Date: 19990716
Docket: 1999-173-IT-I
BETWEEN:
SHIRLEY E. MANUEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Watson, D.J.T.C.C.
[1] This appeal was heard in Edmonton, Alberta, on June 3,
1999, under the Informal Procedure and is in respect of the
Appellant's 1994, 1995 and 1996 taxation years.
[2] By Notices of Reassessment for 1994, 1995 and 1996
taxation years, the Minister of National Revenue (the
"Minister") included into income superannuation or
pension benefits in the amounts of $11,388 for 1994, $12,468 for
1995 and $5,230 for 1996.
[3] The facts are not at issue. The Appellant married Donald
S. Manuel (the "former spouse") on June 11, 1960; they
separated in May 1985 and ultimately divorced on March 12, 1993.
Throughout the marriage, the former spouse served in the Canadian
Forces retiring in the rank of Lieutenant-Colonel. The Minutes of
Settlement signed on March 12, 1993 provided the former spouse to
pay the Appellant spousal support indefinitely in the amount of
$1,018.03 and to share his pension under the Canadian Forces
Superannuation Act (the "CFSA") on an equal
basis. Paragraph 8 of the Minutes of Settlement reads as
follows:
"8. a) The parties acknowledge that the wife shall share
in the husband's pension benefits with the Canadian Forces
Superannuation Pension Plan as a result, and for the period, of
the parties' cohabitation from June 1960 to May 1985. The
parties further acknowledge that the proposed legislation
pursuant to the Pension Benefits Division Act may enable
the wife to receive a division of the husband's pension
benefits on a lump sum basis.
b) The parties also acknowledge that the husband is presently
receiving pension benefits from his Canadian Forces
Superannuation Pension Plan in the gross amount of $2,743.77 per
month. The parties agree that until the proposed legislation is
enacted, the husband shall pay to the wife from his Canadian
Forces Pension cheque, the sum of $1,018.03 per month
(calculated/as gross amount less federal tax divided by 2)
effective April 1, 1993.
c) The parties agree that the foregoing payments to the wife
shall be taken into account in determining the value of the
husband's pension benefits pursuant to the proposed
legislation. The husband agrees that the foregoing payments to
the wife shall be increased for any cost of living adjustments as
provided by the Canadian Forces Superannuation Act.
d) The husband hereby authorizes the Canadian Forces Pension
authorities to release any and all information with regard to his
pension to the wife.
e) The parties further agree that either party may apply to
this Honourable Court for advice and directions as may be
necessary regarding the division of the pension benefits between
them."
[4] Paragraphs 3 to 6 of the Consent Judgment of the Court of
Queen's Bench of Alberta made on March 12, 1993 reads as
follows:
"3. The Defendant shall pay to the Plaintiff from his
Canadian Forces Pension cheque the sum of $l,018.03 per month,
calculated, as gross amount less federal tax divided by two,
effective April 1, 1993 until the proposed legislation pursuant
to the Pension Benefits Division Act is enacted.
4. The payments pursuant to paragraph 3 herein shall be taken
into account in determining the value of the Defendant's
pension benefits pursuant to the proposed legislation and shall
be increased for any cost of living adjustments as provided by
the Canadian Forces Superannuation Act.
5. If the Defendant dies and the Plaintiff becomes entitled to
any survivor benefits under the Pension Plan, the Plaintiff shall
only be entitled to 50 percent of the survivor benefits. The
Plaintiff is hereby constituted a Trustee for the Defendant's
estate of the Defendant's share of the survivor benefits,
being 50 percent of the survivor benefits. In the event of the
death of the Defendant and a third person becomes entitled to
survivor benefits in the Pension Plan, it is hereby declared that
the third party receiving the survivor benefits be and is hereby
constituted a Trustee for the Plaintiff of 50 percent of
those survivor benefits.
6. The Defendant shall authorize the administrators or the
trustees of his Canadian Forces Pension Plan to provide to the
Plaintiff information requested by her from time to time relating
to the pension benefits accruing thereunder."
[5] The parties have agreed that the only issue in this appeal
is whether the Minister properly included into the income of the
Appellant pension benefits received in the amounts of $11,388 for
1994, $12,468 for 1995 and $5,230 for 1996 in accordance with
paragraph 56(1)(a) of the Income Tax Act (the
"Act").
[6] Paragraph 56(1) of the Act reads in part as
follows:
"56. (1) Amounts to be included in 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
..."
[7] In their excellent and well prepared submissions, counsel
for both the Appellant and the Respondent referred to three
cases: Clarke v. Clarke [1990] 2 S.C.R. 795,
Walker v. the Queen, 95 D.T.C. 753, and Turner v. the
Queen, 1997 Carswell Nat. 84.
[8] I have thoroughly studied the transcript of counsel's
submissions, the documentary evidence and the case law provided
to me.
[9] The Appellant has the onus in this appeal of establishing
on a balance of probabilities that the reassessments were
ill-founded in fact and in law.
[10] Counsel for the Respondent submits that the words of
paragraph 56(1)(a) of the Act clearly apply to the
facts of this appeal. Counsel for the Appellant submits that
paragraph 56(1)(a) is not applicable to the facts of this
appeal because the payments she received from her former spouse
were not pension benefits but rather equalization payments made
in anticipation of a lump sum division of the pension;
furthermore, subsection 8(6) of the CFSA provided that
"... amounts payable under this Part are not capable of
being assigned, charged, attached, anticipated or given as
security ..."
[11] The Clarke case is of great assistance even though
it did not contemplate the meaning to be ascribed to a
"pension benefit" under the Income Tax Act. The
Walker and Turner cases were most interesting even
though they had different results and the facts are not identical
to those of this appeal.
[12] The pension paid to the Appellant's former spouse
under the CFSA were his alone; his entitlement arose from
his 25-year military service. He received the gross amount and
paid the federal taxes on that amount; he remitted to the
Appellant half of the net amount because of the agreement of the
parties under the Minutes of Settlement and because of the Court
Order. The Appellant had no entitlement to the pension benefits
under the CFSA. The agreement of the parties is quite
clear: until such time that the pension could be divided into two
lump sums pursuant to the Pension Benefits Division
Act, the former spouse was to pay the tax on his pension
benefits and pay the Appellant half of the balance. The amounts
received by the Appellant are, in my view, after-tax payments
from a family asset. There was no nexus between the Appellant and
the pension authorities until the legislation was amended.
[13] Considering all of the circumstances of this appeal,
including the submissions of counsel, the admissions and the
documentary evidence in the light of the case law provided to me,
I am satisfied that the Appellant has succeeded in her onus.
Accordingly, the appeal is allowed, with costs, and the
assessments are referred back to the Minister for reconsideration
and reassessment on the basis that the amounts of $11,388 for
1994, $12,468 for 1995 and $5,230 for 1996 are not to be included
in her income for those taxation years as pension benefits under
paragraph 56(1)(a) of the Act.
Signed at Ottawa, Canada, this 16th day of July 1999.
"D.R. Watson"
D.J.T.C.C.
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