Date: 20020208
Docket: 2001-2666-IT-I
BETWEEN:
GARY MOULTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] This appeal, from an assessment
for the appellant's 1999 taxation year, raises again the
question whether a taxpayer who relies and acts upon advice given
to him by the CCRA about the interpretation of the Income Tax
Act can hold the CCRA to it.
[2] The answer, I am sorry to say, is
no.
[3] Mr. Moulton is a high school
English teacher. On August 30, 1997, while jogging, he was
injured. I will let him tell the story in his own words. As one
would expect of an English teacher, he does so with clarity and
succinctness. His notice of appeal reads:
On August 30, 1997 I had an accident while jogging that
rendered me incapable of working until January 1999. I was
advised that in order to keep my pension status up to par, I
would have to buy back pension time for the period I was injured
at the rate applicable to the time. On September 4, 1998 I
thought I would get the jump on this situation and called Revenue
Canada to explain my situation, informing them that even though I
had up to six month after my return to work to buy my pension
back, I wished to get a head start by making an installment at
this time. I explained to the official that I was in receipt of a
tax free insurance while injured and would therefore not need to
be able to use the amount of the installment as a deduction for
income tax purposes until I filed my 1999 return. I asked if I
made an installment in September 1998 would I be able to claim
this amount on my 1999 income tax return. I was advised I
certainly could. Before filing the return in 1999, I made a
second call to inquire the same and again I was told that I could
make the claim. On the advice of the first official, I proceeded
to make the first installment on September 4, 1998 knowing that I
did not have to do it for up to six months after a return to work
but simply wishing to get a lead on the situation. I was shocked
when I received a reassessment of my 1999 income tax return
informing me that the claim I made for the installment I paid in
1998 was not valid and as a result I was in debt to Revenue
Canada for nearly $1200.00. This situation is tearful; I was
acting in such good faith and on what we rely to be proper
advice.
I explained to the person I spoke to about the reassessment
that I was acting on the advice of Revenue Canada Tax Officials
when I made the claim and asked what can be done when someone
like me gets in such an unfair situation. This resulted in me
filing an Objection of Appeal and also writing my Member of
Parliament in the hope of seeing fairness done. To date, I have
received an enormous amount of sympathy from all but no one seems
to be able to do anything to resolve the situation to my
satisfaction. Still hoping for a fair settlement, I am asking the
Tax Court of Canada to hear my case.
Surely, there must be room in the laws of this land for a
situation like mine to be made right. Please near my plea.
[4] On September 4, 1998 he paid
$2,470.25 as a contribution in respect of 1998 to his registered
pension plan with the teachers' pension plan of the
Department of Education of the Government of Newfoundland and
Labrador. The salary replacement insurance payments that he was
receiving were evidently not taxable and so he had no income in
1998 against which he could deduct the payments. He made the
payment in 1998 on the basis of advice from the official of CCRA.
He was informed that he could deduct in 1999 the payment made in
1998. He would not have made the payment in 1998 had he known the
he could not deduct it in 1999. This is a clear case of
detrimental reliance.
[5] He made the balance of the payment
for 1998 on February 19, 1999, in the amount of $1,853.48.
The deduction of this amount was not challenged by the CCRA and
it is conceded by the respondent that if he had paid the
$2,470.25 in 1999 it would have been allowed as a deduction.
[6] The provisions under which the
deduction may be made are paragraph 8(1)(m) and
subsection 147.2(4) of the Income Tax Act.
[7] Paragraph 8(1)(m)
reads
8(1) 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:
...
(m) the amount in
respect of contributions to registered pension plans that, by
reason of subsection 147.2(4), is deductible in computing
the taxpayer's income for the year.
[8] Subsection 147.2(4) reads
(4) There may be
deducted in computing the income of an individual for a taxation
year ending after 1990 an amount equal to the total of
(a) the total
of all amounts each of which is a contribution (other than a
prescribed contribution) made by the individual in the year to a
registered pension plan that is in respect of a period after 1989
or that is a prescribed eligible contribution, to the extent that
the contribution was made in accordance with the plan as
registered,
(b) the least
of
(i) the
amount, if any, by which
(A) the total of all
amounts each of which is a contribution (other than an additional
voluntary contribution or a prescribed contribution) made by the
individual in the year or a preceding taxation year and after
1945 to a registered pension plan in respect of a particular year
before 1990, if all or any part of the particular year is
included in the individual's eligible service under the plan
and if
(I) in the case of a
contribution that the individual made before March 28, 1988 or
was obliged to make under the terms of an agreement in writing
entered into before March 28, 1988, the individual was not a
contributor to the plan in the particular year, or
(II) in any other case,
the individual was not a contributor to any registered pension
plan in the particular year
exceeds
(B) the total of all
amounts each of which is an amount deducted, in computing the
individual's income for a preceding taxation year, in respect
of contributions included in the total determined in respect of
the individual for the year under clause (A),
(ii) $3,500, and
(iii) the amount
determined by the formula
($3,500 x Y) - Z
where
Y is the
number of calendar years before 1990 each of which is a year
(A) all or any part of
which is included in the individual's eligible service under
a registered pension plan to which the individual has made a
contribution that is included in the total determined under
clause (i)(A) and in which the individual was not a contributor
to any registered pension plan, or
(B) all or any part of
which is included in the individual's eligible service under
a registered pension plan to which the individual has made a
contribution
(I) that is included
in the total determined under clause (i)(A), and
(II) that the individual
made before March 28, 1988 or was obliged to make under the terms
of an agreement in writing entered into before March 28, 1988,
and in which the individual was not a contributor to the plan,
and
Z is the
total of all amounts each of which is an amount deducted, in
computing the individual's income for a preceding taxation
year,
(A) in respect of
contributions included in the total determined in respect of the
individual for the year under clause (i)(A), or
(B) where the preceding
year was before 1987, under subparagraph 8(1)(m)(ii) (as
it read in its application to that preceding year) in respect of
additional voluntary contributions made in respect of a year that
satisfies the conditions in the description of Y, and
(c) the
lesser of
(i) the
amount, if any, by which
(A) the total of all
amounts each of which is a contribution (other than an additional
voluntary contribution, a prescribed contribution or a
contribution included in the total determined in respect of the
individual for the year under clause (b)(i)(A)) made by
the individual in the year or a preceding taxation year and after
1962 to a registered pension plan in respect of a particular year
before 1990 that is included, in whole or in part, in the
individual's eligible service under the plan
exceeds
(B) the total of all
amounts each of which is an amount deducted, in computing the
individual's income for a preceding taxation year, in respect
of contributions included in the total determined in respect of
the individual for the year under clause (A), and
(ii) the amount, if
any, by which $3,500 exceeds the total of the amounts deducted by
reason of paragraphs (a) and (b) in computing the
individual's income for the year.
[9] I have set out this rather
complicated subsection in its entirety to demonstrate that no
matter how hard one struggles to reach a different conclusion,
Mr. Moulton's payment in 1998 for the 1998 taxation year
is deductible only in 1998 and not later. In other words, he must
fall under paragraph (a). That paragraph has to do
with a payment in respect of a period after 1989 and the
deduction for a taxation year must be of a payment made in the
year.
[10] This may be contrasted with paragraphs
(b) and (c) which deal with payments made in
respect of a year prior to 1990. Such payments are deductible in
the year if made in that year or in a preceding taxation
year.
[11] The appellant argues with great
conviction that he should be entitled to rely on advice given by
the CCRA and relied upon by him in good faith. I agree that the
result may seem a little shocking to taxpayers who seek guidance
from government officials whom they expect to be able to give
correct advice. Unfortunately such officials are not infallible
and the court cannot be bound by erroneous departmental
interpretations. Any other conclusion would lead to inconsistency
and confusion. The only response I can make to what the appellant
undoubtedly sees as an unsatisfactory state of affairs is what I
said in S. Goldstein v. Canada, [1995] 2 C.T.C. 2036
at pp. 2045-6.
I come next to the question of estoppel.
There is much authority relating to the question of estoppel in
tax matters and no useful purpose would be served by yet another
review of the cases. I shall endeavour however to set out the
principles as I understand them, at least to the extent that they
are relevant. Estoppels come in various forms—estoppel
in pais, estoppel by record and estoppel by deed. In some
cases reference is made to a concept of "equitable
estoppel", a phrase which may or may not be accurate. (See
Canadian Pacific Railway Co. v. The King, [1931] A.C. 414
at page 429. Cf. Central London Property Trust Ltd. v. High
Trees House Ltd., [1947] 1 K.B. 130.) It is sufficient to say
that the only type of estoppel with which we are concerned here
is estoppel in pais. In Canadian Superior Oil Ltd. v.
Paddon-Hughes Development Co., [1970] S.C.R. 932 at pages
939-40 Martland J. set out the factors giving rise to an estoppel
as follows:
The essential factors giving rise to an estoppel are I
think:
(1) A representation or
conduct amounting to a representation intended to induce a course
of conduct on the part of the person to whom the representation
is made.
(2) An act or omission
resulting from the representation, whether actual or by conduct,
by the person to whom the representation is made.
(3) Detriment to such
person as a consequence of the act or omission.
Estoppel is no longer merely a rule of evidence. It is a rule of
substantive law.3 Lord Denning calls it "a
principle of justice and of equity". (See Moorgate
Mercantile Co. v. Twitchings, [1976] 1 Q.B. 225, at page
241.)
It is sometimes said that estoppel does not lie against the
Crown. The statement is not accurate and seems to stem from a
misapplication of the term estoppel. The principle of estoppel
binds the Crown, as do other principles of law. Estoppel in
pais, as it applies to the Crown, involves representations of
fact made by officials of the Crown and relied and acted on by
the subject to his or her detriment.4 The doctrine has
no application where a particular interpretation of a statute has
been communicated to a subject by an official of the government,
relied upon by that subject to his or her detriment and then
withdrawn or changed by the government. In such a case a taxpayer
sometimes seeks to invoke the doctrine of estoppel. It is
inappropriate to do so not because such representations give rise
to an estoppel that does not bind the Crown, but rather, because
no estoppel can arise where such representations are not in
accordance with the law. Although estoppel is now a principle of
substantive law it had its origins in the law of evidence and as
such relates to representations of fact. It has no role to play
where questions of interpretation of the law are involved,
because estoppels cannot override the law.5
The question of the interpretation of paragraph 146(1)(c) is a
matter of law and I must decide it in accordance with the law as
I understand it. I cannot avoid that obligation because the
Department of National Revenue may previously have adopted an
interpretation different from that which it now propounds. The
question is not whether the Crown is bound by an earlier
interpretation upon which a taxpayer has relied. It is more to
the point to say that the courts, who have an obligation to
decide cases in accordance with the law, are not bound by
representations, opinions or admissions on the law expressed or
made by the parties.6
The result of the application of the rule in Maritime
Electric and the many other cases to the same effect can
have, in particular cases, unfortunate consequences for a
taxpayer who, in good faith, relies upon a departmental
interpretation that is subsequently changed. Nonetheless it is
not in the interests of justice that the courts should be
fettered by erroneous interpretations of the law by departmental
officials.7
______________________
3Halsbury's Laws of England, 4th ed. vol.
16, page 840, paragraph 951.
4Robertson v. Minister of Pensions, [1949] 1
K.B. 227; The Queen v. Langille, [1977] C.T.C. 144, 77
D.T.C. 5086. The earlier cases are fully reviewed by Cameron J.
in Woon v. M.N.R., [1950] C.T.C. 263, 50 D.T.C. 871.
5Maritime Electric Co. v. General Dairies Ltd.,
[1937] A.C. 610; M.N.R. v. Inland Industries Ltd., [1972]
C.T.C. 27, 72 D.T.C. 6013 (S.C.C.); Stickel v. M.N.R.,
[1972] C.T.C. 210, 72 D.T.C. 6178 (F.C.T.D.); [1973] C.T.C. 202,
73 D.T.C. 5178 (F.C.A.); [1974] C.T.C. 416, 74 D.T.C. 6268
(S.C.C.); Granger v. Canada (Employment and Immigration
Commission), [1986] 3 F.C. 70, 29 D.L.R. (4th) 501; [1989] 1
S.C.R. 141, 91 N.R. 63.
6C.(G.) v. V.-F.(T.), [1987] 2 S.C.R. 244, 9
R.F.L. (3d) 263, at pages 257-58 (S.C.R.); Custom Glass Ltd.
v. M.N.R., [1967] C.T.C. 289, 67 D.T.C. 5207 (Ex. Ct.), at
page 294 (D.T.C. 5210); L.I.U.N.A. Local 527 Members'
Training Trust Fund v. Canada, [1992] 2 C.T.C. 2410, 92
D.T.C. 2365 (T.C.C.), at page 2415 (D.T.C. 2369).
7I leave aside entirely the question of advance
rulings which form so important and necessary a part of the
administration of the Income Tax Act. These rulings are
treated by the Department of National Revenue as binding. So far
as I am aware no advance ruling that has been given to a taxpayer
and acted upon has ever been repudiated by the Minister as
against the taxpayer to whom it was given. The system would fall
apart if he ever did so.
[12] The result, unsatisfactory as it may
seem, is reminiscent of one that arose in Watanabe v. R.,
[1999] 2 C.T.C. 2962. The appellant was, as here, a
teacher. She communicated on several occasions with the
Department of National Revenue and was assured she could deduct
past service contributions. On reassessment the deduction was
denied. I said at pp. 2964-5:
Notwithstanding the waiver of interest, the situation remains
highly unsatisfactory for a number of reasons. In the first
place, if she is not entitled to deduct the past-service payments
that she made to the RPP, she will nonetheless be required to
include the same amount in income under paragraph 56(1)(a)
when it is paid to her out of the RPP as a pension benefit. Her
apprehension of double taxation is well founded. Moreover, while
it is true that she may, assuming no further change in the
legislation, be able to deduct the payments in future years, this
cannot happen until her current contributions to her RPP are less
than $3,500. As a practical matter this will hot happen until she
retires in a number of years and at that time she will presumably
be in a lower income tax bracket.
It is obviously beyond my jurisdiction to order the Minister to
obtain a remission under the Financial Administration Act.
However, I can express the view that this would be a very
appropriate case for him to do so. Otherwise, I cannot assist the
appellant. I presume there is no need for me to refer the matter
back to permit the Minister to implement his agreement to cancel
the interest assessed.
[13] The same observation can be made here.
The result is particularly unfortunate when one considers that
the amount is not deductible when paid but it is certainly
taxable when it comes out of the pension plan. Apart from
suggesting a remission under the Financial Administration
Act, as I did in Watanabe, there is nothing I can do
and I must regretfully dismiss the appeal.
Signed at Toronto, Canada, this 8th day of February 2002.
A.C.J.
Email this Content