La Capitale, Compagnie d'assurance générale v. Canada
A-612-95
Denault (ex officio), Desjardins and Létourneau JJ.A.
6/2/98
30 pp.
Appeal from Trial Division decision ((1995), 100 F.T.R. 73) upholding respondent's action against income tax assessment made by Minister of National Revenue for 1986 taxation year-Issue whether respondent should have included, in computing its income for 1986 taxation year, unreceived portion of annual premiums for insurance policies taken out payable by salary deduction and, in part, covering subsequent fiscal year-Respondent specializing in general insurance-Its policies issued on annual basis to its government employee clients, inter alia, by deductions from salary-Under Income Tax Act, s. 20(7)(c), respondent could claim reserve of up to 82% of unearned premiums at December 31, 1986-Respondent did not include in its income, and in reserve it claimed, unreceived portion of annual premiums for policies taken out where payment method was deduction from earnings-Appeal allowed-Létourneau J.A.: taxpayer's business income for taxation year defined in Act, s. 9(1) as its profit therefrom for the year and including both receipts and receivables-Act, s. 12 confirming obligation to include receivables-From case law, appears that amount due must be determined-Respondent had certain and unconditional right, in respect of policies taken out but for which payment of premium made by salary deduction, to premium in amount that has been predetermined and agreed by parties-Civil Code of Lower Canada, arts. 2570 and 2571 set out unequivocally insurer entitled to premium when risk begins, and can then sue for payment of premium-Billing itself not generating debt, and contrary to respondent's argument, billing not determining factor in definition of receivable under Act, s. 9(1)-Respondent's argument amount owing cannot be receivable for taxation year unless services rendered in that taxation year should be rejected-Purpose of inclusion of receivables in taxpayer's business income in Act, s. 12(1) to expand and not to limit scope of inclusion set out in s. 9(1) of Act so that what is included under s. 9 cannot then be excluded-In fiscal law no distinction should be made between premiums received in year in respect of an insurance contract continuing in following year and premiums receivable in respect of contract continuing in following year-Fact contract for non-maritime insurance may be described as contract of successive performance in no way affects definition of business income set out in Act, s. 9-Insurance contracts in question not for services rendered within meaning of Income Tax Act, s. 12(1)(b), but rather for property sold-Insurance contract not, in Quebec civil law, contract for rental of property or services-Contract of sale sui generis pursuant to which insured purchases indemnity payable if event object of risk covered by damage insurance in issue occurs-Right to indemnity sold by respondent in 1986 property within the meaning of Income Tax Act-Combined effect of Act, s. 20(7)(c) and Regulations, ss. 1400 and 1404, to allow respondent, in determining its net profit for both tax and accounting purposes, to deduct from net premiums for policies taken out in 1986 provision for premiums in fact not earned as at December 31 of that year-These provisions confirm respondent must include in its 1986 income total amount of premiums paid in that year, even if risk coverage extends into subsequent year-Total amount of premium due upon signing of contract, and accordingly part of respondent's income-Denault J.A. (ex officio): Trial Judge erred in law in concluding amounts from deductions from earnings made in 1987, where they related to insurance protection conferred "outside the taxation year in question", could not amount to profit to insurance company, within meaning of Act, s. 9(1) for its 1986 taxation year-Manner in which Trial Judge interpreted Act, ss. 9 and 12(1)(b) not consistent with letter and spirit of Act or with way it has been interpreted by Court-Limiting application of s. 12(1)(b) and accordingly taxpayer's profit from its business, within meaning of Act, s. 9, error-Wording and structure of these statutory provisions did not justify excluding amounts received in 1987 for policy taken out in 1986-Desjardins J.A.: Civil Code of Lower Canada, arts. 2570 and 2571 make premium "amount receivable" or "receivable" within legal meaning of expression, from time policy put in place-Amount said to be "receivable" in tax law when it is amount to which someone "has a clear legal right", of which person may demand payment, and amount of which determined-In fiscal accounting method, total amount of annual premium for contract that took effect in 1986 must be included in respondent's income during its 1986 fiscal year, under Income Tax Act, s. 9, whether or not payment of total amount demanded during that period-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 9(1), 12(1)(b) (am. by S.C. 1980-8182-83, c. 140, s. 4), 20(7)(c) (am. by S.C. 1977-78, c. 1, s. 14(3))-Civil Code of Lower Canada, arts. 2570, 2571-Income Tax Regulations, C.R.C., c. 945, ss. 1400, 1404.