T-4095-79
Timagami Financial Services Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Gibson J.—Toronto, February 24,
1981.
Income tax — Income calculation — Appeal — Agreement
entered into by plaintiff to sell part of its assets — Agreement
providing for the payment of part of purchase price upon
execution of agreement and the balance, in instalments over
two and one-half years — Plaintiff required to add to its
income from business for its 1975 taxation year, with respect
to the disposition of goodwill, an amount as "eligible capital
amount" pursuant to s. 14(1) of the Income Tax Act
According to plaintiff, purchase price was not due and forth
with payable in 1975 taxation year — Whether "payable" in s.
14(1) of the Act synonymous with "due" — Appeal allowed
Income Tax Act, R.S.C. 1952, c. 148, as amended by S.C.
1970-71-72, c. 63, s. 14(1).
APPEAL.
COUNSEL:
J. L. McDougall, Q.C. for plaintiff.
W. Lefebvre and J. A. Van Iperen for
defendant.
SOLICITORS:
Fraser & Beatty, Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
GIBSON J.: This appeal relates to the 1975,
1976, and 1977 taxation years of Timagami.
Timagami sold to Hurontario Management Ser
vices Limited part of its assets by and pursuant to
an agreement between them dated 30 April 1975
for $150,000 payable in instalments over two and
one-half (2 1 / 2 ) years. Paragraph 4 of their agree
ment prescribed the amounts and times of the
purchase price in these words:
4. Hurontario agrees to pay to Timagami the sum of Twenty
Thousand Dollars ($20,000.00) upon the execution of this
Agreement. The balance of the purchase price, namely, One
Hundred and Thirty Thousand Dollars ($130,000.00), together
with interest at the rate of ten per centum (10%) per annum
shall be payable in the following manner: the sum of Twenty
Thousand Dollars ($20,000.00) on account of principal, plus
interest, shall become due and payable on the 1st day of
November, 1975; thereafter the sum of Twenty Thousand
Dollars ($20,000.00) on account of principal, plus interest,
shall become due and payable on the 1st days of May and
November in each of the years 1976 and 1977, and on the 1st
day of May, 1978, and the balance of Ten Thousand Dollars
($10,000.00) together with accrued interest shall become due
and payable on the 1st day of November, 1978. Hurontario
shall have the privilege of paying the whole or any part of the
amount owing to Timagami at any time or times without notice
or bonus.
Of this sale price the parties agree $141,474 is
attributable to goodwill sold and the balance to the
other assets sold.
The position of the Minister with respect to this
disposition of goodwill is as follows:
8. He submits that pursuant to section 14(1) of the Income Tax
Act, upon the disposition of goodwill, the taxpayer was required
to add to its income from the business for its 1975 taxation year
the amount of $38,905.00, said amount having been computed
as follows:
Sale price of goodwill sold in 1975 $141,474.00
Amount payable to taxpayer pursuant
to section 21(1) of the Income Tax
Application Rules (55% of $141,474.00) 77,810.70
Eligible capital amount pursuant to
subsection 14(1) of the Income Tax
Act ('h of $77,810.70) 38,905.00
Section 14(1) of the Income Tax Act, R.S.C.
1952, c. 148, as amended by S.C. 1970-71-72, c.
63 reads:
14. (1) Where, as a result of a transaction occurring after
1971, an amount has become payable to a taxpayer in a
taxation year in respect of a business carried on or formerly
carried on by him and the consideration given by the taxpayer
therefor was such that, if any payment had been made by the
taxpayer after 1971 for that consideration, the payment would
have been an eligible capital expenditure of the taxpayer in
respect of the business, there shall be included in computing the
taxpayer's income for the year from the business the amount, if
any, by which 1/2 of the amount so payable (which 1/2 is
hereafter in this section referred to as an "eligible capital
amount" in respect of the business) exceeds the taxpayer's
cumulative eligible capital in respect of the business immediate
ly before the amount so payable became payable to the
taxpayer.
The position of Timagami is that the words "an
amount has become payable to a taxpayer in a
taxation year" in section 14(1) of the Act in
respect of subject-matter does not mean that the
whole of the purchase price became payable in the
sense of due and forthwith payable in the taxation
year 1975 but instead at the times and in the
amounts prescribed in the said agreement which in
fact were:
DATE PRINCIPAL INTEREST
June 13/75 $ 20,000
Sept. 30/75 20,000
Nov. 1/75 20,000 $ 6,333.13
April 1/76 15,000
April 30/76 4,375
June 4/76 20,000
Nov. 15/76 2,916.66
March 31/77 15,000
April 28/77 40,000 2,500
$150,000 $16,124.79
The submission is that the meaning of the word
"payable" in section 14(1) of the Act is synony
mous with "due". Support for this is found in the
definition of "due" and "payable" in The Shorter
Oxford English Dictionary and of "payable" in
Jowitt's The Dictionary of English Law, second
edition, as follows:
SHORTER OXFORD DICTIONARY
Due ... 1. That is owing or payable, as a debt...
Payable ... 1. Comm. Of a sum of money, a bill, etc.: That is
to be paid; due; falling due (usu. at or on a specified date, or to
a specified person).
JOWITT'S DICTIONARY
Payable. A sum of money is said to be payable when a person is
under an obligation to pay it. "Payable" may therefore signify
an obligation to pay at a future time, but when used without
qualification "payable" means that the debt is payable at once,
as opposed to "owing".
In my view the word "payable" in section 14(1)
is synonymous with "due", a present obligation to
pay.
In view of this finding it is not necessary to
consider the alternative submissions.
Accordingly the "eligible capital amount" for
Timagami for the years 1975, 1976 and 1977 will
have to be recomputed. In doing so the taxable
income of Timagami in respect of the subject-
matter will be increased in 1976 and 1977 over
that for which it is presently assessed. Counsel for
Timagami agreed that if this meaning of "pay-
able" in section 14(1) of the Act was determined
to be correct that the Minister may assess it for
the years 1976 and 1977 in accordance with this
judgment.
The appeal is therefore allowed with costs and
the matter referred back for reassessments for the
taxation years 1975, 1976 and 1977 in a manner
not inconsistent with these reasons.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.