Citation: 2013 TCC 2
Date: 20130109
Dockets: 2011-2576(IT)I,
2011-2601(IT)I
BETWEEN:
PAUL TALBOT,
LUCIE NORMANDIN,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1]
These two appeals were
heard on common evidence and they both pertain to the appellants’ 2009 taxation
year.
[2]
The appellant, Paul Talbot,
was an employee of Hydro‑Québec in 2009. Seeing as, at the time, he was
under age 65 but over age 55, he asked his employer for a progressive
retirement under Bylaw No. 734 Hydro-Québec Pension Plan and
section 69.1 of Quebec’s Supplemental Pension Plan Act (hereinafter the
Act).
[3]
The Hydro-Québec Pension
Committee accepted the
appellant’s request on February 4, 2009, and informed the appellant by letter on
February 10, 2009. He was notified that he would therefore be receiving, under
section 5.6 of said By-law, a lump sum payment of $13,691.82 on February 13, 2009.
The letter also indicated that the payment of that amount would reduce future pensions
when he fully retired. The start date of the progressive retirement was December
22, 2008. The appellant’s progressive retirement schedule was four days of work
per week and one day without pay per week.
[4]
The appellant subsequently
received from the Hydro-Québec Pension Fund a T4A slip indicating that a lump
sum payment of $13,691 was paid to him in 2009. The appellant and his spouse
jointly elected to split the pension income in question and each claimed the
pension income tax credit of $2,000. The issue, therefore, is whether the lump
sum payment of $13,691 paid to the appellant in 2009 is pension income eligible
to be split and, therefore, eligible for the pension income credit.
[5]
The applicable
provisions, that is, clause 5.6 of the By-law and section 69.1 of the Act, read
as follows:
By-law
No. 734
5.6
Progressive retirement – Lump sum payment
A member whose earnings are reduced due
to a reduction in the workweek, in application of an agreement entered into
with the employer, and who is 10 years or less younger than the normal
retirement age or who has attained or exceeded this age, is entitled to request
payment of a lump sum benefit, in each year covered by the agreement, the
amount of which is limited by the applicable legislation. The member may not
receive, in the same year, the lump sum payment provided for herein and the
benefit defined in 5.5b and in 5.7. The member’s residual rights
resulting from the payment of such benefit are established pursuant to
applicable legislation.
Supplemental
Pension Plans Act:
69.1. Any active member whose working time is reduced pursuant to an agreement
with his employer and who is 10 years or less under normal retirement age or
who has attained or exceeded that age is entitled, on request, for each year
covered by the agreement, to the payment, in a lump sum, of a benefit equal to
the lowest of the following amounts:
(1) 70% of the
reduction in his remuneration resulting from the reduction in his working time
during the year;
(2) 40% of the
Maximum Pensionable Earnings for the year concerned established pursuant to the
Act respecting the Québec Pension Plan (chapter R-9);
(3) the value of
his benefits under the plan, established on the assumption that he ceases to be
an active member on the date on which he applies for the payment of the
benefit.
Notwithstanding the second
paragraph of section 5, the plan may not contain provisions that are more
advantageous than those contained in the first paragraph. Moreover, an active
member may not receive, in the same year, the benefit provided for in this
section and that provided for in section 67.5 or a pension payable under
section 77 or replacing that pension.
The reduction in the member's
pension resulting from the payment of the benefit provided for in this section
may not exceed the amount of the benefit. Moreover, the remuneration paid
during the period in which the member is entitled to the benefit shall not be
taken into consideration for the computation of the benefits relating to
credited service that does not relate to that period, unless it is to the
advantage of the member.
The
employer shall, within 60 days of the date on which he becomes party to an
agreement referred to in the first paragraph, transmit to the pension committee
the name of every member to whom that paragraph applies.
[6]
It should be noted that
By-law 734 provides that it is possible to enter into an agreement for more
than year. According to the testimony of Ms. Lockhead, head of the
administration of Hydro-Québec’s pension plan, Hydro‑Québec, however, never
signs such an agreement thereunder for more than one year at a time. The
appellant therefore received the payment for three years after making three
separate requests under 5.6. Ms. Lockhead agreed that it could be said to be an
annual periodic payment.
[7]
Clause 5.6 of the
By-law is the only provision that mentions a lump sum payment. The clause
provides that it is “payment of a lump sum benefit, in each year covered by the
agreement.” Section 69.1 of
the Act makes reference to the “payment, in a lump sum, of a benefit.”
[8]
The appellant submits
that the amount he received is a benefit within the meaning of subsection 69.1 of
the Act and that it constitutes a pension. The respondent submits that it is
not a pension, as a lump sum payment is separate and distinct from a pension.
[9]
According to Ms. Lockhead,
clause 5.6 of the By-law does not allow for the payment of a lump sum in the
form of pension. For this, it is necessary to apply the provisions of clause 5.7
of the By-law, which was added on January 1, 2009, and which, to date, has not
yet been applied. Mr. Talbot retired on May 31, 2010, and it was from that moment
that Hydro‑Québec began to pay him a pension, twice per month. Ms. Lockhead
also agreed that it is a benefit in accordance with subsection 69.1 of the Act;
the term “benefit” distinguishes it from a pension and the term “lump sum
payment” is used in clause 5.6 of the By-law for the same reason. The difference
is in the terms and conditions of payment, but the payment could also be said
to be an annual periodic payment.
[10]
To decide whether a
taxpayer who receives pension income in a year may allocate a portion to his or
her spouse, it is necessary to look at sections 56, 60, 60.03 and 118 of the Income
Tax Act (the ITA).
[11]
Section 60.03 sets out
the rules that determine the pension amount that may be attributed to a spouse
for pension income splitting purposes. Said amount is then included in the income
of the pension transferee spouse under paragraph 56(1)(a.2), and is
deducted from the income of the pensioner spouse under paragraph 60(c). Finally,
subsection 118(3) provides that the pension transferee spouse may benefit from
a pension credit determined in accordance with the established formula.
[12]
It is appropriate to
reproduce the following relevant statutory provisions:
60.03
(1) The following
definitions apply in this section.
“eligible pension income”, of an individual for a
taxation year, means the total of
(a) the
eligible pension income (as defined in subsection 118(7)) of the individual for
the year, and
(b) if
the individual has attained the age of 65 years before the end of the year, the
lesser of
(i) the total of all
amounts each of which is a payment made in the year to the individual
(A) out of or under a retirement
compensation arrangement that provides benefits that supplement the benefits
provided under a registered pension plan (other than an individual pension plan
for the purposes of Part LXXXIII of the Income
Tax Regulations), and
(B) in respect of a life annuity
that is attributable to periods of employment for which benefits are also
provided to the individual under the registered pension plan, and
(ii) the amount, if any,
by which the defined benefit limit (as defined in subsection 8500(1) of the Income Tax Regulations)
for the year multiplied by 35 exceeds the amount determined under paragraph (a).
“joint election” in respect of a pensioner
and a pension transferee for a taxation year means an election made jointly in
prescribed form by the pensioner and the pension transferee and filed with the
Minister with both the pensioner’s and the pension transferee’s returns of
income for the taxation year in respect of which the election is made, on or
before their respective filing-due dates for the taxation year.
“pensioner” for a taxation year means an
individual who
(a) receives eligible pension income
in the taxation year; and
(b) is resident in Canada,
(i) if the individual
dies in the taxation year, at the time that is immediately before the
individual’s death, or
(ii) in any other case,
at the end of the calendar year in which the taxation year ends.
“pension income” has the meaning assigned by
section 118.
“pension transferee” for a taxation year means an
individual who
(a) is resident in Canada,
(i) if the individual
dies in the taxation year, at the time that is immediately before the
individual’s death, or
(ii) in any other case,
at the end of the calendar year in which the taxation year ends; and
(b) at
any time in the taxation year is married to, or in a common-law partnership
with, a pensioner and is not, by reason of the breakdown of their marriage or
common-law partnership, living separate and apart from the pensioner at the end
of the taxation year and for a period of at least 90 days commencing in the
taxation year.
“qualified pension income” has the meaning assigned by
section 118.
“split-pension amount” for a taxation year is the
amount elected by a pensioner and a pension transferee in a joint election for
the taxation year not exceeding the amount determined by the formula
0.5A × B/C
where
A is the eligible pension income
of the pensioner for the taxation year;
Bis the number of months in the
pensioner’s taxation year at any time during which the pensioner was married
to, or was in a common-law partnership with, the pension transferee; and
C is the number of months in the
pensioner’s taxation year.
(2) For the purpose of
subsection 118(3), if a pensioner and a pension transferee have made a joint
election in a taxation year,
(a) the
pensioner is deemed not to have received the portion of the pensioner’s pension
income or qualified pension income, as the case may be, for the taxation year
that is equal to the amount of the pensioner’s split-pension amount for that
taxation year; and
(b) the pension transferee is deemed to
have received the split-pension amount
(i) as pension income,
to the extent that the split-pension amount was pension income to the pensioner,
and
(ii) as qualified
pension income, to the extent that the split-pension amount was qualified
pension income to the pensioner.
(3) A pensioner may file
only one joint election for a particular taxation year.
(4) A joint election is
invalid if the Minister establishes that a pensioner or a pension transferee
has knowingly or under circumstances amounting to gross negligence made a false
declaration in the joint election.
118(3) Pension credit
For the purpose of computing
the tax payable under this Part by an individual for a taxation year, there may
be deducted an amount determined by the formula
A
× B
where
A is the appropriate
percentage for the year; and
B is the lesser of
$2,000 and the eligible pension income of the individual for the taxation year.
[13]
The following statutory
provisions are also relevant:
118(7)
(7) Subject to
subsections (8) and (8.1), for the purposes of this subsection and subsection
(3),
“eligible pension income” of
an individual for a taxation year means
(a) if the
individual has attained the age of 65 years before the end of the taxation
year, the pension income received by the individual in the taxation year, and
(b) if the
individual has not attained the age of 65 years before the end of the taxation
year, the qualified pension income received by the individual in the taxation
year;
“pension income” received by
an individual in a taxation year means the total of
(a) the total of
all amounts each of which is an amount included in computing the individual’s income
for the year that is
(i) a payment in respect
of a life annuity out of or under a superannuation plan, a pension plan or a
specified pension plan,
(ii) an annuity payment
under a registered retirement savings plan, under an “amended plan” as referred
to in subsection 146(12) or under an annuity in respect of which an amount is
included in computing the individual’s income by reason of paragraph 56(1)(d.2),
(iii) a payment out of
or under a registered retirement income fund or under an “amended fund” as
referred to in subsection 146.3(11),
(iv) an annuity payment
under a deferred profit sharing plan or under a “revoked plan” as referred to
in subsection 147(15),
(v) a
payment described in subparagraph 147(2)(k)(v), or
(vi) the amount by which
an annuity payment included in computing the individual’s income for the year
by reason of paragraph 56(1)(d) exceeds the capital element of that
payment as determined or established under paragraph 60(a), and
(b) the total of
all amounts each of which is an amount included in computing the individual’s
income for the year by reason of section 12.2 of this Act or paragraph 56(1)(d.1)
of the Income Tax Act, chapter 148 of the Revised
Statutes of Canada, 1952;
“qualified pension income”
received by an individual in a taxation year means the total of all amounts
each of which is an amount included in computing the individual’s income for
the year and described in
(a) subparagraph
(a)(i) of the definition “pension income” in this subsection, or
(b) any of subparagraphs
118(7) qualified pension income (a)(ii) to 118(7) qualified pension
income (a)(vi) or paragraph (b) of the definition “pension
income” in this subsection received by the individual as a consequence of the
death of a spouse or common-law partner of the individual.
118(8)
For the purposes of
subsection (7), “pension income” and “qualified pension income” received by an
individual in a taxation year do not include any amount that is
(a) the amount of
a pension or supplement under the Old Age Security Act or of any similar payment under a law of a province;
(b) the amount of
a benefit under the Canada
Pension Plan
or under a provincial pension plan as defined in section 3 of that Act;
(c) a
death benefit;
(d) the amount,
if any, by which
(i) an amount required
to be included in computing the individual’s income for the year
exceeds
(ii) the amount, if any,
by which the amount referred to in subparagraph (i) exceeds the total of all
amounts deducted (other than under paragraph 60(c)) by the individual
for the year in respect of that amount;
(e) a payment
received out of or under a salary deferral arrangement, a retirement
compensation arrangement, an employee benefit plan or an employee trust; or
(f) a payment
(other than a payment under the Judges Act or the Lieutenant
Governors Superannuation Act) received out of or under an unfunded supplemental plan or
arrangement, being a plan or arrangement where
(i) the payment was in
respect of services rendered to an employer by the individual or the individual’s
spouse or common-law partner or former spouse or common-law partner as an
employee, and
(ii) the plan or
arrangement would have been a retirement compensation arrangement or an
employee benefit plan had the employer made a contribution in respect of the
payment to a trust governed by the plan or arrangement.
118(8.1)
For the purposes of
subsection (7), a payment in respect of a life annuity under a superannuation
or pension plan is deemed to include a payment in respect of bridging benefits,
being benefits payable under a registered pension plan on a periodic basis and
not less frequently than annually to an individual where
(a) the
individual or the individual’s spouse or common-law partner or former spouse or
common-law partner was a member (as defined in subsection 147.1(1)) of the
registered pension plan;
(b) the benefits
are payable for a period ending no later than the end of the month following
the month in which the member attains 65 years of age or would have attained
that age if the member had survived to that day; and
(c) the amount
(expressed on an annualized basis) of the benefits payable to the individual
for a calendar year does not exceed the total of the maximum amount of benefits
payable for that year under Part I of the Old Age Security Act and the maximum amount of benefits
(other than disability, death or survivor benefits) payable for that year under
either the Canada Pension
Plan or a
provincial pension plan as defined in section 3 of that Act.
[14]
The term “annuity” is defined
as follows in subsection 248(1) of the ITA:
“annuity” includes an amount payable
on a periodic basis whether payable at intervals longer or shorter than a year
and whether payable under a contract, will or trust or otherwise.
[15]
The amount of pension eligible
to be split is established in subsection 60.03(1) of the ITA. Under this subsection,
the “split-pension amount” is dependent on a formula that takes into account
the pensioner’s “eligible pension income.” According to subsection 60.03(1), “eligible
pension income” has the same meaning as in subsection 118(7) of the ITA.
[16]
According to subsection
118(7) of the ITA, the “eligible pension income” of an individual who has not
attained the age of 65 consists of “qualified pension income” received by the
individual in the taxation year.
[17]
According to subsection
118(7) of the ITA, the “qualified pension income” received by an individual in
a taxation year means the total of all amounts each of which is an amount
described in subparagraph (a)(i) of the definition “pension income” or any
of subparagraphs 118(7) qualified pension income (a)(ii) to 118(7)
qualified pension income (a)(vi) or paragraph (b); however, these
amounts under qualified pension income are only included if they are received
as a consequence of the death of a spouse. Therefore, in this case, the only
income of the appellant eligible to be split under subsection 60.03(1) of the ITA
is that described in subparagraph (a)(i) of the definition “pension
income,” a payment in respect of a life annuity out of or under a
superannuation or pension plan.
[18]
Subsection 118(8) of
the ITA excludes certain amounts from the pension income defined in
subsection 118(7). Paragraph (e) excludes the following:
a
payment received out of or under a salary deferral arrangement, a retirement
compensation arrangement, an employee benefit plan, an employee trust or a
prescribed provincial pension plan;
[19]
In my opinion, any payment
received out of or under a retirement compensation arrangement is specifically
excluded from the application of the pension income splitting program.
[20]
Clause 5.6 of the By-law
and section 69.1 of the Act specifically refer to the lump sum payment of a benefit.
The benefit must, therefore, be paid in one lump sum. According to the
appellant, the By-law provides that more than one year may be “covered by the
agreement;” his benefit could be qualified as periodic and be eligible to be
split. The fact remains that Hydro-Québec’s policy was to sign only annual
agreements and renew them every year. It is, therefore, a lump sum payment.
[21]
In any event, it is
necessary to rely on the fact that only life annuity income out of or under a
superannuation or pension plan is eligible to be split. It is interesting to
note that the Civil Code of Québec, at articles 2367 and 2371, defines a
contract for the constitution of an annuity and a life annuity.
2367.
A contract for the constitution of
an annuity is a contract by which a person, the debtor, undertakes,
gratuitously or in exchange for the alienation of capital for his benefit, to
make periodical payments to another person, the annuitant, for a certain time.
The capital may consist of immovable or movable property;
if it is a sum of money, it may be paid in cash or by instalments.
2371.
An annuity may be constituted for
life or for a fixed term.
A life annuity is an annuity payable for a duration limited
to the lifetime of one or several persons.
A fixed term annuity is an annuity payable for a duration
determined otherwise.
[22]
In the case at bar, the
annual benefit received by the appellant is not a life annuity such that the lump
sum payment of $13,691 paid for the 2009 taxation year cannot be split
between spouses.
[23]
Furthermore, subsection
118(8) of the ITA specifically excludes the $13,691 payment from the application
of the income splitting program.
[24]
In my view, the annual
payment received by the appellant under the agreement between the appellant and
his employer cannot be pension income eligible to be split between spouses and is
not eligible for the pension income credit.
[25]
Accordingly, the appeals
are dismissed.
Signed at Ottawa, Canada, this 9th day of January
2013.
"Francois Angers"
Translation certified true
on this 21st day
of February 2013.
Daniela Guglietta,
Translator
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