[OFFICIAL ENGLISH TRANSLATION]
Date: 20020111
Docket: 2000-4926(IT)I
BETWEEN:
GUY LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the
informal procedure concerning the 1999 taxation year. The point
at issue is whether the appellant can benefit from the provisions
concerning lump-sum payments in sections 110.2 and 120.31 of
the Income Tax Act (the "Act") and, more
specifically, whether a lump-sum payment received in 1999
concerns a calendar year during which the appellant went bankrupt
within the meaning of the definition of "eligible taxation
year" in subsection 110.2(1) of the Act.
[2] The facts are not really in
dispute. I have reproduced the relevant subparagraphs of
paragraph 10 of the Amended Reply to the Notice of Appeal
(the "Reply"), which described the facts on which the
Minister of National Revenue (the "Minister") relied in
making his reassessment:
[TRANSLATION]
(a) the appellant
declared bankruptcy on February 17, 1998;
(b) the Department
of Human Resources Development Canada issued a notice of
violation against the appellant on June 30, 1997, in
response to a purportedly fraudulent claim for employment
insurance benefits, which he had made;
(c) on
February 24, 1999, a board of referees of Human Resources
Development Canada rendered a decision in the appellant's
favour;
(d) after the board
of referees' decision on February 24, 1999, the
appellant received a lump-sum amount of $13,259 in respect of
employment insurance benefits during the 1999 taxation year;
. . .
(f)
"Human Resources Development Canada" issued the
appellant a T4E slip confirming that the sum of $13,259 had been
paid to him in 1999 in respect of regular and other employment
insurance benefits;
(g) on
March 16, 2000, the appellant made an application to the
Canada Customs and Revenue Agency (hereinafter "CCRA")
to carry back to the 1998 taxation year the amount of $13,259,
which he had reported in his income for the 1999 taxation
year;
. . .
[3] The facts stated in the Notice of
Appeal are as follows:
[TRANSLATION]
1. Around
January 1998, the appellant filed an employment insurance
claim;
2. That claim
was denied for the reason that he did not have
1,400 insurable hours in order to be eligible for
benefits;
3. Although a
claimant in the appellant's situation should have qualified
with 510 insurable hours, the fact that there was a notice
of violation in his file penalized him, requiring him to have
1,400 hours in order to qualify;
4. On
October 8, 1997, the notice of violation had been appealed
from to the board of referees, which had dismissed the
appellant's claims;
5. That
decision by the board of referees was the subject of an appeal to
the umpire, who allowed the appellant's appeal and returned
the case to the board of referees;
6. On
February 24, 1999, a new board of referees allowed the
appellant's appeal and cancelled the notice of violation;
7. On
July 23, 1999, the appellant requested a reconsideration on
the basis of the new decision by the board of referees so that he
would be paid benefits in response to his claim of January
1998;
8. Human
Resources Development Canada agreed to reconsider the January
1998 claim and paid him $13,259 retroactively;
9. In 1999,
Revenue Canada assessed the appellant on the basis of the amounts
that had been paid to him for 1998, hence the instant case.
[4] The appellant testified. He
described himself as a foreman, carpenter and cabinet-maker. He
declared bankruptcy on February 17, 1998, because, he said,
he had not received the employment insurance benefits to which he
was entitled. He stated that he had lost his house and his car.
The appellant was discharged on November 26, 1998.
Arguments
[5] Counsel for the appellant argued
that, under the Bankruptcy Act, the amount received by the
appellant should have been included in the property of the
bankrupt and, consequently, that it should not be included in the
appellant's income for 1999. He referred on this point to the
decision by the Supreme Court of Canada in Marzetti v.
Marzetti, [1994] 2 S.C.R., 765, more particularly to the
following passage at page 786:
For these reasons, a bankrupt's interest in a
post-bankruptcy income tax refund can be
considered "property" for the purposes of s.
67(c) of the Bankruptcy Act. Moreover, it can be
considered "property of a bankrupt divisible among his
creditors " for the purposes of s. 67 as a whole, since s.
67(d) in no way qualifies the operation of s.
67(c). This then, is my initial conclusion.
[6] He also referred to
section 128 of the Act and argued that the lump-sum
amount of $13,259 received by the appellant in 1999 should be
included in the income tax return made by the trustee in
accordance with the aforementioned section.
[7] Counsel for the respondent
referred to paragraph 56(1)(a) and section 110.2
of the Act and argued that it is in the year of receipt of
the amount paid that it must be included in computing the income
for the year, even if it consists of payments made under previous
obligations. He referred on this point to my decisions in
Lacombe v. Canada, [2000] T.C.J. No. 15 (QL),
and Poulin v. Canada, [1998] T.C.J. No. 36 (QL).
He cited paragraph 15 of the last-mentioned decision:
15 The concept of
the receipt of an amount and the relevant taxation year has
already been considered by the courts; I am referring, inter
alia, to Vegso v. M.N.R., 56 DTC 173, M.N.R. v. Claude Rousseau,
60 DTC
1236, and the decision cited by the agent for the respondent,
Archambault v. M.N.R., 88 D.T.C.
1722. The courts have been consistent on this point. When the
legislation provides that an amount received must be included in
computing income for the year, the amount must be included in the
year it is received, not the years for which it was paid.
[8] Counsel for the respondent added
that the Act moreover provides for some tax relief for
lump-sum payments received by an individual after 1994. Those
provisions are found in sections 110.2 and 120.31 of the
Act. Section 110.2 states the conditions in which
amounts received by an individual in a taxation year may be
deducted where they are amounts that the individual was entitled
to receive in a year that ended after 1977 and before the year in
which the individual received the amount.
[9] Counsel for the respondent
referred to section 110.2 of the Act and confirmed
that the appellant would qualify under the meaning of
"qualifying amount". That meaning includes a benefit
paid under Parts I, VIII or VIII.I of the Employment
Insurance Act. He would not qualify, however, within the
meaning of the "specified portion" of a qualifying
amount since that portion must relate to an eligible taxation
year. "Eligible taxation year" is defined as a year
that ended after 1977 and before the year in which the individual
received the qualifying amount and that did not end in a calendar
year in which the individual became a bankrupt. The appellant in
fact declared bankruptcy in 1998.
[10] Counsel for the respondent stated that
the appellant party himself always contended that the applicable
eligible year was 1998, that is the year to which payment of the
employment insurance benefits relates. The notice of appeal
states that it was around January 1998 that the appellant filed
an employment insurance claim and that that claim was denied. It
is that January 1998 claim that was reconsidered and as a result
of which the employment insurance benefits were paid in 1999.
Conclusion
[11] The relevant statutory provisions are
as follows:
56 Amounts
to be included in income for year -
(1) 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,
...
(iv) a benefit under the
Unemployment Insurance Act, other than a payment relating
to a course or program designed to facilitate the re-entry into
the labour force of a claimant under that Act, or a benefit under
Part I, VIII or VIII.1 of the Employment Insurance
Act,
110.2 Definitions -
(1) The
definitions in this subsection apply in this section and section
120.31.
"eligible taxation year" in respect of a qualifying
amount received by an individual, means a taxation year
(a) that
ended after 1977 and before the year in which the individual
received the qualifying amount;
....
(c) that did
not end in a calendar year in which the individual became a
bankrupt; and
(d) ....
"qualifying amount" received by an individual in a
taxation year means an amount (other than the portion of the
amount that can reasonably be considered to be received as, on
account of, in lieu of payment of or in satisfaction of,
interest) that is included in computing the individual's
income for the year and is
(a) an
amount
(i) that is
received pursuant to an order or judgment of a competent
tribunal, an arbitration award or a contract by which the payor
and the individual terminate a legal proceeding, and
(ii) that is
(A) included in computing
the individual's income from an office or employment, or
(B) received as, on
account of, in lieu of payment of or in satisfaction of, damages
in respect of the individual's loss of an office or
employment,
(b) a
superannuation or pension benefit (other than a benefit referred
to in clause 56(1)(a)(i)(B)) received on account of, in
lieu of payment of or in satisfaction of, a series of periodic
payments (other than payments that would have otherwise been made
in the year or in a subsequent taxation year),
(c) an amount
described in paragraph 6(1)(f), subparagraph
56(1)(a)(iv) or paragraph 56(1)(b), or
(d) a prescribed amount
or benefit,
except to the extent that the individual may deduct for the
year an amount under paragraph 8(1)(b), (n) or
(n.1), 60(n) or (o.1) or 110(1)(f) in
respect of the amount so included.
"specified portion", in relation to an eligible
taxation year, of a qualifying amount received by an individual
means the portion of the qualifying amount that relates to the
year, to the extent that the individual's eligibility to
receive the portion existed in the year.
110.2(2)
Deduction for lump-sum payments. There may be deducted in
computing the taxable income of an individual (other than a
trust) for a particular taxation year the total of all amounts
each of which is a specified portion of a qualifying amount
received by the individual in the particular year, if that total
is $3,000 or more.
120.31 Lump-sum Payments
(1)
Definitions - The definitions in subsection 110.2(1) apply in
this section.
(2) Addition to
tax payable. There shall be added in computing an
individual's tax payable under this Part for a particular
taxation year the total of all amounts each of which is the
amount, if any, by which
(a) the
individual's notional tax payable for an eligible taxation
year to which a specified portion of a qualifying amount received
by the individual relates and in respect of which an amount is
deducted under section 110.2 in computing the individual's
taxable income for the particular year
exceeds
(b) the
individual's tax payable under this Part for the eligible
taxation year.
(3) Notional tax
payable. For the purpose of subsection (2), an
individual's notional tax payable for an eligible taxation
year, calculated for the purpose of computing the
individual's tax payable under this Part for a taxation year
(in this subsection referred to as "the year of receipt") in
which the individual received a qualifying amount, is the total
of
(a) the
amount, if any, by which
(i) the amount
that would be the individual's tax payable under this Part
for the eligible taxation year if the total of all amounts, each
of which is the specified portion, in relation to the eligible
taxation year, of a qualifying amount received by the individual
before the end of the year of receipt, were added in computing
the individual's taxable income for the eligible taxation
year
exceeds
(ii) the total of
all amounts each of which is an amount, in respect of a
qualifying amount received by the individual before the year of
receipt, that was included because of this paragraph in computing
the individual's notional tax payable under this Part for the
eligible taxation year, and
(b) where the
eligible taxation year ended before the taxation year preceding
the year of receipt, an amount equal to the amount that would be
calculated as interest payable on the amount determined under
paragraph (a) if it were so calculated
(i) for the
period that began on May 1 of the year following the eligible
taxation year and that ended immediately before the year of
receipt, and
(ii) at the
prescribed rate that is applicable for the purpose of subsection
164(3) with respect to the period.
[12] Counsel for the appellant's
proposal that the lump-sum amount of $13,259 be part of the
property of the bankrupt under sections 67 or 68 of the
Bankruptcy and Insolvency Act is irrelevant to the instant
case. It is not presented by the person who has an interest in it
or before the competent tribunal. It is not for me to determine
whether the trustee was entitled to the amount in question
because it is for him to claim it if he deems it appropriate and
before the court that has jurisdiction.
[13] On the facts, it is not the trustee but
the appellant who received the payment of this amount and,
according to the Act, who must report it in his income tax
return. Subsection 56(1) of the Act is quite clear:
any amount received by the taxpayer in the year as, on account or
in lieu of payment of, or in satisfaction of an unemployment
insurance benefit must be included in computing the
taxpayer's income for that taxation year. It is up to the
appellant to take this into account since he accepted the
payment.
[14] The amount may not be deducted from his
income for the 1999 taxation year because the tax relief provided
for in section 110.2 cannot apply. The appellant is not
entitled thereto since he became a bankrupt in the year in which
he was entitled to receive employment insurance benefits. The
year 1998 is thus not an "eligible taxation year" for
the purposes of section 110.2 of the Act.
[15] The appeal must be dismissed.
Signed at Ottawa, Canada, this 11th day of January 2002.
J.T.C.C.
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