Words and Phrases - "in lieu of"
14 February 2008 Internal T.I. 2007-0256401I7 F - Vente d'un surplus actuariel
Before concluding that the portion of the sale price allocated on the sale of a business division to the actuarial surplus in the pension plan was to be included in the vendor’s income under s. 56(1)(a)(i), the Directorate quoted from Transocean regarding the meaning of “in lieu of payment of”, indicated that this established a test of whether the amount was a "reasonable substitute for a superannuation or pension benefit," and concluded:
Instead of obtaining a refund under the terms of the Plan, the Vendor elected to assign its rights to the Purchaser in consideration for a payment of $XXXXXXXXXX. We are of the view that such payment is a reasonable substitute for the superannuation or pension benefit that it could have received directly from the Plan. Consequently, by virtue of subparagraph 56(1)(a)(i), that amount must be included in the Vendor's income for the taxation year in which it is paid to it.
13 September 2012 Internal T.I. 2012-0442671I7 F - Dédommagement pour la perte de bénéfices
The former employees and retirees of a bankrupt corporation (the "Employer") received a lump for the cancellation of their rights in a group insurance plan and respecting legal costs incurred to recover the lump sum. The lump sum received for the Plan cancellation included compensation for the loss of medical and dental coverage and hospitalization coverage for themselves and their dependents (respecting the "Medical Plan"), as well as the loss of life insurance coverage (the "Coverage"). Damages also were claimed for the amounts owing under the Employment Standards Act (the "Dismissal Amount").
After finding that the portion of the lump sum allocable to the termination of the Medical Plan was taxable, and in going on to find that that portion allocable to the lost Coverage was taxable to the recipients under s. 6(3), the Directorate stated:
[T]he portion of the lump sum that relates to the Coverage is a reasonable substitute paid in lieu of the employer's obligation to provide the Coverage
and went on to note that the meaning of “in lieu of” was not narrowed by the French version. Furthermore, that amount
was paid "by reason" or "in consequence of" an obligation imposed by the employment contract …[and t]herefore … "arises" from the employment contract.
Finally, it did not matter that the payer was the trustee, as it was deemed by s. 128(1)(a) to be an agent of the Employer – and it was “not unreasonable to conclude that the portion of the lump sum related to the Coverage is also an amount received as damages for services that the Objectors have rendered to the Employer.”
Scott v. The Queen, 2017 TCC 224
In 1980, Nortel had established a health and welfare trust (the “HWT”) for its employees. Following its insolvency and filing under the CCAA (with the related CCAA proceedings being court-supervised), it made lump sum payments in 2011 to the taxpayers, pursuant to a court-approved settlement agreement, in satisfaction of their entitlement to payments under the HWT. Mr. Scott, had been the husband of a full-time non-unionized employee, and had been receiving monthly survivor income benefits following her death, that had been included in his income under s. 56(1)(a)(iii) as death benefits. Ms. McCann was similar.
After finding (at para. 102) that the 2011 distribution was paid to Mr. Scott as partial compensation for the termination of the monthly payment of his death benefits, and referring (at para 140) to the broad meaning accorded in Transocean to “in lieu of” (also appearing in s. 56(1)(a)(iii)), thereby rendering it unnecessary to refer to the surrogatum principle (see para. 129), Sommerfeldt J stated (at para. 141):
[I]f the distributions paid in 2011 by the HWT to Mr. Scott and Ms. McCann were not received by them on account of the death benefits that they were entitled to receive, I am of the view that those distributions were received by them instead of, in place of, or in lieu of, those death benefits, so as to come within the statutory phrase “any amount received … in lieu of payment of, … a death benefit.”
27 June 2016 External T.I. 2016-0637341E5 F - Partnerships - Negative ACB
Rather than making current distributions of its cash flow to a limited partner, those sums are lent by the LP to the limited partner – then at the beginning of the following year the LP effects a distribution of the applicable share of the previous year’s profits to the limited partner by issuing a demand note to it and pays that note by way of set-off against the loans owing by the limited partner. Does this approach avoid negative ACB gains under s. 40(3.1)?
CRA referred to the “general principle of civil law to the effect that a person cannot make a contract with itself,” so as to suggest that a partnership loan to a partner may not be valid and went on to state:
Should it not be possible for a limited partnership to make loans to the limited partner…the amounts styled as loans…would be treated by the CRA as amounts received in lieu of or in full or partial payment of the distribution of the taxpayer’s share of the limited partnership profits under subparagraph 53(2)(c)(v).
CRA also stated:
[T]he scope of subparagraph 53(2)(c)(v) is very broad and could in theory…apply in respect of the loan amount (on the assumption that the loans were permitted under the civil law)… .
[T]he Courts…have given a very wide scope to the terms "on account of" and "in lieu of"…, which are also used in subparagraph 53(2)(c)(v).
Pechet v. Canada, 2009 DTC 5189, 2009 FCA 341
The non-resident taxpayer received rents from Canada in 1997 to 2001 without withholding of Part XIII tax, and in 2002 filed returns under s. 216(1) in respect of those years in which she showed no Part I tax owing due to the claiming of expenses. The taxpayer was assessed for her joint liability under s. 227(8.1) for interest that had accrued, up to the date she filed her returns, on the Part XIII tax on the rents that the resident Canadian payor thereof had failed to withhold and remit.
Trudel, J.A. rejected the taxpayer's submission that, in light of the "in lieu of" wording of s. 216(1), the filing of the s. 216(1) returns displaced the withholding and remittance obligations of the resident tenant ab initio.
Transocean Offshore Ltd. v. Canada, 2005 DTC 5201, 2005 FCA 104
Lump-sum damages received by the non-resident taxpayer from Canadian residents for the repudiation, prior to the slated operational commencement date, of a bare-boat charter of a drilling rig owned by its parent, were found to be payments received in lieu of the payment of rent, so that it was not entitled to a refund of Part XIII tax withheld. After noting (at para. 45) that "rent is defined as an amount paid as compensation for the use or occupation of property, or for the right to use or occupy property", and that the references to payments made "on account of" such compensation or "in satisfaction of" such compensation would "appear to cover virtually all situations in which a payment is made to discharge, in full or in part, an obligation to pay compensation to a non-resident for the past or current use, in Canada, of property", Sharlow J.A. went on to state (at paras. 47-48):
The ordinary meaning of the phrase 'in lieu of', according to a number of dictionaries, is 'instead of' or 'in place of' ... . It seems axiomatic that an amount that is paid instead of a payment of a particular legal character, or in the place of such a payment, does not have the same legal character ... "If the phrase 'in lieu of rent' is interpreted to include only payments made as compensation for the past or current use of property, which essentially the position of counsel for Transocean, it would add nothing to paragraph 212(1)(d) ... .
Puder v. MNR, 63 DTC 1282 (Ex Ct) imposed "an unjustifiably narrow meaning on the phrase 'in lieu of'" as it failed to recognize that "a thing may take the place of another thing if it...performs a function that is not exactly the same but is a reasonable substitute" (para. 60).
Holzhey v. The Queen, 2008 DTC 2607, 2007 TCC 247
The deemed disposition by the taxpayer, as a result of his ceasing to be a resident of Canada, of a loan made by him to a non-resident corporation on which there was accrued but unpaid interest resulted in him being thereby deemed to receive an amount "in lieu of" the payment of interest. In the Transocean case, amounts paid in respect of the anticipatory breach of a rental agreement were found to be a reasonable substitute for rent payable under the agreement; and similarly, here "the deemed proceeds were a reasonable substitute for the accrued interest". (para. 37)
Hall v. MNR, 70 DTC 6333, [1970] CTC 510 (Ex Ct), briefly aff'd 71 DTC 5217 (SCC)
An individual taxpayer, who in two successive years clipped and sold overdue coupons in the amount of $10,000 on his Canada bonds to the trustee for five RRSPs (the beneficairies of which wre unrelated) for a sale price of $9,000, was held to have (1) received the sale proceeds as interest and (2) as a payment "in lieu of payment of... interest."
With respect to the first ground, Sheppard DJ stated (at p. 6335, DTC):
Interest includes compensation for the use of money....The Appellant's right under the bonds was to receive interest as compensation for the use of his money and that right could be realized by surrendering the coupons to any agent of Canada or equally by selling to the trust company by delivering the matured coupons; in either event, the proceeds in the Appellant's hands represent the sum received by him as compensation for the use of his money which he had lent to Canada.
With respect to the second ground "the words 'in lieu of' mean 'instead of' ... and therefore the sums of $9,000 have been received by the appellant 'instead of' the sums to be received from an agent of Canada on presenting the coupons."