Sun Life Assurance Company of Canada v. Her Majesty the Queen, [1979] CTC 68, 79 DTC 5076

Gibson, J:—These two appeals from assessments for income tax were heard on common evidence.

Certain pension funds of some employees were transferred to another pension fund when such employees were transferred from the employment of one company to the employment of another.

The issue on these appeals is whether or not such pension funds were portable without being subject to income tax.

What took place was that in 1973 and 1974 certain employees of Dominion Bridge Company Limited who had been resident in Canada were transferred to the employment of AMCA International Corporation (a wholly-owned subsidiary corporation of Dominion Bridge) and thereupon ceased to reside in Canada and become residents of the United States.

At the time of such transfer of employment, these employees were members of an Employees’ Contributory Pension Plan of Dominion Bridge for which Sun Life Assurance Company of Canada acted as trustee and custodian of funds of the plan. For such employees, this plan provided at Clause 2 of Article XIV that in the event of such specific transfer of employment to AMCA International that Sun Life would transfer from the funds of the plan to the funds of the AMCA International Employees Pension Plan an amount equal to the actuarial liability in respect of such member employees of the plan on the date of their transfer calculated in accordance with assumptions and methods agreed upon between Sun Life and AMCA International pension fund trustees.

These amounts were agreed upon in the case of the transfer of these employees, and on February 28, 1974 and July 1, 1975, the amounts of $221,742 and $28,882 were transferred by Sun Life trustee and custodian of Dominion Bridge’s pension plan to the trustees of AMCA International pension plan in accordance with said Clause 2 of Article XIV; and as of the date of transfer of each of the said employees, AMCA International pension plan assumed the liability of each of such employees previously the burden of the Dominion Bridge pension plan.

Subsection 215(1) of the Income Tax Act requires a person who pays or credits or is deemed to have paid or credited an amount on which an income tax is payable under Part XIII of the Act to deduct or withhold the amount of tax and remit it to the Receiver General of Canada (on behalf of the non-resident person on account of the tax).

Subsection 215(1) of the Act reads as follows:

When a person pays or credits or is deemed to have paid or credited an amount on which an income tax is payable under this Part, he shall, notwithstanding any agreement or any law to the contrary, deduct or withhold therefrom the amount of the tax and forthwith remit that amount to the Receiver General of Canada on behalf of the non-resident person on account of the tax and shall submit therewith a statement in prescribed form.

The assessors for the Minister by their assessments have in effect said that Sun Life should have deducted income tax in the sum of $44,142.21 under the provisions of paragraph 215(1)(h) [sic] of the Act, that is, 15% of the amount of the said monies transferred by Sun Life as trustee and custodian of Dominion Bridge pension fund to the trustees of AMCA International pension fund; and that having failed to do so, Sun Life, out of its own funds, is liable to pay the tax being a person who “has failed to deduct or withhold any amount as required by this section from an amount paid or credited or deemed to have been paid or credited to a non-resident” by reason of the provisions of subsection 215(6) of the Act which reads:

Where a person has failed to deduct or withhold any amount as required by this section from an amount paid or credited or deemed to have been paid or credited to a non-resident person, that person is liable to pay as tax under this Part on behalf of the non-resident person the whole of the amount that should have been deducted or withheld, and is entitled to deduct or withhold from any amount paid or credited by him to the non-resident person or otherwise recover from the nonresident person any amount paid by him as tax under this Part on behalf thereof.

The assessors for the Minister rely on paragraph 212(1)(h) of the Act for their determination that Sun Life paid or credited or was deemed to have paid or credited an amount on which an income tax is payable under Part XIII of the Act. Paragraph 212(1 )(h) of the Act reads in part as follows:

Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to him as, on account or in lieu of payment of, or in satisfaction of,

(h) a payment of a superannuation or pension benefit,

except such portion, if any, of the payment as may reasonably be regarded as attributable to services rendered by the person, to or in respect of whom the payment is made, in taxation years at no time during which he was resident or employed in Canada;

In the assessments for income tax against Sun Life and also in the pleadings in this action, the Minister claims that Sun Life, a resident in Canada, paid or credited or was deemed by Park I to have paid or credited the said amounts of $221,742 and $28,882 to the trustees of AMCA pension plan, a non-resident person, within the meaning of paragraph 212(1)(h) of the Act. At trial however, counsel for the Minister submitted that Sun Life as a resident in Canada paid or credited or was deemed to have paid or credited the said sums to the said employees who were transferred from the employment of Dominion Bridge to the employment of AMCA International within the meaning of paragraph 212(1)(h) of the Act.

All parties agree that the subject pension funds are and were at all material times a “superannuation or pension benefit” within the meaning of paragraph 212(1)(h) of the Act and as defined in section 248 of the Act which reads as follows:

“superannuation or pension benefit” includes any amount recieved 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;

Employing the dictionary definitions of “pays” and “credits” and having regard also to certain of the other words in paragraph 212(1 )(h) namely, “on account or in lieu of, or in satisfaction of” and “a payment of a superannuation or pension benefit”, it is incontrovertible that Sun Life, in paying the said sums of $221,742 and $28,882 to the trustees of AMCA International plan, did not ‘‘pay or credit” to the latter “a payment of a superannuation or pension benefit” within the meaning of paragraph 212(1)(h) and section 248 of the Act as claimed in the assessments and as pleaded. Sun Life as trustee also did not “pay or credit”, within the same meaning, the said sums to the said former employees of Dominion Bridge on their transfer of employment to AMCA International in that none of these employees were then beneficially entitled to any part of those sums and none of these funds became income at that time in their hands.

As noted at the beginning of these Reasons in respect to what was the issue on these appeals, the question for determination is whether or not these pension funds were portable without being subject to income tax.

This issue would not have arisen except for the peculiar facts of this case. The peculiar facts of this case are that these funds were transferred from a pension fund in Canada to a pension fund in the United States. Undoubtedly if the issue was as to the portability of pension funds in Canada, that is from one pension fund to another fund in Canada, there would have been no question raised by the assessors for the Minister as to whether there was income to be assessed for tax.

Part XIII of the Income Tax Act is concerned with charging income tax on income from Canada of persons non-resident in Canada at the material time they were paid or credited with such income.

The transfer of the said sums in this case from Sun Life, the trustee of the pension funds of Dominion Bridge to the trustees of AMCA International was not a transfer of income from Canada of persons non-resident in Canada.

Accordingly, Part XIII of the Income Tax Act and specifically sections 212 and 215 are not applicable.

Also, there were no other provisions in the Income Tax Act in force during the relevant years which would deem these payments to be income from Canada of persons non-resident in Canada.

Accordingly, the premises for the assessments and re-assessments and the premises as changed by the said submission of counsel at trial, are not valid.

One other point was argued, namely, whether or not the payments of said monies were payments of “pensions” within the meaning of Article VIA and paragraph 7 of the Protocol to the Canada-US Tax Convention. Obviously they were not.

The appeal is therefore allowed with costs and the re-assessments are ordered vacated.