Citation: 2012 TCC 302
Date: 20120906
Docket: 2009-3693(IT)G
BETWEEN:
JAGMOHAN SINGH GILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hogan J.
I. Introduction
[1]
The appellant, Mr.
Gill, is appealing from a Notice of Reassessment issued on June 27, 2008, which
included an amount of $75,175 in the appellant’s income for the 2005 taxation
year. This amount from the redemption of his sister’s individual retirement
income (“IRA”) was received by the appellant but not declared as income in his
2005 tax return. The IRA was bequeathed to the appellant upon his sister’s
death.
[2]
The issue in this
appeal is whether the Minister of National Revenue (the “Minister”)
properly included the amount received from the IRA in the appellant’s income under
clause 56(1)(a)(i)(C.1) of the Income Tax Act (Canada) (the “ITA”).
II. Background
[3]
The parties filed an
agreed statement of facts, and no additional facts were introduced at the
hearing.
[4]
The appellant’s sister,
a citizen of the United States (US), died on November 17, 2004. At the time of
her death, she held an IRA with the OFI Trust Company. The IRA named the
appellant as the beneficiary of the account. In the 2005 taxation year, the
appellant received a lump-sum amount of $75,175 on the redemption of the IRA.
He did not include this amount in his 2005 income tax return.
[5]
The parties agree that
the appellant did not receive the amount as an allowance or pension for being
discharged on account of age. Similarly, the appellant did not receive the amount
in consideration of past services. The parties also agree that the amount the
appellant received does not fall within the ordinary meaning of “pension
benefit”.
[6]
The parties agree that
the IRA was a “foreign retirement arrangement” as defined in subsection 248(1) of
the ITA and section 6803 of the Income Tax Regulations. The parties also
acknowledge that the lump sum received by the appellant would be subject to US tax if he was a US resident.
[7]
The Minister reassessed
the appellant on June 27, 2008 to include the lump sum as “U.S. pension” income. The Minister confirmed the reassessment on September 16, 2009 on the
basis that the amount received by the appellant should be included in income under
clause 56(1)(a)(i)(C.1).
III. Procedural Issue: Is
the Respondent Barred from Invoking Clause 56(1)(a)(i)(C.1) as a
Basis for Reassessment?
[8]
According to the
appellant, the respondent should be barred from arguing that the amount he
received should be included in his income on the basis of clause 56(1)(a)(i)(C.1).
He contends that the reassessment having been made on the basis that the lump
sum was pension income, to allow the respondent to argue that he is liable
under clause (C.1) would be tantamount to issuing a new assessment.
[9]
Subsection 152(9)
is relevant to this issue. It reads as follows:
The Minister may advance an alternative argument in
support of an assessment at any time after the normal reassessment period
unless, on an appeal under this Act
(a)
there is relevant evidence that the taxpayer
is no longer able to adduce without the leave of the court; and
(b)
it is not appropriate in the circumstances
for the court to order that the evidence be adduced.
[10]
The appellant’s argument
is based on the view that there is a distinction between the basis for an assessment
and an argument supporting an assessment. He argues that the basis for an
assessment is the determination of the nature of the amount in question. On
this view, the description of the lump-sum amount as “U.S. pension” in the Notice of Reassessment reveals that the basis of the reassessment is
that the amount received by the appellant was a pension benefit.
[11]
The appellant argues that
the Crown cannot change the basis of an assessment. He relies on Sharlow J.A.’s
decision in Canada v. Loewen. In that
decision, Justice Sharlow wrote:
The
basis of any assessment is a matter of historical fact, and does not change.
The basis of a reassessment normally includes the facts relating to the
increased taxable income, as the Minister perceived those facts when the
reassessment was made. It also includes the manner in which the Minister
applied the facts to the relevant law when making the reassessment, and any
conclusions of law that guided the application of the facts to the law.
. . .
[12]
In The Queen v. Anchor
Pointe Energy Ltd., Rothstein J.A. (as he then was) dismissed the notion
that there is a meaningful distinction between the basis for an assessment and
an argument in support of an assessment for the purpose of applying subsection 152(9). In Gould
v. The Queen,
Bowman C.J. of this Court also held that such a distinction was meaningless.
[13]
In Walsh et al v. The
Queen, the Federal Court of Appeal described the conditions under which the
Crown could bring forward an alternative argument under subsection 159(9). Richard C.J.
listed these as being:
1) the Minister cannot include transactions which
did not form the basis of the taxpayer’s reassessment;
2) the right of the Minister to present an alternative argument
in support of an assessment is subject to paragraphs 152(9)(a) and (b),
which speak to the prejudice to the taxpayer; and
3) the Minister cannot use subsection 152(9) to reassess
outside the time limitations in subsection 152(4) of the Act, or to
collect tax exceeding the amount in the assessment under appeal.
[14]
None of the above factors
come into play in this case. The same transaction is at issue (the transfer of
the lump sum that originated from the appellant’s sister’s IRA). Paragraphs
152(9)(a) and (b) do not apply. Finally, the Minister is not attempting
to reassess the appellant outside the normal limitation period or increase the
tax owing shown in the Notice of Reassessment.
[15]
Instead, what the
respondent has done is argue that the amount stated in the Notice of Reassessment
as to be included as “U.S. pension” should be included as an amount under clause 56(1)(a)(i)(C.1).
This is consistent with the notice of confirmation, which cites the same
provision. In addition, the description of the amount as being “U.S. pension” does not appear to be an indication that the Minister believed that the
appellant received pension income. The term is used simply to identify the payment
received by the appellant that is the object of the assessment. Undoubtedly, it
would have been better to describe the amount as an “IRA payment” subject to
tax under clause 56(1)(a)(i)(C.1). Nonetheless, I believe that the
Minister gave the appellant sufficient notice of his position by describing the
amount as “U.S. pension” subject to tax under clause 56(1)(a)(i)(C.1)
in the Minister’s confirmation of the assessment. The Minister did not in any
way alter the assessment by clarifying in the notification of confirmation the
position that had been taken in the reply to the appellant’s Notice of Appeal.
[16]
The appellant has not been
prejudiced by the Crown’s actions. The Minister’s initial Reply to the Notice
of Appeal indicated, as a ground relied on, that the amount the appellant
received was “properly assessed as income pursuant to ss. 56(1)(a)(i)(C.1)
of the Act.”
The Amended Reply makes this more explicit by including as factual assumptions the
statements that the IRA was a “foreign retirement arrangement” as defined by subsection
248(1) of the ITA and section 6803 of the Income Tax Regulations
and that the amount at issue would be subject to tax in the US if the appellant were a US resident.
The appellant consented to the filing of the Amended Reply. Indeed,
these same factual assumptions appear as facts in the Agreed Statement of Facts
submitted by the parties.
IV. Appellant’s Position as to the Proper
Interpretation of Clause 56(1)(a)(i)(C.1)
[17]
The appellant submits
that clause 56(1)(a)(i)(C.1) does not cover the amount at issue in
this appeal. That provision reads as follows:
56. (1) Without
restricting the generality of section 3, there shall be included in computing
the income of a taxpayer for a taxation year,
(a) any
amount received by the taxpayer in the year as, on account or in lieu of
payment of, or in satisfaction of,
(i) a
superannuation or pension benefit including, without limiting the generality
of the foregoing,
. . .
(C.1) the
amount of any payment out of or under a foreign retirement arrangement
established under the laws of a country, except to the extent that the amount
would not, if the taxpayer were resident in the country, be subject to income
taxation in the country,
. . .
[Emphasis added.]
[18]
This provision treats superannuation
or pension benefits as income, and such benefits include those items enumerated
in clauses (A) to (C.1). Clause (C.1) covers payments out of or under a foreign
retirement arrangement established in another country, except to the extent the
amount would not be subject to taxation in that country if the taxpayer were
resident there.
[19]
Subsection 248(1)
of the ITA defines a “foreign retirement arrangement” as a “prescribed
plan or arrangement”. In turn, section 6803 of the Income Tax
Regulations
defines a prescribed plan or arrangement as “a plan or arrangement to which
subsection 408(a), (b) or (h) of the United States’ Internal
Revenue Code of 1986, as amended from time to time, applies.”
[20]
The appellant relies on
the words “without limiting the generality of the foregoing” in subparagraph
(i) of paragraph 56(1)(a). The appellant argues that these words
suggest an intention on the part of Parliament that the items listed in clauses
(A) to (C.1) should be taxed only if they constitute superannuation or pension
benefits as those terms are generally understood.
[21]
The appellant relies on the
reasons in Re Law Society of Upper Canada and Attorney General of Ontario; in support of his view
that the case dealt with whether the Law Society of Upper Canada had the
authority to establish a regional system for the election of benchers. Borins
J. considered the language of subsection 62(1) of the Law Society Act,
which stated:
Subject to section
63, Convocation may make rules relating to the affairs of the Society and,
without limiting the generality of the foregoing,
. . .
6. providing for
the time and manner of and the methods and procedures for the election of
benchers.
[22]
Borins J. determined that
establishing a regional system for the election of benchers was not captured by
the phrase “the affairs of the Society”.
He then turned his mind to the matter of whether authority to do so was granted
by paragraph 6 of subsection 62(1), but before doing so he suggested that
such an inquiry may not have been required:
Having reached this
conclusion, it may be unnecessary to consider whether para. 6 of s. 62(1)
confers this power on Convocation to approve rules concerning the regional
election of benchers. This is because it would appear that the use of the
words “without limiting the generality of the foregoing” are [sic] intended
to mean that the reference to the particular subjects is not intended to modify
the meaning of the wider general language. . . .
[23]
Under this interpretation, the
Convocation could only make rules under paragraph 6 to the extent that such
rules related to the affairs of the Society defined without regard to the
paragraph itself. It should be noted that, despite the above statement, Borins
J. went on to consider the scope of paragraph 6 and concluded that it did not
provide authority for the Convocation to establish a regional system for the
election of benchers.
[24]
The appellant suggests that the
words “without limiting the generality of the foregoing” in subparagraph (i) of
paragraph 56(1)(a) require that an amount must be superannuation or
pension income in order for it to be included in income under that
subparagraph. Thus, even if an amount fits within one of the inclusionary
clauses of subparagraph 56(1)(a)(i), it should only be included in
income if it is a superannuation or pension benefit under the standard
definition of those terms.
[25]
The appellant relies on the
principles enunciated in Abrahamson v. M.N.R., a decision of Judge Rip
(as he then was), to submit that lump-sum amounts from IRAs such as he received
are not superannuation or pension income.
I note that Abrahamson was decided prior to the enactment of clause 56(1)(a)(i)(C.1).
V. Respondent’s Position
[26]
The Respondent argues that clause 56(1)(a)(i)(C.1)
must be interpreted as encompassing the amount received by the appellant.
[27]
The Crown points to Kaiser v. The
Queen, a decision of Rowe D.J.
In that case, the taxpayer was a US citizen residing in Canada. Upon the death of his father, the taxpayer received a lump-sum amount as the beneficiary of
his father’s US IRAs. At issue was whether this amount was to be included in
the taxpayer’s income under clause 56(1)(a)(i)(C.1).
[28]
The taxpayer in that case argued
that the amounts should only be included under clause (C.1) if they constituted
superannuation or pension benefits.
As the amount was not a pension or superannuation benefit of the taxpayer’s, he
argued, it should not be included in his income.
[29]
Rowe D.J. rejected this view, concluding
that the amount should be included on a plain reading of the provision. He
wrote:
It is worthwhile to
look again at the precise wording of clause 56(1)(a)(i)(C.1) and at its
constituent components. It refers to a “superannuation or pension benefit
including, without restricting the generality of the foregoing, the amount of any
payment out of or under a foreign retirement arrangement.
. . .”
[30]
Later on in the judgment, he
emphasized the broad nature of the provision:
. . . To
be taxable in this instance, the important qualification is that the funds
represent an amount of any payment out of or under that foreign retirement
arrangement, not that the amount is received by a particular person only under
circumstances to which the statutory and common law definitions of
“superannuation and pension benefit” apply. . . .
[31]
The appellant argues that the
reasoning in Kaiser should not apply because Rowe D.J. did not consider
the effect of the phrase “without limiting the generality of the foregoing”. He submits that this constituted
an error in statutory interpretation.
For this reason, he argues that the Court should not be bound by Rowe D.J.’s
decision.
[32]
The Crown also points to the Technical
Notes accompanying the proposed subsection 56(12), where it is stated that
“Clause 56(1)(a)(i)(C.1) generally requires that payments received by a
taxpayer from a foreign retirement arrangement (FRA) be included in computing
the taxpayer’s income as a superannuation or pension benefit.”
VI. Analysis
[33]
In my view, clause 56(1)(a)(i)(C.1)
calls for the inclusion in income of the amount received by the appellant from
the IRA.
[34]
With regard to the language of the
provision, I note the following. First, the language of clause (C.1) is very
broad. It purports to include “any payment out of or under a foreign
retirement arrangement”. There is in that clause no suggestion that the payment
must fit within the common law definition of superannuation or pension benefit
in order for it to be included in income.
[35]
Second, Parliament has used the
word “including” in subparagraph 56(1)(a)(i). Professor Sullivan states
that an inclusionary definition “enlarges the ordinary (or technical) meaning
of the defined terms by including things that might normally be thought to fall
outside their denotation.”
This fits in with the view that amounts described by clause (C.1) should be
included in a taxpayer’s income even though they do not meet the standard
definition of superannuation or pension benefits.
[36]
Third, this interpretation is
consistent with the phrase “without limiting the generality of the foregoing”.
Special attention should be paid to the word “limiting” in that phrase. The Canadian
Oxford Dictionary defines “limit” as meaning to “restrict”. Similarly, Black’s
Law Dictionary defines “limit” as “[a] restriction or restraint” or “[a]
boundary or defining line”.
Interpreting clause (C.1) as including lump-sum payments from IRAs does not
restrict the ambit of subparagraph 56(1)(a)(i); rather, it expands it.
Superannuation and pension income are still included in income by virtue of the
general inclusion of those items. Clause (C.1) imposes no restriction in that
regard. Rather, it includes as superannuation or pension income an item that
would not ordinarily be viewed as such.
[37]
The words of the provision are
precise and unequivocal and thus, in line with the Supreme Court of Canada’s
guidance in Canada Trustco,
they should play a dominant role in the interpretive process.
[38]
The scheme of section 56 provides
generally for the inclusion in a taxpayer’s income of revenue originating from a
wide variety of sources other than an office, employment, business, property or
a capital gain. It is perfectly consistent with this scheme to include in
income amounts received out of, or under, an IRA.
[39]
For all of these
reasons, the appeal is dismissed with costs to the respondent.
Signed at Ottawa, Canada, this 6th day of September 2012.
“Robert J. Hogan”
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