A
W
Prociuk:—The
appellant,
at
all
times
material
hereto,
being
an
American
citizen
and
resident,
appeals
from
the
Minister’s
reassessment
for
the
taxation
year
1969
in
the
sum
of
$40,000
received
from
a
Canadian
source
and
on
which
a
tax
of
$17,041
was
levied.
The
facts
are
brief
and
are
not
in
dispute.
On
September
5,
1963
the
appellant,
then
49
years
of
age,
assumed
the
position
of
president
of
MacMillan
Bloedel
Limited
of
British
Columbia
at
a
yearly
salary
of
$120,000.
The
terms
of
his
employment
are
more
specifically
stipulated
in
an
agreement
dated
September
16,
1963,
filed
as
Exhibit
A-1.
The
appellant,
inter
alia,
agreed
to
remain
in
the
company’s
employ
until
age
65
and
not
to
terminate
his
employment
without
the
company’s
consent
prior
to
that
time.
Upon
retirement,
termination
of
employment
with
consent,
or
termination
of
his
employment
by
the
company
otherwise
than
for
cause,
the
company
covenanted
to
pay
to
the
appellant
monthly
for
life
a
sum
equal
to
one-third
of
the
average
monthly
salary
received
by
him
in
the
36-month
period
immediately
prior.
In
the
year
1968
the
company
underwent
a
certain
structural
reorganization
and
the
appellant
was
asked
to
assume
the
position
of
Chief
Financial
Officer,
which
he
declined.
There
then
followed
certain
negotiations
between
the
appellant
and
the
company,
and
agreement
was
reached
on
or
about
April
29,
1968,
to
take
effect
one
day
later.
This
agreement
is
in
letter
form
dated
April
29,
1968
and
signed
by
the
chairman
of
the
board
on
behalf
of
the
company
and
by
the
appellant.
It
was
filed
as
Exhibit
A-2
and
reads
as
follows:
MacMillan
Bloedel
Limited
1199
West
Pender
Street
Vancouver
1,
British
Columbia
The
Honourable
J.
V.
Clyne
Telephone
683-6711
Chairman
of
the
Board
and
Chief
Executive
Officer
April
29,
1968.
C.
A.
Specht,
Esq.,
1199
West
Pender
Street,
Vancouver
1,
B.C.
Dear
Mr.
Specht:
I
am
writing
this
letter
on
behalf
of
the
Company
to
confirm
the
arrangements
which
have
been
made
between
us
arising
from
the
situation
which
will
result
from
the
proposed
reorganization
of
the
Company
and
your
decision
to
decline
the
position
of
Chief
Financial
Officer.
These
arrangements
are
as
follows:
You
undertake
to:
a)
Resign
as
a
full-time
employee
of
the
Company,
effective
as
of
April
30.
This
will
give
you
the
freedom
of
action
which
you
will
require
in
order
to
make
other
arrangements.
b)
Continue
as
a
member
of
the
Board
of
Directors
and
a
member
of
the
Executive
Committee
until
such
time
as
you,
or
the
Company,
may
decide
otherwise.
You
will
be
reimbursed
for
your
expenses
but
will
receive
no
fees
or
salary
for
these
particular
services
in
view
of
the
fact
that
you
will
be
receiving
$40,000
per
annum
for
five
years
as
hereinafter
provided.
The
receipt
of
such
sum,
however,
does
not
obligate
you
to
remain
on
the
Board
or
the
Executive
Committee.
c)
Provide
me
with
an
undated
resignation
from
the
Board
of
Directors
and
the
Executive
Committee.
The
Company
undertakes
to:
a)
Pay
to
you
at
the
customary
intervals,
your
salary
at
the
present
rate
to
the
end
of
August
1968,
irrespective
of
whether
you
obtain
other
employment.
b)
Pay
you
as
from
September
1,
1968,
at
the
customary
fortnightly
intervals,
at
the
rate
of
$40,000
per
annum
for
the
five
years
ending
August
31,
1973,
making
$200,000
in
total.
These
amounts
will
be
paid
irrespective
of
whether
or
not
you
accept
employment
elsewhere.
In
the
event
of
your
death
during
such
five-year
period
any
balance
remaining
unpaid
of
the
$200,000
will
be
paid
to
your
estate.
In
the
event
of
your
resignation
from
the
Board
of
Directors
or
the
Executive
Committee
the
Company
will
pay
to
you
at
that
time
the
balance
remaining
unpaid
of
the
$200,000
in
such
instalments
as
may
be
mutually
agreed
upon.
It
goes
without
saying
that
you
will
at
all
times
scrupulously
refrain
from
disclosing
any
confidential
information
now
within
your
knowledge
as
President
of
this
Company.
c)
Remunerate
you
on
a
mutually
agreeable
basis
for
any
special
services
which
you
may
be
asked
to
provide
and
which
you
may
be
willing
to
undertake
in
the
form
of
consultation
or
otherwise.
If
you
agree
that
the
foregoing
correctly
outlines
the
arrangements
between
us
I
shall
be
obliged
if
you
will
be
good
enough
to
sign
the
copy
of
this
letter
where
marked
and
return
it
to
me.
For
purposes
of
the
record
it
is
understood
that
your
Service
Contract
with
the
Company,
dated
September
16,
1963,
is
null
and
void.
Yours
sincerely,
(Signed)
J.
V.
Clyne
Chairman
and
Chief
Executive
Officer
(Signed)
C.
A.
Specht
C.
A.
Specht
In
the
summer
of
1968
the
appellant
returned
to
the
United
States
of
America
and
has
lived
there
ever
since.
Pursuant
to
further
arrangements
in
that
year
payments
to
the
appellant
by
the
company
in
the
sum
of
$40,000
per
year
commenced
in
1969.
At
the
hearing
learned
counsel
for
the
appellant
argued
that
the
said
sum
of
$200,000
payable
at
the
rate
of
$40,000
a
year,
was
a
pension
within
the
meaning
of
Article
VIA
of
the
Canada-United
States
Tax
Convention,
and
therefore
tax
exempt.
He
further
argued
that
the
provisions
of
paragraph
31A(d)
of
the
Income
Tax
Act
do
not
apply
in
the
instant
case.
Article
VIA
of
the
Canada-United
States
Tax
Convention
reads:
ARTICLE
VIA
Pensions
(including
Government
pensions)
and
life
annuities
derived
from
within
one
of
the
contracting
States
by
a
resident
of
the
other
contracting
State
shall
be
exempt
from
taxation
in
the
former
State.
Section
31A
of
the
Income
Tax
Act
reads:
31
A.
Where,
in
a
taxation
year,
a
payment
is
made
by
a
person
resident
in
Canada
to
an
individual
who
is
not
resident
in
Canada
and
who
during
the
5
years
immediately
preceding
the
year
in
which
the
payment
is
made
(a)
was
resident
in
Canada,
or
(b)
was
employed
in
Canada
for
a
period
or
periods
the
aggregate
of
which
was
at
least
36
months,
if
the
payment
is
(c)
a
payment
(i)
out
of
or
pursuant
to
a
superannuation
or
pension
fund
or
plan,
(ii)
upon
retirement
of
an
employee
in
recognition
of
long
service
and
not
made
out
of
or
under
a
superannuation
fund
or
plan,
(iii)
pursuant
to
an
employees
profit
sharing
plan
in
full
satisfaction
of
all
rights
of
the
payee
in
or
under
the
plan,
to
the
extent
that
the
amount
thereof
would
otherwise
be
included
in
computing
the
payee’s
income
for
the
year
in
which
the
payment
was
received
if
the
payee
had
been
resident
in
Canada
throughout
the
taxation
year
in
which
the
payment
was
received
or
(iv)
pursuant
to
a
deferred
profit
sharing
plan
upon
the
death,
withdrawal
or
retirement
from
employment
of
an
employee
or
former
employee,
to
the
extent
that
the
amount
thereof
would
otherwise
be
included
in
computing
the
payee’s
income
for
the
year
in
which
the
payment
was
received
if
the
payee
had
been
resident
in
Canada
throughout
the
taxation
year
in
which
the
payment
was
received,
or
(d)
a
payment
made
by
an
employer
to
an
employee
or
former
employee
upon
or
after
retirement
in
respect
of
loss
of
office
or
employment,
the
payment
shall
be
deemed
to
be
income
of
the
payee,
for
the
year
in
which
it
was
received,
from
duties
that
shall
be
deemed
to
have
been
performed
by
him
in
Canada
in
that
year,
unless
it
can
be
established,
by
subsequent
events
or
otherwise,
that
the
payment
was
made
as
part
of
a
series
of
annual
or
other
periodic
payments
payable
throughout
the
lifetime
of
the
payee.
While
the
cases
cited
by
both
counsel
were
of
some
limited
assistance
in
determining
whether
or
not
Article
VIA
applies,
it
is
clear
that
each
case
has
been
decided
on
its
own
set
of
circumstances.
In
the
instant
case
Exhibit
A-2
in
my
opinion
governs
the
situation.
In
consideration
of
receiving
$200,000
payable
within
a
period
of
five
years
the
appellant
agreed
to
three
undertakings
by
him
as
therein
set
forth.
Any
reneging
on
his
part
would
have
justified
the
company
to
withhold
payments
in
whole
or
in
part
or
to
commence
appropriate
legal
proceedings.
It
is
abundantly
obvious
from
a
careful
perusal
of
this
document
that
it
was
a
lump
sum
settlement
for
loss
of
office
within
the
meaning
of
paragraph
31A(d)
of
the
Income
Tax
Act.
Accordingly,
the
appeal
is
dismissed,
Appeal
dismissed.
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