Muriel J Stelfox v. Minister of National Revenue, [1985] 1 CTC 2065, 85 DTC 100

Taylor, TCJ:—This is an appeal heard in Calgary, Alberta on December 20, 1984 against an income tax assessment for the year 1982 in which the Minister of National Revenue disallowed as a deduction from other income an amount of $385.67, pointing out that “the contribution made by the appellant to the British Department of Health and Social Security is not an eligible deduction”. The respondent relied, inter alia, upon section 3, Subdivision A and E of Division B of the Income Tax Act, RSC 1952, c 148, as amended by SC 1970-71-72, c 63, s 1 applicable to the 1982 taxation year of the appellant.

This is a rather unusual case, and both parties agreed there was only limited enlightenment to be found in the jurisprudence, although counsel for the respondent did provide both the Court and the appellant with copies of:

Charles E Seley v MNR, [1972] CTC 243; 62 DTC 565, Renée Carmen Louise Ledwidge v MNR, [1971] CTC 254; 71 DTC 188, Johannes Braaksma v MNR, [1981] CTC 2883; 81 DTC 741.

The notice of appeal reads:

Historically, this case was precipitated by the fact that Miss Stelfox returned to Canada from England to take up permanent residence here on January 2, 1981. Prior to leaving England she was informed by the Taxation Department of the UK that if she remitted an assessed amount each year for the next two to four years she could, in turn, receive a full British pension at age 60.

Due to the reciprocal pension agreement between Canada and The UK this pension will, when received, be fully taxable in the taxpayers hand in the same way as an RRSP would.

This appeal is based on the following:

(a) The tax department allows reasonable deductions to arrive at net income for items which will be fully taxable upon receipt. Section 146(5.2) specifically mentions foreign pensions as being similar to CPP and not the same as registered pension plans which must be maintained in Canada. Since premiums to CPP are deductible in as much as they are assessable by the government the premiums to this “similar” plan should be deductible.

(b) Nowhere in the Act does it specifically prohibit claiming such premiums.

(c) Contributions made by a resident Canadian Citizen to the United States Social Security Plan, (another plan similar to CPP) are deductible in as much as such payments are assessed as a foreign tax credit and any excess is deducted as “other deductions” before net income.

(d) Items such as life insurance etc which are purchased with after tax dollars are not taxed with the exception of interest earned, yet this pension will be automatically taxed upon receipt. All premiums should therefore be deductible.

(e) Payments made to this government plan do meet the criteria defining premiums as found in section 146(l)(f).

(f) A further recommendation regarding this problem is that all contributions be tied to the RRSP limitations of 20 per cent, $3,500.00 or $5,500.00 whichever might be applicable.

(g) Also recommended is that a clarification be made as to whether or not this pension, upon receipt, would be allowable as a rollover to an RRSP since it is recorded on Line 11.

For the Minister the situation was:

. . . the deduction for a pension contribution to the British Department of Health and Social Security was properly disallowed as it is not listed as one of the eligible deductions in Subdivision A and E of Division B of the Income Tax Act and is not the subject of an article in the Canada — United Kingdom Tax Convention.

Essentially, the position of the appellant was that the amount at issue was not materially distinct from similar contributions made and contributed in Canada. Further since the entire amount would be taxable when received, it was only equitable that the deduction claimed should be allowed.

It seemed quite clear that there was no provision for the specific deduction of this amount, but the Court reserved the decision, because two interesting points arose during the hearing — first, whether the payment at issue could be considered in some way a contribution towards a revenue-producing property — the right to a pension, and therefore deductible; the second, the significance of the phrase in paragraph 146(5.2)(c) — “any similar plan of a country other than Canada’’.

On the second point above, while the significance of the phrase quoted from paragraph 146(5.2)(c) is not clear to me, it could not apply to this appeal even in its most generous interpretation, because that section works to indicate limits of contribution deductible, it does not reflect a deduction of itself.

With regard to the first point, I am unable to conceive of the accumulated contributions of this appellant to the British Department of Health and Social Security, as some form of investment from which interest or dividends are to be earned — in that sense as a property. Even if a “property”, I would follow the reasoning in Braaksma, supra, with regard to this aspect of the matter. It appears to me that the amount is more similar to the payment of insurance premiums, and even so, such similar payments in Canada (RRSP, CPP and UIS for example) are only deductible when specific provision is made in the Act for such a claim.

As to the general “equity” argument, while I appreciate the difficulty perceived by the appellant, I can only assume that this must be one of the many anomalies which arise out of any bilateral tax agreement for which no provision is made, on the expectation that the opposing inadequacies will cancel themselves out on a national basis.

The appeal is dismissed.

Appeal dismissed.