Citation: 2008 TCC 421
Date: 20080730
Docket: 2007-4573(IT)I
BETWEEN:
MICHAEL J. REID,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle, J.
[1]
Mr. Reid turned
sixty in May 2006 and began collecting his Canada Pension Plan (“CPP”)
pension. This appeal involves how contributions are assessed on self‑employment
income for the year in which one reaches pensionable age.
[2]
Mr. Reid’s
sixtieth birthday was May 17, 2006. In 2006, he did not earn any
income which would be subject to CPP contributions before his birthday. He did
earn income from self-employment in the latter half of the year, after he had
turned sixty and after he had started receiving his CPP pension cheques. Mr. Reid
applied for his CPP pension benefit prior to his birthday and received his
first pension cheque in June. While there was no direct evidence of when the
CPP application was approved, I find that in order for him to have received his
first cheque in June his application, more likely than not, must have been
approved prior to June.
I. Law
[3]
Division B of Part I of
the CPP deals with Calculation of Contributions. The relevant parts of
sections 12 and 13 of the CPP, dealing with salary and wages and
self-employed earnings respectively, are set out below:
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Amount of contributory salary and wages
12(1) The amount of the contributory salary and wages of a person
for a year is the person's income for the year from pensionable employment,
computed in accordance with the Income Tax Act (read without reference
to subsection 7(8) of that Act), plus any deductions for the year made in
computing that income otherwise than under paragraph 8(1)(c) of that Act, but does not include any such income
received by the person
(a)
before he reaches eighteen years of age;
(b)
during any month that is excluded from that person’s contributory period
under this Act or under a provincial pension plan by reason of disability; or
(c)
after he reaches seventy years of age or after a retirement pension becomes
payable to him under this Act or under a provincial pension plan.
Amount of contributory self-employed earnings
13(1) The amount of the contributory self-employed
earnings of a person for a year is the amount of his self-employed earnings
for the year except that, for a year in which he reaches eighteen or seventy
years of age, in which a retirement pension becomes payable to him under this
Act or under a provincial pension plan, in which his contributory period ends
under this Act or under a provincial pension plan by reason of disability or
in which a disability pension ceases to be payable to him under this Act or
under a provincial pension plan, the amount of his contributory self-employed
earnings is an amount equal to that proportion of the amount of his
self-employed earnings for the year that the number of months in the year
(a) after
(i) he reaches eighteen years of age,
or
(ii) the disability pension ceases to
be payable, or
(b) before
(i) he reaches seventy years of age,
(ii) the retirement pension becomes
payable, or
(iii) the month following the month in
which his contributory period ends under this Act or under a provincial
pension plan by reason of disability,
is of twelve.
(2) Subject to subsection (1), the contributory
self-employed earnings of a person do not include earnings with respect to
any period described in paragraph 12(1)(a), (b) or (c).
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Montant des traitement et salaire
cotisables
12(1) Le montant des traitement et salaire cotisables
d’une personne pour une année est le revenu qu’elle retire pour l’année d’un
emploi ouvrant droit à pension, calculé en conformité avec la Loi de
l’impôt sur le revenu (compte non tenu du paragraphe 7(8) de cette loi),
plus les déductions pour l’année, faites en calculant ce revenu autrement que
selon les dispositions de l’alinéa 8(1)c) de cette loi, mais ne
comprend aucun revenu de cette nature reçu par cette personne :
a) soit avant qu’elle atteigne l’âge de dix-huit
ans;
b) soit au cours de tout mois qui, en raison d’une
invalidité, n’est pas inclus dans la période cotisable de cette personne
conformément à la présente loi ou à un régime provincial de pensions;
c) soit après avoir atteint l’âge de soixante-dix
ans ou après qu’une pension de retraite lui soit devenue payable en vertu de
la présente loi ou selon un régime provincial de pensions.
Montant des gains
cotisables des travailleurs autonomes
13(1) Le montant des gains cotisables provenant du travail qu’une personne
exécute pour son propre compte, pour une année, est le montant de ses gains
provenant du travail qu’elle exécute pour son propre compte pour l’année sauf
que, à l’égard d’une année au cours de laquelle elle atteint l’âge de
dix-huit ou de soixante-dix ans, ou au cours de laquelle une pension de
retraite lui devient payable en application de la présente loi ou selon un
régime provincial de pensions, ou au cours de laquelle sa période cotisable
prend fin en raison d’une invalidité aux termes de la présente loi ou selon
un régime provincial de pensions, ou encore au cours de laquelle une pension
d’invalidité cesse de lui être payable en vertu de la présente loi ou selon
un régime provincial de pensions, le montant de ses gains cotisables
provenant du travail qu’elle exécute pour son propre compte est un montant
égal à la proportion du montant, pour l’année, de ses gains provenant d’un
tel travail que représente, par rapport à douze, le nombre de mois dans
l’année, qui, selon le cas :
a) suivent :
(i) soit le moment où elle atteint
l’âge de dix-huit ans,
(ii) soit le moment où cette pension
d’invalidité cesse de lui être payable;
b) précèdent :
(i) soit le moment où elle atteint
l’âge de soixante-dix ans,
(ii) soit le moment où cette pension de
retraite lui devient payable,
(iii) soit le mois suivant le mois au
cours duquel sa période cotisable prend fin conformément à la présente loi ou
à un régime provincial de pensions en raison d’une invalidité.
(2) Sous réserve du paragraphe (1), les gains
cotisables d’une personne provenant du travail qu’elle exécute pour son
propre compte ne comprennent pas les gains à l’égard de toute période décrite
à l’alinéa 12(1)a), b) ou c).
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[4]
Division A of Part II
of the CPP deals with Benefits Payable. The relevant portion of section
44 provides:
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Benefits payable
44(1) Subject to this Part,
(a) a retirement pension shall
be paid to a contributor who has reached sixty years of age;
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Prestations payables
44(1) Sous réserve des autres dispositions de la présente partie :
a) une pension de retraite doit être payée à un
cotisant qui a atteint l’âge de soixante ans;
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II. Analysis
[5]
The general approach of
the CPP is that, after a person begins to receive the CPP pension, he no
longer has to make CPP contributions on his earnings from employment (section 12)
or self-employment (section 13).
[6]
However in the case of
income from self-employment, the general rule in subsection 13(2) is
expressly subject to subsection 13(1). Subsection 13(1) provides a
specific computation method to allocate income in the year a person begins to
receive CPP payments as between (i) the period before his birthday which should
be subject to CPP contributions and (ii) the period after his birthday which
should not be subject to CPP contributions. This rule does not look to when in
the year amounts were actually earned. Instead, it assumes income is earned
evenly throughout the year. Specifically, it says that the amount of
self-employment income on which CPP contributions shall be made in that
transition year is that portion of the year’s income that the number of months
before the pension became payable is of the twelve months in the year. How the
month in which the pension becomes payable is treated for this purpose, and
whether that month is the birthday month or the month the first cheque is
received, is addressed later in these reasons.
[7]
It is Mr. Reid’s
position that, because all of his self-employment income for 2006 was earned
after his birthday and after he received his first CPP cheque, no CPP
contribution should be payable in respect of it. CRA assessed him for
approximately $600 of CPP on this income, apparently by applying the
transitional allocation/computation method in subsection 13(1). Mr. Reid
maintains that his position is supported by the correspondence and publications
of CRA, which collects CPP contributions, and by Human Resources and
Development Canada which administers the CPP.
[8]
In support of his
position, Mr. Reid points to the fact that his 2006 Notice of Assessment
says: “You do not have to make CPP contributions for any period you received Canada or Québec pension plan retirement or disability
benefits.”
[9]
Mr. Reid also
points to two letters he received from HRDC which include the following:
You can no longer contribute
From the month your retirement pension starts, you cannot contribute
to the CPP anymore. If you start working or become self-employed while
receiving your pension, you may use this letter to tell your employer or the
CRA that you no longer have to contribute to CPP.
[10]
The HRDC website says,
under Frequently Asked Questions:
Do I have to contribute to the Canada Pension Plan?
You do not make contributions if you are receiving a Canada Pension
Plan, CPP disability, or CPP retirement pension. At age 70, you stop
contributing even if you have not taken your retirement pension and are still
working.
[11]
According to
Mr. Reid, in addition to the HRDC letters, he has been advised of the
correctness of his position by several HRDC officers in his discussions with
them.
[12]
Mr. Reid’s
position is most understandable given that the HRDC letters to him clearly say income
earned after the month his retirement pension starts is not subject to CPP
contributions. The paragraph specifically refers to self-employment income.
Further, the letter encourages him to use the letter to tell CRA that he does
not have to pay CPP. That is exactly what he has been doing.
[13]
Unfortunately for
Mr. Reid ― and regardless of my sympathies for the
position which CRA’s somewhat confusing assessment language, and HRDC’s simply
incorrect information, places him ― the CPP legislation is clear that the
allocation/computation method for the year of transition to retirement applies
regardless of the fact that his income was not earned evenly throughout the
year and regardless of the fact that all of his self-employment income in that
year was earned after he began receiving his CPP pension payments. Tax and
similar legislation, like the CPP, has to be able to take such “rough
justice” approaches that accomplish their objective equitably in most
circumstances in a practicable and administrable fashion, even though they may
not be perfectly equitable in all particular individual circumstances.
[14]
I am bound to apply the
law as it is written by Parliament and, when the legislation is clear, without
regard to what government officials may have advised taxpayers what that law
says. Earlier incorrect advice or incorrect positions do not prevent the Crown
from wanting the law appropriately applied by this Court. Nor does it allow
this Court to depart from the law.
[15]
I conclude that
Mr. Reid’s 2006 self-employment income is subject to CPP contributions in
accordance with subsection 13(1). I now need to turn to whether the
Minister has properly applied that provision in assessing Mr. Reid for the
amount in question. However, before addressing that issue, I want to apologize
to Mr. Reid for the unfortunate position in which he has found himself on
the first issue. Clearly, the only reason this issue came to court is because
of the two government departments involved. The first sentence of CRA’s very
poor choice of language in what appears to be its standard form used when
Canadians start to collect CPP is wrong and it is not how CRA in fact assessed
Mr. Reid the first year in which he collected CPP. It is clear from the
quoted paragraph in the HRDC letters to Mr. Reid, which also appear to be
standard form, that HRDC is simply wrong and compounds the problem by telling
people to use the letter to tell CRA they should not pay CPP in exactly these
circumstances. This was not a problem of Mr. Reid’s making. The fault lies
with CRA and HRDC. I would have expected that by the time this got to court, I
would be told CRA has fixed its language, that CRA has pointed out to, and persuaded,
HRDC that its position is wrong, and that HRDC has revised its website
information.
[16]
The second issue of
whether CRA has properly applied subsection 13(1) arises because the
language used does not itself make it clear how to treat the month in which the
pension first becomes payable. In this case, CRA included the month of May in
“the number of months in the year before the retirement pension becomes payable.”
[17]
The lack of clarity in the
language used as regards what to do with the transition month itself is expressly
addressed in the Interpretation Act. Section 28 of the Interpretation
Act provides that where there is a reference to a period of time consisting
of a number of months before a specified day, the period is calculated by counting
backward from the specified day the number of months, without including the
month in which that day falls. This was not referred to in argument. This
language clearly applies when persons start to collect a CPP pension. (There is
a somewhat similar provision in subsection 2(2) of the CPP which
only deals with reaching a particular age which therefore does not apply in
this case.)
[18]
The Crown pointed out
that, in any event, subparagraph 13(1)(b)(ii) refers to the time
the pension becomes “payable” and argued that Mr. Reid’s pension became payable
in June, the month following his sixtieth birthday. The Crown points out that
even though the Division heading and the marginal note for
subsection 44(1) refers to Benefits Payable, the provision sets out when
the pension is to be “paid”. I am unable to agree with the Crown’s argument on
this point. The CPP is not clear or precise in its use of the terms paid
and payable in the way that the Income Tax Act is. This is highlighted
by the Crown’s written submissions on this argument. To look further than
section 44 requires an analysis of other provisions that do not mesh any
better with section 13 and would, on these facts, arrive at the same
result in any event.
[19]
Mr. Reid’s contributory
self-employed earnings for 2006 are four-twelfths of his 2006 income from
self-employment, not five-twelfths. Mr. Reid’s assessment will be varied
accordingly.
[20]
In the circumstances,
even though Mr. Reid has not been entirely successful, I am awarding costs
to him in the amount of $800 inclusive of the $100 filing fee.
[21]
Crown counsel
volunteered that this may be an appropriate case for interest relief under the
so-called Fairness provisions. I would have thought it might also be an
appropriate case to at least consider a remission of the CPP contribution
assessed as well. Clearly, the legislation has an unintended result in
Mr. Reid’s particular circumstances since all of his self-employed income
was earned after he turned sixty and began collecting his CPP pension. Further,
Mr. Reid’s position, while not supported in law, was supported by both the
CRA and HRDC correspondence. I am frankly surprised that any of the
government departments involved allowed this matter to proceed to Court. I have
no jurisdiction to decide the Fairness or remission order aspects and will leave
them to those who do.
Signed at Ottawa, Canada, this 30th
day of July 2008.
"Patrick Boyle"
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