Citation: 2007TCC363
Date: 20070618
Docket: 2006-3172(IT)I
BETWEEN:
JAMES DONNELLY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor J.
[1] The issue in this
appeal is revealed in the following extracts from the Reply to the Notice of
Appeal:
4. In computing
income for the 2004 taxation year, the Appellant:
a) reported
foreign pension income of $29,682.49 ($22,806.36 U.S. x conversion rate of $1.3015);
b) claimed
‘additional’ deductions of 15% of the U.S. source income (the U.S. amount of $22,806.36) of $3,420.95.
…
6. By Notice of
Reassessment dated October 18, 2005, the Minister reassessed the Appellant’s
income tax liability for the 2004 taxation year and disallowed the ‘additional’
deductions of $3,420.95 for the 2004 taxation year.
…
9. In
so assessing and confirming the Appellant’s income tax liability for the 2004
taxation year the Minister relied on the following assumptions of fact:
a) at
all relevant times during the 2004 taxation year, the Appellant was a Canadian
resident for income tax purposes;
b) the ‘other
pension’ of $29,682.49 was made up entirely of United States source income (United States Pension Benefits)
converted to Canadian funds;
c) tax was not
withheld from the ‘other pension’ income referred to in 9(b);
d) the amount of
$3,420.95 referred to in paragraph 6 herein represents 15% of the total of the U.S. source pension ($22,806.36) income prior to
conversion to Canadian funds;
[2] The principal
applicable provisions are subparagraph 56(1)(a)(i) of the Income Tax
Act ("Act") and paragraph 5 of Article XVIII of the Canada-US
Income Tax Convention (1980) ("Convention"). They read in part as
follows:
56. (1)
Without restricting the generality of section 3, there shall be included in
computing the income of a taxpayer for a taxation year,
(a) 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 …
…
5. Benefits under the social security legislation in a
Contracting State ... paid to a resident of the other Contracting State shall
be taxable only in that other State, subject to the following conditions:
(a) a benefit under the social security
legislation in the United States paid to a resident of Canada shall be taxable
in Canada as though it were a benefit under the Canada Pension Plan, except
that 15 per cent of the amount of the benefit shall be exempt from
Canadian tax; and
[3] The Appellant feels
that he is entitled to the 15% deduction provided in said paragraph 5 of
Article XVIII of the Convention. He submitted a letter from Canada Revenue
Agency dated January 21, 2005 to a co-worker of his which indicated that she
was entitled to deduct the 15% of “your social security benefits” as exempt
income. The Appellant also stated that other co-workers had similarly been given
a 15% deduction. The Appellant also referred to lines 115 and 256 of the 2004
Income Tax Guide ("Guide") which indicate that the 15% deduction
can be taken in certain situations. Because of these submissions of the
Appellant I have conducted a considerable amount of research to ensure the correct
treatment of this appeal.
[4] Regrettably for the
Appellant that research indicates that the 15% deduction provided for by paragraph
5 of Article XVIII of the Convention applies only to benefits under social security
legislation in the United States paid to a resident of Canada. The 15% deduction is not applicable to private pensions
paid to a resident of Canada by the United States source. Lines 115 and 256 of the
Guide might lead one to believe that the deduction could apply to all foreign
pensions, but those lines are general in nature and are not conclusive. In any
event, the Guide is not the law.
[5] This issue has
already been specifically dealt with in two decisions of this Court. In Tingley
v. R., [1999]1 C.T.C. 2177, Hamlyn T.C.J. said:
9 In reviewing the appellant's tax
liability, the Minister concluded that there was no deduction available under
Subsection 110(1) of the Act in relation to her foreign pension income and that
the complete pension income was to be included in calculating the appellant's
taxable income in Section 3 of the Act, pursuant to Clause 56(1)(a)(i)(C.1) of
the Act.
…
11 In terms of analysis of the
deduction claim and the conclusion, the benefit received by the appellant from
the U.S. source was not a
benefit under Social Security legislation.
12 The benefit received, that is, the
pension benefit, was fully taxable pursuant to Article 18 of the Canada/U.S.
Tax Convention, and that's specifically Article 5 therein.
13 The pension income, I've concluded,
is a pension benefit within the meaning of Subsection 56(1)(a)(i) of the Income
Tax Act, and the appellant is not entitled to a deduction of income pursuant to
Paragraph 110(1)(f)(i) of the Act. That is, it was not an amount exempt from
taxable income in Canada
because of a tax convention.
…
[6] In Bedard v. R.,
[1999] 2 C.T.C. 2671 this Court came to the same conclusion as the Tingley
case, namely that paragraph 5 of Article XVIII of the Convention applies only to
benefits paid under social security legislation of the United States and not to
private pensions. The fact that other employees may have been treated
differently is not a ground for saying that the law should not be applied to
the Appellant in this case. Moreover, although the amount of the
deduction/exemption was 50% in the cases cited, that is not material because
the law applicable in those cases stipulated a rate of 50%. That rate was later
changed to 15% which was the percentage applicable in the 2004 taxation
year.
[7] The conclusion in the
Bedard and Tingley cases represent the current state of the law
and as applicable to the 2004 taxation year. Other cases involving Article
XVIII of the Convention have followed the logic that pensions fall under the
rules established at paragraphs 1 through 3 of said Article XVIII. The
deduction for 15% is not applicable to pensions and is only applicable to
social security benefits.
[8] For all these
reasons, the appeal is dismissed.
Signed at Ottawa,
Canada this 18th day of June 2007.
"T. O'Connor"
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