[OFFICIAL ENGLISH TRANSLATION]
2002-276(IT)I
BETWEEN:
NOËLLA
LORRAIN,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
Appeal
heard on October 23, 2002, at Ottawa, Ontario, by
the
Honourable Judge Lucie Lamarre
Appearances
For the
Appellant: The Appellant herself
Counsel for the
Respondent: Carole Benoît
Pierre-Paul
Persico (Student-at-law)
JUDGMENT
The
appeal from the assessment made under the Income Tax Act for the 2000
taxation year is dismissed.
Signed at Ottawa, Canada, this 24th
day of October 2002.
J.T.C.C.
Translation certified true
on this 5th day of January 2004.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date:
20021024
Docket:
2002-276(IT)I
BETWEEN:
NOËLLA
LORRAIN,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre,
J.T.C.C.
[1] The
appellant is appealing from an assessment made on June 7, 2001, for the 2000
taxation year in which the Minister of National Revenue (“Minister”) included
in her income a retroactive lump-sum payment she received in 2000 from the
Canada Customs and Revenue Agency (“CCRA”) as pay equity for the years (1986 to
1994) when she was working at the Department of Transport.
[2] The
appellant declared bankruptcy on February 22, 2000, and subsequently received a
retroactive lump-sum payment of $9,725.89 in employment income, $806.40 as a
retiring allowance and $6,465.57 in interest in connection with this lump-sum
payment. She did not include those amounts in her 2000 tax return since she
wanted to make the election provided for under subsection 110.2(2) of the Income
Tax Act (the “Act”) to deduct the amount of the lump-sum payment
received and to compute the notional tax payable under section 120.31 of the Act.
Under section 120.31, the notional tax payable on the eligible portion of
the lump-sum amount (the portion that relates to employment income and the
retiring allowance in accordance with subsection 110.2(1)) can be computed as
though it had been received in the previous years to which it related, adding
the interest that would have been payable on the amount of tax computed using
that method.
[3] However,
a CCRA representative came to explain to the Court that the notional tax
computation method was not advantageous for the appellant since she would be
required to pay an additional $2,346 in taxes using that method. Therefore,
CCRA simply included the total amount of the lump-sum payment for the year 2000
without applying the deduction provided for in section 110.2. The appellant was
thus liable for $2,631 in taxes instead of the $4,977 for which she would have
been liable if the election had been made.
[4] The
appellant was under the impression that the tax payable on the lump‑sum
payment relating to the previous years could be spread out over those years and
would then have been part of the debts absorbed by the bankruptcy.
Unfortunately, that is not the case. The computation of notional tax serves
only to determine the computation most advantageous to the appellant in terms
of the tax payable. However, since the lump-sum payment was received after
February 22, 2000, the date of the bankruptcy, it was part of the appellant’s
taxable income in the taxation year starting at the beginning of the day on
which she became a bankrupt and ending on December 31, 2000 (section 128 of the
Act). The tax payable on that lump-sum payment becomes payable only at
the time provided for under the Act for filing the tax return for the
taxation year in which the lump-sum payment was received. In this case, it was
the taxation year beginning on the day of the bankruptcy
(February 22, 2000) and ending on December 31, 2000.
Sections 110.2 and 120.31 do not make the amount of tax payable
retroactive to the previous years.
[5] For
these reasons, the assessment is correct and the appeal is dismissed.
Signed at
Ottawa, Canada, this 24th day of October 2002.
J.T.C.C
Translation
certified true
on this 5th
day of January 2004.
Sophie
Debbané, Revisor
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