Date: 20020212
Docket: 1999-4155-IT-I
BETWEEN:
TARAS CHEBERIAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hershfield, J.T.C.C.
[1] These appeals are from an
assessment of tax in respect of the 1996 taxation year and from
reassessments of tax in respect of the 1995 and 1997 taxation
years which denied the Appellant's claim for pension tax
credits pursuant to subsection 118(3) of the Income Tax
Act (the "Act").
[2] The Appellant puts at issue
whether payments received out of his Locked-in Retirement
Income Fund ("LRIF"), a registered retirement income
fund ("RRIF") for the purposes of section 146.3 of
the Act, are eligible for such credit even if received
before attaining the age of 65 years. If attaining the age
of 65 is a statutory requirement for claiming the pension
tax credit, the Appellant seeks to invoke section 15 of the
Canadian Charter of Rights and Freedoms[1] on the basis of age
discrimination and his status as a non widower given that widows
and widowers are permitted under the Act to claim such
credit in respect of payments out of such registered plans,
irrespective of age, where the payments are received as a
consequence of the death of their spouse.
FACTS
[3] The Appellant is a retired
Saskatchewan Government employee who was born on April 7,
1933. That is, he had not reached the age of 65 in any of the
years under appeal. As a government employee, he had participated
in a pension plan. Upon his retirement, the Appellant had the
option to transfer his pension funds to either a life annuity, a
life income fund or an LRIF. The Appellant chose to transfer his
pension into an LRIF (registered as an RRIF) as he believed that
life annuities offered very poor payment terms. During the 1995,
1996 and 1997 taxation years the Appellant received payments out
of his LRIF totalling $4,640.00, $38,317.06 and $32,600.00 in
each year, respectively. In filing his income tax returns for the
years in question, the Appellant claimed a $1,000.00 pension tax
credit pursuant to subsection 118(3) of the Act. The
Respondent denied this credit.
PENSION TAX CREDIT PROVISIONS
[4] Subsection 118(3) of the
Act allows an individual a pension tax credit with respect
to certain pension income received in a taxation year. It reads
as follows:
(3) Pension credit — For the purpose of computing
the tax payable under this Part by an individual for a taxation
year, there may be deducted an amount determined by the
formula
A × B
where
A is
the appropriate percentage for the year; and
B is
the lesser of $1,000 and
(a) where the individual has attained the age of
65 years before the end of the year, the pension income received
by the individual in the year, and
(b) where the individual has not attained the age of
65 years before the end of the year, the qualified pension
income received by the individual in the year.
[5] The terms "pension
income" and "qualified pension income" are defined
in subsection 118(7) of the Act.
(7) Definitions - Subject to subsection (8), for
the purposes of subsection (3),
"pension income" received by an
individual in a taxation year means the total of
(a) the total
of all amounts each of which is an amount included in computing
the individual's income for the year that is
(i) a payment in respect of a life annuity out of or
under a superannuation or pension plan,
(ii) an annuity payment under a registered retirement
savings plan, under an "amended plan" as referred to in
subsection 146(12) or under an annuity in respect of which an
amount is included in computing the individual's income by
reason of paragraph 56(1)(d.2),
(iii) a payment out of or under a registered retirement
income fund or under an "amended fund" as referred to
in subsection 146.3(11),
(iv) an annuity payment under a deferred profit sharing
plan or under a "revoked plan" as referred to in
subsection 147(15),
(v) a payment described in subparagraph
147(2)(k)(v), or
(vi) the amount by which an annuity payment included in
computing the individual's income for the year by reason of
paragraph 56(1)(d) exceeds the capital element of that
payment as determined or established under paragraph
60(a), and
(b) the total of all amounts each of
which is an amount included in computing the individual's
income for the year by reason of section 12.2 of this Act
or paragraph 56(1)(d.1) of the Income Tax Act,
chapter 148 of the Revised Statutes of Canada, 1952;
"qualified pension income" received by
an individual in a taxation year means the total of all amounts
each of which is an amount included in computing the
individual's income for the year and described in
(a)
subparagraph (a)(i) of the definition "pension
income" in this subsection, or
(b) any of
subparagraphs (a)(ii) to (vi) or paragraph (b) of
the definition "pension income" in this subsection
received by the individual as a consequence of the death of a
spouse of the individual.
[6] The term "pension plan"
is not defined in the Act.
ARGUMENT OF THE PARTIES
[7] The Appellant submits that his
LRIF is a pension pursuant to the Pension Benefits Act,
1992 (Saskatchewan), S.S. 1992, c. P-6.001, and that,
therefore, he is in receipt of a payment under a pension plan and
qualifies for the credit regardless of the fact that he had not
attained the age of 65 in the years in question. There is no
question that subsection 118(3) of the Act permits the
pension tax credit even if the recipient of a payment has not
attained 65 years of age before the end of the year of receipt
provided the payment is "qualified pension income".
The definition of "qualified pension income"
expressly includes "a payment in respect of a life annuity
out of or under a superannuation or pension plan". The
Appellant maintains that his LRIF receipts are "qualified
pension income" by virtue of this express inclusion. He
maintains that his LRIF is a pension and that his receipts are an
annuity that ought to be considered to be a life annuity for the
purposes of these provisions of the Act.[2]
[8] The Respondent submits that an
LRIF is not a pension for the purposes of the subject provisions
of the Act and, if it is, that payments (the subject
payments) out of an (this) LRIF are not payments "in
respect of a life annuity". If the Respondent is correct in
either of these arguments, the appeal will fail as the Appellant
will not have received qualified pension income in any of the
subject years. It is also the Respondent's position that
RRIFs and pension plans must be seen as mutually exclusive plans
for the purposes of the subject provisions of the Act so
that the Appellant's LRIF, being an RRIF, cannot be dealt
with under the subject provisions as a pension plan.
[9] Subsection 31(1) of the Pension
Benefits Regulations, 1993; (Saskatchewan); Chapter P-6.001
Reg.1, Pension Benefits Act, 1992 reads as
follows:
31(1) In this section:
(a)
"contract" means a locked-in
retirement income fund contract, except in clauses (b) and
(d);
(b) "life annuity
contract" means a contract with an insurance
business under which the insurance business guarantees the
payment of a pension that is not commutable to the owner of a
contract and that does not take into account the sex of the
person and the co-annuitant, if any, in determining the amount of
the pension;
(c) "locked-in
retirement account contract" means a locked-in
retirement account defined in section 29; and
(d) "locked-in retirement
income fund contract" means a contract with respect to a
locked-in retirement income fund that is registered as a
retirement income fund pursuant to the Income Tax Act
(Canada).
(2) For purposes of
the Act and these regulations, a contract is a pension.
[10] According to the Respondent, the above
definitions indicate that while an LRIF is a pension for the
purposes of the Saskatchewan Benefits Act and its
Regulations, it must be registered as an RRIF pursuant to
the Act. Respondent's counsel argues that RRIF
payments, being specifically dealt with in
subparagraph (a)(iii) of the definition of pension
income, must, as a matter of proper construction of the subject
provisions, not be included as payments described in subparagraph
(a)(i) of the definition of pension income. He submits the
legislative history of the provisions supports this construction
as well. He sets out his argument in paragraphs 16 -18 of
his written submission as follows:
16. Subsection 110.2 (now
subsection 118(3)) of the Act was introduced in 1975 by
Bill C-49. Bill C-49 was part of a larger budgetary
plan which focused on protecting people's savings against the
eroding effects of inflation. Of particular concern during this
time was easing the burden caused by high inflation on senior
citizens. The $1000.00 exemption was available to anyone in
receipt of a private pension and to people over the age of 65 in
receipt of an annuity from a Registered Retirement Savings Plan
or a payment from a Deferred Profit Sharing Plan.[3] At the time Bill C-49 was
introduced, legislation with respect to Registered Retirement
Income Funds did not exist. However, in passing Bill C-49
Parliament drew distinction between private pensions and
personally administered investment plans such as Registered
Retirement Savings Plans and Deferred Profit Sharing Plans for
people under 65.
17. Bill C-49 was debated
in the House of Commons during the 30th Parliament, 1st
session on November 18th, 1974. It is clear from the Commons
Debates that the object and intent of Bill C-49 was tax
relief to those over 65. [4]
18. Legislation with
respect to RRIF's was introduced by Bill C-56 in 1978.
The 1978 income tax amendments contained revisions to various
sections of the Act to reflect the new RRIF concept. Paragraph
110.2(3)(b) (now 118(7)) of the Act, defining "qualified
pension income", was expanded to include a reference to
payments from a RRIF, so that the $1000.00 pension exemption
would be available to an individual who has not reached age 65
provided he or she receives the RRIF payments as a result of the
death of his or her spouse. Parliament specifically refrained
from making the credit available to those under the age of 65
years except in very limited circumstances.
[11] The Respondent's counsel also
refers in his submissions to one case that dealt with the
application of subsection 118(3) of the Act to RRIF
payments received by an individual under the age of 65 years.
Whalen v. Canada,[1995] 1 C.T.C. 2339, 95 DTC
356 (T.C.C.) was a case heard under the informal procedure by
Judge O'Connor on May 9, 1994. It dealt with an
individual whose employment was terminated and whose employer
paid over the Appellant's pension entitlement into the
Appellant's RRSP. The Appellant then converted the RRSP to an
RRIF. He withdrew money from his RRIF and claimed the pension
credit of $1,000 in filing his income tax returns for the years
in question. In dismissing the Appellant's appeal, Judge
O'Connor stated:
The law is clear that payments out of a RRIF do not entitle
recipients under age 65 to the $1,000.00 pension credit. It is
true that had the payments come directly from the Camco pension
plan the credit would be available. Although there is a
"paper trail" showing where the moneys originated, this
is not sufficient to alter the application of the Act. Payments
under a RRIF are not the same as direct pension payments. The
appellant controls his RRIF's investment and the amounts paid
to him. The appellant has probably acted prudently from a tax
point of view in having his company pension rolled-over on a tax
free basis into his RRSP and subsequently converted on a tax-free
basis to a RRIF. Having done that however he cannot now argue
that payments from the RRIF are to be treated in the same manner
as direct payments from his company pension plan. The appeal is
dismissed.
ANALYSIS
[12] Since the Appellant had not attained
the age of 65 before the end of the years in question, the
subject receipts out of his RRIF need to be qualifying pension
income. Since he has not received the amounts as a consequence of
a death of a spouse, he will only have qualifying pension income
in the subject years if the payments out of his RRIF were of the
type described in subparagraph (a)(i) of the
definition of pension income. That is, the payments out of his
RRIF must be respect of a life annuity out of or under a pension
plan.
[13] I will deal firstly with the question
of whether payments out of an RRIF should, as matter of proper
construction of the subject provisions, be necessarily excluded
as payments described in subparagraph (a)(i) of the
definition of pension income. The Respondent relies on the
Whalen case as supporting its position.
[14] I do not think that Whalen
necessarily supports this position although there are other
cases, not mentioned by the Respondent's counsel, that
might also seem to support it. Two other cases are: R.
Saucier v. Canada [2000] TCJ No. 346 (Q.L.); summary at
2000 DTC 3615 (TCC) and Kennedy v. Canada [2001] TCJ No.
486 (Q.L.). In the former case Lamarre Proulx, J. denied a credit
under subsection 118(3) in respect of payments out of an RRSP to
an annuitant who had not attained the age of 65 years. In that
case it was found that the subject payments were neither payments
in respect of a life annuity nor amounts received as a
consequence of the death of a spouse so that the Minister rightly
disallowed the tax credit provided in subsection 118(3) of the
Act. I do not think the case necessarily stands for the
proposition that a payment out of any registered plan cannot be
one that is entitled to the pension tax credit where the payment
is "in respect of a life annuity" and where it is
established that the payment was "out of or under a
superannuation plan or pension plan". This also presumes
that the particular registered plan, such as an RRIF in this
case, is a "pension plan" that can and does hold life
annuities. In any event, there was a finding of fact in the
Saucier case that the subject payments from the subject
RRSP were not payments in respect of a life annuity. As such, the
payments were not "pension income" as defined in
subparagraph (a)(i) of the definition of "pension
income". This in turn meant that the payments in
Saucier were not qualified pension income unless they were
received as a consequence of the death of the recipient's
spouse. Since the payments were not received as a consequence of
the death of the recipient's spouse (and since the
recipient had not reached age 65 before the end of the year of
receipt) subsection 118(3) would deny the credit.
[15] In Kennedy, Bowie, J. held that
payments from an RRIF cannot be considered as payments out of a
superannuation or pension plan simply because the original source
of the funds in the RRIF were derived from a pension plan.[5] That is, the
Kennedy case is not authority for the position that
payments out of a registered plan are necessarily not payments in
respect of a life annuity out of or under a superannuation of
pension plan.[6]
[16] Similarly in Whalen, relied on
by the Respondent, O'Connor, J. did not suggest that all
payments out of an RRIF, cannot be treated as pension income
under the Act. Rather, he expressly stated that registered
plans in which the annuitant controls the investments and the
amounts payable to him are not pension income under subparagraph
118(7)(a)(i) of the definition of pension income in the
Act. This reasoning does distinguish the plan he was
considering in that case, however, it does not speak to the case
where the RRIF holds life annuities. To that extent, the
annuitant has lost at least some control over investment returns
and the amounts available to be paid out of the plan. Further, if
inflation was a factor in qualifying life annuities for the
pension tax credit regardless of age (as suggested in the Budget
Speech referred to in the submission of Respondent's
counsel[7]), I
suggest that where an RRIF has made investments in life
annuities, there may be little more protection against inflation
than if a life annuity was held directly.
[17] I draw these distinctions only because
the Appellant has asserted, and I believe correctly so, that his
LRIF is a "pension plan" and that that brings him
within the description of payments set out in subparagraph
(a)(i) of the definition of pension income. The
Saskatchewan Pension Benefits Act and Regulations
provide that, for the purposes of such Legislation and
Regulations, an LRIF fund is a pension. Under Saskatchewan law,
then, a payment out of an LRIF is a payment out of a pension. The
fact that the LRIF must under Saskatchewan law be registered
under the Income Tax Act as an RRIF is not
relevant to the question as to whether or not it is a
"pension" under Saskatchewan law. It seems to be clear
to me, then, that under the law of the governing jurisdiction,
Saskatchewan in this case, an LRIF is a pension for the purposes
of identifying "pension income" under the Income
Tax Act. As such, it seems clear that the Act would
permit the Appellant to claim the pension tax credit even though
he had not yet attained the age of 65 by the end of the subject
years (and was not in receipt of the subject payments as a
consequence of the death of a spouse) provided that his RRIF held
life annuities.[8]
That is, in my view, the requirement that a payment be "in
respect of a life annuity" is satisfied where the pension
plan (i.e. the RRIF) has invested in life annuities at
least to the extent that it is reasonable to conclude that the
payment reflects life annuity receipts in the RRIF. In such case
the policy of the subject provisions relating to elements of
fixed returns and loss of investment control seem to apply as
much to decisions to make annuity investments within a plan as to
a similar decision outside a plan. I do not find it contrary to
any theory of statutory construction to suggest that where an
RRIF holds a life annuity, a payment out of the RRIF could be a
payment under both subparagraphs 118(7)(a)(i) and (iii) of
the definition of "pension income". Such payment,
then, is included in both paragraphs (a) and
(b) of the definition of "qualified pension
income". I am not inclined to agree that paragraph
(b) treatment (as opposed to paragraph (a)
treatment) should be imposed on recipients of payments out of an
RRIF that has invested in one or more life annuities.[9]
[18] The Appellant never brought evidence
that his LRIF had made an investment in a life annuity. Further,
I cannot accept his argument that his LRIF payments are "an
annuity". Even if they are, that is not sufficient. The
requirements in the Act are clear. To succeed the
Appellant must at least show that his LRIF held a "life
annuity" which under the governing law of Saskatchewan is a
defined type of annuity contract with an insurance business.
Apparently, no such contract was held in the Appellant's
LRIF. Accordingly, his appeal must fail in spite of his having
satisfied me that his LRIF was a pension under the law of
Saskatchewan and that payments out of an RRIF are not necessarily
excluded as a source of qualified pension income even if they are
not received as a consequence of the death of a spouse.
[19] With respect to the Charter argument
raised by the Appellant I note that this was considered in
Kennedy. Bowie, J. rejected the Charter argument in that
case and I endorse his reasoning which adopted the reasoning in
the Supreme Court decision in Law v. Canada, [1999]
1 S.C.R. 497.[10]
To invalidate legislation that differentiates individuals (or
groups) on the basis of age (or marital status), it must be shown
that the differential treatment withholds the benefit from the
claimant in a way that reflects a presumed stereotypical
characteristic of that group or person or that has the effect of
perpetuating or promoting the view that the person or group is
less capable or less worthy of the benefit or less worthy of
recognition or of less value as a human being or as a member of
Canadian Society than the person or group benefited. Judge Bowie
found that the object of the provisions of the Income Tax
Act in question is to ameliorate in some small degree the lot
of persons 65 and over and those who have lost a spouse who
contributed to the family income. As did the Supreme Court in
Law, Bowie, J. found that such ameliorating legislative
provisions did not violate the human dignity of more advantaged
individuals (or that of the persons not receiving the benefit). I
agree with Judge Bowie's conclusions in respect of
this ground for appeal. Accordingly the Charter argument fails in
my view.[11]
[20] The appeals are dismissed without
costs.
Signed at Ottawa, Canada, this 12th day of February 2002.
J.T.C.C.
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