Stevenson & Hunt Insurance Brokers Ltd. v. Canada
T-461-88
Rothstein J.
26/2/93
19 pp.
Accounting treatment of contingent profit commissions paid to insurance brokers -- Such commissions contingent on insurance company's profitability on policies sold by broker -- Plaintiff reporting contingent profit commissions in fiscal year actually received payment i.e. 1984 -- On reassessment Minister adding commissions to income for fiscal year earned i.e. 1983 -- Usual industry practice to report contingent profit commissions on cash basis -- Plaintiff submitting insurance brokers unable to calculate such commissions as brokers and companies sometimes recognize premiums in different years, different formulae used by different companies, reserves under sole control of company -- Brokers rely on companies to calculate contingent profit commissions -- Whether reasonable estimate could be made of contingent profit commissions as of date of financial statements -- Appeal allowed -- Plaintiff could not make reasonable estimate of contingent profit commissions at financial year end in absence of information acquired subsequent to financial statement date -- Plaintiff's fiscal year not same as insurance companies' -- Unreasonable to expect plaintiff to keep separate set of books solely to estimate contingent profit commissions -- Necessary to rely on actual information provided by insurance companies -- Zero not reasonable estimate -- While accounting method used for income tax purposes should most accurately reflect profit, does not require mere guessing as to contingent profit commissions at financial year end or keeping books open past fiscal year end until contingent profit commissions ascertained -- Income Tax Act, S.C. 1970-71-72, c. 63, ss. 9(1), 12(1)(b) (as am. by S.C. 1980-81-82-83, c. 140, s. 4).