Bowie
T.CJ.:
The
narrow
question
for
decision
in
this
case
is
whether
or
not
the
Appellant’s
income
arising
by
way
of
pension
income
which
is
not
to
be
taxed
by
virtue
of
the
provisions
of
the
tax
treaty
with
the
Federal
Republic
of
Germany,
should
or
should
not
be
included
for
the
purpose
of
establishing
the
formula
in
subsection
118(2)
of
the
Income
Tax
Act,
whereby
the
amount
of
the
non-refundable
age
credit
to
which
the
Appellant
is
entitled
is
computed.
The
Crown
relies
on
the
decision
of
the
Supreme
Court
of
Canada
affirming,
without
additional
reasons,
the
judgment
of
the
Federal
Court
of
Appeal
in
Swantje
v.
Her
Majesty
the
Queen!.
What
was
at
issue
in
that
case
was
whether
or
not
the
foreign
income
protected
by
the
treaty
from
tax
could
be
looked
to
in
the
calculations
under
Part
I.2
of
the
Income
Tax
Act
whereby,
in
common
parlance,
the
clawback
is
applied
to
the
old
age
security
benefit
and
the
family
allowance
benefit.
In
my
view
there
is
a
distinction
between
this
case
and
Swantje.
In
Swantje
the
Court
held
that
the
purpose
of
the
legislation
in
question
was
not
taxation,
but
the
recovery
of
benefits
conferred
under
other
statutes,
and
that
while
the
tax
treaty
protected
income
from
taxation,
it
did
not
protect
social
benefits
received
under
other
statutes
from
being
recovered
through
the
non-taxing
mechanisms,
of
the
Income
Tax
Act.
In
my
view,
the
present
situation
is
different
in
this
respect.
Subsection
118(2)
of
the
Act
establishes
the
amount
of
a
non-refundable
tax
credit
which
may
be
applied
by
the
taxpayer
against
the
tax
ultimately
found
to
be
payable
under
the
charging
provisions
of
the
Act.
Unlike
the
provisions
of
Part
.2,
it
is
an
integral
part
of
Part
I
of
the
Act,
and
its
real
purpose
and
effect
is
to
reduce
the
amount
of
tax
paid
by
persons
over
age
65,
who
are
entitled
to
have
its
benefit.
It
follows
that
to
include
amounts
protected
by
the
treaty
in
calculating
the
credit
available
to
the
taxpayer
is
to
indirectly
tax
that
which
the
treaty
says
should
not
be
taxed.
This
is
tested
by
considering
what
the
tax
payable
would
be
if
there
were
no
foreign
income
at
all,
versus
what
the
Minister
calculates
to
be
the
(1994),
94
D.T.C.
6633
(Fed.
C.A.);
aff’d
Swantje
v.
R.
(1996),
96
D.T.C.
6310
(S.C.C.)
tax
payable,
computed
by
a
method
which,
while
not
imposing
tax
directly
on
the
foreign
income,
takes
the
foreign
income
into
account
in
computing
the
amount
of
the
tax
credit,
and
therefore
the
amount
of
tax
to
be
paid.
The
former
calculation
yields
a
total
of
tax
payable
which
is
$266.36
less
than
the
latter
does,
a
difference
which
arises
only
because
the
foreign
pension
benefit
is
taken
into
account
in
the
calculation
of
Part
I
tax.
In
my
view
the
case
is
not
the
same
as
Swantje,
because
the
effect
of
making
the
computation
in
the
way
that
the
Minister
has
done
in
this
case
is
to,
in
effect,
tax
the
foreign
income,
albeit
at
a
lower
rate
than
if
it
were
taken
into
the
tax
base.
The
appeal
is
allowed.
Appeal
allowed.
Email this Content