Société D'Ingenierie Cartier ltée v. Minister of National Revenue, (1985) 17 F.T.R. 156 (TD)

JudgeDube, J.
CourtFederal Court (Canada)
Case DateNovember 28, 1985
JurisdictionCanada (Federal)
Citations(1985), 17 F.T.R. 156 (TD)

Soc. D'Ingenierie Cartier ltée v. MNR (1985), 17 F.T.R. 156 (TD)

MLB headnote and full text

Societe D'Ingenierie Cartier Limitee (plaintiff) v. Sa Majeste la Reine (defendant)

(T-997-84)

Indexed As: Société D'Ingenierie Cartier ltée v. Minister of National Revenue

Federal Court of Canada

Trial Division

Dube, J.

December 12, 1985.

Summary:

The taxpayer, an engineering consulting firm, was retained by Kruger Pulp & Paper respecting the expansion of a manufacturing facility. Kruger sued the taxpayer for, inter alia, cost overruns. The taxpayer sued Kruger for unpaid professional fees. The taxpayer eventually wrote off its claim as a bad debt. Subsequently, the taxpayer's insurer negotiated a settlement of the litigation between the taxpayer and Kruger, whereby the taxpayer received $560,650.00 from its insurer. The Federal Court of Canada, Trial Division, held that the $560,650.00 received from the insurer was taxable income in the hands of the taxpayer, because had it been received directly from Kruger it would have been treated as professional fees and taxable income.

Editor's Note: This 1985 case is being reported at this time at the request of one of our readers.

Income Tax - Topic 1107

Income from business or property - Income - General - Compensation received indirectly - An engineering firm (the taxpayer) was sued for cost overruns by its client - The taxpayer sued the client for unpaid professional fees - The taxpayer eventually wrote off the unpaid fees as bad debts - Subsequently the taxpayer's insurer settled both actions resulting in a payment to the taxpayer by the insurer of $560,650.00 - The Federal Court of Canada, Trial Division, held that the $560,650.00 received by the taxpayer from its insurer was taxable income, because had the money been received directly from the client it would have been treated as professional fees and taxable income.

Income Tax - Topic 1107

Income from business or property - Income - General - Compensation received indirectly - The Federal Court of Canada, Trial Division, stated that "a basic test to determine if a sum received indirectly from another person as compensation ought to be treated as income by a taxpayer is whether he would have treated it as income if he had received it directly in the normal course of business" - See paragraph 7.

Cases Noticed:

London and Thames et al. v. Attwooll, [1967] 2 All E.R. 124, refd to. [para. 7, footnote 2].

Raja's Commercial College v. Gian Singh & Co. Ltd., [1977] A.C. 312, refd to. [para. 8, footnote 3].

Goldman v. Minister of National Revenue, 53 D.T.C. 1096, refd to. [para. 9, footnote 4].

Herbert v. McQuade, [1902] 2 K.B. 631, refd to. [para. 9, footnote 5].

Statutes Noticed:

Civil Code of Quebec, art. 1141 [para. 5].

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 9, sect. 12(1)(i) [para. 5]; sect. 14 [para. 6].

Counsel:

A. Peter Cumyn and James C. Ross, for the plaintiff;

Paul Plourde and Johanne D'Auray, for the defendant.

Solicitors of Record:

Stikeman, Elliott, Montreal, Quebec, for the plaintiff;

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

This case was heard in Montreal, Quebec, on November 28, 1985, before Dubé, J., of the Federal Court of Canada, Trial Division, who delivered the following decision on December 12, 1985:

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