Pineo v. Minister of National Revenue, (1986) 4 F.T.R. 155 (TD)

• Court: Federal Court (Canada)
• Case Date: December 10, 1985
• Jurisdiction: Canada (Federal)
• Citations: (1986), 4 F.T.R. 155 (TD)

Pineo v. MNR (1986), 4 F.T.R. 155 (TD)

MLB headnote and full text

Pineo v. Minister of National Revenue

(Nos. T-866-83, T-867-83)

Indexed As: Pineo v. Minister of National Revenue

Federal Court of Canada

Trial Division

Jerome, A.C.J.

May 21, 1986.

Summary:

In 1979 a husband and wife sold their shares in their farm to their son and daughter-in-law for $1,070,000.00, including a $650,000.00 demand promissory note with interest payable yearly. Each spouse incurred a $82,177.00 taxable capital gain. Since the debt was neither demanded nor paid in 1979, the husband and wife claimed they were entitled to deduct from their capital gains a reserve for the proceeds of disposition of property not due until after the end of the taxation year (Income Tax Act, s. 40(1)(a)(iii)).

The Federal Court of Canada, Trial Division, affirmed the Minister's assessment whereby the claim for the reserve was rejected. The court held that s. 40(1)(a)(iii) did not apply, because the demand promissory note was merely evidence of a present debt that was owing and payable in 1979 and therefore "due" in the 1979 taxation year.

Income Tax - Topic 1745

Capital gains - Reserve for proceeds of disposition not due - Income Tax Act, S.C. 1970-71-72, c. 63, s. 40(1)(a)(iii) - A husband and wife incurred a capital gain on the disposition of shares in return for, inter alia, a demand promissory note - The debt was neither paid nor demanded in the taxation year - The husband and wife claimed they were entitled to deduct from their capital gains a reserve for the proceeds of disposition not due - The Federal Court of Canada, Trial Division, held that s. 40(1)(a)(iii) did not apply, because the demand promissory note was merely evidence of a present debt which was due in 1979 - The court stated that the important consideration was when payment of the debt could be legally enforced, not when it was actually paid.

Words and Phrases

Due to him - The Federal Court of Canada, Trial Division discussed the meaning of the words "due to him", as found in s. 40(1)(a)(iii) of the Income Tax Act, S.C. 1970-71-72, c. 63.

Cases Noticed:

Queen, The v. Derbecker, [1985] 1 F.C. 160, folld [para. 3].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 40(1)(a)(iii) [para. 3].

Counsel:

D.G. Gunn, for the plaintiffs;

J.P. Malette, for the defendant.

Solicitors of Record:

Gunn and Associates, St. Thomas, for the plaintiffs;

Frank Iacobucci, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the defendant.

This action was heard on December 10, 1985, at London, Ontario, before Jerome, A.C.J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on May 21, 1986.