Henry E Hoffman v. Minister of National Revenue, [1982] CTC 2779, 82 DTC 1803

M J Bonner:—The appellant appeals from assessments of income tax for the 1978 and 1979 taxation years. At all relevant times the appellant was a citizen of the United States of America, a resident of Canada and was employed in Canada by Firestone Canada Ltd. Firestone withheld from amounts otherwise payable to the appellant as salary the following:

(a) for 1978, $1,209.63; and

(b) for 1979, $1,645.10.

According to the evidence, the amounts were withheld pursuant to an agreement between Firestone’s US parent company and the Internal Revenue Service of the United States. That agreement was apparently made with the intention of providing for the collection of what the appellant described as social security payments and what the respondent assumed were payments under the Federal Insurance Contributions Act (of the United States). The nature of the statutory scheme requiring the payments and indeed the question whether the appellant was liable at all to make the payments was left unclear. There was no evidence of foreign law.

The appellant contended that he was entitled to deduct the amounts in question in the computation of income. He relied on subsection 20(12) of the Income Tax Act. That provision reads:

20 (12) In computing the income of a taxpayer for a taxation year, there may be deducted such amount as he may claim not exceeding the non-business income tax paid by him for the year to the government of a country other than Canada (within the meaning assigned by paragraph 126(7)(c) read without reference to subparagraph (iii) thereof) other than any such tax, or part thereof, that may reasonably be regarded as having been paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.

Non-business-income tax is, so far as is relevant here, defined by paragraph 126(7)(c) of the Act as follows:

126 (7) In this section;

(c) “non-business-income tax” paid by a taxpayer for a taxation year to the government of a country other than Canada means such portion of any income or profits tax paid by him for the year to the government of that country, or to the government of a state, province or other political subdivision of that country, as

(i) was not included in computing the taxpayer’s business-income tax for the year in respect of any business carried on by him in any country other than Canada,

(ii) was not deductible by virtue of subsection 20(11) in computing the taxpayer’s income for the year, and

but does not include the portion of any tax that would not have been payable had the taxpayer not been a citizen of that country and that cannot reasonably be regarded as attributable to income from a source outside Canada; and

Subsection 20(12) can have no application because no tax was paid by the appellant in respect of any business carried on by him outside of Canada. The respondent was right in denying the deductions in question, provided always that the issue here can correctly be characterized as one of deduction.

Under section 5 of the Act income for a year from employment is the salary received in the year. The question raised by this case is not what may be deducted from salary received by the appellant; rather it is whether the amounts which were withheld by the appellant’s employer can be said to have been received by him. The appellant was not a party to the agreement under which the amounts were withheld from his salary and paid over to a foreign government. It was not suggested that the appellant either directed the employer to make the payments or concurred with the making of them. It was not shown that the appellant’s employer, in making the payments, conferred a benefit on the appellant. Accordingly, neither subsection 56(2) nor subsection 245(2) of the Income Tax Act appears to have application. No question of deemed receipt under subsection 153(3) of the Act can arise because the amounts were not deducted or withheld at source under subsection 153(1). The case is simply one in which the amounts in question were arbitrarily, and quite possibly wrongly, withheld by the employer from the appellant’s salary. Section 5 brings into income salary received and not salary which, in different circumstances might have been received.

The appeals will therefore be allowed and the assessments referred back to the respondent for reconsideration and reassessment on the basis that the amounts in question formed no part of the appellant’s income from employment for those years.

Appeal allowed.