Date:
20020807
Docket:
2000-4488-IT-I
BETWEEN:
JOHN J.
GROHN,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasons for
Judgment
Miller
J.
[1] Mr. John Grohn appeals by way of
informal procedure the assessments of the Minister of National
Revenue of his 1994, 1996, 1997 and 1998 taxation years. Mr.
Grohn was a resident of Germany during those years. In his
written submissions, Mr. Grohn did not argue in connection with
the 1997 or 1998 taxation years. As those years' assessments
resulted in a refund to Mr. Grohn, this is understandable. The
appeals for 1997 and 1998 are consequently dismissed as there is
no amount of tax at issue.
[2] Mr. Grohn attempted in his argument
to raise issues pertaining to 1995. As there was no notice of
objection to an assessment of the 1995 taxation year, I do not
consider there to be any appeal before me for that
year.
[3] This leaves the 1994 and 1996
taxation years to consider. The facts pertaining to those years
are concisely set out in an Agreed Statement of Facts, the
relevant parts of which read as follows:
1994
Taxation Year
2. The
Minister of National Revenue (the "Minister") assessed
Part XIII tax with respect to the 1994 taxation year by
Notice of Assessment dated May 24, 1996.
3. By
Notice of Objection dated August 7, 1996, the Appellant objected
to the Notice of Assessment referred to in paragraph 2
above.
4. During
the 1994 taxation year, the Appellant received the following
income:
·
Registered
Retirement Income Fund (T4RIF) from Nesbitt Burns Inc.:
$109,600.52
·
Government of
Canada Public Service Pension: $30,415.00
4.1 The amount of
$109,600.52 from Nesbitt Burns Inc. was received, minus the
withheld amounts as described in paragraph 6 herein, in
various unequal periodic payments throughout the year 1994. The
last payment received was substantially higher than the previous
ones.
5. With
respect to the income from the Registered Retirement Income Fund,
the Appellant's "minimum amount" within the meaning
of subsection 146.3(1) of the
Income Tax Act for the 1994 taxation year, and
as calculated by Nesbitt Burns, was $5,134.59 (attached is a
copy of the Appellant's T4RIF for the 1994 taxation
year).
6. During
the 1994 taxation year, the following amount of tax was withheld
from the income received by the Appellant:
·
On the T4RIF
income: $24,941.44
·
On the Government
of Canada Public Service Pension: $3,488.36
7. The
Minister determined the Appellant's liability pursuant to
Part XIII resulting from the T4RIF income received in 1994
to be $26,373,22, calculated as follows:
Taxable
amount
$109,600.52
Minimum
amount
$5,134.59 x
2=
$10,269.18 (periodic)
$109,600.52 - $10,269.18= $99,331.34 (lump sum)
$10,269.18 x 15%= $1,540.38
$99,331.34 x 25%=
$24,832.84
$26,373.22
-$24,941.44(withheld) = $1,431.78
8. The
Minister determined the Appellant's liability pursuant to
Part XIII resulting from the Government of Canada Public
Service Pension income received in 1994 to be $4,562.25,
calculated as follows:
Taxable
amount
$30,415 x 15%
=
$4,562.25
Amount
withheld
($3,488.36)
$1,073.89
9. The
amount of Part XIII tax assessed for the 1994 year was
$2,505.67, calculated as follows:
T4RIF
$1,431.78
Gov. Canada
Pension
$1,073.89
$2,505.67
1996
TAXATION YEAR
10. The Minister of
National Revenue assessed Part XIII tax with respect to the
1996 taxation year by Notice of Assessment dated February 16,
2000.
11. By Notice of
Objection dated March 8, 2000, the Appellant objected to the
Notice of Assessment referred to in paragraph 10
above.
11.1 ...
12. By Notice of
Confirmation dated September 29, 2000, the Minister of National
Revenue confirmed the assessment referred to in paragraph 10
above.
13. During the 1996
taxation year, the Appellant received the following
income:
·
Old Age Security
Pension (Old Age Security Act):
$4,764.42
·
Canada Pension
Plan Benefits: $4,801.79
·
Registered
Retirement Savings Plan income (Gov. Canada) (T4RSP):
$70.00
·
Government of
Canada Public Service Pension: $2,127.00
·
Interest income
(Bank of Montreal): $265.71
14. During the 1996
taxation year, the following amount of tax was withheld from the
income received by the Appellant:
·
On the Public
Service Pension: $176.23
15. The Minister
determined the Appellant's liability pursuant to Part XIII
resulting from the income received in 1996 to be $2,584.72,
calculated as follows:
Old Age Security
Pension
$4,764.42 x 25% =
$1,191.11
Canada Pension Plan
Benefits
$4,801.79 x 25%=
$1,200.45
T4RSP
income
$70.00 x
15%=
$ 10.50
Gov. Canada
Pension
$2,127.00 x 15%=
$ 319.05
Interest
income
$265.71 x
15%=
$ 39.86
Total
$2,760.97
16. The amount of Part
XIII tax assessed for the 1996 year was $2,584.12, calculated as
follows:
Part XIII tax
liability
$2,760.97
Amount
withheld
$ 176.23
$2,584.72
[4] Issues
(i) Were the Registered
Retirement Income Fund payments received by Mr. Grohn in
1994 taxed at the correct withholding rate?
(ii) Was the Minister's
assessment for the 1996 taxation year too late?
(iii) Does the failure of the
Canadian payor in 1994 and 1996 to withhold sufficient tax from
amounts payable to Mr. Grohn relieve him from his tax
liability?
The
Registered Retirement Income Fund payments in 1994
[5] In connection with the calculation
of the withholding tax on the 1994 RRIF payments of $109,600.52,
Mr. Grohn argues that the payments were varying periodic
payments and not one lump sum. As such, he maintains the
appropriate withholding rate under the Canada-Germany Tax
Convention (the "Treaty") is 15% and not the 25%
determined by the Minister. The starting point in this analysis
is section 212(1)(q) of the Income Tax Act
which reads:
212(1) Every non-resident person shall pay an income
tax of 25% on every amount that a person resident in Canada pays
or credits, or is deemed by Part I to pay or credit, to the
non-resident person as, on account or in lieu of payment of, or
in satisfaction of,
...
(q) a
payment out of or under a registered retirement income fund that
would, if the non-resident person had been resident in Canada
throughout the taxation year in which the payment was made, be
required by section 146.3 to be included in computing the
non-resident person's income for the year, other than the
portion thereof that
(i) has
been transferred by the payer on behalf of the non-resident
person pursuant to an authorization in prescribed form
(A) to a registered
retirement savings plan under which the non-resident person is
the annuitant (within the meaning assigned by subsection
146(1)),
(B) to acquire an
annuity described in subparagraph 60(l)(ii) under which the
non-resident person is the annuitant, or
(C) to a carrier
(within the meaning assigned by subsection 146.3(1)) as
consideration for a registered retirement income fund under which
the non-resident person is the annuitant (within the meaning
assigned by subsection 146.3(1)), and
(ii) would, if
the non-resident person had been resident in Canada throughout
the year, be deductible in computing the non-resident
person's income for the year by reason of paragraph
60(l);
[6] Before considering the Treaty
provisions, it is necessary to look to the Income Tax
Conventions Interpretation Act for the definition of
"pension" and "periodic pension
payment":
"pension" means, in respect of payments
that arise in Canada,
(a) if the
convention does not include a definition of
"pension", a payment under any plan, arrangement or
contract that is
(i) a
registered pension plan,
(ii) a registered
retirement savings plan,
(iii) a registered
retirement income fund, (...)
"periodic pension payment" means, in
respect of payments that arise in Canada, a pension payment
other than
(a)
...
(b)
...
(c) a
payment at any time in a calendar year under a registered
retirement income fund, where the total of all payments
(other than the specified portion of each such payment) made
under the fund at or before that time and in the year exceeds
the total of
(i) the
amount that would be the greater of
(A) twice the
amount that, if the value of C in the definition
"minimum amount" in subsection 146.3(1) of the
Income Tax Act were nil, would be the minimum
amount under the fund for the year, and
(B) 10% of the fair
market value of the property (other than annuity contracts that,
at the beginning of the year, are not described in
paragraph (b.1) of the definition "qualified
investment" in subsection 146.3(1) of the Income Tax
Act) held in connection with the fund at the beginning of the
year
if all
property transferred in the year and before that time to the
carrier of the fund as consideration for the carrier's
undertaking to make payments under the fund had been so
transferred immediately before the beginning of the year and if
the definition "minimum amount" in subsection
146.3(1) of the Income Tax Act applied with respect to
all registered retirement funds, and
(ii)
...
[8] Article 9 of the Protocol to
the Treaty stipulates that Canadian tax charged on "periodic
pension payments" may not exceed 15%. If the payments to
Mr. Grohn, are periodic pension payments, then the 15%
withholding tax is applicable. Mr. Grohn argues
alternatively that the amounts from Nesbitt Burns were not in the
nature of pension payments at all, but were an annuity. The
evidence indicates that the amounts from Nesbitt Burns came out
of a RRIF. The Income Tax Conventions Interpretation Act
specifically captures payments from a RRIF in the definition of
"pension". Mr. Grohn objects to this domestic
legislation as being contrary to the spirit of the Treaty. I
disagree with his assessment of the legislation; in any event he
has not presented any argument which would justify the
consideration of a challenge to the validity of such legislation.
The RRIF payments are pension payments, not annuities.
[9] The definition of "periodic
pension payments" specifically excludes a payment under a
RRIF, if the total of RRIF payments in the year exceeds twice the
"minimum amount" (in this case, twice $5,134.59, or
$10,269.18 in total). Mr. Grohn agreed with the
determination of the minimum amount for these purposes. It
follows that the excess of the RRIF payments received in 1994
over $10,269.18, in whatever number of payments, do not qualify
as periodic pension payments as defined, and therefore are
subject to the greater withholding of 25%.
Late
Assessment
[10]
The Notice of Assessment for 1996 was dated February 16,
2000. Mr. Grohn relies on his understanding of a three-year
limitation to argue that this assessment was made outside the
normal assessment period. There is no evidence of an assessment
for the 1996 taxation year prior to the February 16, 2000
assessment.
[11]
Subsections 152(3.1) and 227(10.1) of the Income Tax
Act are the relevant sections to consider. They read as
follows:
152(3.1)
For the purposes of subsections (4), (4.2), (4.3) and (5), the
normal reassessment period for a taxpayer in respect of a
taxation year is
(a)
...
(b) in any
other case, the period that ends 3 years after the day of mailing
of a notice of an original assessment under this Part in respect
of the taxpayer for the year or the day of mailing of a
notification that no tax is payable by the taxpayer for the
year.
227(10.1)
The Minister may assess
(a) any
person for any amount payable by that person under subsection
(9), (9.2), (9.3) or (9.4), and
(b) any
non-resident person for any amount payable by that person under
Part XIII,
and, where
he sends a notice of assessment to that person, sections 150 to
167 (except subsections 164(1.1) to (1.3)) and Division J of Part
I are applicable with such modifications as the circumstances
require.
[12]
The three-year period referred to in subsection 152(3.1)
does not run, as Mr. Grohn interprets it, from the end of
the calendar year to which the assessment applies. The time
period does not commence January 1, 1997, but commences on
the day of mailing of a notice of an original assessment. There
is no evidence that there was any original assessment prior to
February 2000. Subsection 227(10.1) gives the Minister
authority to render an original assessment at any time.
The February 2000 assessment, as an original assessment, is
not outside any three-year time limitation.
Effect
of Failure of Payor to Withhold
[13]
Finally, for both 1994 and 1996, Mr. Grohn argues that the
liability for the insufficient withholding rests with the payor,
not with him. The payments under consideration are made up for
the most part of payments from the Government of Canada
(Government of Canada Pension, OAS, CPP). I can appreciate
Mr. Grohn's frustation that the very entity which failed
to deduct sufficient withholding, that is the Government of
Canada, now seeks a shortfall plus interest from him.
Mr. Grohn characterizes this failure as negligence. Whether
the cause of the failure is negligence, inadvertence or
sloppiness is not relevant. The sections of the Act
speaking to liability are clear. The opening words of
subsection 212(1), the first section of Part XIII
states:
... Every
non-resident person shall pay an income tax of 25% on every
amount that a person resident in Canada pays or credits, ... to
the non-resident person ...
[14]
There is no relieving provision, though the payor, under
subsection 215(6), is also liable for the shortfall.
Mr. Grohn wants me to interpret subsection 215(6) as
shifting responsibility from him to the payor, the Canadian
government. The section does not say that. Similarly, the
interest arising is a joint liability of both Mr. Grohn and
the payor (see subsections 227(8.1) and 227(8.3)). The
interest has arisen, at least initially, by the failure of the
government to withhold the correct amount. I do not find that
Mr. Grohn is relieved of the liability. However, I believe
this is a situation where he should apply under the Fairness
Provisions (subsection 220(3.1)) for a waiver of the
interest, given the Government of Canada was the delinquent
payor. I hope Mr. Bourgeois would be so kind as to direct
Mr. Grohn in the right direction for such an
application.
[15]
I explored two further matters with the parties, although not
initially raised by them. First, I asked for some explanation as
to why the withholding rate of the CPP and OAS was 25% and not
15%. I am satisfied from a review of the Hausman Estate
case, [1998] 4 C.T.C. 2232, and the Dumoulin case, 2001
DTC 999, that payments from CPP and OAS are regarded in Canada as
social security benefits and not annuities. They therefore do not
qualify for the lower withholding.
[16]
Second, I asked whether the Respondent had sufficient information
to treat Mr. Grohn's 1996 taxation year under the
provisions of Part I of the Income Tax Act. As
Mr. Grohn has since made it clear that would be his
preference. Mr. Grohn has two hurdles to overcome: first, he
is far beyond the time limit imposed under subsection 217(2)
for making an election to be treated under Part I. Second,
to be taxed under Part I, it is necessary to know
Mr. Grohn's worldwide income. It is unclear from the
facts whether Mr. Grohn has any income other than from
Canada, enabling the Respondent to make an appropriate
Part I assessment of tax owing. I am therefore unable to
direct the Minister to reassess under Part I.
[17]
While I must dismiss Mr. Grohn's appeal, I do so with a
sense of regret that neither CCRA nor the Department of Justice
were able to reach a less onerous result for Mr. Grohn,
given it was the Government of Canada who deducted too little tax
from Mr. Grohn's payments in the first place. Waiver of
interest and a consideration of Part I filing by obtaining
the necessary information from Mr. Grohn could have reduced
the amount owing by Mr. Grohn without in any way
compromising the policy of taxation of non-residents.
Having obviously not been privy to discussions between the
parties, I make this as a comment of regret only, not as a
criticism.
[18]
The appeals are dismissed.
Signed at Ottawa, Canada,
this 7th day of August, 2002.
J.T.C.C.
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