Date: 20000316
Docket: 98-2628-IT-I
BETWEEN:
JOSEPH VOSICKY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal for the 1997 taxation year concerning
the calculation of the Appellant's forward-averaging
tax credit, pursuant to sections 110.4 and 120.1 of the
Income Tax Act (the "Act"). In
assessing the Appellant for the 1997 taxation year, the Minister
of National Revenue (the "Minister") determined
that the said tax credit was in the amount of $1,789.30, rather
than $2,099.84, as claimed by the Appellant. The provisions of
the Act concerning the forward-averaging tax credit are no
longer in existence. Paragraph 110.4(1) of the Act
was repealed by 1988, C. 55, s. 80(1), applicable to
the 1988 and subsequent taxation years. However,
subparagraph 110.4(2) of the Act entitled individuals
to continue to make use of this regime and include portions of
the accumulated averaging amount in computing the taxable income
for a year up to the taxation year ending before 1998.
[2] The assumptions of fact made by the Minister for the
assessment are described at paragraph 4 of the Reply to the
Notice of Appeal (the "Reply") as follows:
a) the Appellant was a resident in Canada throughout 1997
taxation year;
b) the Appellant filed with his income tax return for the
taxation year 1997, the prescribed form T581 before April 30,
1998;
c) during the year in litigation, the Appellant was not a
farmer or fisherman;
d) the Appellant's tax payable for the 1997 taxation year
was $2,910.70;
e) the Minister assessed the Appellant in relying upon the
amounts indicated by the Appellant in the prescribed form T581,
except for the percentage of calculation of the federal
forward-averaging tax credit that was changed from 34% to
29%;
f) on the said form T581, the Appellant indicated, inter alia,
the following amounts:
i) Accumulated-averaging amount
at the end of 1996 taxation year $ 6,176
ii) Accumulated-averaging amount
withdrawal $ 6,176
iii) Federal forward-averaging tax credit
$6176 X 34% = $ 2,099
g) the Minister brought, inter alia, the following changes on
the said Appellant's form T581:
i) Accumulated-averaging amount
at the end of 1996 taxation year $ 6,170
ii) Accumulated-averaging amount
withdrawal $ 6,170
iii) Federal forward-averaging tax credit
$6170 X 29% $ 1,789
h) in hence, during the month of January 1994, the Appellant
appealed to the Tax Court of Canada for the taxation year 1992,
which appeal was registered under the number 94-96 (IT) I;
i) the matter was essentially the same as in this appeal;
j) according to the judgement dated July 22, 1994, rendered by
the Honourable Judge Archambault, the appeal was dismissed;
k) during the month of November 1995, the Appellant appealed
to the Tax Court of Canada for the taxation year 1994, which
appeal was registered under the number 95-3701(IT)I;
l) again, the matter was essentially the same as in this
appeal;
m) on March 27, 1996, the judgement was rendered from the
Bench by the Honourable Judge D. G. H. Bowman, the appeal being
dismissed.
n) On or about April 21, 1996, the Appellant applied to the
Federal Court of Canada, for the purpose of obtaining a review of
the decision of the Tax Court of Canada, made on March 27, 1996,
which application was registered under the number A-331-96;
o) the hearing of the cause A-331-96 occurred on the
30th of October 1996 by the Federal Court of Canada,
and the appeal was dismissed;
p) consequently, the Minister applied the amount calculated in
paragraph g) as forward-averaging tax credit, for the taxation
year in litigation.
[3] The Appellant admitted all of the above mentioned
facts.
[4] In the year 1985, Mr. Vosicky made an election in
prescribed form to apply the forward-averaging option
regarding a portion of his income for that year. I will now refer
to the description of facts made by Bowman J. in his judgement
referred at paragraph 4m) of the Reply. I quote paragraph 3
and part of paragraph 4 of that judgement:
[3] Basically, in nineteen eighty-five (1985), Mr. Vosicky
made an election under the forward averaging provisions of the
Income Tax Act in respect to about sixteen thousand
dollars ($16,000). He paid tax thirty-four percent (34%) under
the Federal Act. This was a rate which was considerably higher
than the rate which he would have paid had he not made an
election. He did so on the basis of two (2) assumptions, 1) that
his income would decrease in later years and 2) that the credit
under section 120.1 would stay at thirty-four percent (34%). His
assumption was basically premised upon a pamphlet that the
Department of National Revenue issued called Forward Averaging
which explained the way in which forward averaging provisions of
the Act work.
[4] As it turns out, his expectation was not well-founded. In
nineteen eighty-eight (1988), the top marginal rate dropped to
twenty-nine percent (29%) from thirty-four percent (34%), and so
too did the rate of credit under section 120.1. In a nutshell,
Mr. Vosicky elected in nineteen eighty-five (1985) to pay taxes
at thirty-four percent (34%), a rate at which he would not have
had to pay had he not elected. When the top marginal rate went
down to twenty-nine percent (29%) in subsequent years, so too did
the credit. ...
[5] The Appellant filed as Exhibit A-3 the booklet issued by
Revenue Canada on Forward Averaging in September 1985. The
Appellant referred to a few excerpts:
What it is
Forward averaging provisions allow qualifying taxpayers an
election to spread certain eligible income received in the
current year over future years when they may be in a lower tax
bracket.
This eligible income is excluded in calculating taxable income
but tax is nevertheless paid on it, at the highest marginal rate
as later explained. The eligible income and the tax paid on it
are carried forward to following years.
A taxpayer may then elect to report all or any part of this
income in any subsequent year and claim an appropriate share of
the taxes previously paid as a credit against tax
otherwise payable in that year. If the taxpayer's income
(including the amount brought back into income) has declined to
the point where the taxpayer is in a lower tax bracket than in
the year of forward averaging, a tax savings will result.
An election may be made in any year that a taxpayer
qualifies.
How it works
Suppose that you have received a large amount of income or a
lump sum payment in a year:
First, you must determine whether you qualify for forward
averaging and your income is eligible, as explained later in this
leaflet.
Then you file an election to forward average some or all of
your eligible income, which cannot be less than $1,000 (using
form T540).
The amount you designate, your elective income, is excluded in
calculating your taxable income for the year or forward
averaging. Instead, this excluded amount is taxed federally at 34
per cent plus the federal surtax, if applicable, and provincially
at the current rate for your province.
The amount of your elective income will be carried forward
until such time as you elect to draw on it. Amounts involved in
future years' elections will be added to your balance. Each
year an indexing factor based on changes in the Consumer Price
Index will be applied to keep your elective income on a current
dollar basis.
The resulting amount constitutes your accumulated averaging
amount.
...
How to draw on your accumulated averaging amount
...
To draw amounts from your accumulated averaging amount back
into income, just decide how much you want to include in your
income. Complete form T581, available from your district office
and file it with your tax return by April 30 at the latest. Enter
on line 225 of your return, the amount you want to withdraw and
add this amount to your Net Income. On line 458 of your return,
enter the total federal and provincial forward averaging tax
credit to which you are entitled. The federal credit will be 34
per cent of the amount you are reporting on line 225.
...
[6] The Appellant stated forcefully that he believed that this
amount of tax paid was like money in a bank and that he would be
entitled to use the entire amount as tax credit when he would
include, in his income returns of the following years, part of
the accumulated averaging amount.
[7] Although the two judges of this Court who have heard his
previous appeals and who are referred to in
subparagraphs 4 j) and 4 m) of the Reply expressed
sympathy at his case they nonetheless dismissed his appeals.
Archambault J. found that the applicable provisions of the
Act were without any ambiguity and Bowman J. found that
there was no Charter issue in that case. I entirely agree
with the findings of these judges more so that both were
confirmed by the Federal Court of Appeal. There is an issue,
however, that was not discussed at the trial level and was
succinctly addressed at the appeal level and that comes to mind
after hearing the complaint of the Appellant, which is the issue
of the acquired right expressed at paragraph 43(c) of
the Interpretation Act.
[8] This paragraph reads as follows:
43. Where an enactment is repealed in whole or in part, the
repeal does not
....
(c) affect any right, privilege, obligation or
liability, acquired, accrued, accruing or incurred under the
enactment so repealed,
[9] Paragraph 110.4(1) of the Act determined what
could be comprised in the averaging amount.
Paragraph 110.4(2) of the Act provided for the
inclusion of a portion of the accumulated averaging amount in
computing the taxable income. The deduction and addition of tax
was provided for at paragraphs 120.1(1) and 120.1(2).
Paragraph 120.1(1) of the Act read as follows:
(1) There may be deducted from the amount that would, but for
this section, be the tax otherwise payable under this Part (other
than the tax payable with respect to a return of income referred
to in subsection 110.4(5)) by an individual for a taxation year
an amount equal to the product obtained when
(a) the amount specified in his election for the year
under subsection 110.4(2) and, where his legal representative has
filed on his behalf an election under subsection (2) for the
year, his accumulated averaging amount at the end of the year
is multiplied by
(b) the percentage referred to in paragraph
117(2)(c).
and subparagraph 120.1(2)(a) read as follows:
There shall be added to the amount that would, but for this
section, be the tax otherwise payable under this Part (other than
the tax payable with respect to a return of income referred to in
subsection 110.4(5)) by an individual for a taxation year an
amount equal to
(a) the product obtained when the amount deducted under
subsection 110.4(1) in computing his taxable income for the year
is multiplied by the percentage referred to in
paragraph 117(5.2)(j); and
...
[10] It can be seen from reading paragraphs 120.1(1) and
120.1(2), that for the calculation of the tax payable on the
averaging amount, the reference is to the percentage mentioned in
paragraph 117(5.2)(j) of the Act. At that
time, 117(5.2)(j) read as follows:
The tax payable by an individual under this Part upon his
taxable income or taxable income earned in Canada, as the case
may be, (in this subdivision referred to as the ‘amount
taxable’) for the 1982 and subsequent taxation years is
...
(j) $5,950 plus 34% of the amount by which the amount
taxable exceeds $24,000.
[11] It is by this amendment to
paragraph 117(5.2)(j) that the amounts of deduction
of tax or tax credits, to which the Appellant would have been
entitled to in 1985, were modified.
[12] Was there an accrued right to the Appellant? Or in other
terms has the Appellant been deprived of one of his property
rights? Has he been dispossessed of moneys to which he was
entitled? The point of law regarding accrued right not having
been specifically raised in the Notice of Appeal, I do not have
the Respondent's view as to whether indeed the Appellant is
not going to recover some moneys that he has expanded as taxes in
1985. The Respondent's views on the matter is that the
applicable provisions of the Act are clear and have been
applied accordingly. However, because the Appellant is not
represented by a lawyer, I find opportune to make a summary
analysis of the notion of vested rights.
[13] Regarding vested rights the Supreme Court of Canada in
Gustavson Drilling (1964) Limited v. M.N.R., 1977
1 S.C.R. 271, at page 282 stated the following:
Second, interference with vested rights. The rule is that a
statute should not be given a construction that would impair
existing rights as regards person or property unless the language
in which it is couched requires such a construction: Spooner
Oils Ltd. v. Turner Valley Gas Conservation Board [ [1933]
S.C.R. 629.], at p. 638. The presumption that vested rights are
not affected unless the intention of the legislature is clear
applies whether the legislation is retrospective or prospective
in operation. A prospective enactment may be bad if it affects
vested rights and does not do so in unambiguous terms. This
presumption, however, only applies where the legislation is in
some way ambiguous and reasonably susceptible of two
constructions. It is perfectly obvious that most statutes in some
way or other interfere with or encroach upon antecedent rights,
and taxing statutes are no exception. The only rights which a
taxpayer in any taxation year can be said to enjoy with respect
to claims for exemption are those which the Income Tax Act
of that year give him. The burden of the argument on behalf of
appellant is that appellant has a continuing and vested right to
deduct exploration and drilling expenses incurred by it, yet it
must be patent that the Income Tax Acts of 1960 and
earlier years conferred no rights in respect of the 1965 and
later taxation years. One may fall into error by looking upon
drilling and exploration expenses as if they were a bank account
from which one can make withdrawals indefinitely or at least
until the balance is exhausted. No one has a vested right to
continuance of the law as it stood in the past; in tax law it is
imperative that legislation conform to changing social needs and
governmental policy. A taxpayer may plan his financial affairs in
reliance on the tax laws remaining the same; he takes the risk
that the legislation may be changed.
[14] The Federal Court of Appeal in its decision rendered on
this matter for the year 1992 (Vosicky v. The Queen,
95 DTC 5224), made use of some words of the above
decision:
... However, the courts must apply the law as it is
written and the applicant, contrary to what he thinks, had
"no vested right in the continuance of the law as it
stood" in 1985.
That decision does not explain how it has arrived at the
conclusion regarding the Appellant's case that there were no
vested rights but I shall think that that Court has made the
relevant analysis.
[15] It is nonetheless interesting to read the authors on the
subject. In Dreidger on the Construction of Statutes,
3rd edition, by Ruth Sullivan, there is an analysis of
the subject from pages 528 to 543. It is stated that for a
right to be a vested right it must be particularized and
personalized. The right claimed must have been acted upon and
effectively claimed as one's own. The key to weighing the
presumption against interference with vested rights is a degree
of unfairness the interference will create in particular
cases.
[16] An analysis of vested rights is also made in the
Interpretation of Legislation in Canada, 2nd Edition,
Pierre-André Côté, from
pages 139 to 155. At page 141:
To attempt a definition of "vested rights" would be
somewhat audacious. In conventional legal language, vested rights
are contrasted with simple expectations.
at page 143:
Yet, to deny the existence of vested rights, and rule in
favour of a statute's immediate and prospective operation,
may have dire consequences for the individual. Law should reflect
a certain stability: legal reform, which is not undertaken
gradually can entail serious prejudice to individuals. The Courts
require the individual to establish that his legal situation is
tangible and concrete, rather than general and abstract, and that
this situation was sufficiently constituted at the time of the
new statute's commencement. The mere possibility he may have
had to prevail himself of a specific statute does not create a
vested right.
at page 146:
... a sufficiently constituted legal situation, in
determining the existence of vested rights, the courts require
not only that they be concrete and tangible, but that they attain
a sufficiently individualized and materialized degree to justify
judicial protection. At what moment does this take place? This is
a delicate question, and often little more than a guess can
suggest where the judge will draw the line between vested rights
and simple expectations. The distinction between what is and what
is not a right must often be one of great fineness.
[17] In this particular case, it is not the case of a person
who could have prevailed himself of a specific provision. It is
the case of a person who had taken advantage of a provision that
was later on amended. This, in my view, appears to put the
Appellant in a position different to that of the taxpayer in
Gustavson Drilling (supra).
[18] In the circumstances of a taxpayer who, when he elected
to avail himself of the forward averaging provisions, would have
had to pay the highest tax rate, he would not appear as having
been treated unfairly by the subsequent changes to the tax rate
used in the calculation of the tax deduction, and later on the
tax credit. However, in the circumstances of this particular
appeal, in a case where the taxpayer was not to be assessed on
his income at the highest tax rate of 34 p. 100, but at
29 p. 100, and who has accepted to pay the highest tax
rate on an averaging amount, under the belief that he was
entitled in future years to credit in the same amount, for this
taxpayer, the subsequent changes of the Act appear more
unfair.
[19] As I mentioned earlier, I did not have the benefit of the
Respondent's view on the matter and I did not seek it in view
of the decision of the Federal Court of Appeal, referred to in
paragraph 14 of these Reasons, which specifically put aside
any entitlement to some vested right. The appeal should be
dismissed.
Signed at Ottawa, Canada, this 16th day of March, 2000.
"Louise Lamarre Proulx"
J.T.C.C.
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