Lorenzen v. The Queen, 81 DTC 5251, [1981] CTC 377 (FCTD)

Grant, D J:—This is an appeal by the plaintiff in respect of the reassessment dated February 18, 1975 made by the Minister wherein additional tax in the sum of $17,383.40 was levied in respect of income for the 1967 taxation year, additional tax in the sum of $7,667.24 was levied in respect of income for the 1970 taxation year, and additional tax in the sum of $33,720.75 was levied in respect of income for the 1972 taxation year.

At the opening of the appeal counsel for both parties announced to the court that they had agreed that the following disposal of certain issues in the appeal should be made, namely,

UPON THE CONSENT of counsel for both parties;

THIS COURT DOTH ORDER AND ADJUDGE that the appeal with respect to the inclusion in the income of the plaintiff for the 1967, 1970 and 1972 taxation years of amounts with respect to work-in-progress, accounts receivable and notes receivable be allowed and referred back to the Minister for reconsideration and reassessment on the basis that sections 85E and 85F of the former Act apply and that elections under subsections 85E(4) and 85F(4) be applied for said years.

THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the appeals with respect to all other matters except the retiring allowance be dismissed.

This left only the issue as to whether the plaintiff was entitled to deduct from his 1972 income the sum of $20,000 which he had allegedly received as a retiring allowance within the meaining of subsection 248(1) of the Income Tax Act (Canada) in the 1972 taxation year pursuant to the provisions of clause 60(j)(ii)(B) of such Act. The parties have filed an agreed statement of facts which are all relevant to the said issue still to be tried herein. It reads as follows,

1. For approximately 18 years prior to December of 1971 the plaintiff had been the president and director of International Tax Services Ltd (“ITSL”) which carried on business under the name Lorenzen Associates. In December 1971 the directors of ITSL were the Plaintiff and his wife. ITSL carried on the business of advising as to tax planning, estate planning, business financing, business management, providing bookkeeping services and making investments.

2. Effective December 31, 1971, ITSL ceased carrying on business and sold all of its assets to Lorenzen Associates Limited (“LAL”). The plaintiff and his wife became directors of LAL. The plaintiff became the president of LAL and his wife became the treasurer. LAL carried on the business formerly carried on by ITSL at the same location.

3. By a resolution passed December 27, 1971, the board of directors of ITSL resolved to pay to the plaintiff the sum of $40,000. The plaintiff received $20,000 from ITSL during 1972 pursuant to this resolution.

4. In February of 1973 the plaintiff paid, as a premium in respect of a registered retirement savings plan, the amount of $20,000. In his tax return for the 1972 taxation year the plaintiff included in computing his income the amount of $20,000 on the basis that it was a retiring allowance within the meaning of subsection 248(1) of the Income Tax Act (Canada) and deducted from income the amount of $20,000 pursuant to section 60(j) of the Act.

5. The reassessment of the plaintiff for the 1972 taxation year has not allowed the deduction of $20,000 as a premium in respect of a registered retirement savings plan in computing the income of the plaintiff for that taxation year.

The plaintiff claims the right to so deduct the $20,000 paid by him in February 1973 as a premium in respect of a registered retirement savings plan by virtue of paragraph 60(j) of the Act. The definition of “retiring allowance” is found in subsection 248(1) and reads as follows,

248. (1) In this Act,

“Retiring Allowance”.—“retiring allowance” means an amount received upon or after retirement from an office or employment in recognition of long service or in respect of loss of office or employment (other than a superannuation or pension benefit) whether the recipient is the officer or employee or a dependant, relation or legal representative.

The relevant portion of paragraph 60(j) reads

60. There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

Transfer of Superannuation Benefits and Retiring Allowances.—(j) such part of any amount included in computing the income of the taxpayer for the year by virtue of subparagraph 56(1 )(a)(i) or (ii) or subsection 147(10) or any refund of deductions as deferred pay under subsection 206.21(1) or (2) of The Queen’s

Regulations and Orders as does not exceed the amount by which

(i) any amount paid by him in the year or within 60 days after the end of the year

(A) as a contribution to or under a registered pension fund or plan, or

(B) as a premium, as defined by section 146, under a registered retirement savings plan,

to the extent that it was not deductible in computing his income for the immediately preceding year,

exceeds

(ii) the aggregate of the amounts, if any, deducted under paragraph (1), paragraph 8(1 )(m) or subsection 146(5) in computing his income for the year;

Mr McDougall for the taxpayer urges that the term “retirement” as used in such subsection 248(1) must be read in a specific sense rather than generally. In other words he submits that one may retire from a position with one company and even though he thereafter carries on the same occupation with another company he comes within the meaning of such section and is entitled to the benefit of such paragraph 60(j). He says the leaving or parting with the first company is a retirement within the meaning of the section and that this interpretation is made clearer by the fact that it is referred to in the section as a retiring allowance as distinguished from a retirement allowance. If this interpretation of the two sections is adopted it follows that one could take advantage of paragraph 60(j) on each occasion that he changed his employer.

The Minister takes the position that the plaintiff never retired and that such payment to him of $20,000 was not a retiring allowance within the meaning of section 248 of the Act and consequently he is not entitled to the deduction of such amount from his taxable income under paragraph 60(j) of the Act. The plaintiff in his testimony stated that his salary from the company had been inadequate for many years and the evidence bears out the fact that at least one of the reasons for such payment was to remunerate him for past services rather than providing him with a retirement allowance. The other reason the said amount was paid to him was to provide him with advantages in the calculation of his income tax.

It cannot be said that such amount was paid to him for loss of office or employment as he arranged the change to Lorenzen Associates Ltd himself voluntarily and it cannot be said to be a loss particularly by reason of the fact that he retained the same business in the same premises and he sustained no loss thereby. He also remained a director of International Tax Services Limited. Retirement implies a complete cessation of one’s profession or business. In reality the plaintiff continued to carry on the same business with the only change being the transfer of assets to a limited company bearing the same name as that under which he carried on such business to December 31, 1971.

Judgment should therefore go in the terms of the draft judgment agreed to by the parties and set out above. In addition thereto the plaintiff’s appeal in respect of the retiring allowance should be dismissed.

As there was success on the part of both parties there should be no order as to costs.