the debtor. In finding that the funding bonds did not constitute "income arising from securities outside the United Kingdom", MacKinnon L.J. stated (at p. 435) that "there can never be payment of its debt by a debtor by giving his own promise to pay at a future date ... though income arises to a creditor from a debtor's paying his debt, income does not arise by the debtor's promising that he will pay his debt later on".

Gresham Life Society Co., Ltd. v. Bishop (1902), 4 TC 464 (HL)

no constructive receipt

The taxpayer, a UK life insurance company which was managed in London and had foreign branch businesses, was assessed for interest and dividends which it received on foreign securities held in the hands of agents abroad, and which were reinvested abroad, on the basis that it received such income in the U.K. In finding that the taxpayer was not taxable on such amounts, Lord Brampton stated (at p. 475):

[I]t is conceded that no part of the money in question was ever received in the United Kingdom in specie… . But it was argued that… it was "constructively" so received in the accounts of the Society. …If it means something differing from or short of an actual receipt, then it seems to me that a constructive receipt is not recognised by the Statute, which in using the word "received" alone, must be taken to have used it having regard to its ordinary acceptation. … I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the Statute… . But…[a] mere entry in an account which does not represent such a transaction does not prove any receipt… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 82 - Subsection 82(1) - Paragraph 82(1)(a) no constructive receipt 204

Administrative Policy

17 June 2014 External T.I. 2013-0506731E5 - Immigration

note satisfied dividend

An individual shareholder immigrates to Canada, thereby becoming a Canadian resident. NRCo issues a $1,000 promissory note to her in satisfaction of a dividend declared before her immigration (with the note being paid after the immigration). The dividend would be considered received at the time when the shareholder was still a non-resident of Canada on the presumption (applying Banner Pharmacaps) that the note was issued and delivered to her in satisfaction of the obligation to pay the dividend.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) dividend receivable acquired on immigration 137
Tax Topics - Income Tax Act - Section 90 - Subsection 90(2) dividend not recognized until paid 166

24 November 2013 CTF Roundtable, 2013-0508151C6 - Upstream Loans

repayment by set-off

A loan or indebtedness will be considered to have been repaid by a debtor by way of set-off against a receivable of the debtor "if the set-off represents a legal discharge of the loan or indebtedness." This generally will be accepted to have occurred "if the intention to do so is evidenced in the relevant books and records including any contracts or agreements between the parties and the accounting records of the parties."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(8) - Paragraph 90(8)(a) repayment by set-off 73

30 January 2014 External T.I. 2013-0515761E5 F - Dividend received

book entries merely record and do not establish that a dividend was paid

A dividend of a taxable Canadian corporation owned by an individual is not paid in money but is recorded in its books as an increase in a loan owing to the shareholder or as a decrease in a loan made to the shareholder. CRA quoted Hickman Motors that "the law is well established that accounting documents or accounting entries serve only to reflect transactions and that it is the reality of the facts that determines the true nature and substance of transactions," and further stated (TaxInterpretations translation):

The necessary documentation must be provided in a particular instance to corroborate that factually and legally a dividend has been paid by the corporation and received by the shareholder. In this regard, book entries are ancillary and serve only to report transactions. ...

[W]e refer you to ... 2007-0229311I7 where the facts of the situation presented did not allow for the conclusion that by virtue of accounting entries, a capital dividend had actually been received by a corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 82 - Subsection 82(1) - Paragraph 82(1)(a) book entries are ancillary and do not establish receipt 161

11 December 2013 External T.I. 2013-0474161E5 - T-slips and dividend and interest

constructive receipt

Respecting a question as to when dividends are paid and received for T5 purposes, CRA stated:

In Innovative Installation Inc. v The Queen, 2009 TCC 580, the Tax Court of Canada explained that "received" does not require "proceeds to pass directly to the taxpayer. The taxpayer can notionally or constructively receive it."

Therefore, it is our view that, generally, the date on which the dividend is paid, whether by cheque, electronic payment, offset or credit to the shareholder's account, would also be the date on which the amount is received.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 82 - Subsection 82(1) - Paragraph 82(1)(a) constructive receipt 88

6 November 2012 External T.I. 2012-0452531E5 - Satisfactory Evidence of Payment

promissory note accepted as payment

In response to a question as to whether "a demand note payable, which is accepted as absolute payment of salary owing to an employee, constitutes satisfactory evidence of the payment of that salary," CRA stated:

An ordinary promissory note is generally regarded as a promise to pay a debt at a later date, and not as payment of the debt on the date on which the note was issued. However, an amount may be considered to be "paid" by a promissory note if an agreement between the parties clearly indicates that the note was accepted as absolute payment.

13 June 2012 External T.I. 2012-0435351E5 F -

issuance of cheque not payment

Cheques issued by Opco but not yet cashed would not reduce its cash on hand given that under the applicable law (the Quebec Civil Code), the issuance of a cheque does not constitute payment, so that the debt is not settled until the cheque is honoured.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Small Business Corporation cheques not yet cashed 46

17 February 2004 External T.I. 2003-0033915 -

no automatic set-off

In indicating that a cash pooling arrangement entered into by a Canadian subsidiary with its non-resident parent corporation could result in an income inclusion under s. 15(2), Revenue Canada indicated that its review of the jurisprudence on s. 15(2) suggested that debts between a shareholder and a particular corporation do not generally offset for purposes of determining either whether the shareholder became indebted to the corporation in the first place, or whether that indebtedness has been repaid.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.6) cash pooling with NR parent 75

IT-243R4, para 5

mere crediting of account

"A corporation is not considered to have paid a dividend when it merely credits a shareholder's account, unless the shareholder is able to withdraw the money credited at any time."

5 July 1990 TI AC59710

Where a promissory note is given in consideration for services, the acceptance of the note would be considered to be an amount received under s. 12(1)(a) where the note has been accepted as absolute payment for the services, whereas if the no te has been accepted as conditional payment, s. 12(1)(a) will apply only when actual payments are made on the note assuming the related services have not yet been performed at that time.

5 January 1996 Memorandum 952397 (C.T.O. "Gross-Up Payments")

A gross-up on a debt obligation owing to a Canadian lender will be included in the Canadian lender's income under s. 9 or s. 12(1)(c) even "where the gross-up is paid or credited to the government of a foreign country on the Canadian lender's behalf since the Canadian lender would have constructively received the gross-up".

30 June 1995 Memorandum 950390 (C.T.O. "Tax Status of Cheque Returned by Cash Method Farmer?")

A payment by cheque is equivalent to a payment in cash as long as no special circumstances lead to another conclusion, and the cheque is not dishonoured on presentation for payment. Accordingly, where a cash-basis farmer receives a cheque from the Canadian Wheat Board, he will be considered to have received payment at that time notwithstanding that he returns the cheque to the Board for reissue in the subsequent year.

19 June 1995 Memorandum 950842 (C.T.O. "Patronage Dividends Paid by Non Co-ops")

Payment of a patronage dividend may be effected by the issuance of shares or debt instruments, where such an arrangement is authorized by the customer.

May 1995 Tax Executive Institute Round Table, Q. 22 (C.T.O. "Part I.3, O/S Cheques & Overdrafts")

Bank overdrafts are considered to have arisen to the extent that they have been utilized or drawn upon. For these purposes, RC, in common law jurisdictions, applies the conditional payment principle established in such cases as Marreco v. Richardson (1908), 2 K.B. 584, at 593 (C.A.) and Moody v. MNR, 57 DTC 1050, at 1054 (Ex Ct).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 181.2 - Subsection 181.2(3) 101

6 July 1994 Memorandum 932382 (C.T.O. "Bonds Issued in lieu of Interest")

Bonds issued to a Canadian bank in settlement of arrears interest on a non-performing loan of a Brazilian debtor would not be considered to constitute payment by the debtor and receipt by the bank of interest on the underlying loans, in light of the comments in Cross v. London and Provincial Trust Ltd., [1938] 1 K.B.D. 792.

1993 A.P.F.F. Round Table, Q.15

There is no repayment for the purposes of s. 20(1)(hh) when shares are converted to a debt security and the parties are in essentially the same situation before and after the conversion. There also is no repayment of the debt if it is assumed by another taxpayer in connection with the transfer to that other taxpayer of the assets for which the loan was contracted.

26 November 1992 T.I. 923506 (September 1993 Access Letter, p. 411, ¶C20-1161)

For farmers on the cash method, a post-dated cheque that is received on a date that a debt owing to the taxpayer is not yet payable will be brought into income on the earlier of the date the debt becomes payable and the date the cheque is negotiated. However, where a post-dated cheque is accepted as absolute payment of the debt, the amount of the cheque is considered to be income at the time it is received.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 28 - Subsection 28(1) 57

31 August 1992 T.I. (Tax Window, No. 24, p. 8, ¶2184)

A direct payment by a non-resident to Revenue Canada of a tax liability of a related Canadian corporation would entail the receipt of an amount by the Canadian corporation for purposes of s. 12(1)(x).

7 August 1992 T.I. 921752 (May 1993 Access Letter, p. 198, ¶C76-066)

Because the function of a journal entry is to record a transaction rather than to make it legally effective, the reclassification of a shareholder's loan into remuneration payable by a journal entry would not be considered to be payment of the remuneration.

28 July 1992 Memorandum 921859 (April 1993 Access Letter, p. 151, ¶C180-136)

A taxpayer is not considered to have "paid" interest on a loan owing by him to a charitable foundation by virtue only of journal entries being recorded in his ledgers and those of the foundation.

15 June 1992 T.I. 921368 (December 1992 Access Letter, p. 18, ¶C56-208)

No payment will be considered to occur pursuant to an agreement between the parties to the effect that interest on a promissory note will be deemed to be paid and then loaned back to the borrower.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 74.5 - Subsection 74.5(1) 36

3 July 1991 Memorandum (Tax Window, No. 5, p. 22, ¶1335)

A journal entry recording a transfer of an amount from a salary payable account to a loan from shareholder account does not by itself constitute payment of the salary.

85 C.R. - Q.29

Constructive receipt by an employee benefit plan beneficiary occurs when an amount is made available to him without being subject to any restrictions concerning its use.

84 C.R. - Q.13

Under an unfunded deferred compensation plan, constructive receipt is considered to occur in situations where an amount is credited to an employee's account, set apart for the employee, or is otherwise available to the employee without being subject to any restriction concerning its use.

IT-436R "Reserves - Where Promissory Notes are Included in Disposal Proceeds"

Where a promissory note has been accepted as absolute payment for the disposition of a property, no amount is due in respect of the disposition, because the debt is considered to have been paid or satisfied by the receipt of the promissory note.

IT-168R2, para. 3-4

deferred remuneration should be included in income for the year in which the employee is entitled to receive it or actually receives it.

IT-305R3 "Establishment of Testamentary Spouse Trust"

In interpreting the requirement that the spouse must be entitled to receive all the income of a spouse trust that arises before the spouse's death, RC applies the doctrine of constructive receipt.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 0

IT-196R2 "Payments by Employer to Employee"

A taxable payment is included in computing the employee's income on the earliest taxation year in which he receives it, absolute enjoyment or use vests in him, or it is paid or transferred pursuant to his direction.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) 0

Articles

Kevin Bianchini, Reuben Abitbol, "Taxation of Stock Appreciation Rights", Taxation of Executive Compensation and Retirement (Federated Press), Vol. 24 No. 8, 2015, p.1655

Safe harbour until SAR vesting (p. 1656)

[T]he CRA has taken the position that until the employee has a right to exercise and cash in the SARs, the SDA rules would not apply. [f.n…. 9422835 …]

In other words, once the SAR units become fully vested it would have be determined whether the executive is postponing the exercise of the SARs in order to avoid the immediate tax consequences (i.e., the employment income). As stated by the CRA, this is a question of fact… .

Alternative application of constructive receipt (“CR”) at time of vesting (p. 1657)

[I]n the context of the recognition of employment income, the Canadian jurisprudence has yet to develop guidance with respect to the doctrine of CR

…[T]he CRA addressed its position with respect to CR in the context of SDAs in… 1999-0007315… .

…As can be seen…the CRA adopts a very broad approach and leaves open the possibility that even if the SDA main purpose test is met, the rules with respect to the doctrine of CR may still be rendered applicable. Hence, in light of the above-mentioned, it seems likely that the SARs would be taxed at the moment they become fully vested regardless of when exercise occurs.

E.G. McKendrick, Chitty on Contracts, Vol. 1, Thirtieth Edition (2008).

Discharge by paying creditor's debt (§21-042, p. 1426)

If the creditor requests the debtor to pay the debt to a third party, such a payment is equivalent to payment direct to the creditor, and is a good discharge of the debt.

Appropriation of payment by creditor (§21-059, p. 1435)

...Where the debtor has not exercised his option, and the right to appropriate has therefore devolved upon the creditor, he may exercise it at any time "up to the very last moment" or until something happens which makes it inequitable for him to exercise it. What is "the very last moment" depends on the circumstances of each case. In one instance the creditor was held entitled, in the witness-box during the course of his action, to exercise his right to appropriate a payment by his debtor, as nothing had previously happened to determine his right of election. The creditor need not make his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. An entry in the creditor's books applying a payment to a particular debt does not constitute an election which will preclude the creditor from afterwards applying it to another debt, unless the entry has been communicated to the debtor. Once, however, the election is made and communicated to the debtor, it is irrevocable.

Appropriation to statute-barred debt (§21-063, p. 1436)

A creditor may appropriate a payment to a debt barred by the Limitation Act 1980, or to a debt which is unenforceable because of some formal defect in the contract.

Appropriation as between interest and principal (§21-067, p. 1437)

Where there is no appropriation by either debtor or creditor in the case of a debt bearing interest, the law will (unless a contrary intention appears) apply the payment to discharge any interest due before applying it to the earliest items of principal.

C.R.B. Dunlop, Creditor-Debtor Law in Canada, Second Edition (1994).

Discharge by paying creditor's debt (pp. 20-1)

As a general rule, a debtor can discharge a debt only by payment to the creditor personally, However, if the creditor asks the debtor to pay a third party and the debtor pays the third party qua agent, such payment will be effective to discharge the debt.

Discharge by agent of debtor or other 3rd party (p. 21)

...The converse situation of an agent or third person paying the debtor's obligation to his or her creditor presents difficult and controversial legal problems. It is of course clear that a debtor can pay a debt through an agent instead of personally. But what happens if a third person without authority pays the creditor? Most debtors (and creditors) would probably welcome such meddling with cries of joy, but there are situations in which the debtor or the creditor may want the debt to continue rather than come to an end.

Appropriation of payment by debtor or creditor (pp. 23-4)

One of the most frequently litigated problems in debtor-creditor law arises when a debtor owing two or more debts to the same creditor makes a payment to that creditor. To which of the debts should the payment be appropriated? The classic statement of the law is to be found in Lord Macnaghten's speech in Cory Bros. & Co. v. "The Mecca", a rule which has been often applied in Canadian cases:

When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor. In 1816, when Clayton's Case was decided, there seems to have been authority, for saying that the creditor was bound to make his election at once according to the rule of the civil law, or at any rate, within a reasonable time, whatever that expression in such a connection may be taken to mean. But it has long been held and it is now quite settled that the creditor has the right of election 'up to the very last moment,' and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. Where the election is with the creditor, it is always his intention expressed or implied or presumed, and not any rigid rule of law that governs the application of the money.

Lord Macnaghten makes it clear that the appropriation by either the debtor or the creditor need not be declared in express terms but may be implied from the appropriator's actions. What is required is that the appropriation, whether expressed in words or implied from conduct, should be communicated to the other party. Thus it has been held that an uncommunicated entry in the creditor's private books is not an appropriation which will preclude that creditor from subsequently making a different application of the payment. On the other hand, once the party does make a communicated appropriation, that party cannot subsequently change the appropriation. The rules in the Cory Bros. case will of course not apply where the parties have previously agreed as to the appropriation of payments.

Appropriation as between interest and principal (p. 26)

Assuming that there is no evidence of the parties' intention, the law will attribute a payment first to interest and then to principal.

Arnold, "Timing and Income Taxation: The Principles of Income Measurement for Tax Purposes", Canadian Tax Paper, No. 71, Canadian Tax Foundation, July 1983

See chapter 3 entitled "Cash Basis Accounting: The Concepts of Receipt and Payment".

Wilson, "Repayment of Shareholder Loans", 1995 Canadian Tax Journal, Vol. 43, No. 3, p. 746.

Includes (at pp. 751-754) a discussion of the Clayton rule.