Citation: 2007TCC654
Date: 20071026
Docket: 2006-1560(IT)I
BETWEEN:
SULAM SOLOMON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1] Mr. Solomon, a non-resident of Canada, appeals the notices of assessment issued to him for
the 2001, 2002 and 2003 taxation years. During this period Mr. Solomon
resided in Switzerland. At all relevant times he received pension
income from the University of Waterloo and social security income
under the Old Age Security Act and the Canada Pension Plan.
The issue is whether Mr. Solomon was properly assessed tax on the Canadian
source income that he received for the years under appeal. I find that he was
properly assessed.
[2] It was determined that Mr. Solomon was a
non-resident of Canada as of December 6, 1998. He was informed by
letter dated October 8, 1999 that as a non-resident he may be subject to a
withholding tax on various types of income including pension income and that
the Canadian payer was responsible for withholding 25% of the gross amount from
these types of income. He was also informed that if the country where he
resides has a tax treaty with Canada, then the treaty may reduce the rate of
withholding tax.
[3] The relevant tax treaty is the Convention
Between Canada and the Swiss Federal Council for the Avoidance of Double
Taxation With Respect to Taxes on Income and on Capital, Canada Gazette
Part II, Volume 132, No. 20, SI/TR/98-94 which is applicable to amounts paid
or credited to non-residents on or after January 1, 1998 (the “1998
Convention”) The relevant provision is paragraph 1 of Article 18 which
reads as follows:
ARTICLE 18
Pensions and Annuities
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in the State in which they arise, and according to the law of that
State. However, in the case of periodic pension or annuity payments (except
lump-sum payments arising on the surrender, cancellation, redemption, sale or
other alienation of an annuity, and payments of any kind under an annuity
contract the cost of which was deductible, in whole or in part, in computing
the income of any person who acquired the contract), the tax so charged shall
not exceed 15 per cent of the gross amount of the payment. For the
purposes of this Article, the term "pension" does not include
payments under the social security legislation in a Contracting State. (emphasis added)
[4] Prior to the 1998 Convention, Canada and
Switzerland had used the phrase “social security legislation” in Article 2 of
the Convention on Social Security between Canada and the Swiss Confederation,
Canada Gazette Part II, Volume 129, No. 22, SI/TR/95-112. In that convention
the phrase is defined as follows:
Article 2
1. This Convention shall apply:
(a) with respect to Switzerland:
i) to the Federal
Law on Old Age and Survivors Insurance of December 20, 1946;
ii) to the Federal
Law on Disability Insurance of June 19, 1959;
(b) with respect to Canada:
i) to the Old
Age Security Act;
ii) to the Canada
Pension Plan.
The
Convention on Social Security between Canada and the Swiss Confederation
came into force on October 1, 1995. It is my opinion that the phrase “social
security legislation” has the same meaning in both the 1998 Convention
and the Convention on Social Security between Canada
and the Swiss Confederation. See as
well the decision Dumoulin v. The Queen, [2002] 4 C.T.C. 2031
(TCC).
[5] It is clear from the 1998 Convention that
the University of Waterloo should have withheld 15% from the pension income that it paid to Mr.
Solomon. The payments made pursuant to the Canada Pension Plan and Old
Age Security Act are taxed at the rate of 25% in accordance with subsection
212(1) of the Income Tax Act (the “Act”) which reads:
212. (1) Tax
-- Every non-resident person shall pay an income tax of 25% on every amount
that a person resident in Canada pays or credits, or is deemed by Part I to pay
or credit, to the non-resident person as, on account or in lieu of payment of,
or in satisfaction of,
….
This interpretation is confirmed when one notes that
subparagraphs 212(1)(h)(i) and (ii) of the Act, which excluded payments
under the Canada Pension Plan and the Old Age Security Act from
Part XIII tax, were repealed effective January 1996.
[6] Mr. Solomon’s complaint is that he told the University of Waterloo that he was a non-resident and the onus
was on it to deduct 15% from the pension it paid to him. He says that for the
2001 and 2002 taxation years the University of Waterloo should be liable for the amount of taxes not deducted and the interest
which accrued as a result. In support of his assertion, Mr. Solomon tendered a
letter from the University of Waterloo to him dated January 26, 2000 which
acknowledged that he was a non-resident of Canada.
[7] He also stated that the Canada Revenue Agency (“CRA”)
informed him in January 2002 that it had advised Human Resources and
Development Canada (“HRDC”) to withhold non-resident Part XIII tax on future
payments of Canada Pension and Old Age Security. Mr. Solomon tendered a
document from the CRA dated January 14, 2002 to support his statement. Consequently,
he stated that for the 2002 and 2003 taxation years HRDC should be liable for
the amount of taxes not deducted from his Canada Pension and Old Age Security
and for the interest which accrued on the taxes.
[8] The withholding and remittance of Part XIII tax
is contained in section 215 of the Act and the relevant subsections are
as follows:
215. (1) Withholding and remittance of tax -- When a person pays, credits or
provides, or is deemed to have paid, credited or provided, an amount on which
an income tax is payable under this Part, or would be so payable if this Part
were read without reference to subsection 216.1(1), the person shall,
notwithstanding any agreement or law to the contrary, deduct or withhold from
it the amount of the tax and forthwith remit that amount to the Receiver
General on behalf of the non-resident person on account of the tax and shall
submit with the remittance a statement in prescribed form.
(6) Liability for tax – Where a person has failed to deduct or withhold
any amount as required by this section from an amount paid or credited or
deemed to have been paid or credited to a non-resident person, that person is
liable to pay as tax under this Part on behalf of the non-resident person the
whole of the amount that should have been deducted or withheld, and is entitled
to deduct or withhold from any amount paid or credited by that person to the
non-resident person or otherwise recover from the non-resident person any
amount paid by that person as tax under this Part on behalf thereof.
[9] Subsection 215(6) does not shift the tax burden
to the University of Waterloo and the HRDC. The University of Waterloo and the HRDC are liable for the tax they
failed to deduct; however, this does not aid Mr. Solomon as both entities can
recover the taxes from him. As well, Mr. Solomon is jointly and severally
liable for any accrued interest on the outstanding taxes in accordance with
subsections 227(8.1) and (8.3) of the Act:
(8.1) Joint and several liability -- Where a particular person has failed to
deduct or withhold an amount as required under subsection 153(1) or section 215
in respect of an amount that has been paid to a non-resident person, the
non-resident person is jointly and severally liable with the particular person
to pay any interest payable by the particular person pursuant to subsection
(8.3) in respect thereof.
(8.3) Interest on amounts not deducted or withheld -- A person who fails to deduct or
withhold any amount as required by subsection 135(3), 135.1(7), 153(1) or
211.8(2) or section 215 shall pay to the Receiver General interest on the
amount at the prescribed rate, computed
(a) in the case of an amount required by subsection
153(1) to be deducted or withheld from a payment to another person, from the fifteenth
day of the month immediately following the month in which the amount was
required to be deducted or withheld, or from such earlier day as may be
prescribed for the purposes of subsection 153(1), to,
(i) where that other person is not resident in Canada, the day of payment of the amount to the Receiver
General, and
(ii) where that other person is resident in Canada,
the earlier of the day of payment of the amount to the Receiver General and
April 30 of the year immediately following the year in which the amount was
required to be deducted or withheld;
(b) in the case of an amount required by subsection
135(3) or 135.1(7) or section 215 to be deducted or withheld, from the day on
which the amount was required to be deducted or withheld to the day of payment
of the amount to the Receiver General; and
(c) in the case of an amount required by subsection
211.8(2) to be withheld, from the day on or before which the amount was
required to be remitted to the Receiver General to the day of the payment of the
amount to the Receiver General.
[10] I have concluded that Mr. Solomon was correctly
assessed tax on his Canadian source income. Unfortunately I must dismiss Mr.
Solomon’s appeal. However, this is a situation where the Minister of National
Revenue ought to exercise his discretion to waive the interest for those years
where the University of
Waterloo and the HRDC knew or
ought to have known that they were to withhold taxes as Mr. Solomon was a
non-resident.
[11] The appeal is dismissed.
Signed at Toronto, Ontario this 26th day of October, 2007.
“V.A. Miller”
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