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Citation:2003TCC272
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Date:20030415
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Docket:2002-722(IT)I
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BETWEEN:
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WILLIAM J. FISCHER,
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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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____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Michael Van Dam
____________________________________________________________________
REASONS FOR JUDGMENT
(delivered orally from the bench on
October 23, 2002 in Winnipeg, Manitoba)
GARON, C.J.T.C.C.
[1] This is an appeal from a
reassessment of the Minister of National Revenue for the 1999
taxation year.
[2] By this reassessment the Minister
of National Revenue added to the Appellant's employment
income for the 1999 taxation year the amount of $1,000.00, which
had been contributed, in the Minister's view, during the 1999
taxation year by the employer to an employees profit sharing plan
on behalf of the Appellant.
[3] The Appellant was the sole witness
at the hearing of this appeal.
[4] In reassessing the Appellant, the
Minister of National Revenue made the assumptions of fact set out
in paragraph 8 of the Reply to the Notice of Appeal, which reads
as follows:
(a) during the 1999 Taxation Year, the Appellant was
employed with the Employer;
(b) during the 1999 Taxation Year, the Employer
contributed $250.00 to a deferred profit sharing plan (the
"DPSP") on behalf of the Appellant;
(c) during the 1999 Taxation Year, the Employer
contributed $1,000.00 (the "Amount") to an employees
profit sharing plan (hereinafter "EPSP") on behalf of
the Appellant;
(d) the amounts contributed to the DPSP and the EPSP
were to be vested in the Appellant on July 15, 2001;
(e) the amounts contributed to the DPSP and the EPSP
were vested in the Appellant on June 18, 2001;
(f) the Amount was allocated to the Appellant
contingently or absolutely by the Trustee of the EPSP during the
1999 Taxation Year;
(g) the Appellant is a beneficiary of the EPSP;
(h) during the 1999 Taxation Year, the Appellant was in
receipt of actual dividends of $31.10 through his EPSP;
(i) the Appellant was in receipt of taxable benefits of
$1,250.00 in the 1999 Taxation Year.
[5] The Appellant admitted
subparagraph (a) of paragraph 8 of the Reply to the Notice of
Appeal. He denied subparagraphs (g) and (i) of the same
paragraph 8 of the Reply to the Notice of Appeal. He also
stated that he did not know whether the other subparagraphs of
paragraph 8 of the Reply to the Notice of Appeal were correct or
not.
[6] The Appellant also indicated that
the amount of $100.00 referred to in paragraph 2(b) of the Reply
to the Notice of Appeal is wrong and that it should be
$10,000.00. This was conceded by counsel for the Respondent at
the hearing of this appeal.
[7] The Appellant testified that in
1999 he was employed by a firm, Nesbitt Burns, as a
stockbroker.
[8] He claimed that he participated in
an employees share ownership plan and not in an employees profit
sharing plan. He contributed $2,500.00 in 1999 to an employees
share ownership plan, which was administered by an outside firm.
He stressed that in 1999 he received no shares and no monies from
this plan.
[9] Reference was made in the
Appellant's testimony to his T4 slip for 1999, which was
issued by his employer and received by the Appellant. An amount
of $1,250.00 appears in Box 40 of the T4 slip, which is described
on the back of the slip as referring to "Other taxable
allowances and benefits". On the front of the T4 slip, the
Appellant had written the following:
I have removed the taxable benefits of $1,250 from my 1999
Gross Income, and substituted $250 because:
a) I did not receive $1,250 although I did receive a
$250 taxable benefit.
b) The $1,250 taxable benefit will be paid to me in 4
years, after the fund is fully vested (and who knows where I will
be in 4 years).
c) At my age, I will probably be retired, so why should
I pay taxable benefits on something I did not, and may not ever
receive.
Contact Nesbitt Burns, Toronto for further information.
Thank you.
[10] On Exhibits R-2 and R-3, both bearing
the heading "Employee Share Ownership Plan" on page one
and "Activity in Your Share Ownership Plan" on page
two, it is shown that the employer contributed $1,000.00 to the
employees profit sharing plan of which the Appellant was the
beneficiary in 1999, and that all contributions to the plan were
withdrawn in 2001, leaving a nil balance.
Analysis
[11] The main question in issue - the only
one raised in the Notice of Appeal - is whether the amount
of $1,000.00 contributed by the Appellant's employer on
behalf of the Appellant during the 1999 taxation year to an
employees profit sharing plan is to be included in the
Appellant's income in the 1999 taxation year.
[12] The Appellant contends that this amount
of $1,000.00 should not have been included in his income for the
1999 taxation year as he did not receive the amount in question
during that taxation year. Also this amount did not become vested
in the Appellant until June 18, 2001.
[13] The matter of the appropriate year in
which an amount allocated to an employee who is a beneficiary
under an employees profit sharing plan is governed by subsection
144(3) of the Income Tax Act.
[14] Subsection 144(3) of the Income Tax
Act reads as follows:
There shall be included in computing the income for a taxation
year of an employee who is a beneficiary under an employees
profit sharing plan each amount that is allocated to the employee
contingently or absolutely by the trustee under the plan at any
time in the year otherwise than in respect of
(a) a payment made by the employee to the trustee;
(b) a capital gain made by the trust before 1972;
(c) a capital gain of the trust for a taxation year
ending after 1971;
(d) a gain made by the trust after 1971 from the
disposition of a capital property except to the extent that the
gain is a capital gain described in paragraph (c); or
(e) a dividend received by the trust from a taxable
Canadian corporation.
[15] The general rule referred to in this
subsection is that each amount allocated to an employee under an
employees profit sharing plan is included in the employee's
income in the year the allocation of the amount is made to him
and it does not matter whether the allocation to the employee is
made on an absolute basis or not. There are, however, five
exceptions to this general rule, which are spelled out in
paragraphs (a) to (e) of subsection 144(3) of the
Income Tax Act. It has not been suggested to me by the
Appellant that any one of the exceptions were applicable
here.
[16] Also, there has been some dispute as to
whether the amount of $1,000.00 was, in law, contributed to an
employees profit sharing plan.
[17] The Appellant argued, at one point,
that the subject contributions to the plan of which he was a
beneficiary was, as mentioned earlier, an employees share
ownership plan and not an employees profit sharing plan. It
appears as though a great deal of the uncertainty in this matter
centres around the use of the two terms.
[18] It is well-known that both employees
profit sharing plans and employees share ownership plans are
arrangements, which typically exist as additional employee
incentives.
[19] It is also common knowledge that a
profit sharing arrangement can take on different forms. In the
simplest case, an employees profit sharing plan is essentially a
cash bonus paid automatically to eligible employees. Pursuant to
section 144 of the Income Tax Act, among other factors,
the creation of a trust is an essential requirement for the
existence of an employees profit sharing plan.
[20] An employees share ownership plan
generally functions on the premise that the employer corporation
will subsidize the employee's purchase of company shares by
the pledge to contribute a certain amount (known as a
"matching contribution") for each amount contributed by
the employee.
[21] From the evidence presented, it may
well be that the incentive program instituted by the
Appellant's employer was one in which the employees profit
sharing plan was in the form of an employees share ownership
plan. There was no evidence adduced as to whether the
employer's business profits had any relevance to the plan in
question. For whatever reason, the terms employees profit sharing
plan and employees share ownership plan were used interchangeably
by the employer on documents provided to the Appellant as appears
from Exhibits R-2, R-3 and R-4.
[22] However, the definition of an employees
profit sharing plan in subsection 144(1) of the Income
Tax Act is very broad and I have not been referred to any
feature of the plan with which we are concerned here that would
not qualify as an employees profit sharing plan.
[23] It is important to note that neither
side entered a copy of the plan in question into evidence. As was
clearly set out in subparagraphs 8(b) and (c) of the Reply to the
Notice of Appeal, the Minister was operating under the assumption
that the plan was an employees profit sharing plan, as it is
defined under subsection 144(1) of the Income Tax Act.
Although I have no reason to be skeptical of the Appellant's
honest belief that he was not participating in an employees
profit sharing plan, he adduced no evidence and made no argument
that the plan in which he participated did not fit the definition
of "employees profit sharing plan" as it appears in
that subsection. Unfortunately for the Appellant, his impression
of what the plan entailed is not sufficient to rebut the
presumption made by the Minister. There must be some concrete
evidence to support his belief.
[24] In examining this issue further, it is
reasonably clear from the decision of the Supreme Court of Canada
in Lade v. M.N.R., 65 DTC 5297, that the particular
employees share ownership plan discussed in that case did not
fall under the definition of employees profit sharing plan in
subsection 144(1) of the Income Tax Act since the matching
contributions made by the employer were not "computed by
reference to [the] employer's profits" in a particular
taxation year. However, in the case at bar, the Appellant made no
such argument.
[25] I must therefore hold that the plan in
issue here is an employees profit sharing plan within the meaning
of subsection 144(1) of the Income Tax Act, as assumed by
the Minister of National Revenue even if characterized
differently at times by the trustee.
[26] It therefore follows that the amount of
$1,000.00 contributed in 1999 by the Appellant's employer on
behalf of the Appellant, was properly included in the
Appellant's income for the 1999 taxation year, that year
being the year in which the amount was allocated to him by the
trustee of the plan.
[27] For this reason, the appeal is
dismissed.
Signed at Ottawa, Canada, this 15th day of April 2003.
C.J.T.C.C.
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