Date: 20010803
Docket: 1999-566-IT-I, 1999-568-IT-I
BETWEEN:
EDWARD LEVERT, JACQUELINE LEVERT,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1]
These are appeals for Edward Levert (the "Appellant")
for the 1994, 1995 and 1996 taxation years. It is also the appeal
of Jacqueline Levert, the Appellant's spouse, for the
1996 taxation year. Her appeal was heard by way of common
evidence with the appeals of Edward Levert. Jacqueline
Levert's appeal is contingent on the appeal of the Appellant,
Edward Levert, as it relates to her 1996 taxation year
entitlement of the Goods and Services Tax credit in accordance
with section 122.5 of the Income Tax Act[1].
[2]
In computing income for the 1994, 1995 and 1996 taxation years,
the Appellant did not include into income any amounts received
from the United Steel Workers of America Staff Pension Plan
(hereinafter referred to as the "Pension Plan") as or
on account of pension benefits out of a pension fund or plan.
[3]
In reassessing the Appellant for the 1994, 1995 and 1996 taxation
years on January 6, 1998, the Minister, inter alia,
included into income the amounts of $19,526.00 for 1994,
$19,623.00 for 1995 and $19,494.00 for 1996 as pension
income.
[4]
The Appellant appealed this reassessment.
[5]
In reassessing the Appellant, the Minister made the following
assumptions of fact:
(a)
the Appellant is a resident of Canada;
(b)
the Appellant's date of birth is August 7, 1927;
(c)
in or about 1986 the Appellant became disabled;
(d)
the Appellant commenced to receive disability benefits from the
Pension Plan on or about June 1, 1986;
(e)
the Pension Plan provides that participants are no longer
eligible to receive disability benefits under the Pension Plan
once the participant reaches the age of 60;
(f)
upon reaching the age of 60, the Pension Plan provides that
participants would receive an unreduced early retirement
pension;
(g)
upon reaching the age of 60, the Appellant commenced to receive
pension benefits from the Pension Plan;
(h)
the Appellant received the amounts of $19,526.00 in 1994,
$19,623.00 in 1995 and $19,494.00 in 1996 from the Pension
Plan;
(i)
the amounts paid out of the Pension Plan as stated in
paragraph 12(h) above were paid out and received by the
Appellant in each year as pension benefits;
(j)
the pension benefits received by the Appellant from the Pension
Plan in the 1994, 1995 and 1996 taxation years would not have
been excluded from taxable income under the laws of the United
States of America, if the Appellant was a resident thereof.
ISSUE
[6]
The issue is whether the Minister properly included into income
the amounts of $19,526.00, $19,623.00, and $19,494.00 for the
1994, 1995, and 1996 taxation years respectively, as pension
income.
THE APPELLANT'S POSITION
[7]
The Appellant's position from the Notice of appeal is:
The Appellant, Mr. Levert receives and has received in each of
the taxation years, disability payments pursuant to the terms and
conditions of the United Steel Workers of America Staff Pension
Plan (the "Plan") dated January 1, 1949, as amended
August 1, 1980. His rights regarding this disability pension
vested at the time of its commencement and are not altered by any
later provisions in this Pension Plan. A reassessment was carried
out by Revenue Canada, on the basis that the entire amount of
income received from both plans was tax exempt, pursuant to the
Canada/United States Income Tax Convention (1980) (the "Tax
Treaty") and Section 105(c) of the Internal Revenue Code of
the United States (the "Code"). Pursuant to the
provisions of the Pension Plan, he receives a disability payment
of approximately $18,000.00 per year. Payments were made from the
Union National Bank of Pittsburgh, which acted as Trustee under
the Agreement. Mr. Levert also received an additional
payment for the Permanent and Total Disability Benefit (PTD)
under the group term life insurance plan provided to the USWA by
the Continental Assurance Company. The latter benefit expired
some time ago.
The Canada-U.S. Tax Treaty provides that the tax treatment in
Canada of a payment that originates in the United States shall
not exceed the amount that the United States would tax.
...
In the present circumstances, Mr. Levert receives disability
payments from the United States, pursuant to his previous
employment with the USWA. If Mr. Levert was a resident of the
United States, he would be entitled to claim exemption pursuant
to the relevant section of the Code. Accordingly, under the
provisions of the Tax Treaty and the provisions of the U.S. Code,
Mr. Levert's disability payments are not taxable.
Relevant documentation regarding a review and analysis undertaken
in 1990, including the notes which would have been made by
Revenue Canada are no longer available as they have been
destroyed by Revenue Canada. Notwithstanding this, Revenue Canada
has placed the onus on the taxpayer to re-establish the
applicability of the U.S. tax exemption. The destruction of this
evidence by Revenue Canada amounts to spoliation of evidence.
THE EVIDENCE
[8]
The Appellant, Edward Levert, was born in 1927. From the early
1960s, he was employed as a union representative. His final
employer was the United Steelworkers of America. In 1986, he
commenced to receive a disability pension from the United
Steelworkers of America Staff Pension Plan. The Appellant's
identified disability was limited vision in his left eye and
complete blindness in his right eye. Pursuant to the Pension Plan
the Appellant received payments (converted to Canadian dollars)
in the amounts of $19,526.00, $19,623.00 and $19,494.00 for the
1994, 1995 and 1996 taxation years respectively. The Appellant
has never been taxed with respect to the disability pension of
the United Steelworkers of America.
[9]
The disability payment is made up of two parts:
(i)
a permanent and total disability benefit under the group term
life insurance provided to the United Steelworkers of America by
the "Continental Assurance Company" ($400.00 U.S. per
month)[2] and
(ii)
a disability pension paid by the United Steelworkers of America
through a trustee.
[10] The
Minister of National Revenue originally proposed to reassess the
Appellant with respect to the disability payments paid to the
Appellant for the 1987 taxation year[3]. After some discussion a reassessment
followed.
[11] For this
initial reassessment the Appellants' son, Daniel Levert, who
is also a Canadian lawyer, represented and negotiated on behalf
of the Appellant through the objection stage.
[12] The
result of these negotiations was a further reassessment[4] wherein the Appellant
was refunded $21,143.06 and both disability pensions were found
to be not taxable in Canada.
[13] The
evidence given at this hearing comes primarily from the documents
and facts adduced and used to support the Appellant's
submission at the prior objection stage. This evidence was from
two witnesses, the Appellant and the Appellants' son, Daniel
Levert. This viva voce evidence incorporated the extracted
references from the following correspondence identified
below.
[14] A letter
to the Appellants' son from the United States Department of
the Treasury Internal Revenue Service dated 5-11-90 (David Wind,
Technical Dept.)[5]:
...the disability pension payments your father is
receiving are not taxable in the U.S. I have enclosed the
appropriate code & regulations to support this position.
[15] Letter to
the Appellants' son from the United Steelworkers of America
dated May 16, 1990 signed by Paul K. Janus, Assistant Personnel
Administrator[6]:
Your father, Edward Levert, is in receipt of a disability pension
from the United Steelworkers of America Staff Pension Trust Fund.
This disability pension was awarded to your father by the United
Steelworkers of America Staff Pension Trust Committee based upon
the medical evidence submitted at the time of his disability
application and upon the disability benefits award of the Canada
Pension Plan.
The amount of your fathers disability pension under our Staff
Pension Plan is based on the fact of his disability, his final
average salary, and his years of service, as provided by the
Staff Pension Plan. This disability pension is payable for
life.
The amount of your fathers disability pension is
not based on the period that the disabled
participant is absent or is expected to be absent from work.
...
c: Revenue Canada - Taxation
[16] Letter to
the Appellant from the United Steelworkers of America dated
May 24, 1990 signed by Paul K. Janus, Assistant Personnel
Administrator[7]:
Please be advised that you are in receipt of a permanent and
total disability (PTD) benefit under the group term life
insurance provided to the United Steelworkers of America by the
Continental Assurance Company (CNA Insurance). This PTD benefit
was approved by CNA Insurance based upon the medical evidence
submitted to them at the time of your application for such PTD
benefit.
The amount of your PTD benefit, $400 per month, is the maximum
monthly benefit under our policy. The monthly benefit will
continue until 60% of your life insurance is paid out.
...
[17] Letter to
United States of America, Department of the Treasury, Internal
Revenue Service dated 6-22-90 signed by Dave Wind, Technical
Dept.[8]:
I have received your letter of 5-31-90 & the letter from
Paul Janus of the USWA. This disability benefit would also
be exempt from U.S. tax if it meets the necessary conditions (see
attached) I have forwarded this information to Debbie Ferguson of
Revenue Canada Taxation.
...
[18] Letter to
Revenue Canada from United States of America, Department of the
Treasury Internal Revenue Service dated 8-7-90 signed by Dave
Wind, Technical Dept.[9]:
I recently received a letter from the United Steelworkers of
America regarding a permanent and total disability benefit paid
to Edward Levert. This benefit would also be exempt from U.S. tax
under code section 105. ...
[19] Part of
the matters prior to this proceeding was a letter sent to the
Appellants' son from Revenue Canada dated April 4, 1997. In
that letter Tiina Wainman, C.A., an employee of Revenue
Canada stated[10]:
In attempting to address this question, we have had
discussions with the IRS and the USWA. Based on these discussions
and our interpretation of this section, taking into consideration
our understanding of the USWA plan, the payments received do not
represent amounts received through accident or health insurance.
Our understanding is that, for U.S. tax purposes, an accident or
health insurance plan is very different from a pension plan that
also provides for disability pension payments.
[20] In a
letter to the Appellants' son from the United Steelworkers
of America dated April 10, 1997, Paul K. Janus, Assistant
Personnel Administrator stated[11]:
Your father, Edward Levert, remains in receipt of a disability
pension from the United Steelworkers of America Staff Pension
Trust Fund.
The circumstances of your father's pension have not changed
since he retired, that is, his USWA disability pension was
awarded based upon the medical evidence submitted when he retired
and upon the Canada Pension Plan disability award.
[21] It is to
be noted after the Appellant called evidence to support his
position as set forth and that the Minister chose not to call any
evidence. Yet the Minister indicated in Exhibit A-7 (the view of
Tiina Wainman) that he had apparently information or evidence of
a contrary view.
[22] As
previously noted, with respect to the burden of proof the
Appellant has chosen to rebut the assumptions of the Respondent
and to discharge the onus incumbent upon him by introducing
documentary evidence successfully presented at the objection
stage for earlier taxation years.
[23] The
evidentiary approach of the Appellant in this informal procedure
was reasonable.
THE LEGISLATION
[24] The
pleadings in this proceeding indicate the Canada - U.S.
Tax Convention, 1980[12] and the U.S. Internal Revenue Code[13] have not changed
since 1990. The following are the relevant legislative
provisions.
A. INTERNAL REVENUE CODE
Sec. 105 - Amounts received under accident and health
plans.
...
(c)
Payments unrelated to absence from work.
Gross income does not include amounts referred to in
subsection (a) to the extent such amounts --
(1) constitute payment for the permanent loss or
loss of use of a member or function of the body, or the permanent
disfigurement, of the taxpayer, his spouse, or a dependent (as
defined in section 152), and
(2) are computed with reference to the nature of
the injury without regard to the period the employee is absent
from work.
B. THE CANADA-UNITED STATES TAX CONVENTION,
1980
Article XVIII - 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
that other State, but the amount of any such pension that would
be excluded from taxable income in the first mentioned State if
the recipient were a resident thereof shall be exempt from
taxation in that other State.
...
3. For the purposes of this Convention, the term
"pensions" includes any payment under a
superannuation, pension or retirement plan, Armed Forces
retirement pay, war veterans pensions and allowances and amounts
paid under a sickness, accident or disability plan, but does not
include payments under an income averaging annuity contract or
any benefit referred to in paragraph 5.
C. INCOME TAX ACT
56. (1) Amounts to be included in income for year.
— Without restricting the generality of section 3, there
shall be included in computing the income of a taxpayer for a
taxation year,
(a) pension benefits, unemployment insurance benefits, etc.
— any amount received by the taxpayer in the year as,
on account or in lieu of payment of, or in satisfaction of,
(i) a superannuation or pension benefit including, without
limiting the generality of the foregoing,
110. (1) Deductions permitted. — For the purpose
of computing the taxable income of a taxpayer for a taxation
year, there may be deducted such of the following amounts as are
applicable:
...
(f) deduction for payments — any social
assistance payment made on the basis of a means, needs or income
test and included because of clause 56(1)(a)(i)(A) or paragraph
56(1)(u) in computing the taxpayer's income for the year or
any amount that is
(i) an amount exempt from income tax in Canada because of a
provision contained in a tax convention or agreement with another
country that has the force of law in Canada,
...
248. (1) Definitions. — 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;
D. Canadian Charter of Rights and Freedoms[14]
Guarantee of Rights and Freedoms
Rights and freedoms in Canada
1.
The Canadian Charter of Rights and Freedoms guarantees the rights
and freedoms set out in it subject only to such reasonable limits
prescribed by law as can be demonstrably justified in a free and
democratic society.
Equality Rights
Equality before and under law and equal protection and benefit
of law
15. (1) Every individual is equal before and under the law and
has the right to the equal protection and equal benefit of the
law without discrimination and, in particular, without
discrimination based on race, national or ethnic origin, colour,
religion, sex, age or mental or physical disability.
Affirmative action programs
(2) Subsection (1) does not preclude any law, program or
activity that has as its object the amelioration of
conditions of disadvantaged individuals or groups including those
that are disadvantaged because of race, national or ethnic
origin, colour, religion, sex, age or mental or physical
disability.
ANALYSIS
[25] Under
paragraph 56(1)(a) of the Income Tax Act the disability
pension payment received by the Appellant is a pension benefit
taxable in Canada but for subparagraph 110(1)(f)(i).
[26]
Subparagraph 110(1)(f)(i) provides for a deduction from Canadian
taxable income for amounts that are exempt from income tax in
Canada because of a provision contained in a tax convention with
another country that has the force of law in Canada.
[27] The
Appellant is a resident of Canada in receipt of a disability
pension arising in the United States of America. Thus, the
Canada-United States Tax Convention, 1980, in force since
August 16, 1984, applies to the tax treatment of the disability
pension paid to the Appellant, Edward Levert, by the United
Steelworkers of America.
[28] Paragraph
1 of article XVIII of the Convention provides that pension
payments arising in a Contracting State and paid to a resident of
the other Contracting State may be taxed in that other State, but
the amount of any such pension that would be excluded from
taxable income in the first mentioned State if the recipient were
a resident thereof shall be exempt from taxation in that other
State. Paragraph 3 of article XVIII of the Convention states that
the term "pension" includes amounts paid under a
sickness, accident or disability plan.
[29] The
evidence provided shows that under the Pension Plan[15] the Appellant
received a disability pension under the incapacity section of his
pension plan and that this part of the pension plan was a
disability plan. Thus, article XVIII of the Convention applies to
the disability pension payment in question.
[30] The
evidence also shows the payments received by the Appellant are
excluded from taxation in the United States by virtue of section
105(c) of the Internal Revenue Code. Accordingly, the disability
pension payments received by the Appellant are also excluded from
taxation in Canada by virtue of article XVIII of the
Convention.
[31] Given
this finding I will now consider the age issue that arose under
the Minister's assumptions in the Reply and the Charter issue
that arose as a consequence as noted in the Notice of Appeal.
[32] The
Minister's assumptions fundamental to the Minister's
reassessment were the following from the Reply to the Notice of
Appeal:
(e)
the Pension Plan provides that participants are no longer
eligible to receive disability benefits under the Pension Plan
once the participant reaches the age of 60;
(f)
upon reaching the age of 60, the Pension Plan provides that
participants would receive an unreduced early retirement
pension;
(g)
upon reaching the age of 60, the Appellant commenced to receive
pension benefits from the Pension Plan;
[33] During
the course of the evidence it became quite clear there was no
evidence to support these assumptions. There was no evidence
whatsoever to show that participants, such as the Appellant, are
no longer eligible to receive disability benefits under the
Pension Plan once a participant reaches the age of 60.
[34] These
assumptions on the evidence were totally demolished. After the
age of 60 the Appellant continued to be in receipt of a
disability pension based on incapacity.
[35] The
Appellant also sought a ruling under the Canadian Charter of
Rights and Freedoms that the Canada Customs and Revenue
Agency has applied a discriminatory provision to the Appellant,
Edward Levert, in that:
(a)
His disability pension has not been taxed and is not taxable
under the provisions of the Internal Revenue Code and the Tax
Convention however solely because of age Canada Customs and
Revenue would tax it.
(b)
This differential treatment is based solely on age which is an
enumerated ground under Section 15 of the Charter.
(c)
This treatment has an effect that is substantively
discriminatory.
[36] As
indicated, the pleaded assumption basis in relation to age from
the Minister's Reply (paragraphs 12(e), (f) and (g) have
been demolished by the Appellant as being factually incorrect.
Therefore the Charter issue is no longer an issue.
CONCLUSION
[37] The
evidence shows that the Appellant has never been taxed by the
United States of America on his receipt of a disability pension
from the United Steelworkers of America. Moreover, the Internal
Revenue Service reviewed the pensions payable to the Appellant
and advised the Appellant and Revenue Canada that the disability
pension received by the Appellant is not taxable in the United
States of America by virtue of section 105(c) of the
Internal Revenue Code[16].
[38] The
evidence also shows from 1990 onward nothing has changed
respecting the disability pension received by the Appellant and
nothing has changed affecting the taxation of disability pension
in the Tax Convention, specifically Article XVIII.
[39] The
Appellant has discharged his onus and shown the Minister's
assessment was incorrect. The Appellant has shown the subject
disability pension is not taxable pursuant to article XVIII the
Canada-United States Income Tax Convention, 1980 and
subparagraph 110(1)(f)(i) of the Income Tax Act.
DECISION
[40] The
appeal is allowed and referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis that
disability provisions received from the United Steelworkers of
America Staff Pension Plan is not taxable pursuant to the
provisions of the Canada-United States Income Tax Convention
Act, 1980 and the Income Tax Act.
[41] With the
allowance of the appeal of the Appellant, Edward Levert, it
follows the appeal of Jacqueline Levert is allowed on the basis
that she is entitled to the Goods and Service Tax Credit for the
1996 taxation year in accordance with section 122.5 of the
Income Tax Act.
[42] The
Appellants are entitled to one set of costs.
Signed at Ottawa, Canada, this 3rd day of August 2001.
"D. Hamlyn"
J.T.C.C.
COURT FILE
NO.:
1999-566(IT)I
STYLE OF
CAUSE:
Edward Levert and
Her Majesty the Queen
PLACE OF
HEARING:
Moncton, New Brunswick
DATE OF
HEARING:
July 16, 2001
REASONS FOR JUDGMENT BY: the
Honourable Judge D. Hamlyn
DATE OF
JUDGMENT:
August 3, 2001
APPEARANCES:
Counsel for the Appellant: Priscilla Kennedy
Counsel for the
Respondent:
John Bodurtha and
Cecil Woon
COUNSEL OF RECORD:
For the
Appellant:
Name:
Priscilla Kennedy
Firm:
Parlee McLaws
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, CanadaCOURT FILE NO.:
1999-568(IT)I
STYLE OF
CAUSE:
Jacqueline Levert and
Her Majesty the Queen
PLACE OF HEARING:
Moncton, New Brunswick
DATE OF
HEARING:
July 16, 2001
REASONS FOR JUDGMENT BY: the
Honourable Judge D. Hamlyn
DATE OF JUDGMENT: August 3,
2001
APPEARANCES:
Counsel for the Appellant: Priscilla Kennedy
Counsel for the
Respondent:
John Bodurtha and
Cecil Woon
COUNSEL OF RECORD:
For the
Appellant:
Name:
Priscilla Kennedy
Firm:
Parlee McLaws
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-566(IT)I
BETWEEN:
EDWARD LEVERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the
appeal of Jacqueline Levert (1999-568(IT)I) on July
16, 2001 at Moncton, New Brunswick, by
the Honourable Judge D. Hamlyn
Appearances
Counsel for the
Appellant:
Priscilla Kennedy
Counsel for the
Respondent:
John Bodurtha and
Cecil Woon
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1994, 1995 and 1996 taxation years are allowed and
the assessments are referred back to the Minister of National
Revenue for reconsideration and reassessment in accordance with
the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 3rd day of August 2001.
J.T.C.C.
Email this Content