Pigeon,
J
(all
concur):—This
appeal
is
from
a
judgment
of
the
Exchequer
Court
allowing
an
appeal
from
respondent’s
1965,
1966
and
1967
taxation
years,
reported
[1971]
CTC
171.
The
only
item
in
dispute
is
a
sum
of
$202,650
which
respondent
claims
to
be
entitled
to
deduct
under
section
76
of
the
Income
Tax
Act
as
special
payments
made
to
the
trustees
of
its
pension
fund
in
respect
of
the
past
services
of
its
president,
one
Lloyd
Parker,
as
follows:
|
For
1965
|
$100,000
|
|
1966
|
50,000
|
|
1967
|
52,650
|
|
$202,650
|
The
essential
facts
which
are
not
really
in
dispute
are
as
follows.
Lloyd
Parker
is
not
only
the
president
but
also
the
beneficial
owner
of
all
the
shares
of
the
respondent
company.
His
yearly
salary
was
$48,000
and
a
retirement
annuity
policy
had
been
obtained
for
him
from
an
insurance
company
with
a
substantial
payment
by
his
company
being
made
on
account
of
past
services.
In
1965,
the
cash
value
of
this
policy
was
somewhat
in
excess
of
$100,000
and
Parker
felt
that
the
money
could
be
more
profitably
used
if
invested
in
his
company’s
truck
selling
business.
He
was
advised
that
this
could
be
done
by
“rolling
over”
the
amount
into
a
company
pension
plan
with
private
trustees.
He
was
told,
and
this
is
agreed
to
be
true
for
the
purposes
of
this
case,
that
there
was
then
“no
federal
law,
administrative
limitation
or
Departmental
policy
that
restricted
the
right
of
pension
plan
trustees
to
invest
funds
under
their
control”.
Parker
considered
that
if
such
a
trusteed
pension
plan
could
obtain
a
really
high
yield
on
its
investments,
the
privilege
of
participating
in
it
would
help
him
attract
and
retain
desirable
executive
personnel.
With
this
in
mind,
a
pension
plan
and
pension
trust
agreement
were
prepared.
Provision
was
made
for
two
classes
of
members,
Group
A
and
Group
B,
with
eligibility
to
be
defined
by
the
Company.
Lloyd
Parker
was
the
only
Group
A
member
and
in
the
application
for
registration
it
was
indicated
that
he
was
also
to
be
at
first
the
only
participant.
The
provisions
respecting
employer
contributions
were
as
follows:
The
Company
will
contribute
an
amount
equal
to
$1,500
each
year
for
each
member
who
joins
the
Plan
on
the
effective
date
and
an
amount
equal
to
$100
each
year
for
each
member.
In
addition
the
Company
hopes
and
expects
to
make
additional
contributions
out
of
profits
in
respect
of
all
members.
In
addition
the
Company
hopes
and
expects
to
make
a
past
service
contribution
in
respect
of
each
member
of
the
Plan
who
joins
at
the
effective
date.
The
maximum
past
service
contribution
which
the
Company
may
make
is
one
which,
on
the
basis
of
qualified
actuarial
advice,
will
provide
an
annual
pension
on
the
normal
form
at
normal
retirement
date
equal
to
the
difference
between
(a)
70%
of
a
member’s
average
earnings
during
the
six
years
his
earnings
were
highest,
and
(b)
the
amount
of
annual
pension
on
the
normal
form
at
normal
retirement
date,
on
the
basis
of
qualified
actuarial
advice,
which
all
the
contributions
made
by
and
on
behalf
of
the
member
will
provide,
including
contributions
to
any
other
registered
pension
plan
to
which
the
Company
has
made
contributions.
With
respect
to
the
amount
of
pension,
the
plan
provides
that
it
will
be
the
monthly
pension
which
may
be
purchased
from
an
insurance
company
or
the
Government
Annuities
Branch
by
the
total
amount
to
the
credit
of
the
member
at
retirement.
Full
immediate
vesting
of
the
company
contributions
account
is
granted
to
Group
A
members
(ie
Parker),
but
for
Group
B
members
such
vesting
starts
at
10%
after
six
years
of
participation
and
reaches
100%
only
after
fifteen
years.
The
pension
trust
agreement
provides
that
the
moneys
held
by
the
trustees
“shall
be
invested
.
.
.
upon
the
direction
of
the
Company”.
On
May
12,
1965
the
pension
plan
and
the
pension
trust
agreement
were
sent
to
the
Department
of
National
Revenue
together
with
an
application
for
registration,
a
statement
of
the
amount
of
Mr
Parker’s
salary
and
an
actuarial
certificate
in
the
following
terms:
I
hereby
certify
that
in
my
opinion
the
assets
of
the
trust
fund
of
the
Inland
Kenworth
Sales
Ltd
Pension
Plan
as
at
April
1,
1965
require
to
be
augmented
by
the
amount
of
$202,650,
in
addition
to
the
cash
values
to
be
transferred
to
the
trust
fund
on
the
discontinuance
of
the
existing
Standard
Life
and
Imperial
Life
pension
policies,
to
ensure
that
all
obligations
of
the
fund
in
respect
of
past
services
may
be
discharged
in
full,
and
I
recommend
that
this
amount,
with
interest,
be
deposited
in
the
fund
in
a
convenient
manner.
I
confirm
that
based
on
the
actuarial
assumptions
adopted,
the
annual
pension
benefit
at
normal
retirement
date
will
not
exceed
70%
of
the
average
annual
salary
of
the
best
six
years
or
$40,000,
whichever
is
the
lesser.
This
certificate
was
accompanied
by
a
working
paper
indicating
how
the
amount
of
$202,650
had
been
arrived
at.
On
June
23
a
letter
was
sent
to
the
company
by
the
Department
of
National
Revenue
stating
that
the
plan
was
accepted
for
registration,
effective
as
of
April
1,
1965.
However,
the
letter
added
that
with
respect
to
the
estimated
past
service
costs,
they
were
subject
to
confirmation
by
the
Superintendent
of
Insurance.
On
July
22,
1965
a
memorandum
was
sent
on
behalf
of
the
Superintendent
of
Insurance
to
the
Department
of
National
Revenue
as
follows:
Re:
Pension
Plan
for
Executive
Employees
of
Inland
Kenworth
Sales
Limited
We
have
examined
the
certificate
relating
to
the
actuarial
liabilities
under
the
above
plan
as
at
April
1,
1965,
which
states
that
the
total
deficit
in
respect
of
past
service
pensions
was
$202,650
on
that
date.
This
amount
is
in
addition
to
the
cash
values
of
$12,509
and
$103,925
which
are
to
be
transferred
to
the
fund
on
the
discontinuance
of
the
existing
Standard
Life
and
Imperial
Life
pension
policies.
As
the
plan
involves
a
private
trust
fund,
this
deficit
is
necessarily
based
on
certain
assumptions
as
to
future
experience.
The
deficit
quoted
is
therefore
an
estimate
of
the
cost
of
past
service
pensions
and
not
the
actual
cost
which
can
be
known
only
afer
all
such
pensions
have
been
paid.
We
have
examined
the
assumptions
made
by
the
actuary
and
we
consider
them
to
be
reasonable
in
the
circumstances.
The
plan
does
not
provide
a
specific
amount
of
pension
but
only
sets
a
maximum
limit
to
the
total
pension
of
the
lesser
of
70%
of
the
average
of
the
member’s
best
six
years’
earnings
or
$40,000
which
was
the
pension
valued.
We
therefore
advise
that
the
fund
requires
to
be
augmented
by
an
amount
not
less
than
the
amount
quoted
above
to
ensure
that
the
maximum
possible
benefits
under
the
plan
may
be
provided.
We
should
point
out
that
pensions
under
this
plan
are
guaranteed
for
15
years
which
is
a
longer
guarantee
than
generally
encountered
with
the
result
that
a
unit
of
pension
under
this
plan
has
a
greater
value
than
is
usual.
On
July
27,
1965
a
letter
was
sent
by
the
Department
of
National
Revenue
to
the
company
in
the
following
terms:
Further
to
our
letter
of
23rd
June,
1965
in
connection
with
the
past
service
costs
to
the
above
referenced
pension
plan.
We
are
now
in
receipt
of
a
reply
from
the
Superintendent
of
Insurance
who
confirms
that
the
total
deficit
in
respect
of
past
service
pensions
was
$202,650
as
at
1st
April,
1965.
This
amount
may
be
claimed
under
section
76
of
the
Income
Tax
Act.
On
November
18,
1965
one
of
the
company’s
auditors,
who
was
also
a
trustee
of
the
pension
plan,
wrote
to
Parker:
.
.
..
although
a
good
percentage
of
the
pension
plans
being
approved
are
of
the
“executive”
type,
the
plan
must
be
one
that
does
resemble
a
genuine
employees’
pension
plan.
That
is
to
say
that
any
investments
to
be
made
by
the
plan.
must
be
for
the
benefit
of
the
plan
and
not
for
the
benefit
of
the
company.
As
such,
any
loans
which
may
be
made
by
the
plan
to
the
company.
involved,
must
be
properly
secured.
In
fact,
the
opinion
was
that
it
should
be
in
the
form
of
a
debenture
or
a
mortgage
which
is
properly
registered
against
the
company.
The
mortgage
instrument,
of
course,
would
provide
for
repayment,
interest,
and
maturity
date.
It
should
be
noted,
that
although
there
are
no
income
tax
regulations
presently
governing
the
type
of
investments,
the
Income
Tax
Department
is
closely
scrutinizing
all
transactions
between
pension
plans
and
respective
companies.
Non-arm's-length
transactions
such
as
loans
from
pension
funds
to
companies
are
closely
inspected
and
if
not
found
to
be
entirely
in
order,
or
to
be
in
accordance
with
prudent
investments
by
the
pension
plan,
may
be
entirely
disallowed.
On
December
30,
1965
a
resolution
was
adopted
by
the
board
of
directors
of
the
company
in
these
terms:
It
was
agreed
that
the
Trustees
be
instructed
that
the
investments
of
the
Group
A
members
and
Group
B
members
of
the
Pension
Fund
be
strictly
segregated.
Investments
on
behalf
of
the
Group
A
members
of
the
Pension
Trust
Fund
will
take
the
form
of
interest-bearing
loans
to
the
following
companies:
Inland
Ken
worth
Sales
Ltd
Inland
Kenworth
Sales
(PG)
Ltd
Inland
Kenworth
Sales
(Penticton)
Ltd
Inland
Kenworth
Sales
(Kamloops)
Ltd
LBM
Securities
Ltd
These
loans
are
to
carry
interest
at
a
minimum
rate
of
9%
and
are
to
be
payable
on
demand.
Collateral
security
is
to
be
requested
from
the
respective
companies
to
cover
these
advances
and
this
security
is
to
take
the
form
of
a
blanket
assignments
of
agreements
receivable.
The
investment
on
behalf
of
the
Group
B
members
of
the
Plan
will
be
in
the
form
of
direct
purchase
of
Conditional
Sales
Contracts
and
Chattel
Mortgages,
and
any
other
negotiable
instruments
which
are
acceptable
to
a
Canadian
Chartered
Bank
as
security
for
repayment
of
bank
loans.
...
The
respondent
is
the
first
company
named
in
this
resolution
due
to
a
subsequent
change
of
name,
the
others
are
affiliates.
As
the
latter
were
always
indebted
to
the
respondent
when
loans
were
made
to
them
by
the
trustees,
the
making
of
the
payments
to
the
pension
fund
in
respect
of
Parker’s
past
services
never
resulted
in
any
change
in
the
company’s
cash
position.
A
cheque
was
drawn
to
the
order
of
the
trustees,
they
in
turn
drew
one
or
more
cheques
to
one
or
more
affiliates
and
the
latter
gave
cheques
to
the
respondent.
Because
the
company
had
an
adequate
credit
line
with
its
bank,
there
was
no
need
for
special
arrangements
to
avoid
momentary
overdrafts.
On
July
23,
1969,
some
time
after
the
last
payment
had
been
made
on
the
sum
of
$202,650,
what
the
company’s
auditor
had
warned
against
did
happen,
reassessments
were
issued
disallowing
the
deductions.
The
company
chose
to
appeal
to
the
Exchequer
Court.
In
the
Minister’s
reply
to
the
notice
of
appeal,
many
reasons
for
his
decision
were
given.
These
were
all
considered
and
rejected
in
the
court
below.
Those
grounds
were
all
raised
again
in
this
Court,
but
I
do
not
find
it
necessary
or
desirable
to
express
an
opinion
on
any
other
than
the
following
point
which
is,
in
my
view,
decisive
of
the
case.
This
is
that
the
deduction
claimed
was
not
allowable
because
there
were
no
“obligations”
of
the
fund
or
plan
to
Mr
Lloyd
Parker
that
required
any
special
payment
to
ensure
that
they
might
be
discharged
in
full,
as
section
76
of
the
Income
Tax
Act
expressly
requires:
76.(1)
Where
a
taxpayer
is
an
employer
and
has
made
a
special
payment
in
a
taxation
year
on
account
of
an
employees’
superannuation
or
pension
fund
or
plan
in
respect
of
past
services
of
employees
pursuant
to
a
recommendation
by
a
qualified
actuary
in
whose
opinion
the
resources
of
the
fund
or
plan
required
to
be
augmented
by
an
amount
not
less
than
the
amount
of
the
special
payment
to
ensure
that
all
the
obligations
of
the
fund
or
plan
to
the
employees
may
be
discharged
in
full
and
has
made
the
payment
so
that
it
is
irrevocably
vested
in
or
for
the
fund
or
plan
and
the
payment
has
been
approved
by
the
Minister
on
the
advice
of
the
Superintendent
-of
Insurance,
there
may
be
deducted
in
computing
the
income
of
the
taxpayer
for
the
taxation
year
the
amount
of
the
special
payment.
(2)
For
greater
certainty,
and
without
restricting
the
generality
of
subsection
(1),
it
is
hereby
declared
that
subsection
(1)
is
applicable
where
the
resources
of
a
fund
or
plan
required
to
be
augmented
by
reason
of
an
increase
in
the
superannuation
or
pension
benefits
payable
out
of
or
under
the
fund
or
plan.
That
there
was
no
“obligation”
of
the
pension
fund
to
Mr
Parker
that
“required”
the
special
payments
is
readily
apparent
from
the
terms
of
the
plan.
The
only
obligations
to
a
member
were
to
use
in
the
prescribed
manner
the
funds
that
became
available.
In
fact,
it
was
not
contended
at
the
hearing
that
an
obligation
had
been
created,
either
on
the
fund
or
on
the
company
to
provide
to
Mr
Parker
the
benefits
which
were
intended
to
be
provided
by
the
special
payments.
The
contention
was
that
“obligation”
was
to
be
taken
to
mean
what
the
actuary
making
a
recommendation
understood
it
to
mean.
It
is
to
be
noted
first
that
in
the
memorandum
from
the
Department
of
Insurance,
the
statement
is
not,
as
in
the
actuarial
certificate,
that
the
fund
requires
to
be
augmented
“to
ensure
that
all
obligations
of
the
Fund
in
respect
of
past
services
may
be
discharged
in
full”
but
that
“the
Fund
requires
to
be
augmented
by
an
amount
not
less
than
the
amount
quoted
above
to
ensure
that
the
maximum
possible
benefits
under
the
Plan
may
be
provided”.
This
follows
the
statement
that
“the
Plan
does
not
provide
a
specific
amount
of
pension
but
only
sets
a
maximum
limit
to
the
total
pension”.
The
difference
between
the
wording
of
this
memorandum
and
the
wording
of
the
actuarial
certificate
is
quite
substantial
and
it
is
somewhat
surprising
that,
notwithstanding
such
advice,
departmental
approval
was
given
to
the
payments
on
behalf
of
the
Minister.
However,
it
seems
clear
to
me
that
the
Minister
cannot
be
bound
by
an
approval
given
when
the
conditions
prescribed
by
the
law
were
not
met.
It
was
contended
at
the
hearing
that,
in
section
76,
the
word
“obligation”,
being
used
in
the
context
of
a
provision
relating
to
a
certificate
by
an
actuary,
should
not
be
taken
in
its
ordinary
meaning
but
in
the
special
sense
in
which
it
would
be
understood
by
an
actuary.
Assuming
this
to
be
so,
there
is
no
evidence
of
such
special
meaning.
The
certificate
and
the
testimony
of
its
author
at
the
hearing
in
the
Exchequer
Court
do
not
show
that
the
word
“obligation”
is
generally
understood
among
actuaries
as
having
the
meaning
contended
for.
As
a
matter
of
fact,
the
memorandum
from
the
Department
of
Insurance
is
cogent
evidence
to
the
contrary.
Furthermore,
subsection
(2)
of
section
76
clearly
shows
that
“obligations
of
the
Fund
or
Plan
to
the
employees”
means
“superannuation
or
pension
benefits
payable”.
It
is
apparent
that
the
situation
intended
to
be
met
by
the
special
payments
provided
for
is
that
which
arises
when
a
pension
plan
specifies
a
scale
of
benefits
payable.
Counsel
for
the
company
pointed
out
that
in
some
other
provisions
of
the
Income
Tax
Act,
for
instance
in
paragraph
11(1
)(c)
respecting
the
deduction
of
interest,
the
expression
used
is
‘a
legal
obligation”.
He
contended
that
the
absence
of
the
adjective
“legal”
in
section
76
indicated
the
intention
of
not
requiring
a
legal
obligation.
Even
at
that,
the
inference
that
section
76
was
intended
to
apply
when
there
was
no
obligation
legal
or
otherwise
could
not
be
justified.
Furthermore,
I
would
observe
that
in
the
Income
War
Tax
Act,
paragraph
5(1
)(b)
respecting
the
deduction
of
interest
said:
“interest
payable”.
It
could
hardly
have
been
intended
by
changing
this
to
read
in
the
Income
Tax
Act:
“pursuant
to
a
legal
obligation
to
pay”,
to
alter
completely
the
requirements
respecting
the
special
payments
to
pension
plans
with
respect
to
obligations
for
past
services,
which
requirements
remained
substantially
unchanged
(see
paragraph
5(1
)(m)
of
the
Income
War
Tax
Act
as
enacted
in
1942
by
6
Geo
VI,
c
28,
subsection
5(5)).
As
to
the
effect
of
the
actuarial
certificate
which
was
said
to
be
“a
subjective
test”,
assuming
this
to
be
so,
this
could
not
be
true
with
respect
to
anything
more
than
the
quantum
of
the
obligations.
It
cannot
have
been
intended
to
be
decisive
of
their
existence.
It
is
obvious
that
the
author
of
the
memorandum
from
the
Department
of
Insurance
had
this
distinction
in
mind.
He
clearly
indicated
that
his
advice
was
limited
to
the
actuarial
computations
and
assumptions
refraining
from
any
opinion
as
to
the
existence
of
any
obligation.
In
my
view,
the
actuarial
certificate
was
not,
any
more
than
the
approval
on
behalf
of
the
Minister,
decisive
of
the
existence
of
any
obligation
of
the
fund
towards
the
employee
in
respect
of
past
services.
The
existence
of
such
an
obligation
is
a
statutory
‘condition
of
the
right
to
the
deduction
and
in
its
absence,
there
is
no
right
to
deduct
a
special
payment.
It
cannot
be
said
that
because
the
intention
of
making,
at
some
future
time,
payments
in
the
amount
now
claimed
was
disclosed
to
the
department
in
the
application
for
registration
of
the
plan,
an
obligation
to
make
the
payments
was
created.
On
the
contrary,
the
terms
of
the
plan
were
perfectly
clear
to
the
effect
that
no
obligation
towards
Mr
Parker
would
arise
in
respect
of
those
sums
unless
and
until
the
company
chose
to,
and
actually
did,
make
the
contemplated
payments
into
the
fund.
For
those
reasons,
I
would
allow
the
appeal,
reverse
the
judgment
of
the
Exchequer
Court
and
dismiss
the
appeal
to
that
Court
from
the
reassessments,
with
costs
throughout
against
the
respondent.
DOCTOR
E
ROSS
HENRY,
Appellant,
and
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
Supreme
Court
of
Canada
(Abbott,
Hall,
Spence,
Pigeon
and
Laskin,
JJ),
December
20,
1971,
on
appeal
from
a
judgment
of
the
Exchequer
Court,
reported
[19691
CTC
600.
Income
tax
—
Federal
—
Income
Tax
Act,
RSC
1952,
c
148
—
12(1)(a),
(h)
—
As
an
anaesthetist,
the
taxpayer
was
self-employed
but,
with
a
group
of
other
anaesthetists,
was
attached
to
the
Royal
Jubilee
Hospital
in
Victoria,
where
all
of
his
professional
services
were
rendered.
He
and
his
associates
had
an
office
some
two
miles
away,
where
their
records
were
kept
and
where
patients’
accounts
were
made
up
and
sent
out.
The
Minister
allowed
the
taxpayer’s
automobile
expenses
referable
to
periodic
trips
between
the
hospital
and
the
office
and
to
evening
and
emergency
trips
between
home
and
hospital
but
refused
to
allow
such
expenses
as
were
referable
to
daily
commuting
between
the
hospital
and
the
taxpayer’s
home.
HELD
(per
curiam):
The
case
of
Cumming
v
MNR,
on
which
the
appellant
relied,
was
distinguishable
and
no
difference
was
discernible
between
the
appellant
and
the
selfemployed
owner
of
any
business
who
commuted
daily
between
his
home
and
place
of
business.
Appeal
dismissed.
G
F
Jones
for
the
Appellant.
G
W
Ainslie,
QC
for
the
Respondent.
CASES
REFERRED
TO:
Cumming
v
MNR,
[1968]
1
Ex
CR
425;
[1967]
CTC
462;
Randall
v
MNR,
[1967]
SCR
484;
[1967]
CTC
236;
Pook
v
Owen,
[1970]
AC
244.
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