Date: 20011107
Docket:
2000-2184-IT-I
BETWEEN:
MARCELLE
DUMOULIN,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasonsfor
Judgment
Lamarre Proulx,
J.T.C.C.
[1]
This is an appeal under the informal procedure concerning the
1998 taxation year.
[2]
The issue is whether payments in the amount of $5,900.52 made
under the Canada Pension Plan ("CPP") to
the appellant, who is retired from the Public Service, are
pensions within the meaning of paragraph 1 of
Article 18 of the Convention Between the Government of
Canada and the Swiss Federal Council for the Avoidance of Double
Taxation with Respect to Taxes on Income and on Capital,
Canada Gazette Part II, Vol. 132, No. 20,
SI/TR/98-94 (the "1998
Convention"), or whether they are payments made under
the social security legislation of a contracting
state.
[3]
The appellant testified. She was born in Canada and worked for
the Department of External Affairs for 35 years. At the end
of her career, she married a Swiss and resides in Basel,
Switzerland. She retired in 1990. The appellant filed a number of
documents, including a letter dated January 31, 1996, from
the Superannuation Directorate informing her that, since she had
reached the age of 65, her Public Service superannuation would be
reduced. She was told that the basic pension of $3,319.73 would
be reduced to $2,919.98 starting on February 1, 1996, and
that that reduction was based solely on pensionable service
accumulated after January 1, 1966. She was further informed
that, if she was not already receiving an early retirement
pension under the CPP, she was to file a retirement
pension application with the CPP.
[4]
In 1998, she received a notice of assessment of non-resident tax
of $808.98 not deducted at source. That notice stated in
part:
[TRANSLATION]
Based on the information
provided in your 1998 income tax return, you are a non-resident
of Canada and have received income from a Canadian source which
is subject to Part XIII non-resident tax.
As
the payer withheld only a portion of the Part XIII
non-resident tax, you must therefore pay the
difference.
Please inform the Canadian
payer that it must withhold the Part XIII non-resident tax
on the next payments. . . .
[5]
The appellant also referred to the Federal Superannuates National
Association Newsletter, Spring 2001, Vol. 39,
no. 1:
REDUCTION OF SUPERANNUATION
PENSION
.
. .
The superannuation plans of
the Government of Canada are integrated with the Canada and
Quebec pension plans. This means that these plans are treated as
one when both the contribution rate and benefits are being
calculated. Thus, Public Service employees and members of the
Canadian Forces, and the RCMP have their contributions split
between the superannuation plan and the CPP. Similarly, the
superannuation pension and the CPP together will provide a
retirement pension that accrues at the rate of 2% of the average
earnings over the best 5 consecutive years times the number
of years of pensionable service.
SOME HISTORY
When the CPP was introduced
in 1966, the provisions of many pension plans, including those of
the superannuation plans, were reviewed since many people
considered that the CPP was simply duplicating some part of
pension coverage already provided to members of those plans. Many
plans decided to "integrate" with the CPP so that there
would be no duplication of coverage.
.
. .
Thus, someone earning
average wages or below would be eligible to receive a combination
of superannuation and CPP benefits that would provide a combined
pension equal to 95% of pre-retirement earnings. In addition,
that person would have been eligible for Old Age Security (OAS)
with the result that total pension income would have been greater
than pre-retirement income. It was felt this was too rich a
pension scheme since most people agree that income in retirement
needs only be about 70% of pre-retirement earnings.
As
a result of these considerations, the superannuation plans, as
well as many other plans, were integrated with the CPP so that
they would not duplicate the CPP benefits. The employee
superannuation contributions were thus reduced by the amount of
their CPP contributions. . . .
Arguments
[6]
The appellant argued that the CPP retirement pension is an
integral part of Public Service superannuation and that, as such,
it must be taxed at the same 15 percent rate as the latter.
A CPP payment is in the nature of Public Service
superannuation because entitlement thereto arises from the same
source, work with the Public Service, and should receive the same
tax treatment under the 1998 Convention. Counsel for the
respondent argued that it is a payment made under social security
legislation, that it is not a pension within the meaning of
Article 18 of the 1998 Convention and that the amount
paid is subject to the 25 percent tax provided for in
paragraph 212(1)(h) of Part XIII of the
Income Tax Act (the "Act"). Counsel for
the respondent referred to another convention between Canada and
the Swiss Confederation, namely the Convention on Social
Security, Canada Gazette Part II, Vol. 129,
No. 22, SI/TR/95-112, Article 2 of which
states that, with respect to Canada, it applies to the Old Age
Security Act and the Canada Pension Plan. That
convention came into force on October 1, 1995. This, counsel
for the respondent contended, leaves no doubt that the competent
authorities view the CPP as being part of Canada's
social security legislation.
Conclusion
[7]
According to Article 28 of the 1998 Convention, the
provisions of that convention are applicable in respect of tax
withheld at the source on or after January 1, 1998. The
1998 Convention replaces the Convention Between Canada
and Switzerland for the Avoidance of Double Taxation with Respect
to Taxes on Income and on Capital, Schedule VI, S.C.
1976-77, c. 29 (the "1976
Convention"). Paragraph 1 of Article 18 of the
1976 Convention read as follows:
ARTICLE
XVIII
Pensions and
Annuities
1.
Pensions and annuities arising in a Contracting State and paid to
a resident of the other Contracting State may be taxed in the
State in which they arise, and according to the law of that
State. However, in the case of periodic pension or annuity
payments (except payments under an income-averaging annuity
contract), the tax so charged shall not exceed 15 per cent
of the gross amount of the payment.
[8]
Paragraph 1 of Article 18 of the 1998 Convention
reads as follows:
Article 18
Pensions and
Annuities
1.
Pensions and annuities arising in a Contracting State and paid to
a resident of the other Contracting State may be taxed in the
State in which they arise, and according to the law of that
State. However, in the case of periodic pension or annuity
payments (except lump-sum payments arising on the surrender,
cancellation, redemption, sale or other alienation of an annuity,
and payments of any kind under an annuity contract the cost of
which was deductible, in whole or in part, in computing the
income of any person who acquired the contract), the tax so
charged shall not exceed 15 per cent of the gross amount of
the payment. For the purposes of this Article, the term
"pension" does not include payments under the social
security legislation in a Contracting State.
[9]
As may be seen, the present Article 18 provides that
"pensions", which are the subject of Article 18,
do not include payments made under social security legislation.
The 1976 Convention contained no such provision. In 1996
and 1997, the appellant thus paid only 15 percent on the
total amounts received in respect of pensions, Public Service
superannuation and CPP retirement pensions.
[10]
It is interesting to note here that
paragraph 212(1)(h) of the Act was amended
effective January 1996. Old age pensions and retirement pensions
under the CPP were previously not subject to Part XIII
tax, that is, the tax on income from Canada of non-resident
persons.
[11]
Subsections 4(1) and 11(2) of the Public Service
Superannuation Act read as follows:
4(1)
Subject to this Part, an annuity or other benefit specified in
this Part shall be paid to or in respect of every person who,
being required to contribute to the Superannuation Account or the
Public Service Pension Fund in accordance with this Part, dies or
ceases to be employed in the Public Service, which annuity or
other benefit shall, subject to this Part, be based on the number
of years of pensionable service to the credit of that
person.
11(2)
Notwithstanding subsection (1), unless the Minister is
satisfied that a contributor
(a)
has not reached the age of sixty-five years, and
(b)
has not become entitled to a disability pension payable under
paragraph 44(1)(b) of the Canada Pension Plan
or a provision of a provincial pension plan similar
thereto,
there shall be deducted
from the amount of any annuity to which that contributor is
entitled under this Part an amount equal to thirty-five per cent
of
(c)
the average annual salary received by the contributor during the
period of pensionable service described in subsection (1)
applicable to him, not exceeding his Average Maximum Pensionable
Earnings,
multiplied by
(d)
the number of years of pensionable service after 1965 to the
credit of the contributor, not exceeding thirty-five, divided by
fifty.
[12]
Under subsection 11(2) of the Public Service
Superannuation Act, the Public Service superannuation which
the appellant received was reduced when she reached the age of
65, whereupon she was entitled to a retirement pension under the
CPP. It is the payment of that pension which is in issue.
It must be noted that this was not a Public Service
superannuation payment but a CPP retirement pension
payment.
[13]
There is no doubt that the Canada Pension Plan is a piece
of social security legislation. This Court has rendered two
decisions confirming this fact, although the points at issue
therein were different. Those cases are: Trsic v.
Canada, [1998] T.C.J. No. 279 (Q.L.), and Hausmann
Estate v. Canada, [1998] T.C.J. No. 401 (Q.L.).
There is also the Convention on Social Security referred
to by counsel for the respondent.
[14]
It is hard not to sympathize with the appellant over the
difference in taxation of the two retirement pension payments,
but the 1998 Convention is drafted in such a way that the
payment under the CPP is not subject to the
15 percent tax limit. It is subject to the 25 percent
tax provided for in paragraph 212(1)(h) of the
Act.
[15]
The appeal must be dismissed.
Signed at Ottawa, Canada, this
7th day of November 2001.
[OFFICIAL ENGLISH
TRANSLATION]
"Louise
Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
2000-2184(IT)I
BETWEEN:
MARCELLE DUMOULIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 26, 2001, at
Montréal, Quebec, by
the Honourable Judge Louise Lamarre
Proulx
Appearances
For the
Appellant:
The Appellant herself
Counsel for the
Respondent:
Alain Gareau
JUDGMENT
The appeal from the assessment made under the Income Tax
Act notice of which bears number 6105444 and is dated
July 2, 1999, is dismissed in accordance with the attached
Reasons for Judgment.
Signed at Ottawa, Canada, this 7th day of November
2001.
J.T.C.C.
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