Citation: 2009 TCC 492
Date: 20090930
Docket: 2008-3786(IT)I
BETWEEN:
FRANK J. BURCHILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. Facts
[1] The Appellant is a
retired Federal Civil Servant. The Appellant was also employed by Carleton University as a sessional lecturer
and he was employed by the Government of the Yukon Territory.
[2] In reporting his
income for the 2005 taxation year, the Appellant reported pension income of
$171,567.89. The pension was issued by the Public Works Government Services of
Canada (“PWGSC”).
[3] In the 2005
taxation year, the Appellant received Old Age Security (“OAS”) payments in the
amount of $5,706.63.
[4] On April 3, 2006,
the Minister of National Revenue (the “Minister”) issued a Notice of
Reassessment for the 2005 taxation year to include pension income of
$171,567.89 and to include the OAS payments in the Appellant’s income.
[5] On April 4, 2006,
the Appellant made a request to the Minister to allocate the pension income of
$171,567.89 that he had received in a lump sum in 2005 retroactively to taxation
years dating as far back as 1992.
[6] The Minister accepted
the request made by the Appellant. On May 3, 2006, the Minister Reassessed
the Appellant’s 2005 taxation year to allocate $158,706.00 of his pension
income to prior taxation years. However, the OAS payments remained unchanged.
[7] The Appellant filed
a Notice of Objection dated June 18, 2008.
B. Issues
[8] The issues are
whether:
a) the Appellant is entitled to additional
non-refundable tax credits in calculating the tax on pension/superannuation payments
allocated to prior taxation years;
b) the Appellant was properly assessed
arrears interest on the tax on pension/superannuation that had been allocated by
the Minister to prior taxation years;
c) the Appellant was properly assessed a
repayment of social benefits of $5,706.63 in respect of OAS received by the
Appellant in 2005; and
d) the Appellant is entitled to an Age Credit
for the purpose of computing his non-refundable tax credits for the 2005
taxation year.
C. Analysis
and Decision
[9] During the hearing
the Appellant stated that he was dropping his claim that he is entitled to
non-refundable tax credits (see 8(a) above).
[10] Section 110.2 of the
Income Tax Act (the “Act”) was introduced in the Act in
2000 to provide some relief to taxpayers by allowing them to deduct, in
computing their taxable income for the year, the specified portion of a
qualifying amount received in that year. A tax is levied pursuant to section
120.31 of the Act on the amount deducted. Subsection 120.31(3) provides
for a “notional interest”, based on the rate of interest on tax refunds
applicable to the relevant period as computed for the year beginning on May 01
of the year following the relevant preceding year and ending immediately before
the year in which the lump sum payment is received.
[11] Counsel for the
Respondent said that the special calculation contained in section 120.31 of the
Act is available with respect to the lump sum pension payment that the
Appellant had received in 2005. Counsel for the Respondent also noted that the
special calculation is favourable to the Appellant when compared with the
situation where the lump sum does not apply. Counsel for the Respondent said:
… if the special
calculation does not apply, the full amount of the lump sum must be included in
the Appellant’s income for 2005.
This engages
higher marginal tax rates which more than overtake the notional interest
component of the special calculation.
(Transcript,
page 69, lines 8-14)
[12] Counsel for the Respondent
also stated that subparagraph 56(1)(a)(i) of the Act specifies that
pension or superannuation amounts must be included in income when they are received.
(Underlining added). In support of her position, counsel referred to the
decision in Lessard v. The Queen, 2007 FCA 9, 2008 D.T.C. 6259,
where the Federal Court of Appeal upheld the decision of Lamarre Proulx, J. (see
Lessard v. The Queen, 2006 TCC 45, 2007 D.T.C. 1658). Justice
Lamarre Proulx had held that pursuant to clause 56(1)(a)(i)(B) of the Act,
any amount received in the year in payment of a benefit under a
provincial pension plan must be included in the calculation of income in the
year it was received. (Underlining added).
[13] The Appellant had
argued that because he was entitled to the pension amounts in prior years and had
opted not to be paid the amounts in prior years, the amounts should be included
in his income for those earlier years, notwithstanding that he actually received
the full lump sum in 2005.
[14] The Appellant had
argued that the monthly pension amounts were “deemed” to have been
received by him when they became available to him. He suggested that the
pension amounts were taxable in the years in which they were receivable (i.e.,
1992 to 2005).
[15] In support of his
position, the Appellant filed the following court decisions:
Green v. Minister of National Revenue, 50 D.T.C. 320; and
Blenkarn v. M.N.R., 63 D.T.C. 581.
[16] The Green
decision dealt with interest and not pension income. Furthermore, this was a
decision of the Income Tax Appeal Board interpreting a provision of the Income
War Tax Act. In my opinion this decision is not applicable to the tax
treatment of pension income specifically provided for in the current Act.
[17] The Appellant also
referred to the Blenkarn decision in support of his argument. This was a
1963 decision of Chairman
Cecil L. Snyder, Q.C., of the Tax Appeal Board. I would first note that the Blenkarn
case has never been cited in any other court decision. Furthermore, Chairman Snyder
said at page 582:
… The T4. issued by the Department
of National Defence stated that salary of $707.02 had been paid to the
appellant in 1960. However, counsel for the Minister conceded that the portion
of that amount, approximately $150, which was earned in December, 1960, but not
received until 1961 should be included in 1961 income and the assessment
for 1960 should be amended accordingly.
(Underlining
added)
[18] In my opinion, the Blenkarn
decision lends some support to the Minister’s argument that the important
factor was when the payment was received and not when the payment was receivable.
[19] I also agree with
counsel for the Respondent when she said:
… The fact that
the Appellant was entitled to amounts in prior years, and the fact that it was
the Appellant who caused the amounts not to be paid to himself, are irrelevant.
He was in fact not paid the amounts until 2005.
(Transcript,
page 73, lines 8-12)
[20] The Appellant has
stated that “notional interest” should not have been imposed by the Minister in
the Reassessment. Since the Appellant requested the special calculation
provided for in section 120.31 he must also recognize that the Minister will apply
the “notional interest” that is provided in subsection 120.31(3).
[21] In my opinion, the
Minister was correct in the calculation of the notional interest as specified
in subsection 120.31(3).
[22] The Appellant also argued
that since the Federal Government owed him money (i.e., the amount owing by PWGSC),
any amounts that he owed should be offset by those amounts plus interest. I
have concluded that there is no basis for this argument before the Tax Court of
Canada. Any dispute that the Appellant has regarding the amount owed to him by PWGSC
cannot be reviewed or considered by the Tax Court. The Tax Court has the authority
to review an Assessment issued under the Act. The Tax Court does not
have the authority to order an “offset” of monies owed by PWGSC to the
Appellant to offset his income tax liability.
[23] I have carefully
considered the various points made by the Appellant on the tax treatment of the
lump sum payment and I reject them. In my opinion, the Minister was correct
when he calculated the tax plus the notional interest as provided for in the
special calculations as requested by the Appellant.
Old Age Security Payment
[24] The question is
whether the Appellant was properly assessed with regard to an OAS payment.
[25] Subsection 180(2) of
Part 1.2 of the Act imposes a “clawback” tax on Federal OAS benefits.
The Act provides that to the extent that the taxpayer’s net income
exceeds a threshold of $50,000.00, the benefits are subject to a 15% tax.
Counsel for the Respondent noted that the Act refers to net income and
not taxable income.
[26] In support of her
position, counsel for the Respondent referred to the following court decisions:
Fenner
v. The Queen, 2006 TCC 396, 2006 D.T.C. 3222;
Stoddard
v. The Queen, 2007 TCC 380, 2007 D.T.C. 1288; and
Parisée
v. The Queen, 2009 TCC 132, 2009 D.T.C. 1161.
In this situation, when
the Appellant’s income was reduced (as he had requested), his taxable income
for 2005 was approximately $18,000.00. However, because of the wording contained
in subsection 110.2(2), the Appellant’s net income for 2005 was over
$177,000.00 at which point OAS payments begin to be “clawed back”.
[27] I agree with the
position as outlined by counsel for the Respondent regarding OAS payments.
Age Credit
[28] Subsection 118(2) of
the Act provides that an individual who is 65 years of age (or older)
may claim the Age Credit. The Age Credit is reduced if the person’s net income
exceeds the threshold.
[29] Counsel for the
Respondent stated that the same analysis that covers OAS payments also applies
with respect to the Age Credit. Counsel for the Respondent noted that the
entitlement to the Age Credit is determined by reference to a taxpayer’s net
income rather than their taxable income.
[30] I agree with the
position as argued by counsel for the Respondent regarding the Age Credit.
[31] The appeal is dismissed, without costs.
Signed at Vancouver, British Columbia, this 30th day of September 2009.
“L.M. Little”
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