Robert Dudley Stewart v. Minister of National Revenue, [1973] CTC 2265, 73 DTC 212

The Assistant Chairman:—This is the appeal of Robert Dudley Stewart from an income tax assessment with respect to the appellant’s 1971 taxation year.

The appellant was employed for eleven years by Industrial Acceptance Corporation Limited (hereinafter referred to as “IAC”) on a salary basis. While so employed the appellant was required to contribute, and did contribute, 6% of his earnings ($1,500) to a registered pension fund of IAC.

On or about October 15, 1971 the appellant resigned from IAC in order to work as a salaried employee for “La Société de Développement de la Baie James” (hereinafter referred to as “SDBJ”).

The board of directors of IAC decided to keep the appellant on the company’s payroll at his full rate of salary until December 31, 1971, and as a result the appellant received $5,025 paid to him according to the regular pay rules by cheques for the months of October, November and December.

The appellant was also given his remuneration for the full year of 1971 under the Senior Officers’ Participation Plan which was eventually paid in February of 1972.

As an employee of SDBJ the appellant was required to pay $298.60 to the registered pension fund of that company for the period of time he worked there during 1971.

In this appeal the appellant is seeking two separate things—

(a) a deduction from his gross earnings for 1971 in the amount of $1,798.60 comprising $1,500 and $298.60 paid to a registered pension fund;

(b) to be taxed on the amount of his extended salary of $5,025 on a three-year average.

As to the appellant’s first request, the Minister of National Revenue allowed a deduction, but only in the amount of $1,500 pursuant to paragraph 11 (1 )(i) of the Income Tax Act. In respect of the appellant’s second request, the Minister refused to tax the amount of $5,025 on a three-year average on the ground that the appellant failed to comply with the requirement of section 36 of the Act.

The appellant, who represented himself, based his case largely on his good faith and intention, and sought a decision based on equity. The Board, of course, in rendering its decision must consider the facts of a given case in the light of the applicable sections of the Act, and must apply the said Act as it existed at the time pertinent to the appeal. There is no equity nor can there be equity in tax law, and amended secions of the Act, unless so stipulated, cannot in my opinion be applied retroactively on the basis of equity or on any other ground.

The appellant pointed out that subsection 40(1) of the new Act permits transitional payments for loss of office. Even if this new section were applicable to the facts of this appeal (and I am of the opinion that it does not apply because we are not dealing in this appeal with a loss of office), it could not be applied retroactively.

In dealing with the appellant’s extended salary in the amount of $5,025, the Board must be guided by the provisions of section 36 of the Act. In that section the only provision that would be applicable is “recognition for long service’’ found in subparagraph 36(1)(a)(ii) of the Income Tax Act and “retirement” referred to in paragraph 36(1 )(b).

Recognition for long service, according to the Act, must be paid in a single payment whereas the extended salary was paid to the appellant according to the regular payment rules of IAC by cheque or by bank transfer for the months of October, November and December, and the extended payment of $5,025 does not therefore meet the requirements of subparagraph 36(1)(a)(ii).

Paragraph 36(1 )(b) dealing with “retirement” refers to payments made to an employee upon or after retirement in respect of loss of employment. In the appeal before us, the appellant did not retire nor was he fired, but he resigned from one company to take up employment with another company. There was no loss of employment to the employee. On the contrary, the appellant for a period of two to three months benefited from a double salary—one from the new employer SDBJ and another from IAC.

in my opinion the extended salary of $5,025 is not a retirement payment within the meaning of paragraph 36(1 )(b). The appellant does not therefore meet the requirements of section 36 and the privilege of taxing the amount of $5,025 at a three-year average is not legally available to the appellant, and the Board has no power to grant such privilege in equity as requested by the appellant.

In seeking to deduct from his gross earnings for 1971 a total amount of $1,798 paid to registered pension funds of which $298.60 was disallowed, the appellant contends that paragraph 11(1)(i) refers to employer in the singular and that therefore the aggregate amount allowable of $1,500 is applicable only to amounts paid in 1971 under the IAC pension fund as one employer, and that the $298.60 payment under the SDBJ plan also made in 1971 was under another employer and should be allowed.

It seems to me that subparagraph 11(1)(i)(i) is quite clear in referring to an aggregate amount of $1,500 paid by a taxpayer toward a pension fund in any one-year period regardless of the number of employers involved.

The appellant then points out that the contribution of 6% of his salary to a pension fund was obligatory and a prerequisite of employ- ment at SDBJ and should be considered as an outlay or expense to earn income.

Apart from the fact that “expense incurred for the purpose of producing income” pursuant to paragraph 12(1 )(a) of the Income Tax Act refers to the producing of income from property or from a business and as such cannot apply to expenditures incurred by an employee, the basic purpose of pension fund contributions is not to earn current income but to average income over the years of the taxpayer’s life and the fact that the contributions are obligatory does not change the nature of the pension fund contributions. Subsection 11(10) of the Act is an exception to the general rule of taxation and must be interpreted restrictively. Nowhere in subsection 11(10) is there mention of pension fund contributions and that section cannot offer any relief to the appellant.

In conclusion, I find that the appellant failed to comply with the requirements of section 36 of the Income Tax Act and cannot avail himself of the privilege of averaging over a three-year period the taxation of an amount of $5,025 received in 1971 as extended salary. I further conclude that the deduction of $298.60 claimed as a pension fund contribution by the appellant was properly disallowed by the Minister as being in excess of the aggregate allowed deduction of $1,500 for contributions to a pension fund in the appellant’s 1971 taxation year pursuant to paragraph 11(1 )(i).

The appeal is therefore dismissed.

Appeal dismissed.