INCOME TAX |
Income Calculation |
Deductions |
General Motors of Canada Ltd. v. Canada
A-560-03
2004 FCA 370, Malone J.A.
3/11/04
13 pp.
Appeal from T.C.C. decision ([2004] 1 C.T.C. 2999) General Motors of Canada Ltd. (GM)'s expense deduction under Income Tax Act, s. 18(1)(e) for Overtime Balance in 1995 taxation year not permitted as GM having no actual liability to pay Balance--Overtime Balance arose from memorandum of understanding (MOU) attached to collective labour agreement signed by GM which required GM to accrue $2 to Special Canadian Contingency Fund for each overtime hour worked by bargaining unit employees in excess of 5% of straight overtime hours as calculated on 12 month rolling average--Amounts accrued to be used as identified in various memorandums of understanding covering Fund--At end of 1995 taxation year, Overtime Balance recorded as "Other Current Liabilities" in GM's financial statements, and treated as labour expense for other internal reporting purposes-- T.C.C. analysed MOU and concluded no actual liability incurred as no identifiable creditor capable of making legally enforceable claim against GM for overtime balance, thus GM only having contingent obligation--Necessary to determine intention of parties in drafting MOU--Whether obligation created in MOU absolute or contingent depending on interpretation given to words used by parties--Question whether Overtime Balance absolute or contingent liability once overtime hours worked--Obligation recorded for accounting purposes may not be absolute liability at law if creditor with legally enforceable claim not identifiable-- Requirement GM accrue amounts in Contingency Fund not creating absolute liability in 1995--GM required to maintain running account in which it accumulated amounts as specified in MOU--Only upon occurrence of various contingent events did GM become legally obligated to pay sum of money-- Requirement in MOU that parties obligated to negotiate usage of any accrual remaining in Fund at end of collective agreement also not creating absolute liability--Since no funds contributed to qualified trustee, or otherwise segregated, set aside from ordinary working capital, no absolute liability, identifiable debt incurred by GM--Because unionized workforce changing from month to month, no identifiable creditor capable of making legally enforceable claim against GM with respect to Overtime Balance--As absolute liability only arising upon occurrence of various contingent events, GM's legal obligation properly characterized as contingent liability in 1995--Definition of "fund" quoted by GM supporting proposition no absolute liability incurred, as that definition referring to assets set apart, segregated for specific purpose--Not suggesting mere accounting entry creating "fund" as suggested by GM--For these reasons, Overtime Balance not proper expense deduction--Appeal dismissed-- Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 18(1)(e).