The Queen v. Sun Life Assurance Co. of Canada, 80 DTC 6333, [1980] CTC 418 (FCA)

Pratte, J:—This is an appeal from a judgment of the Trial Division allowing the respondent’s appeal from an income tax reassessment in respect of its 1974 taxation year.

The facts that gave rise to the reassessment here in question are stated in an “Agreed Statement of Facts” which was filed at the trial. That document reads as follows:

With respect to the appeal from the reassessment of tax for the Plaintiff’s 1974 taxation year, the Plaintiff and the Defendant, by their respective solicitors, for the purposes of this action only, admit the following facts:

1. At all material times, Sun Life Assurance Company of Canada has acted as custodian and owner of the Fund of the Employee’s Contributory Pension Plan of Dominion Bridge Company, Limited.

2. In 1973 and 1974, certain employees of Dominion Bridge Company, Limited, a corporation resident in Canada, were transferred to the employment of AMCA International Corporation (formerly Dombrico Inc), a wholly-owned subsidiary corporation of Dominion Bridge Company, Limited, resident in the United States, whereupon said employees ceased to reside in Canada and became residents of the United States.

3. Clause 2 of Article XIV of the rules governing the Employees’ Contributory Pension Plan of Dominion Bridge Company, Limited, provides as follows:

“2. If on any date a Member is transferred to AMCA International Corporation all of his rights and benefits hereunder shall cease and determine and he will cease to be a Member. In such event, there shall be transferred from the fund held by the Assurance Company under its Policy No 9309-G to the AMCA International Corporation pension fund an amount equal to the actuarial liability in respect of such Member on the date of his transfer calculated in accordance with the assumptions and methods agreed upon between the Company and AMCA International Corporation.”

4. On February 28, 1974 and July 1, 1975 respectively, the amounts of $221,742 and $28,882 were transferred by the Plaintiff from the Employees’ Contributory Pension Plan of Dominion Bridge Company, Limited, to the AMCA International Corporation Pension Plan, a trusteed plan resident in the United States and not in Canada, upon direction by the Dominion Bridge Company, Limited, and pursuant to Clause 2 Article XIV of the rules governing the Employees’ Contributory Pension Plan of Dominion Bridge Company, Limited.

5. As of the date of transfer of each employee, the AMCA International Corporation Pension Plan assumed the liability to that employee previously carried by the Employees’ Contributory Pension Plan of Dominion Bridge Company, Limited.

The Minister of National Revenue reassessed the respondent in respect of its 1974 taxation year on the basis

(a) that, under subsection 212(1) of the Income Tax Act, a tax of 15% was payable on the sum of $221,742 that the respondent had paid to the AMCA International Corporation Pension Fund since that payment was one of a kind described in that provision, namely, a payment by a resident of Canada to a non-resident of a “superannuation or pension benefit” as that expression is defined in subsection 248(1);

(b) that, as a consequence, the respondent should, under subsection 215(1), have withheld the amount of the 15% tax and should have paid it to the Receiver General of Canada on behalf of AMCA International Corporation Pension Fund; and

(c) that, as a result of its failure to withhold and pay the tax on behalf of the AMCA International Corporation Pension Fund, the respondent was personally liable to pay that tax under subsection 215(6).

The relevant provisions of the Income Tax Act read as follows:

212.(1) Every non-resident person shall pay an income tax of 25%* [1] on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to him as, on account or in lieu of payment of, or in satisfaction of,

(h) a payment of a Superannuation or pension benefit, . . .

except such portion, if any, of the payment as may reasonably be regarded as attributable to services rendered by the person, to or in respect of whom the payment is made, in taxation years at no time during which he was resident or employed in Canada;

248.(1) In this Act,

‘‘superannuation or pension benefit” includes any amount received out of or under a Superannuation or pension fund or plan and without restricting the generality of the foregoing includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary thereunder,

(a) in accordance with the terms of the fund or plan,

(b) resulting from an amendment to or modification of the fund or plan, or

(c) resulting from the termination of the fund or plan;

215.(1) When a person pays or credits or is deemed to have paid or credited an amount on which an income tax is payable under this Part, he shall, notwithstanding any agreement or any law to the contrary, deduct or withhold therefrom the amount of the tax and forthwith remit that amount to the Receiver General of Canada on behalf of the non-resident person on account of the tax and shall submit therewith a statement in prescribed form.

(6) 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 him to the non-resident person or otherwise recover from the non-resident person any amount paid by him as tax under this Part on behalf thereof.

The Trial Division allowed the respondent’s appeal from the reassessment. The learned trial judge reached that conclusion for two reasons, which he expressed as follows:

Employing the dictionary definitions of “pays” and “credits” and having regard also to certain of the other words in section 212(1)(h) namely, “on account or in lieu of, or in satisfaction of” and “a payment of a superannuation or pension benefit”, it is incontrovertible that Sun Life, in paying the said sums of $221,742 and $28,882 to the trustees of AMCA International plan, did not “pay or credit” to the latter ‘‘a payment of a superannuation or pension benefit” within the meaning of section 212(1)(h) and section 248 of the Act .. .

Part XIII of the Income Tax Act is concerned with charging income tax on income from Canada of persons non-resident in Canada at the material time they were paid or credited with such income.

The transfer of the said sums in this case from Sun Life, the trustee of the pension funds of Dominion Bridge to the trustees of AMCA International was not a transfer of income from Canada of persons non-resident in Canada.

Accordingly, Part XIII of the Income Tax Act and specifically sections 212 and 215 are not applicable.

The first question to be resolved is whether the learned judge correctly held that subsection 212(1) imposes a tax on income so that, in order to be taxable under that subsection, an amount paid or credited to a non-resident must have the characteristics of “income”.

The tax imposed by subsection 212(1) must be paid “on every amount” paid or credited to a non-resident in the circumstances described in the subsection. As I read that provision, the tax must be paid “on every amount” irrespective of its capital or income nature provided that the payment in question be of a kind described in paragraphs 212(1 )(a) to (p). True, most of these paragraphs refer to payments having the characteristics of income. But paragraph (h) is different since the expression “superannuation or pension benefit” is defined by subsection 248(1) as including “any amount received out of or under a superannuation or pension fund”. As an amount so received may have the characteristics either of capital or of income, I cannot share the opinion of the learned Trial judge that the payment of a capital nature is not taxable under subsection 212(1).

The second main question to be considered is whether the payment here in question otherwise falls within the purview of paragraph 212(1)(h).

In order to attract tax under that paragraph, a payment must be made

(a) by a resident of Canada;

(b) to a non-resident; and

(c) on account or in lieu of payment of, or in satisfaction of a superannuation or pension benefit as that term is defined in subsection 248(1) of the Act.

It is common ground that the sum paid by the respondent to the AMCA International Pension Plan was paid by a resident to a non-resident. The only remaining problem is whether that sum was paid in lieu of or in satisfaction of a “superannuation or pension benefit”, a phrase that subsection 248(1) defines as including “any amount received out of or under a superannuation or pension fund or plan ..The sum paid to the trustees of the AMCA pension plan was clearly paid out of the Dominion Bridge pension funds in accordance with the provisions of article XIV-2 of the Dominion Bridge Pension Plan. It was, therefore, in my view, a payment made in satisfaction of a superannuation or pension benefit. I do not see any merit in the respondent’s submission that subsection 248(1) implies that the benefit be paid to a beneficiary of the pension plan. That submission ignores the plain words of subsection 248(1).

Counsel for the respondent also argued that, in any event, the appeal was bound to fail for two additional reasons: first, because the notice of reassessment sent to the respondent by the Minister of National Revenue was vitiated by an irregularity, and, second, because the payment made to the trustees of the AMCA plan was the payment of a “pension” within the meaning of the Canada-US Tax Convention.

The argument founded on the Canada-US Tax Convention was made in the Trial Division. It was rightly rejected by the Trial judge as “obviously” ill founded. The Protocol of the Convention specifies that the word “pension” in the Convention means “periodic payments made in consideration for services rendered or by way of compensation for injuries received.”

The allegation of an irregularity in the notice of reassessment refers to the fact that the notice of reassessment erroneously referred to a payment made to AMCA International Corporation rather than to the AMCA International Corporation Pension Fund. No one was mistaken by reason of that irregularity which was little more than a clerical error. I fail to see why it would vitiate the reassessment.

For these reasons, I would allow the appeal, set aside the judgment of the Trial Division and restore the reassessment made by the Minister of National Revenue. I would order the respondent to pay the appellant’s costs both in this Court and in the Trial Division.