Mogan
T
.
C.J.:
The
appeals
of
John
Short
v.
Her
Majesty
the
Queen
(97-3403(IT)G)
and
Frederick
Short
(97-3404(IT)G)
were
heard
together
on
common
evidence.
The
only
issue
is
whether
a
certain
amount
received
by
each
Appellant
in
August
1993
was
income
as
an
“annuity
payment”
within
the
meaning
of
paragraph
56(1
)(J)
of
the
Income
Tax
Act
or
capital
as
part
of
the
proceeds
of
disposition
of
capital
property.
In
July
1988,
Frederick
W.
Short
Sr.
(the
father
of
both
Appellants)
applied
to
Great
West
Life
Assurance
Company
(“GWL”)
for
three
different
interest
income
annuities.
The
applications
and
specifications
are
in
Exhibits
R-3,
R-4
and
R-5.
The
cost
of
each
annuity
was
$50,000
and
the
specifications
were
for
all
practical
purposes
identical.
The
annuities
were
identified
by
numbers
SNA
22396,
SNA
22397
and
SNA
22399,
respectively.
The
following
specifications
are
taken
from
Exhibit
R-3:
PLAN
|
INTEREST
INCOME
ANNUITY
|
POLICY
NUMBER
|
SNA
22396
|
OWNER
|
FREDERICK
W.
SHORT
SR.
|
ANNUITANT(S)
|
FREDERICK
W.
SHORT
SR.
|
ISSUE
DATE
|
19
July
1988
|
EFFECTIVE
DATE
|
13
June
1988
|
SINGLE
PREMIUM
|
$50,000.00
|
CONTRACT
TYPE
|
CASHABLE
|
INTEREST
GUARANTEE
PERIOD
|
240
MONTHS
|
GUARANTEED
INTEREST
RATE
|
11.00%
|
INTEREST
AMOUNT
AND
FRE-
|
$5,500
ANNUALLY
BEGINNING
|
QUENCY
|
13
June
1989
|
RENEWAL
DATE
|
13
June
2008
|
RENEWAL
AMOUNT
|
$50,000.00
|
Surrender
Provisions
|
|
Total
Cash
Value
|
|
The
Total
Cash
Value
available
at
any
time
will
be
the
Renewal
Amount
discounted
to
the
date
of
determination
for
each
month
remaining
in
the
Interest
Guarantee
Period,
at
a
rate
equal
to
I
percent
plus
the
difference
between
the
current
Guaranteed
Interest
Rate
offered
by
the
Company
on
the
date
of
determination
(for
the
same
Interest
Guarantee
Period)
and
the
Guaranteed
Interest
Rate,
plus
any
interest
accrued
from
the
last
interest
payment
date.
Total
Surrender
The
Owner,
on
written
request,
may
elect
to
surrender
the
policy
for
its
Total
Cash
Value
in
one
sum
at
any
time.
In
May
1989,
the
father
of
the
Appellants
assigned
two
annuities
(numbers
SNA
22396
and
SNA
22397)
to
Frederick
Short
Jr.
(one
of
the
Appellants)
and
assigned
the
remaining
annuity
(number
SNA
22399)
to
John
Short
(the
other
Appellant).
If
I
review
the
facts
and
decide
the
issue
in
the
appeal
of
Frederick
Short,
the
same
result
will
follow
in
the
appeal
of
John
Short.
In
August
1993,
Frederick
Short
(the
Appellant)
elected
to
surrender
both
of
his
interest
income
annuities
and
receive
the
total
cash
value
for
each.
He
received
$87,364.73
for
each
annuity
making
a
total
of
$174,729.46.
Ms.
Shelagh
Daly,
an
employee
of
GWL
testified
as
a
witness
for
the
Appellants.
She
introduced
Exhibit
A-14,
a
document
entitled
“Market
Value
Calculator”
explaining
how
GWL
arrived
at
the
total
cash
value
of
$87,364.72
as
at
August
17,
1993
for
each
annuity.
A
summary
of
Exhibit
A-14
will
explain
the
relevant
numbers
and
amounts.
Principal
Amount
|
$50,000.00
|
Interest
Term
|
Annual
|
Interest
Rate
Guaranteed
|
11%
|
Interest
Rate
Current
|
6.375%
|
Interest
Guarantee
Period
|
240
months
|
Interest
Guarantee
Period
Start
|
13/06/88
|
Values
at
August
17,
1993
|
|
Accumulated
Value
|
$50,937.92
|
Gain
(Loss)
on
Surrender
|
$36,426.81
|
Market/Surrender
Value
|
$87,364.73
|
In
the
above
summary,
the
current
interest
rate
of
6.375%
is
the
annual
interest
rate
that
GWL
would
offer
to
a
person
who
wanted
to
purchase
an
interest
income
annuity
for
the
remaining
months
in
the
interest
guarantee
period
being
178
months
from
August
17,
1993.
The
accumulated
value
of
$50,937.92
represents
the
principal
amount
of
$50,000
plus
interest
at
11%
accrued
from
June
13,
1993
to
August
17,
1993
being
the
valuation
date.
The
market/surrender
value
of
$87,364.73
is
the
amount
which
would
have
to
be
invested
on
August
17,
1993
at
6.375%
per
annum
to
produce
annual
interest
of
$5,500
for
the
remaining
months
in
the
interest
guarantee
period.
And
finally,
the
so-called
gain
of
$36,426.81
is
the
difference
between
the
market/surrender
value
and
the
accumulated
value.
I
would
regard
the
true
gain
as
the
amount
by
which
the
market/surrender
value
exceeded
the
principal
amount
of
$50,000.
At
the
end
of
1993,
GWL
issued
to
Frederick
Short
a
Revenue
Canada
form
T5
Statement
of
Investment
Income
showing
accrued
interest
of
$11,000
and
other
interest
income
of
$74,729.46.
The
$11,000
was
the
annual
interest
amount
at
11%
paid
to
Frederick
on
June
13,
1993
with
respect
to
his
two
annuities.
The
$74,729.46
was
determined
as
follows:
Market/Surrender
Value
|
$87,364.73
|
Less
Principal
Amount
|
50,000.00
|
Gain
on
one
Annuity
|
$37,364.73
|
Gain
on
second
Annuity
|
37,364.73
|
Total
Gain
|
$74,729.46
|
When
filing
his
income
tax
return
for
1993,
Frederick
reported
$11,000
as
interest
for
the
two
annuities
plus
$74,729.46
as
part
of
his
income.
Exhibit
R-l
is
Frederick’s
1993
income
tax
return
containing
the
Revenue
Canada
form
T5.
Upon
being
assessed
for
tax,
Frederick
filed
a
notice
of
objection
claiming
that
the
amount
$74,729.46
was
a
capital
gain
from
the
disposition
of
the
two
annuities.
That
is
the
issue,
income
or
capital,
in
these
two
appeals.
Although
the
Revenue
Canada
form
T5
contained
the
aggregate
amount
of
$74,729.46
respecting
the
total
true
gain
on
two
annuities,
I
will
consider
only
the
amount
of
$37,364.73
because
that
is
the
true
gain
on
one
annuity
as
explained
in
Exhibit
A-14
and
the
other
Appellant,
John
Short,
owned
only
one
annuity.
In
defending
the
assessment
against
Frederick
Short,
the
Respondent
does
not
argue
that
the
amount
$37,364.73
with
respect
to
the
one
annuity
was
interest.
Instead,
the
Respondent
argues
that
that
amount
was
an
“annuity
payment”
within
the
meaning
of
paragraph
56(1
)(J)
of
the
Act
and
as
the
word
“annuity”
is
defined
in
subsection
248(1).
56(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(d)
any
amount
received
by
the
taxpayer
in
the
year
as
an
annuity
payment
other
than...
248(1)
In
this
Act,
“annuity”
includes
an
amount
payable
on
a
periodic
basis
whether
payable
at
intervals
longer
or
shorter
than
a
year
and
whether
payable
under
a
contract,
will
or
trust
or
otherwise;
The
complete
answer
to
the
Respondent’s
argument
is
that
the
amount
of
$37,364.73
was
not
“an
amount
payable
on
a
periodic
basis”
by
any
standard
or
under
any
circumstances.
In
fact,
it
was
the
antithesis
of
an
amount
payable
on
a
periodic
basis
because
it
was
part
of
a
lump
sum
payment
made
once
and
for
all
to
terminate
the
annual
interest
payments
of
$5,500;
to
return
the
principal
amount
($50,000)
to
the
owner;
and
to
pay
the
present
value
(as
at
August
17,
1993)
of
the
stream
of
future
interest
payments
over
the
remainder
of
the
interest
guarantee
period.
Notwithstanding
the
definition
of
“annuity”
in
subsection
248(1),
that
same
word
is
defined
in
the
Concise
Oxford
Dictionary,
Eighth
Edition
(1990)
as
follows:
1.
a
yearly
grant
or
allowance.
2.
an
investment
of
money
entitling
the
investor
to
a
series
of
equal
annual
sums.
3.
a
Sum
payable
in
respect
of
a
particular
year.
The
root
of
the
English
word
“annuity”
is
the
Latin
word
“annus”
meaning
year.
In
the
workaday
world,
an
annuity
is
an
amount
payable
yearly.
The
definition
of
“annuity”
in
subsection
248(1)
as
set
out
above
confirms
the
ordinary
meaning
in
the
workaday
world
in
the
sense
that
it
describes
an
amount
payable
on
a
periodic
basis;
and
it
expands
that
ordinary
meaning
to
include
intervals
longer
or
shorter
than
a
year.
While
the
definition
in
subsection
248(1)
is
inclusive
in
the
sense
that
it
“includes
an
amount
payable...”
that
same
definition
does
not
state
or
suggest
or
even
imply
that
an
annuity,
for
income
tax
purposes,
can
be
a
large
once-and-for-all
payment
like
the
amount
of
$87,364.73
in
Exhibit
A-14
derived
from
a
consolidation
of
(i)
a
principal
capital
amount
of
$50,000;
(ii)
accrued
interest
of
$937.92;
and
(iii)
a
balance
of
$36,426.81
which
is
dependent
upon
fluctuating
day-
to-day
interest
rates
as
determined
on
a
particular
valuation
date.
Counsel
for
the
Respondent
argued
that
the
word
“annuity”
as
defined
in
subsection
248(1)
cannot
be
confined
to
the
words
employed
in
the
definition
because
of
the
word
“includes”.
I
accept
that
argument
but
I
cannot
conclude
that
Parliament
intended
that
the
word
“annuity”,
for
purposes
of
the
Income
Tax
Act,
have
a
meaning
opposite
to
the
ordinary
dictionary
meaning
just
because
the
definition
in
the
Act
commences
with
the
word
“includes”.
If
the
person
drafting
the
Act
had
intended
that
the
word
“annuity”
in
the
Act
could
mean
a
lump
sum
payment
or
a
large
once-and-for-all
payment,
that
person
would
have
used
much
more
explicit
language
to
demonstrate
that
the
statutory
meaning
would
include
the
antithesis
of
the
ordinary
dictionary
meaning.
In
my
opinion,
these
appeals
got
off
the
rails
when
GWL
included
the
aggregate
amount
of
$74,729.46
in
the
Revenue
Canada
form
T5
as
income
and
when
both
Appellants
reported
such
amounts
as
income
when
filing
their
1993
income
tax
returns.
See
Exhibits
R-1
and
R-2.
The
designation
by
GWL
in
the
TS
forms
and
the
reporting
of
the
amounts
by
the
Appellants
do
not
answer
the
issue
in
these
appeals
which
is
a
question
of
law.
H
is
interesting
that
Exhibit
A-14
refers
to
the
final
amount
of
$87,364.73
as
the
“Market/Surrender
Value”.
I
asked
counsel
for
the
Respondent
in
argument
what
would
be
the
position
of
her
client
if
Frederick
Short,
one
of
the
Appellants,
had
sold
his
two
annuities
to
a
third
party
on
August
17,
1993
for
proceeds
of
$174,729.46.
Ms.
Sheppard
acknowledged
that
Frederick
would
have
proceeds
of
disposition
from
the
sale
of
capital
property.
I
fail
to
see
why
the
result
should
be
any
different
because
Frederick
surrendered
his
two
annuities
to
GWL
on
that
same
date.
GWL
as
a
financial
institution
dealing
in
commercial
paper
may
regard
the
amount
$74,729.46
as
interest
paid
to
a
holder
of
such
paper
but
that
designation
by
GWL
does
not
determine,
at
law,
the
character
of
the
amount
$74,729.46
in
the
hands
of
Frederick
Short.
Both
appeals
are
allowed
with
costs
on
the
basis
that,
when
each
interest
income
annuity
was
surrendered
in
August
1993,
the
amount
of
approximately
$87,000
received
from
GWL
represented
proceeds
of
disposition
of
capital
property
having
an
adjusted
cost
base
of
$50,000.
Full
party
and
party
costs
are
awarded
in
the
appeal
of
Frederick
Short.
Costs
in
the
appeal
of
John
Short
are
fixed
at
$400.
Appeals
allowed.