Terry Richard Reimann v. Her Majesty the Queen (Informal Procedure), [1995] 1 CTC 2334, 95 DTC 649

Christie A.C.J.T.C.C.:—This appeal is governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act. It relates to the appellant’s 1992 taxation year.

In submissions to the Court the appellant said the appeal relates to "a very complex situation.” While some of what was placed before the Court might fit that description, the essential question to be answered is simply whether the appellant is entitled to deduct $3,400 payable by Sun Life to him in 1991 in computing his income for 1992.

In 1989 the appellant, under the terms of a disability insurance plan with Sun Life, began to receive wage loss replacement benefits. He received similar benefits from that source in 1990, 1991 and 1992. Under

the contract with that Company he was required to apply for disability benefits under the Canada Pension Plan ("CPP"). He was also required to reimburse Sun Life for amounts paid by it to him upon receipt of CPP benefits. In 1991 when Sun Life became aware that receipt of CPP disability benefits by the appellant was imminent, it withheld $425 per month for a total of $3,400 in that year. It is said that this was done to avoid "massive overpayment of benefits".

In a document dated March 1, 1993, attached to his return of income for 1992, the appellant states:

Beginning in May of 1991, when it became apparent that benefits from the Canada Pension Plan may be approved, Sun Life began to withhold or offset an amount of $425 monthly, for the ten [sic] months [1] remaining in 1991, for a total of $3400. This amount should have been received in 1991, and therefore should have been taxable in 1991.

In calculating his total income in his 1992 return the appellant stated that he received $13,856.22 from the CPP. This is at line 114. This figure is arrived at in this way: $28,104.16 received from CPP — $10,847.94 amount reimbursed to Sun Life = $17,256.22 - $3,400 = $13,856.22. At line 486 he added tax payable of $697.22 for 1992. This pertained to the $3,400.

What is relevant to this appeal in subsection 56(8) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") provides that where one or more amounts are received by an individual in a taxation year on account of a disability pension under the CPP and a portion, not less than $300, of the total of such 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. Section 120.3 of the Act reads:

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 by reason 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.

It is the appellant’s contention that under subsection 56(8) he is entitled in computing his income for 1992 to confine himself to deducting that portion of the $28,104 received from the CPP that relates to the $3,400 payable to him by Sun Life in 1991, but which was not paid.

The Attorney General on behalf of the respondent takes the position the $28,104 must be either taken into account in its entirety in respect of the appellant’s 1992 taxation year or that amount must be related to 1989, 1990, 1991, 1992. This approach, if correct, excludes the manner in which the appellant seeks to compute his income for 1992. In the result, the Minister of National Revenue ("Minister”) reassessed the appellant on this basis:

The Canada or Quebec pension plan lump-sum disability payment which you received qualifies for a special tax calculation. If it benefits you, we tax any amount of $300 or more that applies to previous years as though you had received it in those years rather than in the year you actually received it. Using this special calculation, we have determined that it is to your benefit to include the full amount of the payment in your current year’s income. We have adjusted your return accordingly.

In a written submission dated August 12, 1994, counsel for the respondent said:

An application of these provisions (subsection 56(8), section 120.3) might operate to lower the tax payable by an individual. However, in the circumstances of this appeal, the calculation of this notional tax does not benefit this appellant since it would result in a greater payment of tax than if the whole lump sum payment were included solely in 1992 in computing his income for the 1992 taxation year.

To my mind the interpretation placed on subsection 56(8) by the appellant is correct. But even if it could be said that the provisions of the subsection are ambiguous in respect of the point in issue on this appeal, the ambiguity is to be resolved in favour of the taxpayer: Johns-Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46, [1985] 2 C.T.C. Ill, 85 D.T.C. 5373 at page 72 (C.T.C. 126, D.T.C. 5384); Fries v. The Queen, [1990] 2 S.C.R. 1322, [1990] 2 C.T.C. 439, 90 D.T.C. 6662.

The appeal is allowed and the matter is referred back to the Minister for reconsideration and reassessment on the basis that in computing his income for 1992 the appellant is entitled under subsection 56(8) of the Act to deduct the $3,400 that was payable to him by Sun Life in 1991, but which was not paid. Section 120.3 of the Act also applies to the reassessment.

Appeal allowed.