REASONS
FOR JUDGMENT
Paris J.
[1]
Ms. Parker is appealing the disallowance of her
claim for a spousal amount and a portion of her claim for a federal disability
amount transferred from her spouse, Gregory Neil Parker, for her 2011 taxation
year. Ms. Parker was reassessed after the Minister of National Revenue (the “Minister”) denied Mr. Parker’s claim for a clergy residence
deduction in his 2011 taxation year, which increased his net income by $10,000.
[2]
The issues in appeal are whether Mr. Parker was
entitled to the clergy residence deduction pursuant to paragraph 8(1)(c)
of the Income Tax Act (the “Act”) and, if not, whether the Canada
Pension Plan disability benefits he received in 2011 were required to be
included in his income.
Legislative Provisions
[3]
The relevant portions of paragraph 8(1)(c)
of the Act read as follows:
8.(1) Deductions allowed—In computing
a taxpayer’s income for a taxation year from an office or employment, there may
be deducted such of the following amounts as are wholly applicable to that
source or such part of the following amounts as may reasonably be regarded as
applicable thereto:
. . .
(c) clergy
residence — where, in the year, the taxpayer
(i) is a member of the clergy or of a religious order
or a regular minister of religious denomination, and
(ii) is
(A) in charge of a diocese, parish or congregation,
(B) ministering to a diocese, parish or congregation,
or
(C) engaged exclusively in full-time administrative
service by appointment of a religious order or religious denomination,
the amount, not exceeding the taxpayer’s
remuneration for the year from the office or employment, equal to
…
(iv) rent and utilities paid by the taxpayer for the
taxpayer’s principal place of residence … or the fair rental value of
such a residence …
[4]
Canada Pension Plan benefits are included in
income under paragraph 56(1)(a) of the Act, the relevant
portions of which read as follows:
56.(1) Amounts to be included in income
for year —Without restricting the generality of section 3, there shall be
included in computing the income of a taxpayer for a taxation year,
(a) pension benefits,
unemployment insurance benefits, etc. —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,
…
(B) the amount of any benefit under the Canada
Pension Plan or a provincial pension plan as defined in section 3 of that Act,
…
Facts
[5]
Mr. Parker has been employed as a Minister by McKernan Baptist Church (the “Church”) in Edmonton since 1994. He has been on long term
disability leave from that employment, and has not performed any employment
duties with the Church since September 2005.
[6]
Under his employment contract with the Church,
Mr. Parker obtained long term disability insurance under a group insurance
policy. Mr. Parker paid all of the premiums for the long term disability benefit
himself.
[7]
Mr. Parker began receiving long term disability
(“LTD”) benefits under the policy in January
2006. According to the terms of the policy, he was required to apply for Canada
Pension Plan disability benefits and any benefits he received would reduce his
LTD benefits under the policy dollar-for-dollar.
[8]
Effective March 1, 2007, he began receiving CPP
disability benefits and his LTD benefits were reduced by an equal amount
accordingly.
[9]
In 2011, Mr. Parker received CPP disability
benefits of $11,239 which he reported on his 2011 income tax return. After
claiming a clergy residence deduction in the amount of $10,000, Mr. Parker
reported net income of $1,239.
[10]
Mr. Parker’s LTD benefits were not included in
his income because all premiums paid for the insurance were paid by him.
[11]
In her 2011 tax return, Ms. Parker claimed a
spousal amount of $8,843, on the basis that Mr. Parker’s net income was $1,239.
She also claimed a federal disability amount of $7,341 transferred from Mr.
Parker.
[12]
The Minister reassessed Mr. Parker to deny his
claim for the clergy residence deduction, on the basis that Mr. Parker did not
receive any remuneration from his employment with the Church in 2011. In the
Minister’s view, the limitation found in paragraph 8(1)(c) after
clause (ii)(C)- that the amount of the deduction not exceed “the taxpayer’s
remuneration for the year from the office or employment” – resulted in Mr.
Parker being ineligible for the any amount in respect of the clergy residence
deduction.
[13]
As a consequence of the increase to Mr. Parker’s
net income, Ms. Parker was reassessed to disallow her claim for the spousal
amount deduction and to reduce the federal disability amount transferred from
spouse by $1,156 to $6,185.
[14]
At the hearing of the appeal, the Respondent
raised an additional ground for denying the clergy residence deduction. The
Respondent maintains that Mr. Parker did not meet any of the “function or
purpose” tests set out in subparagraph 8(1)(c)(ii) and, in
particular, that Mr. Parker was not ministering to a diocese, parish or
congregation at any time in 2011.
Appellant’s position
[15]
The Appellant submits firstly that Mr. Parker’s
CPP disability benefit income was remuneration from his employment with the
Church in 2011.
[16]
The Appellant also maintains that Mr. Parker
meets the condition in subparagraph 8(1)(c)(ii) of “ministering to a congregation”, upon a proper
interpretation of the word “ministering”. Alternatively,
the Appellant argues that this condition infringes section 15 of the Canadian
Charter of Rights and Freedoms and that paragraph 8(1)(c)
should be read down so as to permit a disabled clergy member to qualify for the
clergy residence deduction.
[17]
In the further alternative, should the Court
find that the CPP benefits were not remuneration from employment and that Mr.
Parker does not qualify for the clergy residence deduction, the Appellant takes
the position that Mr. Parker is not required to include the CPP disability
benefits in his 2011 income because the surrogatum principle applies and
requires that those amounts be characterized as non-taxable amounts as they
replaced LTD benefits that were non-taxable in his hands.
Analysis
[18]
I will deal firstly with the Appellant’s
position that Mr. Parker’s CPP disability benefits amounted to remuneration
from his employment with the Church in 2011.
[19]
The Appellant relies on this Court’s decision in
Shaw v. the Queen, 2010 TCC 210 as support for the proposition that the
word “remuneration” in paragraph 8(1)(c) must be given a broad
interpretation.
[20]
In Shaw, the taxpayer was claiming the
clergy residence deduction while she was on extended sick leave from her
employment as a chaplain. While on leave, the taxpayer received benefits under
her employer’s wage replacement plan. The issue before the Court was whether
the wage replacement income was remuneration from the taxpayer’s employment as
a chaplain.
[21]
Woods J. held that “given the breadth of
the definition” of the word “remuneration”, “it could include benefits provided
by an employer, including income from a wage replacement plan” and that “[c]onsidering the object of s. 8(1)(c),
it makes sense to give the term a reasonably broad interpretation.” She went on to find that the wage
replacement benefits were connected with the taxpayer’s employment because they
were provided as part of the taxpayer’s employment contract.
[22]
In the case before me, the Appellant submits
that there is a sufficient connection between her spouse’s employment and the
CPP payments to enable me to conclude that those payments were remuneration
from employment. The Appellant says that the CPP premiums were paid out of Mr.
Parker’s salary for services provided to the Church and therefore those
services “were critical to his CPP disability benefit
eligibility.”
[23]
The Appellant also says that since the CPP
benefits replaced part of Mr. Parker’s LTD benefits, which according to
the Shaw decision are remuneration from his employment with the Church,
the CPP benefits are remuneration from that employment as well.
[24]
I am unable to agree with the Appellant’s
submissions.
[25]
I find there is not a sufficient connection
between Mr. Parker’s employment and the receipt by him of the CPP disability
benefits to qualify those benefits as remuneration from his employment with the
Church. The facts of this case are distinguishable from those before the Court
in Shaw, where the wage loss benefits were found (at paragraph 20) to
have been provided under the taxpayer’s contract of employment
[26]
Here, the CPP benefits were not provided by the Church
under Mr. Parker’s employment contract. Entitlement to CPP benefits is not
something provided by an employer to an employee in return for services
provided by the employee, it is provided under a statutory scheme. The fact
that CPP premiums were paid in part from Mr. Parker’s employment income and in
part by his employer, the Church, does not result in the CPP disability
payments being a benefit provided by the Church.
[27]
Furthermore, again unlike the wage replacement
benefits received by the taxpayer in Shaw, the LTD benefits received by
Mr. Parker were not benefits provided by his employer because all the LTD
insurance premiums were paid by Mr. Parker. For this reason, they were not required
to be included in his income from employment. The fact that the CPP benefits
reduced the amount of Mr. Parker’s LTD benefits is therefore not
indicative of a connection between the CPP disability benefits and Mr. Parker’s
employment with the Church.
[28]
As a result, I find that the CPP benefits that
Mr. Parker received in 2011 were not remuneration from his employment with the
Church within the meaning of paragraph 8(1)(c) of the Act.
[29]
In light of my conclusion on this issue, since
the amount of the clergy residence deduction is limited to the remuneration
received by the taxpayer in the year from the office or employment, it is not
necessary for me to consider the remaining arguments made by the parties
concerning paragraph 8(1)(c).
[30]
The Appellant argues in the alternative that Mr.
Parker was not required to include his CPP disability benefits in his income by
application of the surrogatum principle. Counsel for the
Appellant argues that the CPP benefits replaced his non-taxable LTD benefits
and therefore must be given the same tax treatment as the LTD benefits.
[31]
The surrogatum principle is used to
determine whether awards of damages and settlement payments, which are
inherently neutral for tax purposes, are taxable or not. It provides
that tax consequences of damages and settlement payments will depend on what
the payment is intended to replace: Tsiaprailis v. Canada, 2005
SCC 8 at paragraphs 6 and 7, citing London & Thames Haven Oil Wharves
Ltd. vs. Attwooll (H.M. Inspector of Taxes), [1967] 2
All E.R. 124 (C.A.).
[32]
In my view, the Appellant’s surrogatum
argument must fail because it is premised on the assumption that the CPP
benefits received by Mr. Parker were tax neutral payments in the nature of
insurance proceeds. I find that the CPP payments in this case were neither tax neutral
nor were they akin to insurance proceeds.
[33]
CPP disability benefits are expressly included
in a taxpayer’s income under paragraph 56(1)(a) of the Act as
“other income” and therefore cannot be said to be tax neutral.
[34]
Furthermore, for the reasons set out by Bowman
A.C.J. (as he then was) in Watts v. The Queen, 2004 TCC 535, I
find that the Canada Pension Plan is not an insurance plan. Bowman A.C.J. wrote
at paragraphs 17 and 18 of that decision that:
… It is true that at least
where the recipient of CPP benefits was an employee both the employer and the
employee must contribute. Nonetheless, I should not have thought that one could
regard the social security regime of which the CPP is so integral a part in Canada as an insurance plan. Insurance has been defined in different ways but I am not
aware of any definition that would encompass a government-run pension plan. ….
Insurance is essentially a contractual
arrangement between an insured and an insurer and involves an obligation by an insurer,
upon payment of premiums, to pay an amount upon an event whose occurrence is
uncertain. The statutory regime administered by the CPP contains none of those
elements. The payments under it are therefore not income from an office or
employment as described in paragraph 6(1)(f) of the Income Tax Act. Rather,
they are taxable as income by reason of paragraph 56(1)(a).
[35]
Finally, even if the surrogatum principle
had applied to Mr. Parker’s CPP benefits, I would have found that the CPP
benefits were not intended to replace non-taxable LTD benefits and therefore
would not have also been non-taxable. Rather, CPP benefits are intended to
replace taxable employment income which is lost because the recipient is unable
to work due to disability.
[36]
Therefore, I find that Mr. Parker’s CPP
disability benefits were correctly included in his income in his 2011 taxation
year.
Conclusion
[37]
For all these reasons, the appeal is dismissed.
Signed at Vancouver,
British Columbia, this 17th day of April 2015.
“B.Paris”
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