Richard K Cooper v. Minister of National Revenue, [1981] CTC 2031, 81 DTC 40

The Chairman:—This is the appeal of Mr Richard K Cooper from an income tax assessment in respect of the 1974 taxation year.

The issue in this appeal is the deductibility of an amount of $2,671.25 representing a refund from the United Nations pension plan.

The appellant’s contentions are summarized in his notice of appeal:

The amount of $2,671.25 represents the total contributions that I made to the UN Joint Staff Pension Plan while I was employed by an agency of the UN, in Italy, from July 1971 to April 1974. When I ceased to be employed by the UN (as at April 26, 1974) I was entitled to a full refund of my UN pension fund contributions.

I do not believe that the amount of $2,671.25 should be reported as income on my 1974 tax return for the following reasons:

(1) During my period of service with the United Nations I was not subject to Canadian taxation, however my salary was subject to a staff assessment levied by the UN. The staff assessment, collected in lieu of national income taxes, was imposed on my gross UN salary. At the same time, my contributions to the UN Staff Pension Fund were also calculated as a percentage of my gross salary. Consequently, the staff assessment (being calculated on the gross salary) also covered my pension contributions and hence constituted a form of taxation on those contributions.

If the refund of $2,671.25 is treated as income on my 1974 Canadian tax return, my pension contributions will be subjected to a form of taxation for a second time. For this reason I do not consider my refund should be reported as income on my 1974 return.

(2) Throughout the period of my service with the UN my contributions to the UN Staff Pension Fund were registered in my name and were payable to me at the end of my service. Consequently, the right to my pension refunds existed from the time they were earned and deducted from each salary cheque and registered in my name. The refund of my contributions should therefore be considered as only a transfer of funds already earned by me. As noted in (1) above, the contributions had already been subject to a form of taxation. No interest was payable by the UN Pension Fund on my contributions.

(3) Finally, as noted in my notice of objection, I gave instructions in April 1974 as to the disposal of my pension fund refund, while I was still in Italy and still an employee of the UN Agency. Although the refund was not received by the Department of Supply and Services in Canada until after I had returned to Canada, the money was due to me while still a non-resident (I had the option of taking a cash refund in Italy) and I gave instructions as to its disposal while still a non-resident. To the extent that it represents income therefore, under the current assessment, it is income earned and received while a non-resident of Canada. It is also income which has already been subject to taxation as noted in (1).

The respondent in his reply states:

A. Statement of Facts

1. He does not admit any allegations of fact in the notice of appeal except as hereinafter expressly provided.

2. In assessing the appellant for his 1974 taxation year, the Minister assumed, as was the fact, the following:

(a) the appellant was, at all material times, an employee of the Government of Canada;

(b) during his 1974 taxation year, the appellant received an amount of $2,671.25 from a United Nations Pension Fund;

(c) the appellant was, at all material times, a resident of Canada;

(d) the appellant deducted from his income, for his 1974 taxation year, registered pension plan contributions totalling $4,241.83, which amount included the amount of $2,671.25 referred to above;

B. Statutory Provisions Upon Which the Respondent Relies and the Reasons Which He Intends to Submit

3. He relies, inter alia, on paragraphs 8(1)(m), 56(1)(a) and 60(j) of the Income Tax Act, RSC 1952, c 148 as amended by SC 1970-71-72, c 63, s 1.

4. He submits that the amount of $2,671.25 received by the appellant in his 1974 taxation year constitutes a pension benefit within the meaning of paragraph 56(1)(a) of the Income Tax Act and therefore must be included in his income for that year.

5. He further submits that the amount of $2,671.25 is deductible from the appellant’s income under paragraph 60(1 )(j) of the Income Tax Act only if it has been included in computing the income of the Appellant for the year by virtue of subparagraphs 56(1)(a)(i) or (ii) of the Income Tax Act.

Submissions

It is the appellant’s submission that the amount of $2,671.25 received by him in 1974, was a return of capital which he had contributed from July 1, 1971 to May 1,1974, to the United Nations Pension Fund as an employee of the Food and Agriculture Organization in Rome, Italy.

The appellant was not subject to Canadian income tax while employed with the United Nations, but was subject to a staff assessment which was a form of income tax payable to the United Nations and eventually returned to member governments in proportion to their national quota of employees. No deductions for pensions or charitable donations were allowed in computing the staff assessments. The appellant, while in the United Nations, was subject to pension deductions at the rate of 7% of his gross income. On May 1, 1974, the appellant, though not entitled to the employer’s contribution to the fund, was entitled to a full return of his contribution which had already been subject to the United Nations staff assessment.

While with the Food and Agriculture Organization, the appellant instructed the Food and Agriculture Organization to forward the appellant’s money from the pension fund to the Canadian superannuation fund as partial payment for prior services, which was complied with on October 15, 1974.

It is the appellant’s contention that the $2,671.25 which had already been subjected to the United Nation’s staff assessment, some part of which was returned to Canada, was a tax on his income albeit not pursuant to the Canadian Income Tax Act. A further tax on the receipt of what the appellant considers to be a refund of his contribution would, according to the appellant, constitute a second tax on the same monies.

There is little doubt that the said amount of $2,671.25 which the appellant contributed to the Canadian superannuation fund would eventually be taxed a third time as benefits received from a superannuation plan.

The respondent’s submission is that when the appellant returned to Canada in May of 1974, he was a resident of Canada and subject to the Income Tax Act in respect to his receipt of the amount of $2,671.25. The respondent pointed out that the facts of the instant appeal are very similar to those of the case of The Queen v Lloyd Herman, [1978] CTC 442; 78 DTC 6311, in which the Federal Court reversed the decision of the Tax Review Board, Stephanie Herman, Lloyd Herman v MNR, [1976] CTC 2220; 76 DTC 1157. Indeed, the basic facts of this appeal are similar to those in the Herman case, with the exception however that the appellant in this instance received in a lump sum payment the return of his own contributions plus whatever interests may have accrued, whereas in the Herman case the amounts received were made up of the employer’s contributions as well as the contributions made by the Hermans to the United Nations Joint Staff Pension Fund.

There is no doubt that the appellant was a resident of Canada at the time he received the amount of $2,671.25 from the United Nations Joint Staff Pension Fund. It is immaterial whether the amount was paid in monthly instalments. The taxability of the amount received depends, in my view, on the nature of and the reason behind the payment.

In his reasons in the Herman case, the Learned Justice, The Hon Allison A M Walsh, found that it would require a specific section of the Income Tax Act for the Court to accept that the payments made to Canada by the United Nations from the “Staff Assessment”, monies to which the appellant contributed, were income tax paid by the appellant according to the Canadian Income Tax Act, particularly at a period of time when the appellant was not taxable in Canada. The Learned Justice Walsh concluded from this that the Herman case had not been subjected to double taxation. This reasoning is of course accepted and applicable in the instant appeal.

The Learned Justice Walsh also found in the Herman case that the United Nations Joint Staff Pension Plan provided for bona fide pension fund to which the Hermans had contributed and from which they had received benefits.

The pertinent sections of the Income Tax Act are subparagraph 56(1 )(a)(i) and subsection 248(1), SC 1970-71-72, c 63, as amended.

96. Amounts to be included in income for year.

(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) Pension benefits, unemployment insurance benefits, etc—any amount received in the year as, on account or in lieu of payment of, or in satisfaction of,

(i) a superannuation or pension benefit, including, without limiting the generality of the foregoing,

(A) the amount of any pension or supplement under the Old Age Security Act and the amount of any similar payment under a law of a province, and

(B) the amount of any benefit under the Canada Pension Plan or a provincial pension plan as defined in section 3 of that Act,

but not including

(C) the amount of any social assistance payment made on a means or a needs test basis,

(I) by a registered Canadian charitable organization, or

(II) under a prescribed program provided for by an Act of the Parliament of Canada or a law of a province.

Definitions.

248.(1) In this Act,

‘‘Superannuation or pension benefit”.—includes any amount received out of or under a superannuation or pension fund or plan and without restricting the generality of the foregoing includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary thereunder,

(a) in accordance with the terms of the fund or plan,

(b) resulting from an amendment to or modification of the fund or plan, or

(c) resulting from the termination of the fund or plan;

In the instant appeal, the appellant was resident in Canada, liable to Canadian income tax and received monies from a pension fund which, pursuant to paragraph 56(1)(a) of the Act, are taxable.

As pointed out by counsel for the respondent, no prejudice would have been caused the appellant, had he included the amount of $2,671.25 in his 1974 income and qualified himself for a deduction under paragraph 60(j) of the Income Tax Act, SC 1970-71-72, c 63 as amended, which reads:

(j) Transfer of superannuation benefits and retiring allowances.—such part of any amount included in computing the income of the taxpayer for the year by virtue of subparagraph 56(1 )(a)(i) or (ii) or subsection 146.2(6) or 147(10) or any refund of deductions as deferred pay under subsection 206.21(1) or (2) of The Queen’s Regulations and Orders as does not exceed the amount by which

(i) any amount paid by him in the year or within 60 days after the end of the year

(A) as a contribution to or under a registered pension fund or plan, or

(B) as a premium, as defined by section 146, under a registered retirement Savings plan,

to the extent that it was not deductible in computing his income for the immediately preceding year.

exceeds

(ii) the aggregate of the amounts, if any, deductible under paragraph (i), paragraph 8(1)(m) or subsection 146(5) in computing his income for the year;

I must hold therefore that the amount of $2,671.25 received by the appellant in the 1974 taxation year from the United Nations Joint Staff Pension Fund was a pension benefit within the meaning of subsection 248(1) and taxable pursuant to subparagraph 56(1 )(a)(i).

The appeal is therefore dismissed.

Appeal dismissed.