Hughes v. The Queen, docket 2000-3862-IT-I (Informal Procedure)

Date: 20010618

Docket: 2000-3862-IT-I

BETWEEN:

ROY HUGHES,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Hamlyn, J.T.C.C.

[1]            This is an appeal for the 1998 taxation year.

[2]            In computing income for the 1998 taxation year, the Appellant reported pension income in the amount of $27,314 and in computing taxable income the Appellant deducted the pension income as tax exempt.

[3]            By Notice dated June 14, 1999, the Minister assessed the Appellant's 1998 income tax return to include $27,314 of pension income in the computation of income but disallowed a deduction of the reported pension income in the computation of taxable income.

[4]            Prior to becoming a resident of Canada, Mr. Roy Hughes (the "Appellant") was employed by the National Fire Service assigned to the Cheshire Fire Authority of the County of Cheshire in the United Kingdom ("CFA"). The National Fire Service is part of the United Kingdom civil service. As a result of an injury sustained while on the job with the CFA, the Appellant retired on March 28, 1990 on medical grounds pursuant to the Firemen's Pension Scheme Order 1973 (the "Scheme").

[5]            Under the Scheme, the Appellant received in 1998 an amount of $27,314 in Canadian funds from the CFA (the "Payment"). The Payment consists of two parts: Part (1) a pension as a retired fire fighter; Part (2) an injury award for loss of earnings, pain and suffering due to a medical discharge for sustaining an on-duty injury. In computing his income for the 1998 taxation year, the Appellant included the total amount in income and in computing his taxable income, deducted the amount as tax exempt.

[6]            According to the Appellant for the 1998 taxation year the Part (1) and Part (2) Payments were not taxable in the United Kingdom.

[7]            On assessment, the Minister denied the deduction and included the amount of the Payment in the Appellant's income under paragraph 56(1)(a) of the Income Tax Act (the "Act"). With respect to the Payment, the Minister relied on the following assumptions:

a)              at all material times, the Appellant was a resident of Canada;

b)             prior to becoming a resident of Canada, the Appellant was employed by the CFA;

c)              as a result of an injury sustained while on the job with the CFA, the Appellant retired on March 28, 1990 on medical grounds pursuant to the Firemen's Pension Scheme Order 1973 (the "Scheme");

d)             the Pension Benefits were not paid by the CFA to the Appellant as a result of an award by a Court;

e)              in 1998, the Appellant received Pension Benefits from the CFA, under the Scheme, the combined sum of which totalled $27,314 in Canadian funds;

f)              the CFA did not withhold tax from any of the Pension Benefits paid to the Appellant in 1998;

g)             the Pension Benefits are payable to the Appellant by the CFA on a periodic basis for the duration of the life of the Appellant;

h)             the Appellant's injury pension is inflation linked and is subject to an annual increase based on the Retail Price Index established in the United Kingdom;

i)               the Pension Benefits paid to the Appellant by the CFA meet the definition of a "pension" as that term is defined in paragraph 3 of Article XVII of the Canada-U.K. Income Tax Convention (1978) (the "Convention"); and

j)               none of the Pension Benefits received by the Appellant in 1998 from the CFA were exempt from income tax in Canada by virtue of a provision contained in the Convention.

RELEVANT PROVISIONS

[8]            The relevant parts of the provisions of the Act read as follows:

56.(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

a)             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

...

110.(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

...

(f) any social assistance payment made on the basis of a means, needs or income test and included because of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) in computing the taxpayer's income for the year or any amount that is

(i) an amount exempt from income tax in Canada because of a provision contained in a tax convention or agreement with another country that has the force of law in Canada,

...

to the extent that it is included in computing the taxpayer's income for the year.

ANALYSIS

[9]            The Minister first submits that the Payment made to the Appellant by the CFA meets the definition of a "pension" as that term is defined in paragraph 3 of article 17 of the Canada-U.K. Tax Convention. The Minister then argues that he properly denied the Appellant's deduction of $27,314 in the computation of taxable income as the Payment is not exempt from income tax in Canada by virtue of a provision contained in the Canada-U.K. Tax Convention.

[10]          The Appellant admits that Part (1) of the Payment consists of a retirement pension that he received from the CFA. However, he contends that Part (2) of the Payment is a non-taxable injury award.

[11]          Superannuation or pension benefits received by a taxpayer are included in his or her income under subparagraph 56(1)(a)(i). The term "superannuation or pension benefit" is defined in subsection 248(1) to include any amount received out of or under a superannuation or pension fund or plan:

248.(1) "superannuation or pension benefit" includes any amount received out of or under a superannuation or pension fund or plan and, without restricting the generality of the foregoing, includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary thereunder

(a)            in accordance with the terms of the fund or plan,

(b)            resulting from an amendment to or modification of the fund or plan, or

(c)            resulting from the termination of the fund or plan.

[12]          Paragraph 3 of article 17 of the Canada-U.K. Income Tax Convention also provides inclusions for the word "pension". It reads as follows:

3. For the purposes of this Convention, the term "pension" includes any payment under a superannuation, pension or retirement plan, Armed Forces retirement pay, war veterans pensions and allowances, and any payment under a sickness, accident or disability plan, as well as any payment made under the social security legislation in a Contracting State, but does not include any payment under a superannuation, pension or retirement plan in settlement of all future entitlements under such a plan or any payment under an income-averaging annuity contract.

[13]          The Appellant claims the Part (2) Payment is an injury award for loss of earnings, pain and suffering after sustaining an injury while on duty at the Cheshire County Council Fire Service in the United Kingdom.

[14]          I conclude, the Part (2) Payment from the evidence is a periodic payment in the discretion of the National Fire Service payable for life. It is not a Payment under a superannuation pension or retirement plan in settlement of all further entitlements under such a plan.

[15]          The Part (2) Payment received by the Appellant meets the definition of a superannuation or pension benefit as found in subsection 248(1) of the Act.

DEDUCTIONS FROM TAXABLE INCOME

[16]          Subparagraph 110(l)(f)(i) provides a deduction in computing taxable income for an amount exempt from income tax in Canada by virtue of a provision in a tax convention or agreement with another country that has the force of law in Canada. Subparagraph 110(l)(f)(i) provided that the Payment should be included in computing the taxpayer's income under subparagraph 56(1)(a) of the Act.

[17]          Paragraph 1 of article 17 of the Canada-U.K. Income Tax Convention deals with pensions:

1. Pensions arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State.

[18]          No taxes were payable with respect to the Part (2) Payment segment in the United Kingdom. The Part (2) Payment is therefore not exempt from Canadian tax, and the Appellant is not entitled to the deduction under subparagraph 110(1)(f)(i) of the Act.

CONCLUSION

[19]          The Appellant for the 1998 taxation year was a resident in Canada subject to taxation on his world wide income and was in receipt of a pension benefit (the Part (2) Payment), as defined in subsection 248(1). The Part (2) Payment was not subject to taxation in the United Kingdom. The Part (2) Payment is to be included in computing the Appellant's income and is not exempt from Canadian tax under the Canada - U.K. Tax Convention.

OTHER MATTERS RAISED

[20]          The Appellant stated that he cannot understand that the Respondent, Her Majesty the Queen in this matter, granted him in the United Kingdom through the United Kingdom Government, a non-taxable injury award pension, and the Respondent now wants to take part of this non-taxable injury award pension back by way of taxation in Canada. The Appellant does not make a distinction between Her Majesty the Queen as Queen of Canada and Her Majesty the Queen as Queen of the United Kingdom of Great Britain and Northern Ireland. The Tax Convention between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains is a reciprocal tax treaty that provides rules for residents of contracting states that are liable to taxation therein by reason of their residence. The Appellant is a resident of Canada. The Appellant is therefore subject to the Tax Convention.

[21]          As has been noted in Merritt v. R., 93 DTC 978 by Bowman T.C.C.J., as he then was, when one moves from one jurisdiction to another one cannot reasonably expect the new jurisdiction to honour all of the fiscal rules of the old one.

DECISION

[22]          The appeal is dismissed

Signed at Ottawa, Canada, this 18th day of June 2001.

"D. Hamlyn"

J.T.C.C.

COURT FILE NO.:                                                 2000-3862(IT)I

STYLE OF CAUSE:                                               Roy Hughes and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Cranbrook, British Columbia

DATE OF HEARING:                                           May 28, 2001

REASONS FOR JUDGMENT BY:      The Honourable Judge D. Hamlyn

DATE OF JUDGMENT:                                       June 18, 2001

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Johanna Russell

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

Ottawa, Canada

2000-3862(IT)I

BETWEEN:

ROY HUGHES,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on May 28, 2001 at Cranbrook, British Columbia, by

the Honourable Judge D. Hamlyn

Appearances

For the Appellant:                      The Appellant himself

Counsel for the Respondent:      Johanna Russell

JUDGMENT

          The appeal from assessment made under the Income Tax Act for the 1998 taxation year is dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 18th day of June 2001.

"D. Hamlyn"

J.T.C.C.