Craig D Nicks v. Minister of National Revenue, [1979] CTC 3168, 79 DTC 931

Delmer E Taylor:—This is an appeal heard in the City of London, Ontario, on November 5, 1979, against an assessment in which the income tax payable for the year 1977 was recalculated after the Minister of National Revenue had adjusted the reported taxable income of the appellant in the following manner:

You have been allowed a Canada/Quebec Pension Plan overpayment of $9.99 as a credit against total tax payable. Your revised “Total Credits” are $223.21. Your deduction for CPP/QPP contributions has been adjusted accordingly.

Your claim for Ontario Tax Credit has been adjusted to agree with the information submitted, the credit is $198.22. (Italics mine)

The result was that the taxpayer owed a total of $89.60 in income tax ($1.10 federal and $88.50 provincial) whereas, at the time of filing, he had reported his taxable income as $1,673.44— which is below the taxable level for either government. The income tax assessed against the appellant resulted from the recalculation inherent in the addition to his taxable income of the overpayment of Canada Pension Plan (CPP) through payroll deductions. In assessing the appellant, the Minister of National Revenue relied, inter alia, upon sections 3, 5 and paragraph 8(1)(l) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

In the year in question, the appellant’s employer deducted an amount of $72.65 from his income. This showed on the T-4 wage form, and was deducted by the appellant under “line 25” in preparing his income tax return. In addition to certain other deductions, the taxpayer contributed an amount of $400 to a registered home ownership savings plan (RHOSP). The taxpayer’s position is simply that had he been aware that there would be a change in the deduction allowed for CPP, he would have contributed a greater amount to the RHOSP, thereby ensuring his non-taxable status. In practical terms, the taxpayer has received a “credit” for overpayment of CPP of $9.99 and has become liable thereby for income tax of $89.60—in his mind, hardly a profitable exchange.

That the result of this situation is detrimental to the taxpayer from a financial viewpoint is not the crux of the issue before the Board. Nor is what the taxpayer “might have done” of any relevance. The only consideration to which the Board has addressed itself is whether or not the procedure followed by the Minister in assessing the taxpayer is correct, according to the Income Tax Act. It is trite to say that since the relevant paragraph of the Act (8(1 )(l)) is an exempting provision, the taxpayer must put himself directly and squarely therein, and that of course summarizes the position of the respondent.

I presume that the amounts noted above, taken from the assessment notice, were understandable to both parties since no details of the calculations were provided at the hearing. However, if the Board properly comprehends the situation, the following mathematical procedures occurred in order to initiate the assessment under review, although in certain places differences of one or two cents may show up, presumably due to the rounding of amounts in the computerized calculation process:

Therefore, the Minister did not simply credit the $9.99 overpayment of CPP to the taxpayer in determining the refund as indicated on the assessment notice—he adjusted the entire income tax return to reflect the overpayment as income (a reduction in the deduction taken), according to the schedule relating to such contributions, not evident in the income tax form. Line 25 of the income tax form permits the deduction as follows (italics mine):

Canada or Quebec Pension Plan Contributions (Guide Item 19) Contributions through employment from Box D on all T4 slips (maximum $151.20)

Item 19 in the guide for the year 1977, as it relates to this appeal, reads:

Your required contribution under the Canada Pension Plan or Quebec Pension Plan may be claimed as a deduction in computing “Net Income’’. The amount deductible will be the contributions withheld by your employers as indicated on your T4 slips, plus contributions payable on self-employed earnings, less any portion of your contribution in excess of $151.20.

If you contributed through your employment, and had no self-employed earnings, enter on line 25 on page 2 the amount from Box (D) on all T4 slips up to the maximum of $151.20. Any portion of your contribution in excess of this maximum should be entered on line 75 on page 4. In some circumstances you may be entitled to a refund even though your contributions were less than the maximum of $151.20. If so, the Department’s computer system will calculate the amount payable based on your income and any refund due will be reflected on your Notice of Assessment.

For the 1976 taxation year, the same information from the guide read: (Item 24)

Your required contribution under the Canada Pension Plan or Quebec Pension Plan may be claimed as a deduction in computing “Net Income’’. The amount deductible will be the contributions withheld by your employers as indicated on your T4 slips, plus contributions payable on self-employed earnings, less any overpayment of contributions to be refunded.

If you contributed through your employment, and had no self-employed earnings, please determine whether you have overpaid your contribution by completing the “Calculation of Canada Pension Plan Overpayment” at the top of page 3 of the return.

Your required contribution, which is shown on the Contribution Tables on pages 42 to 44, is 1.8% of “Earnings Subject to Contribution”.

It is evident, to this point at least, that the taxpayer has followed explicitly the instructions available. However, the income tax return form and the guide must be ultimately based upon the Income Tax Act, and paragraph 8(1)(l) of the Act under which the appellant must qualify states in part:

(there may be deducted). . .

any amount payable by him as an employee for the year as a contribution under the Canada Pension Plan or under a provincial pension plan as defined in section 3 of the Canada Pension Plan;.

The Canada Pension Plan Act deals with “contributions” from an employee in the following manner:

Part I —DIV A—CONTRIBUTIONS PAYABLE—(Para 15-086)

sec 8. AMOUNT OF EMPLOYEES CONTRIBUTION.—(1) Every employee who is employed by an employer in pensionable employment shall, by deduction as provided in this Act from the remuneration for the pensionable employment paid to him by such employer, make an employee’s contribution for the year in which the remuneration is paid to him of an amount equal to 1.8% of

(a) his contributory salary and wages for the year paid by such employer, minus such amount as or on account of his basic exemption for the year as is prescribed, or

(b) his maximum contributory earnings for the year, minus such amount, if any, as is determined in prescribed manner to be his salary and wages paid by such employer on which a contribution has been made for the year by the employee under a provincial pension plan,

whichever is the lesser. (1974-75-76, c 4, s 4.)

CANADA PENSION PLAN REGULATIONS—PART I—(Para 16-107)

102. Computation of Employee’s Contribution.—(1) Subject to this Part,

(a) the amount of the employee’s contribution in respect of a payment of remuneration that consists of or includes ordinary remuneration for a pay period is 1.8% of the remainder of

(i) such payment of remuneration before any deduction of any kind therefrom,

minus

(ii) the amount for the pay period, determined in accordance with this section, as or on account of his basic exemption for the year; and

(b) the amount of the employee’s contribution in respect of a payment of remuneration that does not consist of or include ordinary remuneration is 1.8% of the amount of such payment of remuneration before any deduction of any kind therefrom.

and (Para 16-108a) of the same section:

(3) Notwithstanding paragraph (a) of subsection (1), the amount of the employee’s contribution in respect of a payment of remuneration that consists of or includes ordinary remuneration may, instead of being determined under that paragraph, be determined

(a) except with respect to an employee employed on a non-continuous basis, as provided in Schedule A, if there is an appropriate table in that Schedule for the pay periods and the amount of the payment of remuneration is provided for in such table; and . . .

Schedule A referenced immediately above is the contribution table available at the District Taxation Office from which the amount of $72.65 was determined by the appellant’s employer as far as the Board is aware.

The issue then becomes whether or not the “contribution” referred to in paragraph 8(1)(l) of the Income Tax Act is restricted to the 1.8% referenced in paragraph 102(1)(a) of the Canada Pension Plan Regulations quoted above, which is the effect of the Minister’s assessment; or whether it can include the deduction permitted according to Schedule A claimed by the appellant. Since the responsibility for deducting the contribution rests with the employer, I can only conclude that the permissive term “may ... be determined” in paragraph 16-108a (supra) refers to the employer. It follows, therefore, in my view that the employee is entitled to use the amount so deducted to his benefit in the preparation of his income tax return.

It would appear in the instant appeal (following the information in the Income Tax Guide (supra)) that the Minister of National Revenue has decided to refund such “overpayment” (at best a questionable term) and the Board makes no comment on that decision of the Minister other than to note that it should not affect the tax liability of the appellant in the year under review. Certainly the taxpayer did not receive the $9.99 in 1977 in the physical sense—he did receive it as part of his income tax refund in the year 1978. Whether or not it should be taxable in the year 1978 (used to reduce the CPP deduction available for that year, or treated in some other manner) is not a matter at issue before the Board in this appeal.

Conclusion

The taxpayer (who is an employee) is entitled to a deduction under paragraph 8(1)(l) of the Income Tax Act of the amount withheld from his salary or wages as a contribution under the CPP Act, provided that contribution has been made in accordance with either of the options provided to the employer under that latter Act.

Decision

The appeal is allowed and the matter referred back to the respondent for reassessment accordingly.

Appeal allowed.