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Citation: 2003TCC832
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Date: 20031107
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Docket: 2003-574(IT)I
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BETWEEN:
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ERIC DAVID BARNES,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Lamarre, J.
[1] This is an appeal under the
informal procedure from an assessment made by the Minister of
National Revenue ("Minister") pursuant to the Income
Tax Act ("Act") for the appellant's 2001
taxation year. The appellant fell ill and has been disabled and
unable to work since January 1999. He was in receipt of long-term
disability benefits from his employer until September 2000. He
then applied for Canada Pension Plan ("CPP") disability
benefits and employment insurance ("EI") sickness
benefits. Both were approved in 2001 and, that same year, the
appellant received a CPP disability benefit lump-sum payment
("CPP payment") of $19,077 and an EI qualifying
retroactive lump-sum payment ("EI payment") of $6,195.
Part of these benefits was attributable to the year 2000. Indeed,
the total CPP payment amount of $19,077 included an amount of
$8,061 considered to be applicable to the 2000 taxation year, and
the entire EI payment amount of $6,195 was applicable to the
period of August to December 2000.
[2] The Minister applied the
provisions of sections 120.3 and 120.31 of the Act in
determining tax payable with respect to the CPP payment portion
($8,061) and the EI payment amount ($6,195) applicable to the
2000 taxation year. The Minister's computation of income and
of tax payable is summarized in paragraphs 7 e) through m) of the
Reply to the Notice of Appeal, which are reproduced
hereunder:
e) the Minister applied the provisions
of subsection 56(8) of the Income Tax Act (the
"Act") in determining taxable income and section
120.3 of the Act in determining tax payable with respect
to the CPP LSP portion of $8,061.00 applicable to the 2000
taxation year;
f) pursuant to subsection 56(8)
of the Act, the amount of $8,061.00 was not included in
the computation of the Appellant's income for the 2001
taxation year but was considered to be included in the 2000
taxation year;
g) the tax so calculated in accordance
with section 120.3 of the Act on the amount of $8,061.00
as referred to in subparagraph 7(f) herein was determined to be
$929.25 and included in the tax payable for the 2001 taxation
year as shown on the attached Schedule A;
h) the Minister applied the provisions
of sections 110.2 and 120.31 of the Act in determining tax
payable with respect to the EI QRLSP;
i) the amount of $6,195.00 is a
"qualifying amount" and "specified portion"
within the meaning of said terms as defined in subsection
110.2(1) of the Act;
j) the amount of $6,195.00 is
included in the determination of the Appellant's net income
in accordance with subparagraph 56(1)(a)(iv) of the Act
but is deducted from net income in computing taxable income
pursuant to subsection 110.2(2) of the Act;
k) the tax so calculated in accordance
with subsection 120.31(2) of the Act on the amount of
$6,195.00 as referred to herein before [sic] was
determined to be $612.03 and included in the tax payable for the
2001 taxation year as shown on the attached Schedule A;
l) the special tax treatment
afforded to the amounts of $8,061.00 and $6,195.00 was more
beneficial to the Appellant than otherwise including said amounts
in the Appellant's income for the 2001 taxation year and
determining tax payable under section 117 of the Act;
and
m) the net income of $34,978.00 must be
included as 'net family income' in determining the Child
Tax Benefit and Goods and Services Tax Credit for the 2001
taxation year and 'base taxation year'.
SCHEDULE A
2001 TAXATION YEAR
ERIC BARNES
COMPUTATION OF TAXABLE INCOME
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Income
Employment earnings
Canada Pension Plan Disability payments
Employment Insurance Benefits
Registered Retirement Savings Plan benefits
Retiring Allowance
Total Income
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Note
1
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Amount
$ 6,381.00
11,016.00
6,195.00
16,666.00
48,114.00
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88,372.00
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Deductions from Total Income
Registered Retirement Savings Plan contributions
Other deductions
Net Income
Deduction per subsection 110.2(2) of the I.T.A.
Taxable Income
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52,874.00
520.00
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-53,394.00
34,978.00
- 6,195.00
$28,783.00
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Note 1
Total Canada Pension Plan Benefits received
Less: benefits applicable to 2000 (ss 56(8) of the
I.T.A.)
Portion of Canada Pension Plan benefits included in
2001
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19,077.00
- 8,061.00
11,016.00
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CALCULATION OF TAX PAYABLE
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Taxable income per above
At rate of 16%
Add: tax adjustments (below)
Sub total [sic]
Less: non-refundable credits
Net federal tax
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28,783.00
4,605.32
1,541.28
6,146.60
- 3,749.00
$ 2,397.60
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Tax payable on Employment Insurance Benefits per
ss 120.31(2) of the I.T.A.
Tax payable on C.P.P. benefits of $8061.00 per section
120.3 of the I.T.A.
Total tax adjustment
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612.03
929.25
$ 1,541.28
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[3] Although the appellant accepts the
tax treatment of the CPP payment, he does not understand why the
EI payment is not treated the same way. In other words, he does
not understand why the EI payment applicable to the 2000 taxation
year is included in income for 2001 while such is not the case
with the CPP payment. He claims that this method of calculating
his income is prejudicial since it increases his income for 2001
by an amount of $6,195 (the EI payment) that should have been
received in 2000 (in which year his income was much lower), thus
depriving him of $6,000 in social benefits for his family for the
year 2001.
[4] That may be so but I find that the
Minister correctly applied the provisions of the Act. If
it were not for the existence of sections 120.3 and 120.31 of the
Act, the appellant would have had to include in his
income, and to pay tax on, the whole amount of the CPP and EI
payments received in 2001, in accordance with clause
56(1)(a)(i)(B) and subparagraph 56(1)(a)(iv), which
read as follows:
SECTION 56: Amounts to be included in income for
year.
(1) Without restricting the generality of section 3, there
shall be included in computing the income of a taxpayer for a
taxation year,
456(1)(a)3
(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,
. . .
(iv) a benefit under the Unemployment Insurance Act,
other than a payment relating to a course or program designed to
facilitate the re-entry into the labour force of a claimant
under that Act, or a benefit under Part I, VIII or VIII.1 of the
Employment Insurance Act.
[5] Sections 120.3 and 120.31 enable
an individual who has received such a retroactive lump-sum
payment to request that a special calculation be used for
computing the tax on that payment. For one reason or another, CPP
disability benefits receive different treatment than EI benefits
under the Act. The relevant provisions of the Act
are reproduced below:
456(8)3
(8) CPP/QPP benefits for previous years.
Notwithstanding subsection (1), where
(a) one or more amounts are received by an individual
(other than a trust) in a taxation year as, on account of, in
lieu of payment of or in satisfaction of, any benefit under the
Canada Pension Plan or a provincial pension plan as
defined in section 3 of that Act, and
(b) a portion, not less than $300, of the total of
those amounts relates to one or more preceding taxation
years,
that portion shall, at the option of the individual, not be
included in the individual's income.
Lump-sum Payments
SECTION 110.2: Definitions.
(1) The definitions in this subsection apply in this
section and section 120.31.
"eligible taxation year" - "eligible
taxation year" in respect of a qualifying amount received by
an individual, means a taxation year
(a) that ended after 1977 and before the year in which
the individual received the qualifying amount;
. . .
"qualifying amount" - "qualifying
amount" received by an individual in a taxation year means
an amount . . . that is included in computing the
individual's income for the year and is
. . .
(b) a superannuation or pension benefit (other
than a benefit referred to in clause 56(1)(a)(i)(B)) . .
.
(c) an amount described in paragraph 6(1)(f),
subparagraph 56(1)(a)(iv) . . .
"specified portion" - "specified
portion", in relation to an eligible taxation year, of a
qualifying amount received by an individual means the portion of
the qualifying amount that relates to the year, to the extent
that the individual's eligibility to receive the portion
existed in the year.
4110.2(2)3
(2) Deduction for lump-sum payments. There may be
deducted in computing the taxable income of an individual (other
than a trust) for a particular taxation year the total of all
amounts each of which is a specified portion of a qualifying
amount received by the individual in the particular year, if that
total is $3,000 or more.
SECTION 120.3: CPP/QPP disability benefits for
previous years.
There
shall be added in computing an individual's tax payable under
this Part for a particular taxation year the total of all amounts
each of which is the amount, if any, by which
(a) the amount that would have been the tax payable
under this Part by the individual for a preceding taxation year
if that portion of any amount not included in computing the
individual's income for the particular year because of
subsection 56(8) and that relates to the preceding year had been
included in computing the individual's income for the
preceding year
exceeds
(b) the tax payable under this Part by the individual
for the preceding year.
SECTION 120.31: Definitions.
(1) The definitions in subsection 110.2(1) apply in this
section.
(2) Addition to tax payable. There shall be added
in computing an individual's tax payable under this Part for
a particular taxation year the total of all amounts each of which
is the amount, if any, by which
(a) the individual's notional tax payable for an
eligible taxation year to which a specified portion of a
qualifying amount received by the individual relates and in
respect of which an amount is deducted under section 110.2 in
computing the individual's taxable income for the particular
year
exceeds
(b) the individual's tax payable under this Part
for the eligible taxation year.
. . .
Technical Note: New section 120.31 of the Act provides
for the calculation of an individual's tax payable for a
taxation year on that portion of a lump-sum payment that has been
deducted under subsection 110.2(2) in computing the
individual's taxable income for that year. This tax is the
total of the additional taxes that would be triggered for each
relevant preceding year if the portion of the lump-sum payment
that relates to that preceding year were added to the
individual's taxable income for that year. . . .
New section 120.31
applies to the 1995 and subsequent taxation years.
[6] It is clear from the
provisions of the Act that the portion of the CPP payment
that relates to the 2000 taxation year and that was received in
2001 does not have to be included in income for 2001 (by virtue
of subsection 56(8)), but the same does not apply to the EI
payment. The lump-sum payment received in respect of EI benefits
that relates to 2000 must be included in income for 2001 and may
only be deducted in the computation of taxable income for that
same year (subsection 110.2(2)). Therefore, the EI payment
received in 2001 must be taken into account in the
appellant's income for 2001 and cannot be excluded from
income for the purposes of determining the Child Tax Benefit and
the goods and services tax ("GST") credit for the 2001
taxation year and the base taxation year (as per the definition
of "adjusted income" in sections 122.5 and 122.6 of the
Act).
[7] The appellant suggests that
this is unfair. He claims that the same $6,195 (EI payment)
amount has been included in his income for both 2000 and 2001.
However, this is not the case. The amount of $6,195 was added to
his income for 2000 for the sole purpose of calculating the
notional tax that was payable on that amount for 2000 and that
was ultimately added to his tax payable for 2001. It was not
included in his income for 2000 for the determination of the
Child Tax Credit and GST credit for 2000. It was only included in
his income for 2001 for the purpose of determining those credits
for 2001.
[8] That the appellant had a
much lower income in 2000 than in 2001 is not a factor that can
prevail over the wording of the Act. The Act is
clear and the Minister correctly calculated the income of the
appellant for his 2001 taxation year in accordance with the
provisions of the Act.
[9] The appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of November 2003.
Lamarre, J.
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