[OFFICIAL ENGLISH TRANSLATION]
Date: 20010921
Docket: 2000-3978(IT)I
BETWEEN:
GHISLAINE A. CÔTÉ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rip, J.T.C.C.
[1] The appellant is appealing from
the assessment of the Minister of National Revenue (the
"Minister") for the 1999 taxation year. The issue is
whether the Minister correctly computed tax payable under section
180.2 of the Income Tax Act (the "Act")
for the 1999 taxation year.
[2] The facts are not in dispute. The
appellant, Ms. Côté, had been employed by her former
employer since 1976. She stopped working on April 28, 1995, as a
result of medical problems. She underwent several medical
procedures. On June 25, 1997, one of her doctors gave her a
certificate authorizing her to return to work on June 26,
1997.
[3] Before the appellant's return
to work, her employer required that she be examined by two
doctors retained by the employer, and those doctors found that
she was not fit to return to work. The appellant filed with her
union a grievance and a request that she be reinstated. After a
medical adjudication, the employer reinstated the appellant in
her position with all her rights and privileges, retroactive to
July 4, 1997.
[4] After working for about a month,
the appellant reached an agreement with her employer that she
would resign and the employer would pay her a lump sum of
$63,201.21. This amount was received as remuneration from her
employment in 1999. Of the $63,201.21, $17,785.32 related to 1997
and $39,043.37 to 1998.
[5] In her tax return for the 1999
taxation year, the appellant indicated an amount of $99,741.86 as
net income before adjustments. (Her "total income" was
$106,937.01.) This last amount includes all amounts paid by her
former employer. In computing her total income, she included the
old age security pension amount that she had received, namely,
$4,959.51, but in determining her net income for the 1999
taxation year, she deducted $4,959.51 from her net income before
adjustments ($99,741.86) as a social benefits repayment.
[6] In assessing the appellant for the
1999 taxation year, the Minister computed, under section 180.2 of
the Act, a "clawback" tax on the old age
security benefits since the appellant's net income before
adjustments exceeded $53,215. Counsel for the appellant explained
in the Notice of Appeal that [TRANSLATION] "the 1999 income
is not, in reality, $106,937.00 but $50,108.82 after deduction of
the amount of $56,228 (representing the backward averaging to
1997 of $17,785.52 in salary and to 1998 of $39,043.37 in
salary).[1] The
amount of $50,108.82 is below the $53, 215 cap for the 1999
taxation year."
[7] In her Notice of Appeal, the
appellant states that the action by officials of the Canada
Customs and Revenue Agency ("CCRA") is [TRANSLATION]
"unjust, unfair and not according to law". Her counsel
does not rely on any case law. He bases his argument primarily on
the general rules of interpretation of the Act as set out
in the work of Professor P.-A. Côté.[2] Taking recent decisions of the
Supreme Court of Canada as his basis, that author summarizes the
contemporary doctrine of interpretation of tax legislation as
follows:
In the Notre-Dame de Bon-Secours case [[1994] 3 S.C.R. 3],
Gonthier J., for the Court, set out the principles which are to
govern interpretation of tax legislation. There are three
propositions: 1) "the interpretation of tax legislation
should follow the ordinary rules of interpretation"; 2) the
choice between a strict or liberal reading of the texts must not
be guided by presumptions favourable to the State or the
taxpayer, but by reference to the goal which underlines the
provision under interpretation; 3) "only a reasonable doubt,
not resolved by the ordinary rules of interpretation, will be
settled by recourse to the residual presumption in favour of the
taxpayer."
[8] Regarding each of the above three
propositions, counsel for the appellant referred the Court to the
following excerpts at pages 495-497:
. . . However, two principles can be drawn from the present
case law of the Supreme Court. First, the fact that the literal
meaning is clear, that it is free of any ambiguities or
imprecisions, does not constitute a justifiable reason to ignore
the objectives of the provision: these must always be borne in
mind, as a contextual element. Second, when establishing the
meaning of a rule of tax law, arguments drawn from the objectives
of a provision could tip the balance where the literal meaning is
obscure; on the other hand, their weight would be noticeably
reduced in the presence of a text whose literal meaning, when
analysed contextually, appears plain.
. . .
. . . If a choice is to be made between giving a tax provision
a strict or wide meaning, one must not ask which interpretation
would be beneficial to whom, but rather which interpretation
would best meet the objectives of the provision . . .
.
. . . Interpretation of a provision which grants an exemption
or deduction must be done so as to provide it with its full
meaning, in light of the objectives sought by the legislature. If
the usual rules of interpretation used to arrive at the meaning
of the provision leave a serious doubt, the provision of
exemption or deduction, as is the case for a provision which
imposes a tax, will be interpreted in favour of the taxpayer.
[9] Relying primarily on the excerpts
reproduced above, counsel for the appellant concluded, without
actually interpreting sections 110.2 and 180.2 of the Act,
that it would be unfair to make the appellant pay the tax in
question.
[10] The interpretation of section 180.2 was
considered by Marceau J.A. of the Federal Court of
Appeal in The Queen v. Swantje.[3] Mr. Swantje was the recipient of a
pension from Germany that was exempt from taxation under the
Canada-Germany Income Tax Agreement (1981). The pension was
included in the respondent's income under paragraphs
56(1)(a) and 81(1)(a) of the Act, but was
deducted under paragraph 110(1)(f) of the Act in
computing his taxable income. The treaty exemption was thus
respected. The Canadian pension was, however, subject to tax
under section 180.2 of the Act.[4]
[11] It would be appropriate to analyse the
relevant sections in the manner suggested by Professor
Côté. In fact, the proper interpretation of section
180.2 was considered by Marceau J.A. in the decision of the
Federal Court of Appeal in Swantje, at page 6635:
. . . The proper approach must be a functional one, and the
scheme must be considered as a whole, taking into account the
intent of the legislation, its object and spirit and what it
actually accomplishes (cf. Stubart Investments Limited v. The
Queen, 84 DTC 6305 (S.C.C.)).[5]
[12] What is the literal meaning in context
of the phrase "the amount that would be the individual's
income under Part I"?
[13] The definition of the term
"adjusted income" refers to the "amount that would
be . . . income under Part I" and not to the
individual's "taxable income". There is an
important distinction between "taxable income" and
"adjusted income". Judge Lamarre Proulx commented in
Poulin v. R.[6] that "income" and "taxable income"
are different concepts and are governed by specific statutory
provisions. However, Division B under which income is computed
and Division C under which "taxable income" is
computed are both to be found in Part I of the Act. The
question is whether the reference to the "amount that would
be the individual's income under Part I" in the
definition of "adjusted income" is a minor imprecision
on the part of Parliament or whether it is a specific reference
to "income" as determined under Division B of Part I of
the Act. It is clear that it is the second proposition
that is correct in law.
[14] What is the purpose of sections 110.2
and 180.2 of the Act? Concerning the purpose of section
180.2, Marceau J.A. wrote the following in Swantje,
supra, at page 6635:
. . . What Part I.2 of the Act, completed by paragraph
60(w), realizes is the repayment of social benefits by
taxpayers who, because of their higher incomes, have a lesser
need of them. [Emphasis added.]
[15] Normally, Ms. Côté's
income was modest. The payment of the lump sum by her employer in
1999, which made up for her very low income in 1997 and 1998,
created an anomaly in the income received by the appellant. It
could therefore be claimed that it would be contrary to the
purpose of the legislation to apply section 180.2 to Ms.
Côté. Moreover, the purpose of section 110.2 is,
inter alia, to eliminate the ups and downs in a
taxpayer's income received and to spread a lump sum out over
the years to which it relates. However, the purpose of section
180.2 is to put a cap on the amounts of social benefits that can
be received, in this case by the appellant, for a taxation year.
Since the old age pension is primarily based on need, the formula
in Part I.2 is based on the amount actually received, that is to
say, in the case at bar, that actually received by the appellant
in 1999, and not on a notional amount that includes the deduction
provided for in section 110.2.
[16] Does the residual presumption in favour
of the taxpayer apply in the instant case? In considering the
residual presumption in favour of the taxpayer, Professor
Côté wrote as follows at page 498:
If the taxpayer receives the benefit of the doubt, such a
"doubt" must nevertheless be "reasonable". A
taxation statute should be "reasonably clear". This
criterion is not satisfied if the usual rules of interpretation
have not already been applied in an attempt to clarify the
problem. The meaning of the enactment must first be ascertained,
and only where this proves impossible can that which is more
favourable to the taxpayer be chosen. The presumption in favour
of the taxpayer is now merely a subsidiary one.
[17] Counsel for the appellant did not try
through use of the ordinary rules of interpretation to resolve
the doubt, if any, regarding the interpretation of the definition
of "adjusted income". Thus, it is unlikely that the
residual presumption in favour of the taxpayer applies in the
instant case.
[18] I must conclude that the phrase
"the amount that would be the individual's income under
Part I" in section 180.2 refers to "income" as
determined by Division B of Part I of the Act. The
deduction provided for in section 110.2 should not be taken into
consideration in computing the appellant's "adjusted
income", as section 110.2 refers to "taxable
income". The appeal is therefore dismissed, and Ms.
Côté will have to pay tax totalling $4,959.51 under
section 180.2 of the Act.
Signed at Ottawa, Canada, this 21st day of September 2001.
J.T.C.C.
Translation certified true
on this 26th day of June 2002.
Erich Klein, Revisor
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