Milliken v. The Queen, docket 2001-738(IT)I (Informal Procedure)

Date: 20020307

Docket: 2001-738-IT-I

BETWEEN:

ROBERT JOHN MILLIKEN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

(delivered orally from the Bench at Kingston, Ontario on March 7, 2002)

Miller, J.T.C.C.

[1]            This is an appeal by way of informal procedure by Mr. Robert Milliken, of the Minister's assessment of his 1997 taxation year on the basis that the Minister misapplied sections 110.2 and 120.31 of the Income Tax Act. Enacted in 2000, sections 110.2 and 120.31 of the Act are to enable an individual, such as Mr. Milliken, who receives a qualifying retroactive lump sum payment to benefit from a special calculation.

[2]            If the application of these new provisions results in a tax saving, there is to be an adjustment for the tax payable. If the calculation does not result in an advantage to the taxpayer, the lump sum will be included in income in the year of receipt, which is in fact what has happened in Mr. Milliken's case. The Minister's calculation did not benefit Mr. Milliken and he disagrees with that calculation.

[3]            In 1997, Mr. Milliken was awarded a lump sum payment of $147,191 from the Government of Ontario as a result of an arbitration settlement reached with respect to his employment from 1987 to 1996. Of the settlement amount $101,716 represented principal and $45,475 was with respect to interest.

[4]            The Minister applied the provision of sections 110.2 and 120.31 and reached a conclusion that applying those sections would result in greater tax owing by Mr. Milliken than the tax owing by bringing all of the principal into income in the one year, in 1997.

[5]            Mr. Milliken contended in his appeal that the Minister incorrectly included, in the computation of federal tax payable, the additional tax that would have been payable in each of the previous years that the arbitration award related to, as if the arbitration award were income in those previous years. He did not pursue that at trial quite correctly, but he also objected to the Minister including an interest component in his calculation.

[6]            The Minister contends that the calculation has been properly made in accordance with those two provisions.

[7]            The relevant sections are lengthy and somewhat wordy and I'm not going to repeat them, but applying those sections to the facts of this matter, the parties agree that the amount of $101,716 is indeed a qualifying amount.

[8]            Mr. Milliken agreed with the specified portions for each of the eligible taxation years as were provided by his employer.

[9]            I accept those allocations as set out in Schedule A to the reply, the sum of which equals that principal amount of $101,716.

[10]          Pursuant to section 110.2, that principal amount may be deducted from income in 1997, the year of receipt. It is then necessary to apply section 120.31. That is a section that provides for an addition to tax payable equal to an amount, if any, that the notional tax payable exceeds tax payable under Part 1. The notional tax payable equals the total of two things: first, additional taxes that would have been triggered from each relevant preceding year, if a specified portion was added to taxable income; it did not appear that the Appellant had any disagreement with those figures. Secondly, the interest to reflect that the tax was not paid in the particular relevant years.

[11]          So, for each of the years 1987 to 1996, the calculation requires that a specified amount be added to the Appellant's income, and Part 1 tax then calculated on the increased amount. The amounts of the increased tax for all of those years are then added together. That calculation came to approximately $26,000.

[12]          Again, the Appellant did not disagree with that figure which I believe was $26,255

[13]          The second element of the notional tax payable is the calculation of interest on the sum of the increased taxes.

[14]          Mr. Turcotte, from Canada Customs & Revenue Agency ("CCRA"), calculated the interest on a compound basis, although I am not convinced a simple interest rate might not be appropriate.

[15]          While I can fully appreciate the Appellant's incredulity that the interest calculation results in such a significant element of the calculation, leaving aside the compound versus simple interest issue for a minute, I can find no error in the calculation itself. The Act simply requires this interest calculation to be included. I cannot ignore that requirement.

[16]          In applying the calculation to the Appellant's circumstances, I find that those provisions, 110.2 and 120.31, do not offer the Appellant any relief. If Mr. Milliken, as I am sure he does, has concerns with the policy that led to this result, as indicated, that is to be addressed to the Legislators, and I understand that he may have already taken steps in that regard.

[17]          The Appeal's Officer testified that from his experience there is no advantage to a taxpayer on notionally bringing income in over more than four years, due to the requirement to include interest on that tax.

[18]          I am inclined to agree with the Appellant that this appears to be a disparity between the Legislation and what appears to have been an intent of Parliament to offer some relief to people such as the Appellant. The Legislative requirement to include interest though contemplated by the Finance Minister in theory, in practise appears to greatly reduce any benefit contemplated by the introduction of these sections.

[19]          As has been repeated many times, however, this Court is not the Legislative body. If Legislation is imperfect, it is for the Legislators to deal with it. I must interpret the Legislation as it is written.

[20]          I thought that some re-calculation of interest might assist Mr. Milliken so I put Mr. Turcotte through the somewhat painful exercise of going through that interest calculation, but I am afraid I do not see that it does. The difficulty for the Appellant is that the interest requirement exists at all, but it does and again, I repeat, I cannot ignore it.

[21]          I am satisfied that regardless of whether the interest is calculated on a simple or a compound basis, in this particular case the notional tax payable exceeded the tax on a lump sum basis in 1997.

[22]          While this may seem unfair to the Appellant, and I know that it does, it is the law that I have to deal with. I must dismiss the appeal.

Signed at Ottawa, Canada, this 3rd day of April, 2002.

"Campbell J. Miller"

J.T.C.C.

COURT FILE NO.:                                                                 2001-738(IT)I

STYLE OF CAUSE:                                                               Robert John Milliken v. The Queen

PLACE OF HEARING:                                                         Kingston, Ontario

DATE OF HEARING:                                                           March 7, 2002

REASONS FOR JUDGMENT BY:                      The Honourable Judge C. J. Miller

DATE OF REASONS FOR JUDGMENT:          April 3, 2002

APPEARANCES:

For the Appellant:                                                                                 The Appellant himself

Counsel for the Respondent:                                              Rosemary Fincham

COUNSEL OF RECORD:

For the Appellant:                

Name:                     

Firm:                       

For the Respondent:                                                             Morris Rosenberg

                                                                                                                Deputy Attorney General of Canada

                                                                                                                Ottawa, Canada