Date: 20000911
Docket: 1999-4048(IT)I
BETWEEN:
LEONARD PUGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] This appeal pursuant to the
Informal Procedure was heard at Calgary, Alberta on July 25,
2000. The Appellant was the only witness.
[2] At the opening of the hearing, on
the application of the Appellant, he was granted leave to appeal
his reassessment respecting 1998 and as a result his appeals of
reassessments respecting 1997 and 1998 were heard together on
common evidence.
[3] The Appellant's position
respecting his appeal is best set out in the paragraphs from his
Notice of Appeal which read as follows:
I was employed by Sunlife of Canada for twenty-seven years as
an agent and branch manager, of which the last thirteen years
were that of a branch manager. The year 1992 was my last complete
year of employment for Sunlife before being disabled in September
of 1993.
While I was working for Sunlife I was and am covered by a
Defined Benefit replacement income plan. Under this plan it was
defined that I was to receive seventy percent of my earnings. I
am receiving this amount of replacement income.
...
Sunlife in 1992 purchased me a benefit for $253.33. I
purchased a benefit for $262.50, to bring me up to 70% of my 1992
earnings. In 1993 Sunlife purchased me a benefit for $251.47 and
I bought a benefit for $325.09 to bring me once again to 70% of
my earnings.
The premium paid by Sunlife was tax deductable, where by the
premium paid by me was not deducted. Therefore the benefit I
purchased was paid by after tax dollars and the replacement
income I received from this benefit should be tax free.
I am not disputing the fact that I should be paying income tax
on the benefit Sunlife has purchased, however the income I
receive from the benefit I purchase should not be taxable.
Because the plan has two distinct and separate premium amounts,
each premium is paid from two separate sources, one from before
tax dollars and the other from after tax dollars.
[4] The Respondent's position is
summarized in paragraphs 3, 14 and 15, which read:
3. With
respect to unnumbered paragraph 9 of the Notice of Appeal:
(a) he admits the
premium paid by Sun Life was tax deductible;
(b) he denies that
the premium paid by him was not deducted and;
(c) the remaining
allegations therein are in the nature of argument and contain no
relevant facts to admit or deny.
...
14. In so reassessing the
Appellant, the Minister made the following assumptions of
fact:
(a) the Appellant
was employed with Sun Life Assurance Company of Canada (the
"Employer");
(b) the Amounts
received by the Appellant were payable on a periodic basis in
respect of the loss of the Appellant's income from an office
or employment pursuant to a disability insurance plan (the
"Plan");
(c) the Employer has
made contributions to the Plan which did not exceed the Amounts
received by the Appellant;
(d) on average, the
Employer paid 40% of the premiums and the Appellant paid 60% of
the premiums;
(e) the Appellant
was entitled to a deduction of $3,484.99 in the 1994 Taxation
Year in respect of premiums paid by him to the Plan for the
period of December 1, 1967 to December 31, 1994;
(f) the
Appellant has not paid premiums in respect of the Plan since
October, 1993.
B. ISSUES TO BE DECIDED
15. The issues are:
(a) whether the
Notice of Appeal filed in respect of the 1998 Taxation Year is
valid and;
(b) whether 60% of
the Amounts received by the Appellant are employment insurance
benefits according to paragraph 6(1)(f) and are properly included
in income within the meaning of section 3 of the Act.
[5] Mr. Pugh testified that on a
handshake with his superiors, and without ever getting any
writing from Sun Life of Canada ("Sun Life"), he
agreed, that upon becoming a manager, Sun Life would provide him
with a Long Term Disability benefit policy which would include an
income replacement clause. Then, in addition, Mr. Pugh would have
a separate income replacement plan for which he alone would pay
non-deductible premiums monthly. This would raise his long-term
disability monthly payments to 70% of his ordinary income. This
additional plan's income would then be non-taxable. In
support of this Mr. Pugh submitted Exhibit A-3 dated November 12,
1993 which was written after Mr. Pugh became disabled in
September, 1993. It refers to "group LTD
benefits" in the plural. However, the first four
paragraphs of that letter read, in total, as follows:
Further to our recent discussions, I wish to confirm the
agreement between you and Sun Life regarding your transition from
the position of Branch Manager to the position of Agent. This
letter shall constitute formal notice of termination of your
Branch Manager's Agreement effective December 12, 1993, being
30 days from the date hereof in accordance with the Branch
Manager's Agreement.
I confirm that termination of your Branch Manager's
Agreement will not affect your eligibility for group LTD benefits
(or waiver of life insurance premiums) in respect of your current
disability as long as you remain continuously and totally
disabled as defined in the group policy applicable to Branch
Managers.
Although Sun Life has no obligation to you regarding
termination of your Branch Manager's Agreement other than to
provide you with 30 days' notice, Sun Life is prepared to
provide you with the additional compensation described in this
letter on the understanding that you will enter into a standard
Agent's Agreement effective December 13, 1993.
Sun Life Agent
As an Agent of Sun Life, you immediately will become entitled
to all insurance, pension and other benefits which are available
to Sun Life agents effective as of the date of your Agent's
Agreement other than those benefits (group life and LTD) which
you already are receiving by virtue of your current disability
under the group policy applicable to Branch Managers. While you
remain totally disabled as defined in the group insurance policy
applicable to Branch Managers, any first-year commissions which
you earn on a part-time basis as an agent will be treated as
compensation from rehabilitative employment. As such, while you
will continue to receive all earned commissions and renewals, 60%
of your part-time first year agent's commissions only will be
offset against your long-term disability benefits. On your return
to work as an agent on a full-time basis, Sun Life will waive,
for a twelve-month period, the life FYC requirement for
performance bonus and expense allowance computation.
[6] Mr. Pugh agreed with this. Mr.
Pugh stepped down from the position of Branch Manager to Agent,
and the paragraph referring to benefits only refers to one
"group policy applicable to Branch Managers". This
latter reference is confirmed by the fact that Mr. Pugh receives
one payment from Sun Life, plus a separate cost-of-living payment
from Sun Life. They are paid by electronic transfer to his bank.
He testified that he received no written detail respecting these
payments.
[7] Mr. Pugh did not refute any of the
assumptions. In particular, he testified that
assumption 14(e) is true, since his accountant claimed that
deduction in one of Mr. Pugh's income tax returns.
[8] Paragraph 6(1)(f) of the
Income Tax Act (the "Act") reads:
6.(1) There shall be included in
computing the income of a taxpayer for a taxation year as income
from an office or employment such of the following amounts as are
applicable:
...
(f) the total
of all amounts received by the taxpayer in the year that were
payable to the taxpayer on a periodic basis in respect of the
loss of all or any part of the taxpayer's income from an
office or employment, pursuant to
(i) a sickness
or accident insurance plan,
(ii) a disability
insurance plan, or
(iii) an income
maintenance insurance plan
to or under which the taxpayer's employer has made a
contribution, not exceeding the amount, if any, by which
(iv) the total of all such
amounts received by the taxpayer pursuant to the plan before the
end of the year and
(A) where there was a
preceding taxation year ending after 1971 in which any such
amount was, by virtue of this paragraph, included in computing
the taxpayer's income, after the last such year, and
(B) in any other case, after
1971,
exceeds
(v) the total of the
contributions made by the taxpayer under the plan before the end
of the year and
(A) where there was a
preceding taxation year described in clause (iv)(A), after the
last such year, and
(B) in any other such
case, after 1967;
[9] In Dagenais et al. v. The
Queen 95 D.T.C. 5318 at 5322, Rouleau, J. said at paragraphs
14 and 15:
In Shuett v. The Minister of National Revenue,
80 D.T.C. 1168, the taxpayer maintained that since half
the contributions to his benefit plan were made by himself, and
the other half by his employer, only half should be included in
the calculation of his income. The Tax Review Board held that
once the employer made a contribution to the plan, all benefits
were taxable:
The intention of the Act is to be derived from the words used
by parliament. It is plain that it was the intention of
Parliament that any contribution by the employer has the effect
of "contaminating" the plan.
Once it is found that the employer has made a contribution,
the proportion in which contributions are made by employer and
employee ceases to have relevance. The scheme of the Act is then
to tax all benefits received subject to the limitation found by
the application of subparagraphs (iv) and (v) formula.
I am satisfied that when the amendments to the relevant
sections of the Income Tax Act were promulgated in the early
1970's, it was Parliament's intention that various
benefits received by employees, including employment insurance
benefits, are to be included in income unless they qualify as an
exemption. There is no ambiguity created by the language used in
section 6 of the Act. In particular, paragraph 6(1)(f), is clear
and unambiguous that benefits, such as those in the present case,
are to be included in computing a taxpayers income.
[10] On the evidence, the Court finds that
Mr. Pugh had only one disability insurance plan, or income
maintenance insurance plan, to which he and Sun Life both
contributed. As a result he received employment insurance
benefits in 1997 and 1998 within the meaning of paragraph 6(1)(f)
of the Act.
[11] For these reasons, the appeals are
dismissed.
Signed
at Ottawa, Canada, this 11th day of September, 2000.
J.T.C.C.
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