Docket: 2005-2760(IT)I

BETWEEN:

RAYMOND LAQUERRE,

Appellant,

and

 

HER MAJESTY THE QUEEN

Respondent.

 

____________________________________________________________________

Appeal heard on February 2, 2006, at Trois-Rivières, Quebec.

 

Before: The Honourable Justice Alain Tardif

 

Appearances:

 

For the Appellant:	The Appellant himself
Counsel for the Respondent:	Simon-Nicolas Crépin

 

____________________________________________________________________

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 2003 taxation year is dismissed without costs, in accordance with the attached Reasons for Judgment.

 

 

Signed at Ottawa, Canada, this 21st day of July 2006.

 

“Alain Tardif”

 

 

Translation certified true

on this 21st day of December 2006.

Gibson Boyd, Translator

 

 

 

Citation: 2006TCC404

Date: 20060721

Docket: 2005-2760(IT)I

BETWEEN:

 

RAYMOND LAQUERRE,

Appellant,

and

 

SA MAJESTÉ LA REINE,

Respondent.

 

 

REASONS FOR JUDGMENT

 

 

Tardif J.

 

[1]     This is an appeal from an assessment made by the Minister of National Revenue (the “Minister”) under the Income Tax Act (the “Act”) for the 2003 taxation year.

 

[2]     The issue is whether the Minister correctly determined and approved the inclusion of the sum of $3,955 in the calculation of the Appellant’s pension income.

 

[3]     The facts are very simple and have been well summarized in subparagraphs 6 (a), (b), (c) and (d) of the Reply to Notice of Appeal; they read as follows:

 

[TRANSLATION]

 

(a)        On October 19, 2004, the Minister revised the Appellant’s pension, relying on the T4A slip issued by the Royal Canadian Mounted Police;

 

(b)        at the objection stage, the Appellant claimed that of the pension of $29,905, a sum of $3,995 represented indexation of the pension and that that sum should be tax exempted since he was forced to retire due to his state of health;

 

(c)        The company Morneau Sobeco, which manages the Royal Canadian Mounted Police Pension Fund, confirmed that the Appellant receives an annuity under the Royal Canadian Mounted Police Superannuation Act based on his years of service;

 

(d)        a pension granted for long service is taxable.

 

 

[4]     The position of the parties is, again, very simple to summarize.

 

[5]     The Appellant argued that, if it had not been for his state of health, the pension he would have been entitled to for his years of service and work with the Royal Canadian Mounted Police would not have been indexed; had it not been so, there would not have been indexation.

 

[6]     The Appellant indicated that, as beneficiary of a pension for health reasons, with a supporting medical certificate, he was entitled to indexation, which represents an amount of $3,955 for the 2003 taxation year. Consequently, the Appellant wishes to deduct this amount of $3,955 from his taxable income, given that he considers that this amount was paid to him due to illness.

 

[7]     In support of his claims, the Appellant indicated that he can be compared to those who cease work following an accident at work and receive 90% of their pay tax free.

 

[8]     The Minister argued that the pension granted to the Appellant was mainly based on his long service, which, moreover, was not denied by the Appellant. The Appellant did indeed receive a pension essentially corresponding to his years of service, which was indexed due to the fact that he had a medical certificate.

 

[9]     First of all, there is a big difference between the two situations. Indeed, a person who stops work following an accident at work normally receives compensation calculated according to their compensation at the time of the accident. The number of years of service is not taken into consideration.

 

[10]    Thus, two people, each with a very different number of years of service, could receive the same compensation following an accident at work if their salary were the same at the time of the accident.

 

[11]    In this case, the amount that the Appellant received was essentially based on his years of service with the Royal Canadian Mounted Police. As for the indexation, it was essentially a result of the medical certificate that enabled the Appellant to sever the work relationship with his employer.

 

[12]    Let us look at the provisions of the Act.

 

[13]    All taxpayers must declare all of their income, which is taxable under section 3 of the Act.

 

[14]    Certain income and certain deductions are not attributable to the principal sources of income covered by the Act. Pension income receives a specific treatment. This income is dealt with in section 56 of the Act, in particular subparagraph 56(1)(a)(i), “Other sources of income”. This income must be included in the year when the taxpayer receives it:

 

56. (1) Amounts to be included in the income for year –

            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,

 

(i) a superannuation or pension benefit including, without limiting the generality of the foregoing,

 

. . .

 

 

[15]    Subsection 248(1) defines the expression “superannuation or pension benefit”, which is found in subparagraph 56(1)(a)(i), as follows:

 

248.     (1) Definitions – In this Act,

 

            . . .

 

“superannuation or pension benefit” includes any amount received out of or under a superannuation or pension fund or plan and, without restricting the generality of the foregoing, includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary thereunder

 

(a) in accordance with the terms of the fund or plan,

 

(b) resulting from an amendment to or modification of the fund or plan, or

 

(c) resulting from the termination of the fund or plan.

 

 

[16]    The Act provides for several distinctions; there can be tax deductions, credits or exemptions, according to the circumstances. Section 149 of the Act provides for various exemptions. Section 81 of the Act provides for more exemptions.

 

[17]  Paragraph 81(1)(i) of the ITA provides:

 

81. (1) Amounts not included in income – There shall not be included in computing the income of a taxpayer for a taxation year,

 

          (i) R.C.M.P. pension or compensation -- a pension payment or compensation received under section 5, 31 or 45 of the Royal Canadian Mounted Police Pension Continuation Act, chapter R-10 of the Revised Statutes of Canada, 1970, or section 32 or 33 of the Royal Canadian Mounted Police Superannuation Act, in respect of an injury, disability or death;

 

[18]    The pension concerned in this case is not covered by one or the provisions mentioned in paragraph 81(1)(i) of the Act, i.e. section 32 or 33 of the Royal Canadian Mounted Police Superannuation Act (“RCMPSA”). The pension concerned in sections 32 and 33 is clearly defined.

 

[19]    In Gingras v. Canada, No. 95‑2467(IT)I, July 19, 1996, [1996] T.C.J. No. 794, par. 2-5 and 9 (QL), Lamarre Proulx J. indicated:

 

 

[20]    The pension income is therefore taxable.

 

[21]    Pensions and additional pensions under the Canada Pension Plan or the Old Age Security Act are equally taxable (see Vern Krishna, The Fundamentals of Canadian Income Tax, 8th ed., Thomson Carswell, Toronto, 2004, p. 517).

 

[22]  The issue to be determined is whether the amount received from indexation must be taxed or not. To answer that question, the following questions must first be answered:

 

1) Is the indexation granted under section 32 or 33 of the RCMPSA?

 

2) Is this indexation accessory to the principal and therefore taxable?

 

[23]    The answer to the first question being negative, I do not need to answer the second.

 

[24]    The RCMPSA states the following at sections 32 and 33 at Part II:

 

 

 

[25]  The increase or indexation considered in these sections only applies to the situations described in them; indexation is therefore a sort of supplementary benefit. Indeed, it is interesting, essential even, to take into consideration sections 35 and 39 of the RCMPSA, at Part III:

 

 

[26]    Section 4 of the Supplementary Retirement Benefits Act (“SRBA”) provides the following:

 

 

 

[27]    Finally, it is interesting to note the resemblance between the contents of the RCMP’s “Benefit Information Bulletin of Indexation” (Exhibit A-3) and section 35 of the RCMPSA.

 

 

[28]    For these reasons, I must conclude that the amount that the Appellant receives from indexation cannot be qualified as compensation under section 32 or 33 of the RCMPSA.

 

[29]    This assessment is valid under section 40 of the RCMPSA, which reads as follows:

 

40. (1) The supplementary benefit payable to a recipient shall be paid at the same times, in the same manner, during or in respect of the same periods and subject to the same terms and conditions as the pension payable to that recipient.

 

 

[30]    Indexation is therefore accessory to the principal. On the taxpayer’s pay statement, the indexation amount (“IND1”) is calculated by applying a mathematical formula to the base annuity (“BAS1”).

 

[31]    The amount payable under the indexation corresponds with a supplementary benefit rather than compensation. Indeed, an indexation amount cannot be paid alone; it must be calculated based on another amount.

 

[32]    In this sense, it canot be compensation, but rather a supplementary benefit accessory to an essential principal amount; the principal amount can exist without indexation, but the reverse is not true.

 

[33]    In this case, the amount of the supplementary benefit or of the indexation has its basis in section 35 of the RCMPSA, rather than section 32 or 33 of the RCMPSA.

 

[34]    For these reasons, this supplementary benefit cannot be deductible under paragraph 81(1)(i) of the Act; consequently, the appeal must be dismissed.

 

Signed at Ottawa, Canada, this 21st day of July 2006.

 

 

 

Alain Tardif

 

 

Translation certified true

on this 21st day of December 2006.

Gibson Boyd, Translator

CITATION:                                       2006TCC404

 

COURT FILE NO.:                            2005-2760(IT)I

 

STYLE OF CAUSE:                          Raymond Laquerre and

                                                          Her Majesty the Queen

 

PLACE OF HEARING:                     Trois-Rivières, Quebec

 

DATE OF HEARING:                       February 2, 2006

 

REASONS FOR JUDGMENT BY:    The Honourable Justice Alain Tardif

 

DATE OF JUDGMENT:                    July 21, 2006

 

APPEARANCES:

 

For the Appellant:	The Appellant himself
Counsel for the Respondent:	Simon-Nicolas Crépin

 

COUNSEL OF RECORD:

 

       For the Appellant:

 

 

       For the Respondent:                    John H. Sims, Q.C.

                                                          Deputy Attorney General of Canada

                                                          Ottawa, Canada