Bowman T.C.J. (Orally):
1 This is an appeal from assessments made in 1994 and 1995, and it is made under the Income Tax Act for the 1994 and 1995 taxation year. The facts are quite straightforward. Mr. Brilla is a resident of Canada. He lives in Niagara Falls, but he works in Buffalo where he receives a salary from a United States company.
2 In the years in question, he contributed under what is known as plan 401(k). That is an arrangement under which one may pay monies into some sort of a plan and not pay tax on those amounts in the United States.
3 In 1994, his salary in U.S. dollars was $51,950.05, but he only brought into income for United States purposes $47,549. The figures in 1995 were $44,944 and $41,302. The difference between the figures is the amount contributed, withheld actually, and contributed to the plan 401(k). The lower figure was the amount used for U.S. tax purposes, and he simply used the lower figure in Canadian dollars, or translated them into Canadian dollars in filing his return on income in Canada. He obtained a credit for the U.S. taxes paid in computation for the tax for Canadian purposes.
4 The Canadian government, however, is taking the position that the higher figure is the amount upon which he is taxable. The theory is that his true salary was the amount before making the deduction to the plan 401(k). The result of that is that they included for 1994 a further $6,011, and for 1995, $4,998, being the Canadian dollar equivalent of the difference between the higher and lower figure.
5 Mr. Brilla acted in complete good faith and I believe on the advice of accountants. Unfortunately, I am not able to help him because the higher figure was his income and there is no provision in the Canadian Income Tax Act for a deduction to what is essentially a form of foreign retirement plan.
6 The Canadian Income Tax Act has very specific rules with respect to payments into pension plans and retirement plans such as RRSPs. Those permit the taxpayer to deduct contributions within certain limits, but there is certainly no provision for contributions to a U.S. fund of this sort.
7 I am mindful of the problem which this creates. I understand from Mr. Brilla that these amounts are taxable by the United States when the monies come out, and I would be surprised if that were not the case because it seems to be somewhat analogous to our registered retirement savings plans.
8 These amounts should not be taxable in Canada, at least the principal amount. That is certainly the position set forth in Exhibit R-1, in a letter from the Department of National Revenue to Mr. Forbes, the accountant for Mr. Brilla. The position that it is not taxable when it comes out is also, I think, consistent with a decision of this Court in Abrahamson v. Minister of National Revenue (1990), 91 D.T.C. 213 (T.C.C.).
9 Now, I have not looked at any recent amendments to the Income Tax Act or to the treaty. I am a little concerned, when Mr. Brilla starts taking the money out and is taxed in the United States on it, whether he would get a credit for the U.S. tax because if he is not being taxed in Canada, there is a problem whether he could get a credit in Canada for the taxes on this amount that he pays in the United States.
10 However, that is a problem for another day, and a future taxation year, and possibly for the competent authorities to consider. Certainly, according to Exhibit R-1, there are ongoing discussions between the Minister of Finance and the U.S. authorities. If there is any element of double taxation, the matter may have to be referred to the competent authorities; however, that is something that is outside my jurisdiction.
11 Unfortunately, I cannot help the appellant. I must dismiss the appeal.
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