Scott Aspinall v. Minister of National Revenue, [1986] 1 CTC 2350, [1986] DTC 1281

Tremblay, T.C.J.:—This case was heard on August 23, 1985 at the City of Toronto, Ontario.

1. The Point at Issue

This point is whether the appellant, a former employee of Texaco Canada Inc. (Texaco), is entitled, in the computation of his income for the 1982 taxation year, to the amount of $13,535 as a loss from employment. This loss originates from a loss of a right to receive a benefit from the Employee Profit Sharing Plan of Texaco.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent's assessment is incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessment or reassessment are also to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

6. In reassessing tax as aforesaid, the respondent relied, inter alia, upon the facts set out in paragraphs 1, 2 and 3 herein.

Paragraphs 1, 2 and 3 read as follows:

1. The Respondent admits that the Appellant resigned his position as an employee from Texaco Canada Inc. (Texaco), in 1983 and that as a result of his resignation he was no longer eligible to share in the profit sharing plan of Texaco, but does not admit any other allegations of fact contained in the Notice of Appeal.

2. The appellant prior to his resignation from Texaco was a beneficiary of the Texaco profit sharing plan (the Texaco plan).

3. During the Appellant’s 1982 taxation year the trustee of the Texaco plan allocated the following amounts to the Appellant:

Dividends	446.75 (Grossed up)	$	670.13
Interest			286.79
Other Income		12,600.00
		$13,556.92

3. The Facts

3.01 The appellant was an employee of Texaco during the years 1977 to 1983 inclusive. In fact he resigned his position on May 31, 1983.

3.02 As a result of his resignation he was longer eligible to share in the Employee Profit Sharing Plan of Texaco (the Texaco Plan). The appellant indeed prior to his resignation was a beneficiary of the Texaco Plan.

3.03 During the appellant’s 1982 taxation year, the trustee of the Texaco Plan allocated the following amounts to the appellant:

3.04 The appellant in filing his return of income for the 1982 taxation year did not include the amount of $13,556.92 allocated to him by the trustee of the Texaco Plan in the computation of his income. One can read the following notice, filed with the said return:

NOTICE

I am not accepting the allocation made by the Texaco Canada Inc. Merit Award Plan of dividends of $670.13; interest of $286.79; and other income of $12,600.00 as set out on the enclosed T4 P S supplementary for 1982. I have no vested interest in this sum and should I choose to terminate my employment with Texaco, I will not receive any of this amount.

3.05 The respondent in reassessing the taxes payable by the appellant for the 1982 taxation year included in the computation of his income the amount allocated to him by the trustee of the Texaco Plan.

3.06 Ms. Jane Avery, senior legal officer of Texaco, lengthily explained the Merit Award Plan of Texaco, based on the net profit of the company (Exhibit R-1), the amendments to this Plan (Exhibits R-2, R-3), and the computation of the various figures involved in the appellant’s account of the Texaco Plan (Exhibits R-4, R-5). The said figures and computation are admitted. Exhibit R-4 shows, among other things, that the components of “other income" in the amount of $12,600, included an allocation for 1982 of gross: $6,300; invested (in Texaco shares): $2,759; and cash: $3,541.

3.07 Pursuant to sections VII and VIII of the Texaco Plan, the appellant’s entire account was forfeited and the appellant had no right thereto. He was not entitled indeed to withdraw his entire account which stands to his credit because the termination of his employment was not provided in section VII (1) which reads as follows:

SECTION VII

Payments of Benefit of Withdrawals

(1) A Participant or, in a proper case, his legal representative shall be entitled to withdraw the entire Participant’s Account which stands to his credit, as of the end of the month immediately preceding the occurrence of the first of the following events:

(a) Retirement because of having attained normal retirement age.

(b) Retirement, with the approval of the Company, under the Company’s Group Plan prior to normal retirement age.

(c) Retirement by action of the Company because of disability.

(d) Death of the Participant.

The amount involved was $13,535 that the appellant claims as a loss. This amount totals all amounts invested in shares of Texaco from 1977 to 1983. Pursuant to the Plan, however, the appellant never had to pay to participate in this invested amount.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved are subsection 5(2), paragraph 6(1 )(d) and subsections 8(2), 144(3),(4),(9). They read as follows:

5. ...

(2) A taxpayer’s loss for a taxation year from an office or employment is the amount of his loss, if any, for the taxation year from that source computed by applying the provisions of this Act respecting computation of income from that source mutantis mutandis.

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:

(d) amounts allocated to him in the year by a trustee under an employees profit sharing plan as provided by section 144 except subsection (4) thereof, and amounts required by subsection 144(7) to be included in computing his income for the year;

8. . . .

(2) Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.

144. . . .

(3) 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 him 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),

(e) a dividend received by the trust from a taxable Canadian corporation, or

(f) interest, other than any amount referred to in subsection 110.1(2), received by the trust.

(4) Any capital gain of a trust governed by an employees profit sharing plan or any capital loss of the trust for a taxation year ending after 1971 from the disposition of any property shall, to the extent that it has been allocated by the trust to an employee who is a beneficiary under the plan, be deemed to be a capital gain or capital loss, as the case may be, of the employee from the disposition of that property, for the taxation year of the employee in which the allocation was made.

(9) For the purposes of section 164, where an employee who is a beneficiary under an employees profit sharing plan ceases, at any time in a taxation year, to be a beneficiary thereunder, and it is established that

(a) there has been included in computing the income of the employee for that or a previous taxation year an amont by virtue of any allocation made to him contingently by the trustee under the plan prior to the time he ceased to be a beneficiary thereunder, and

(b) the employee has not at any time received that amount from the trustee

under the plan and is not, under the plan, entitled to receive that amount,

the employee shall be deemed to have made, at the time he ceased to be a beneficiary under the plan, a payment equal to 15% of that amount on account of tax under this Part for the taxation year in which he ceased to be a beneficiary under the plan.

4.02 Cases at Law

The cases at law to which it was referred by counsel for the respondent are:

1. The Queen v. Imperial General Properties Limited, [1985] 1 F.C. 344; [1985] 1 C.T.C. 40; 85 D.T.C. 5045;

2. Kenneth B.S. Robertson, Limited v. M.N.R., [1944] Ex. C.R. 170; [1944] C.T.C. 75; 2 D.T.C. 655;

3. M.N.R. v. Consolidated Glass Limited, [1957] S.C.R. 167; [1957] C.T.C. 78; 57 D.T.C. 1041.

4.03 Analysis

4.03.1 The two main points are:

(a) whether the loss, if any, must be claimed in 1982 or 1983 and

(b) whether the amount of $13,535 is claimable pursuant to the Income Tax Act.

4.03.2 The appellant resigned in May 1983. The appellant contends that, at the said date, the loss ascertainable and provable upon preparing the 1982 tax return. Thus on the basis of conservatism, the loss was taken in 1982. The amount of the 1982 allocation was $13,556.92 and the amount of the said loss was $13,535.

First, the amount of the 1982 allocation had to be included in the 1982 taxation year pursuant to paragraph 6(1)(d) of the Act quoted above. The beneficiary must include it in the same year if it was “allocated to him contingently or absolutely . . pursuant to subsection 144(3) of the Act quoted above.

The same principle applies, if there is a capital loss pursuant to subsection 144(4) of the Act quoted above.

The appellant contends it is not a capital loss but a loss from office or employment provided in subsection 5(2) of the Act quoted above.

It appears from the wording of that provision that such a loss must also be applied in the same year: "A taxpayer's loss for a taxation year ... is the amount ... for the taxation year .. ."

The Court finds that the principle of "conservatism" cannot be retained in this case.

4.03.3 Concerning the point whether the amount of $13,535 was an actual loss, the appellant’s agent contends it was an actual loss from office or employment.

The award was part of the “wage package” of the employee. The award was part in cash and part by shares. The award was included as employment income by Section 6(1)(d). Thus the employee lost an amount of his income allocated in this manner less the amount actually received. Because of the nature of this income the taxpayer had already paid income taxes on it. Thus the loss should be reduced by the appropriate income taxes on the actual amount of income received, now that it is ascertainable.

Moreover, the agent said that with the departure of his client from Texaco, the loss became final and irrevocable in the sense of the decision of the Supreme Court of Canada in the Consolidated Glass Ltd. case (supra) (para. 4.02(3)) and thus became deductible.

4.03.4 It is appropriate to say that the appellant received a tax credit in 1983 (as a result of his withdrawal from the Plan) by virtue of subsection 144(9) of the Act quoted above on amounts previously allocated.

4.03.5 First, the right to participate in the Plan cost the appellant nothing. Even if he paid tax on it, he was credited as explained above (para. 4.03.4).

The right to receive payments of benefits of withdrawal from the Texaco Plan was conditional to the occurrence of the first of the four events described in section VII of the Texaco Plan quoted above (para. 3.07). So being a restriction, it was not an absolute right in the sense of the decision of Mr. Justice Thorson of the then Exchequer Court in the Kenneth B.S. Robertson, Limited case (supra) (para. 4.02(2)). In that case it was decided in substance that an income must be included in the income of a taxpayer inasmuch as the latter has an absolute right to it. This principle has been confirmed many times by the Supreme Court of Canada. The application of this principle was also involved in 1985 in a case rendered by the Federal Court of Appeal: The Queen v. Imperial General Properties Limited (supra) (para. 4.02(1)). It is the opinion of the Court that this principle may be applied in this case; if the appellant did not have an absolute right to the benefit of $13,535, can it be said that he actually suffered a loss claimable pursuant to the Income Tax Act? I must answer by the negative.

4.03.6 The respondent's assessment must be maintained.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.