REASONS
FOR JUDGMENT
Campbell J.
[1]
The Appellant is appealing a reassessment by the
Minister of National Revenue (the
“Minister”) in respect to his 2008 taxation
year.
[2]
In filing his income tax return for that year,
the Appellant reported net self-employed professional income of $161,303.
Because he believed that these earnings were exempt from Canada Pension Plan
contributions, he did not include contributions on his 2008 tax return.
[3]
The Appellant retired as a partner from Deloitte
& Touche LLP on May 31, 2007 at the age of 62 years pursuant to a
partnership agreement he had with the firm. From June 1, 2007 onwards and
specifically during the 2008 taxation year, he received a share of the
partnership income. The statement of partnership income, Form T5013, from
Deloitte & Touche LLP for the 2008 taxation year identified the Appellant as
membership status code “1”, being a specified member who is not a limited partner. The
Appellant admits he received this amount from the firm pursuant to subsection 96(1.1)
of the Income Tax Act (the “ITA”). He characterized this
amount as a retiring allowance.
[4]
The Appellant’s return was initially assessed on
September 11, 2009 to include Canada Pension Plan contributions payable
of $4,098.60 together with corresponding non-refundable tax credits and
deductions. At a meeting of retired partners in 2013, the firm advised the
Appellant, along with other partners, that they had been incorrectly assessed
for these contributions. However, the time for objecting to the assessment
under the ITA had already passed. As a result, the Appellant filed a T1
adjustment request on June 24, 2013 for a refund. Initially, the Appellant was
advised that he could not seek an adjustment for the 2008 taxation year and
that he might instead be eligible for taxpayer relief. That application was
denied.
[5]
On May 20, 2014, a Notice of Reassessment was
issued that resulted in the deletion of the non-refundable tax credit and the
deduction and denied the refund of excess contributions due to the limitation
period set out in subsection 38(4) of the Canada Pension Plan (the “CPP”).
The Appellant objected to this reassessment on August 14, 2014. This resulted
in a variation of the reassessment on December 22, 2015 to reinstate the non-refundable
tax credit and deduction in respect to the contributions payable under the CPP.
It is from this reassessment that the Appellant has appealed and it is properly
before this Court. The Appellant has asked this Court to order a refund of the
amount he paid as Canada Pension Plan contributions.
[6]
Therefore, the first issue that must be addressed
is whether this Court has jurisdiction to grant the type of relief that the
Appellant is requesting. In other words, can I order a refund of contributions
paid under the CPP. The short answer is that I have no jurisdiction to
order such a refund. Because this Court is a statutory court, the type of
relief it can grant is determined pursuant to the relevant legislation. The
Court’s jurisdiction is set out in section 12 of the Tax Court of Canada Act
together with subsections 169(1) and 171(1) of the ITA. These provisions
allow this Court to either confirm the Minister’s assessment or vary or vacate
it and refer it back to the Minister. Determining the correctness of an
assessment in respect to a taxpayer’s tax liability is where this Court’s
jurisdiction ends. Consequently, the manner in which the Minister deals with
refunds has been excluded by legislation from this Court’s jurisdiction. This
view has been confirmed in a number of cases (See 3735851 Canada Inc. v The
Queen; 2010 TCC 24, 2010 DTC 1048; Strong v The Queen, 2006 TCC 38,
2006 DTC 2197; Paradis v The Queen, 2004 TCC 676.
[7]
The second issue, concerning the correctness of
the underlying assessment, is properly before this Court for consideration.
[8]
Basically, the Appellant’s argument is that the
net professional income which he reported on his 2008 tax return was earned
pursuant to subsection 96(1.1) of the ITA and consequently, it is
exempt from Canada Pension Plan contributions.
[9]
Subsection 96(1.1) states:
Allocation of
share of income to retiring partner
(1.1) For the purposes of subsection 96(1) and sections 34.1, 34.2, 101, 103
and 249.1,
(a) where the principal activity of a partnership is carrying on a
business in Canada and its members have entered into an agreement to allocate a
share of the income or loss of the partnership from any source or from sources
in a particular place, as the case may be, to any taxpayer who at any time
ceased to be a member of
(i) the partnership, or
(ii) a partnership that at any time has ceased to exist or would, but for
subsection 98(1), have ceased to exist, and either
(A) the members of that partnership, or
(B) the members of another partnership in which, immediately after that
time, any of the members referred to in clause 96(1.1)(a)(ii)(A) became members
have agreed to make
such an allocation
or to the taxpayer’s
spouse, or common-law partner, estate or heirs or to any person referred to in
subsection 96(1.3), the taxpayer, spouse, or common-law partner, estate, heirs
or person, as the case may be, shall be deemed to be a member of the
partnership; and
(b) all amounts each of which is an amount equal to the share of the
income or loss referred to in this subsection allocated to a taxpayer from a
partnership in respect of a particular fiscal period of the partnership shall,
notwithstanding any other provision of this Act, be included in computing the
taxpayer’s income for the taxation year in which that fiscal period of the
partnership ends.
[10]
This provision deals with the allocation of a
share of income or loss paid to a retiring partner in respect to the activities
of a partnership. It provides that, when a partnership allocates a share of its
income to a retiring partner, that amount is to be included in computing the
partner’s income for that year for the purposes of assessing net tax in that
year. The Appellant reported his share of the partnership income as
professional income. Subsection 96(1.1) makes no mention of Canada Pension
Plan contributions in relation to such professional income allocation.
However, sections 13 and 14 of the CPP reference a taxpayer’s total self-employed
earnings in the calculation of contributory earnings for the purposes of the CPP.
Section 13 sets out several exceptions to the general rule that the amount of a
taxpayer’s contributory self-employed earnings in any year will be the amount
of the taxpayer’s self-employed earnings. Section 13 makes no reference to subsection
96(1.1) of the ITA. Section 14 deals with the calculation of the amount
of the self-employed earnings of a taxpayer in any year for the purposes of section
13. Pursuant to section 14, the amount of self-employed earnings, which is used
to calculate contributory earnings under section 13, is the amount of a
taxpayer’s income for a year from all businesses less any losses.
[11]
The Appellant’s professional income amount does
not fall within any of the exceptions listed in section 13 of the CPP.
Those exceptions relate to an individual being under the age of 18 years, or
over the age of 70 years or 65 years and able to exempt oneself from contributions,
or in receipt of a provincial pension plan due to disability. The Appellant was
62 in 2007 when he retired and turned 63 years old in the 2008 taxation year
which is under appeal. His income, by his own admission, is business or professional
income in respect to the 2008 taxation year under the ITA. Although the
Appellant argued that this income should be characterized as a retiring
allowance and therefore not subject to Canada Pension Plan contributions,
the amount does not fall within the definition of retiring allowance set forth
in subsection 248(1) of the ITA:
248(1) In this Act,
…
retiring allowance means an amount (other than a superannuation or pension benefit,
an amount received as a consequence of the death of an employee or a benefit
described in subparagraph 6(1)(a)(iv)) received
(a) on or after retirement of a taxpayer from an office or employment in
recognition of the taxpayer’s long service, or
(b) in respect of a loss of an office or employment of a taxpayer, whether
or not received as, on account or in lieu of payment of, damages or pursuant to
an order or judgment of a competent tribunal,
by the taxpayer or,
after the taxpayer’s death, by a dependant or a relation of the taxpayer or by
the legal representative of the taxpayer;
[12]
Since this definition specifically references
retirement from an office or employment, the Appellant’s income cannot be a
retiring allowance. He was a partner at Deloitte & Touche LLP earning
business or partnership income. He retired in 2007 as a partner of that firm.
His income was not from an office or employment as referenced in the definition
of retiring allowance. After his retirement, he continued to receive a portion
of the partnership income pursuant to his partnership agreement. Since this
income falls into the category of business or professional income pursuant to
subsection 96(1.1) of the ITA, the Minister was correct in including it
in the calculation of his self-employed earnings for the purposes of sections
13 and 14 of the CPP.
[13]
The Appellant relied on three documents to
support his argument. The first document was the January 17, 1996 CRA View
document titled 9527946, Retired Partner, Canada Pension Plan. The Appellant
relied specifically on the following paragraph:
Income allocated
pursuant to subsection 96(1.1) of the Act is business income but for the
purposes of the CPP provision is not considered to be from a business carried
on by the retired partner and consequently such a partner is not required to
contribute to CPP solely as result of receiving such income.
[14]
Canada Revenue Agency (“CRA”) advance
rulings, such as this, are given in response to specific questions from a
taxpayer. Without the background and the specific questions, there is no
context provided in which CRA made this particular ruling. But apart from this
problem, administrative documents produced or advice given by CRA do not bind
this Court. There is an abundance of caselaw to support that conclusion. They
are not determinative because the issue, being the validity of the assessment,
is to be resolved in accordance with the law. [see Main Rehabilitation Co. v
The Queen, 2004 FCA 403, 2004 DTC 6762; Butler v The Queen, 2016 FCA
65, 2016 DTC 5034; Hahn v The Queen, 2011 FCA 282, 2011 DTC 5166; Brousseau
Succession v The Queen, 2012 TCC 390, 2013 DTC 1038; Klassen v The
Queen, 2007 FCA 339, 2007 DTC 5612]. While such documents may be helpful to
the Court, they will never be dispositive of the issue before the Court. In
some instances, they will not assist the Court at all where the relevant
legislation does not support a conclusion that CRA has advanced. Put another
way, while the CRA view may be the most reasonable view to take, it is not
justified when the relevant legislation is applied.
[15]
The Appellant also relied on the Statement of
Partnership Income, Form T5013. Although he referenced the membership code
listed in the form, there was nothing further, either in that form or in his
evidence, that converted his earnings into non-pensionable earnings. In fact, this
form characterizes his earnings as a retired partner as professional income
which is to be included in the calculation of contributory earnings pursuant to
sections 13 and 14 of the CPP.
[16]
Lastly, the Appellant relied on an opinion of
Deloitte & Touche LLP, contained in a letter dated June 7, 2013, that his
income was exempt from Canada Pension Plan contributions as it was a
retiring allowance under subsection 96(1.1) of the ITA. Following my
preceding analysis this interpretation of the relevant legislation is simply not
correct.
[17]
Finally, even if I had agreed with the
Appellant’s argument and his interpretation of the provisions, I would still be
required to dismiss his appeal because of the wording contained in subsection
38(4) of the CPP:
Refund of excess — self-employed person
(4) If a
person has paid, on account of the contributions required to be made by the
person for a year in respect of the person’s self-employed earnings, an amount
in excess of the contributions, the Minister
(a) may refund that part of the amount so paid in excess of the
contributions on sending the notice of assessment of the contributions, without
any application having been made for the refund; and
(b) must
make such a refund after sending the notice of assessment, if application is
made in writing by the contributor not later than four years — or, in the case
of a contributor who, in respect of a disability pension, is notified after
September 1, 2010 of a decision under subsection 60(7) or 81(2), a decision
under subsection 82(11) or 83(11) as those subsections read immediately before
their repeal or a decision under section 54 or 59 of the Department of Employment
and Social Development Act, 10 years — after the end of the year.
[18]
Paragraph 38(4)(a) gives the Minister discretion
to refund excess contributions in respect of self-employed earnings without any
application by the contributor. Where there has been an application for a
refund under paragraph 38(4)(b), the Minister must make the refund provided
that the application has been made in writing not later than four years after
the end of the year. The Appellant argued that he is within the four year period
as that period started to run from the date of the assessment which was on
September 11, 2009. The Respondent argued that the four year period commences
at the end of the year in question, being the 2008 taxation year and not when
the Appellant learned of his assessment. Counsel relied on the decision in Tharle
v The Queen, 2011 TCC 325, [2011] 5 CTC 2187, where the Court concluded
that the four year limitation period set out in paragraph 38(4)(b) commences
from the year end in question and not with the assessment. I agree with the
conclusion reached in Tharle that this four year timeline to demand the
Minister provide a refund of excess CPP contributions begins to run at
the end of the calendar year in which those Canada Pension Plan
contributions were owed.
[19]
Subsequent to the conclusion of the hearing, the
Appellant submitted several documents which he intended to produce at the
hearing for the Court’s consideration but had neglected to do so. These
included a T1 adjustment request for the Appellant’s 2009 taxation year
regarding a refund of excess Canada Pension Plan contributions and a
letter dated February 3, 2014 from CRA advising that Canada Pension Plan
contributions for 2009 had been deleted.
[20]
These documents are in respect to an entirely
different taxation year than the 2008 taxation year which is before me. Aside
from this, the documents are not properly before me. The Appellant has not
requested me to reopen the hearing but has asked that I give consideration to
these documents.
[21]
In the absence of a provision in the Informal
Procedure Rules governing the admission of new evidence, I refer to
subsection 138(1) of the Tax Court of Canada Rules (General Procedure)
which provides:
138 (1) The judge may reopen a hearing before judgment has been pronounced for
such purposes and upon such terms as are just.
[22]
In 671122 Ontario Ltd. v Sagaz Industries
Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, the Supreme Court of Canada set
out a two part test to assist courts in determining whether the discretion to
reopen a hearing to admit new evidence should be exercised. This Court
confirmed that test in Benaroch v The Queen, 2015 TCC 91. The first part
of the test is whether the new evidence would have changed the result. I have
already concluded that, since the new evidence relates to an adjustment in
respect to the Appellant’s 2009 taxation year, it is not relevant to my
determination of the issue for the 2008 taxation year nor would it have changed
my analysis in respect to the relevant legislative provisions. The second prong
of the test is whether the new evidence could have been obtained prior to the
hearing by the exercise of reasonable diligence. The Appellant, in his letter
to the Court subsequent to the hearing, indicated that he was in possession of
the documents at the time of the hearing. Consequently, the Appellant will not
be permitted to reopen the hearing to introduce these documents and in light of
my comments I am not giving further consideration to these documents in my
reasons.
[23]
For all of these reasons, the appeal is
dismissed without costs.
Signed at Ottawa, Canada, this 23rd day of March 2017.
“Diane Campbell”
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