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Citation: 2003TCC188
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Date: 20030403
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Docket: 2000-5154(IT)I
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BETWEEN:
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PANAYIOTA ARGYRIOU,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Miller J.
[1] Panayiota Argyriou appeals, by way
of informal procedure, the assessments of the Minister of
National Revenue (the Minister) of her 1997 and 1998 taxation
years, on the basis that section 217 of the Income Tax Act
(the Act) was improperly applied to her circumstances. The
relevant facts the parties agreed upon are as follows:
(a) The Appelant was
a resident of Greece and a non-resident of Canada during the 1997
and 1998 taxation years;
(b) In 1997 and
1998, the Appellant received Canada Pension Plan (CPP) benefits
in the amounts of $7,722 and $7,869, respectively. ...;
(c) In 1997 and
1998, the Appellant also received Worker's Compensation
payments from the Workplace Safety and Insurance Board in the
amounts of $12,562 and $12,617, respectively;
(d) In filing her
returns of income for the relevant taxation years, the Appellant
elected to have section 217 of the Income Tax Act (the
Act) apply, resulting in paying tax under Part I of the
Act rather than Part XIII;
(e) The Appellant
calculated her net world income for the 1997 and 1998 taxation
years as follows:
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1997
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1998
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Net income per T1 Return
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$20,284
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$20,486
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Net Foreign Source Pension Income
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850
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1,364
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Deduction of Worker's Compensation Payments
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12,562
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12,617
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Net World Income
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$ 8,572
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$ 9,233
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(f) By Notices
of Assessment dated June 22, 1998 and May 10, 1999, ... the
Minister of National Revenue (the Minister) in assessing as he
did, calculated the Appellant's net world income for the 1997
and 1998 taxation years as follows:
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1997
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1998
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Net income per T1 Return
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$ 7,722
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$ 7,869
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Other Canadian source of income
Worker's Compensation Payments
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12,562
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12,617
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Net Foreign Source Pension Income
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850
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1,364
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Net World Income
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$21,134
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$21,850
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(g) In assessing as
he did, the Minister calculated the Part I tax payable of the
Appellant according to section 217 of the Act as
follows:
Taxation year 1997: $1,413.30 Notice of Assessment dated
June 22, 1998;
Taxation year 1998: $1,373.10 Notice of Assessment dated
May 10, 1999;
(h) The Appellant
objected to the assessments by way of Notice of Objection, dated
September 22, 1999, ...;
(i) By way of
Notices of Confirmation, dated August 2, 2000, ... the Minister
confirmed the 1997 and 1998 assessments.
[2] The issue is whether the Minister
properly calculated the Appellant's tax liability pursuant to
section 217 by including Worker's Compensation benefits in
the determination of the Appellant's taxable income earned in
Canada. The Appellant argues:
I receive Workers' Compensation benefits that are not
taxable. However, the treatment of these benefits on the tax
return (included as world income on schedule A and not
deducted on line 15 of the same schedule) for 1997 and
1998, results in a higher tax liability.
This differential treatment for the non-residents
penalizes them instead of enhancing the ability to use the full
personal exemption.
I am of the opinion that the spirit of the law, by giving
these benefits tax-free, was to help workers for the injury they
suffer since they cannot work.
My case does not refer to any other type of "Canadian
benefits" on which I would have definitely paid income
taxes. Again, the question is whether or not Workers'
Compensation benefits should be taxed, directly or indirectly, as
in my case.
The Respondent argues:
6. A 217(2)
election allows a taxpayer to be taxed under Part I of the
Act with respect to Canadian source income.
Merrins V. Canada, [2002] T.C.J. No. 336 (Q.L.) at page 8,
paragraph 27, An application for judicial review was filed in
the Federal Court of Appeal.
7. Without the
election, a non-resident's "Canadian benefits" are
subject to Part XIII withholding tax under paragraphs
212(1)(h), (j) to (m) and (q) of the
Act. The 217 election gives the non-resident taxpayer
access to non-refundable tax credits in section 118, which
may reduce their tax payable.
Yaremy v. Canada, [1994] T.C.J. No. 591 (Q.L.) at page 1,
paragraph 1.
8. Subsection
217(1) defines "Canadian benefits" in reference to the
withholding provisions under subsection 212(1) of the Act
as follows:
217.(1) In this section, a non-resident person's
"Canadian benefits" for a taxation year is the total of
all each of which is an amount paid or credited in the year and
in respect of which tax under this Part would, but for this
section, be payable by the person because of any of paragraphs
212(1)(h), 212(1)(j) to 212(1)(m) and
212(1)(q).
9. Pension and
superannuation benefits, Employment Insurance benefits, retiring
allowances and RRSP payments, but not Workers' Compensation
benefit amounts, are included in the definition of "Canadian
benefits".
10. Amendments to section 217
made in 1997 and applicable to 1997 and subsequent taxation
years, included Worker's Compensation benefit amounts when
calculating a non-resident's "Taxable Income Earned in
Canada" ("TIEC"). Under subsection 217(3), a
person's TIEC is deemed to be the greater of the two
amounts:
(A)
217(3)(b)(i): the first amount is the non-resident's
TIEC included under subsection 115(1), taking into account the
non-resident's "Canadian Benefits". In this case of
the Appellant, her TIEC for the 1997 and 1998 taxation years is
equal to the amounts she received under the CPP for those years,
$7,722 and $7,869 respectively.
(B)
217(3)(b)(ii): the second amount deems the
non-resident's world income as the TIEC. In the case of the
Appellant, in addition to the CPP amounts, her Worker's
Compensation benefit amounts and net foreign source pension
income also form part of the net world income for a TIEC
total of $21,134 and $21,850 for the 1997 and 1998 taxation years
respectively.
Canadian Tax Reporter, Volume 5A, CCH Canadian Limited,
page 24, 324.
11. Paragraph 217(3)(b)
requires the use of the greater of the two amounts, and as a
result, the Appellant's TIEC for the 1997 and 1998 taxation
years are $21,134 and $21,850 respectively. These are the amounts
used by the Minister of National Revenue in determining the rate
of tax applicable.
12. While subparagraph
217(3)(b)(ii) takes into account the Appellant's
Worker's Compensation benefits and the foreign source pension
income, the Minister applied a special credit under subsection
217(6) to exclude those two amounts.
Canada Tax Service, Stikeman, Volume 12, Election Respecting
Certain Payments, p. 217-108.
13. Accordingly, the Respondent
submits that the Minister of National Revenue assessed the
Appellant in accordance with subparagraph 217(3)(b)(ii)
and properly included the Appellant's Worker's
Compensation benefit amounts when determining the Appellant's
taxable income earned in Canada for the relevant taxation
years.
[3] The applicable legislation reads
as follows:
217(1) In this section, a non-resident person's
"Canadian benefits" for a taxation year is the total of all
amounts each of which is an amount paid or credited in the year
and in respect of which tax under this Part would, but for this
section, be payable by the person because of any of paragraphs
212(1)(h), (j) to (m) and (q).
(2) No tax is
payable under this Part in respect of a non-resident person's
Canadian benefits for a taxation year if the person
(a) files
with the Minister, within 6 months after the end of the year, a
return of income under Part I for the year; and
(b) elects in
the return to have this section apply for the year.
(3) Where a
non-resident person elects under paragraph (2)(b) for
a taxation year, for the purposes of Part I
(a) the
person is deemed to have been employed in Canada in the year;
and
(b) the
person's taxable income earned in Canada for the year is
deemed to be the greater of
(i) the amount
that would, but for subparagraph (ii), be the person's
taxable income earned in Canada for the year if
(A) paragraph
115(1)(a) included the following subparagraph after
subparagraph (i):
"(i.1) the non-resident person's Canadian benefits
for the year, within the meaning assigned by subsection
217(1),", and
(B) paragraph
115(1)(f) were read as follows:
"(f) such of the other deductions permitted for
the purpose of computing taxable income as can reasonably be
considered wholly applicable to the amounts described in
subparagraphs (a)(i) to (vi)."; and
(ii) the
person's income (computed without reference to subsection
56(8)) for the year minus the total of such of the deductions
permitted for the purpose of computing taxable income as can
reasonably be considered wholly applicable to the amounts
described in subparagraphs 115(1)(a)(i) to (vi).
(4) Sections 118 to
118.91 and 118.94 do not apply in computing the tax payable under
Part I for a taxation year by a non-resident person who elects
under paragraph (2)(b) for the year, unless
(a) where
section 114 applies to the person for the year, all or
substantially all of the person's income for the year is
included in computing the person's taxable income for the
year; or
(b) in any
other case, all or substantially all of the person's income
for the year is included in computing the amount determined under
subparagraph (3)(b)(i) in respect of the person for the
year.
(5) In computing the
tax payable under Part I for a taxation year by a non-resident
person to whom neither paragraph (4)(a) nor paragraph
(4)(b) applies for the year there may, notwithstanding
section 118.94 and subsection (4), be deducted the lesser of
(a) the total
of
(i) such of
the amounts that would have been deductible under any of section
118.2, subsections 118.3(2) and (3) and sections 118.6, 118.8 and
118.9 in computing the person's tax payable under Part I for
the year if the person had been resident in Canada throughout the
year, as can reasonably be considered wholly applicable, and
(ii) the amounts
that would have been deductible under any of sections 118 and
118.1, subsection 118.3(1) and sections 118.5 and 118.7 in
computing the person's tax payable under Part I for the year
if the person had been resident in Canada throughout the year,
and
(b) the
appropriate percentage for the year of the person's Canadian
benefits for the year.
(6) In computing the
tax payable under Part I for a taxation year by a non-resident
who elects under paragraph (2)(b) for the year, there may
be deducted the amount determined by the formula
A x [(B - C) / B]
where
A is the
amount of tax under Part I that would, but for this subsection,
be payable by the person for the year;
B is the
amount determined under subparagraph (3)(b)(ii) in respect
of the person for the year; and
C is the
amount determined under subparagraph (3)(b)(i) in respect
of the person for the year.
Although the Respondent has provided an interpretation of
these provisions in argument, I want to attempt to express it as
concisely as possible for the Appellant. The section is meant to
tax only the Appellant's CPP income. The tax on that income
however is determined by figuring out the tax as if all the
Appellant's world income was subject to Part I tax. Then, the
tax is reduced by a credit equivalent to the percentage of the
CPP income to the total world income. This effectively taxes the
CPP income at a higher rate than if only the CPP income had been
included in the determination of tax.
[4] By way of example, using the 1997
figures, the mathematical calculation goes something like
this:
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Total Income
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$21,134
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Multiplied by tax rate of 17% yields tax of
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3,593
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Subtract personal credits
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1,098
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Federal tax before subsection 217(6) credit
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2,495
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Subtract subsection 217(6) special tax credit
(2,495 x 21,134 - 7,722 ¸21,134 =)
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1,583
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Tax before surtax
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912
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Surtax for non-residents of 52%
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474
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Tax
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1386
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Federal surtax of 3% of $912
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27
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Total tax
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$1,413
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[5] I am satisfied the Respondent has
made the correct calculation in accordance with section 217 for
both 1997 and 1998, if the Worker's Compensation payments are
considered income. As Worker's Compensation payments are
specifically included in income pursuant to paragraph 56(1)(v),
they must be included in income for purposes of the calculation
pursuant to subparagraph 217(3)(b)(iii). The effect is
that Worker's Compensation income is not taxed directly, but
the calculation results in the tax on the CPP income at something
higher than the 17 per cent marginal rate. While this means
ultimately less tax liability than the withholding liability
pursuant to Part XIII, it does not provide as much of a tax break
as the Appellant felt was warranted by the "spirit of the
law". While there are opportunities in tax cases to address
the spirit or policy of legislation, regrettably this is not one
of them. There is no ambiguity, though there is some complexity,
in the legislation at issue. There is no opportunity in this case
to look beyond that clear meaning. When applied to the
Appellant's situation it yields the result claimed by the
Respondent. The Appellant looks on this as indirectly taxing the
Worker's Compensation payments. It is not difficult to see
why she would think so, as in going through the calculation, it
is clear that the Worker's Compensation payments are taxed,
but then the tax is subject to a credit, hypothetically intended
to carve out the portion of tax related to the Worker's
Compensation payments. To Ms. Argyriou this must at best
seem imperfect, and at worst unfair. It is, however, how the
provision works.
[6] I dismiss the appeals.
Signed at Ottawa, Canada, this 3rd day of April, 2003.
J.T.C.C.
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