The Queen v. Powell, 80 DTC 6301, [1980] CTC 382 (FCTD)

Maguire, DJ:—In these proceedings the plaintiff appeals from the decision of the late A W Prociuk, as a member of the Tax Review Board, dated February 24, 1978.

The matter came before the Tax Review Board on an appeal by defendant from a reassessment by the Minister of National Revenue adding the sum of $2,223.19 to defendant’s taxable income for the 1975 taxation year.

The basis of the reassessment arose from the following facts and circumstances.

Under a Trust Agreement dated January 1,1966, Exhibit P.1, entered into by Shell Canada Limited and other affiliated corporations, and named trustees, there was established a trust termed “Shell Canadian Provident Fund (1966)”, being a contributory fund for the exclusive benefit of employees who became beneficiaries thereof on retirement from employment with a contracting corporation or as otherwise therein provided. Defendant Powell, an employee of Shell Canada Limited, became a beneficiary under said plan, contributing regularly a percentage of his earnings from said employment as set forth in Article 7 of the Regulations of said Provident Fund. The employer contributed an equal amount, to be credited to the account of the employee.

This trust was accepted by the Minister for registration as a deferred profit sharing plan pursuant to present paragraphs 147(1 )(a) and (b) of the Income Tax Act, complying with all requirements of subsection 147(2).

Defendant elected to have his payments to the Fund invested by the trustees in the Shell Stock Plan, Article 11, Section 2 of the Regulations. Under this Plan and pursuant to regulations of the Trust Agreement (Provident Fund (1966)) the trustees, by and through their agent Royal Trust Company, each month purchased shares of Shell Canada Limited on the market, to meet the requirements of defendant and other employees in the same position. Shares so purchased were held by the Trust Company, registered in its name, or the name of its nominee, not in the name of the employee contributing. A record was maintained of the total shares held to the credit of each contributing employee, which record included any part interest in a share or shares.

By a trust agreement, and regulations in respect thereto, dated February 27, 1975, the earlier trust agreement (Shell Canada Provident Fund (1966)) was amended and given the name “Shell Savings Fund”. Registration as a “deferred profit sharing plan” under section 147 of the Income Tax Act was continued.

One of the distinguishing features of a “deferred profit sharing plan” is that a trust established, governed by such a plan, is exempt from tax on its income during the time that the trust is so governed by the plan (subsec. 147(7)).

Under this “Shell Savings Fund” trust, one amendment to the original trust was the deletion of any contribution or payments by employees to the “Fund”, effective as from April 1, 1975, Shell Savings Fund, Regulation Article 11. Article 14 of said regulations makes provision for the withdrawal by a “member” (employee) of part or all of the savings or shares (Shell Stock Account) standing to his credit.

Defendant, as also other employees being members of the Fund, received from the operating trust company particulars of the options then available to him, in respect to savings, shares, etc standing to his credit, from payments made by him to the Provident Fund. Exhibit P.3.

Defendant Powell elected to close out his account in respect to all monies in his savings account and all shares in Shell Stock account, with said shares to be registered in his name. Exhibit P.4.

Exhibit P.5 is a Members Statement, received by defendant accounting for his payments, etc, and Exhibit P.6 sets forth the trust company’s computation of withdrawals, net taxable balance, and increase in value of shares registered in his name and delivered to him in accordance with the exercised option.

The assessment imposed by the Minister was:

The issue before the Court is in respect to the item “Increase in value of shares—$1,515.51.’’ This increase in value is admitted. Defendant’s contention is that the shares in question were purchased on his instructions with money supplied by him, through regular payments of a percentage of his Salary, in tax paid dollars, to Shell Provident Fund, and with said shares, while not registered in his name, held to his account by the trust company operating the trust.

Defendant further argues that in exercising his option to have his payments invested in Shell Canada Stock, not bonds proper for a trustee, he was investing in a risk venture and should by reason of the risk assumed obtain the tax relief claimed to be given to other investors in such a risk venture, namely a tax based on capital gains, not a tax on increased value deemed taxable income. Defendant maintains that the situation here gives rise to the same rights and limited liability for tax as would apply if he had purchased the shares through a broker and later sold them, with tax liability being limited to tax on capital gain.

Defendant’s submission appears reasonable but the issue must be determined in accordance with applicable law, even if the result then appears to be unreasonable.

I consider first, defendant’s submission [that] Shell Savings Fund Trust Agreement and Regulations, Exhibit P.2, does not constitute an amendment to Shell Canadian Provident Fund, Exhibit P.1, but sets up an entirely new trust and thus shares of Shell stock acquired on his behalf are no longer within and subject to the provisions of the Income Tax Act relative to a deferred profit sharing plan. The argument continues that thus the increase in value of the shares is a capital gain and subject to income tax assessment only on that basis.

The regulations of Shell Canadian Provident Fund (1966) permit amendments thereto.

Shell Savings Fund, Trust Agreement, refers initially to the Provident Fund Trust and amendments thereto up to the 1st day of April, 1975. In the first recital, page 1, of Shell Savings Fund Agreement, it reads in part as follows: ‘‘to be known as ‘Shell Savings Fund’ previously known as ‘Shell Canadian Provident Fund’ ”.

Article 11 of Shell Savings Fund regulations specifically amends the Shell Stock Plan and the Provident Fund relative to deletion of members right to continue payments to the Fund; power to terminate the Shell Stock Plan and to distribute in kind to the members shares standing to the credit of each; the Shell Savings Fund Trust has continued to be recognized by the Minister as a registered deferred profit sharing plan.

I cannot give effect to this submission of the defendant.

The remaining question is: “Does the legislation relative to a deferred profit sharing plan support and authorize the assessment by the Minister here made?”

Section 56 of the Income Tax Act reads in part as follows:

(Section 56.—Amounts to be included in income for year.)

56.(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(i) amounts received by the taxpayer in the year under a deferred profit sharing plan as provided by section 147.

“amount” (as defined in section 248 of the Act) means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing . . .’

This legislation establishing rules applicable to deferred profit sharing plans is designed to assist employees and with them their employers in establishing trusts, accumulating moneys for an employee’s benefit on retirement from employment, or at a specified age, or at death. I have already referred to subsection 147(7) providing that no tax is payable by a trust on the taxable income of the trust during the period the trust is governed by a deferred profit sharing plan. This provision is to the benefit of the employee members and over a period of time could be substantial. The legislation in providing for deferred profit sharing plans necessarily becomes a code governing any such plan, and determining the rights and obligations of the developers of the plan and of equal importance, of the member employees benefiting from the plan. These codified provisions must be properly interpreted and applied to all questions or issues arising in determining tax consequences to the member employees. Comparison with tax results in what appear to be somewhat similar situations, to that affecting a member, cannot be considered in determining any question.

Subsection 147(10) is the section which specifically provides that amounts received by an employee member of such a plan shall be included in computing his income. Effect must be given to this section when applicable, as it is here. The fact that other persons, not within such a plan, but with investments somewhat similar in nature to that allocated to the defendant, may be taxed on a different basis, is no ground for upsetting an assessment made by the Minister in accordance with the specific sections of the Act. The law must be applied as determined and set by the legislation passed by Parliament.

I must therefore conclude that the decision arrived at by Prociuk, of the Tax Review Board, was in error. The assessment by the Minister is restored and the appeal by the plaintiff herein is allowed.

The amount here in controversy does not exceed $2,500.00, and in accordance with subsection 178(2) of the Act I order the Minister to pay to the defendant all reasonable and proper costs of the defendant taxpayer in connection with this appeal.