INCOME TAX |
Income Calculation |
Deductions |
Canada v. Huang and Danczkay Ltd.
A-500-98
Rothstein and Sharlow JJ.A.
19/9/00
11 pp.
Appeal from T.D. decision (Huang and Danczkay Ltd. v. Minister of National Revenue, [1998] 3 C.T.C. 337) holding certain debt instruments made in favour of respondent company not "receivable" within ITA, s. 12(1)(b) when debt instruments made, and should not have been included in income in any of taxation years, until such time as conditions precedent attached to each development agreement has been satisfied--Respondent (H & D) carried on business of real estate development--In 1979, 1980 and 1981, entered into development agreements for construction of multiple unit residential buildings (MURBs)--In each case, H & D agreed to construct and complete MURB project and to provide certain initial services essential to project, including providing certain ongoing financial guarantees--In return, each of partnerships promised to pay stipulated amounts to H & D in instalments, most of which due in future years--Obligations evidenced by debt instrument in form of promissory notes and, in case of two of three projects, wrap-around mortgages, containing terms of payment--Each debt instrument stated to be subject to provisions of related development agreement--H & D arguing at time promissory notes and wrap-around mortgages made, right of H & D to receive amounts stipulated as payable in subsequent years conditional upon fulfilment by H & D of certain obligations, therefore amounts not receivable at outset and did not become receivable until conditions satisfied--Trial Judge agreed--Government arguing Trial Judge erred in law in determining amounts in question not receivable when notes and mortgages made--Appeal allowed--Definition of "receivable" deriving from Minister of National Revenue v. John Colford Contracting Co. Ltd., [1960] Ex. C.R. 433 (affd without reasons [1962] S.C.R. viii): clearly legal, though not necessarily immediate, right to receive amount--Trial Judge erred in finding amounts herein not receivable because no immediate right to receive payment--On basis of wording of Act, s. 12(1)(b) and Colford, no requirement for immediate right to payment for amount to be receivable--Interpreting debt instruments, right of H & D to receive amounts of notes and mortgages arising from partnerships making and signing promissory notes and mortgages--With notes and mortgages being given, right to receive amounts in question became absolute--Nothing in agreements precluding indebtedness of partnerships to H & D from coming into existence at outset--Promissory notes giving limited partnerships express entitlement to set off against any installment of principal or interest owing under note such amounts as H & D may then owe to partnerships--Right to set-off consistent with view partnerships' obligations to H & D absolute but may be discharged by set-off if H & D defaulting on contingent financial obligations to partnerships--Indicative, though not conclusive, that this interpretation of contractual obligations consistent with representations made by H & D to those invited to invest in various limited partnerships--Income Tax Act, S.C. 1970-71-72, c. 63 s. 12(1)(b) (as am. by S.C. 1974-75-76, 26, s. 4(1)).