Words and Phrases - "modification"

On the sale by the Vendor of one of its business divisions, the employees of that division were transferred to the purchaser, and the assets of the defined benefit pension plan regarding those employees (the “Plan”) were transferred to the Purchaser and the Purchaser assumed the related pension commitments, in two transfers (which was permitted as a result of the approval of the Régie des rentes du Québec). There was an actuarial surplus respecting the Plan, which could allow the purchaser to enjoy a contribution holiday. On each transfer, the Purchaser paid an amount to the Vendor in respect of the actuarial surplus.

After finding that these amounts were taxable to the Vendor under s. 9, CRA went on to indicate that, in the alternative, that they were taxable under s. 56(1)(a)(i). In particular, they constituted the receipt by the Vendor of “superannuation or pension benefits.” Although they were not superannuation or pension benefits in the ordinary meaning of that phrase, under the s. 248(1) definition, it would be reasonable to regard such amounts as having been received “under” the Plan, as they would not have been received but for the actuarial surplus that arose under the Plan. In addition, “the Plan was modified as a result of the transfer of members to the Plan and the transfer of a portion of the assets and liabilities of the Plan to the Purchaser's plan” and such transfer would not have been possible without approval of Retraite Québec. Thus, the amounts were received by the Vendor as a result of a “modification” of the Plan (even though there was no change to its terms), so that para. (b) applied to render the payments as superannuation or pension benefits.