Date: 19980213
Docket: 96-1639-IT-I
BETWEEN:
SUSAN BUSSEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Mogan, J.T.C.C.
[1] The Appellant is a citizen of the United States of America who resides with her husband at Windsor, Ontario. She is employed in the state of Michigan by an employer identified as Blue Cross, Blue Shield. Through her employment by Blue Cross, Blue Shield, the Appellant has two pension plans available to her. The first plan identified as a “defined benefit pension plan” is a plan to which only the employer makes contributions and the employee does not make any contributions. The second plan identified as a “defined contribution pension plan” is commonly known in the USA as a 401K plan. In the 401K plan which is available to the Appellant, the employer contributed 50 ¢ for every $1.00 contributed by the employee. Both plans are governed in the USA by the “Employee Retirement Income Security Act”.
[2] In the 1994 taxation year, the Minister of National Revenue added to the Appellant’s reported income the amount of $3,486 (Canadian funds) with respect to contributions to the 401K plan. That amount is the Canadian equivalent of $2,552.94 (US funds) which was contributed to the 401K plan. One of the problems in this appeal is a conflict as to which party contributed the amount $2,552.94 to the 401K plan. According to subparagraph 6(c) of the Reply to the Notice of Appeal, the following statement is a fact relied upon by the Minister when issuing the assessment which is under appeal:
in the 1994 taxation year, the US employer contributed the amount of $2,552.94 in US dollars on behalf of the Appellant to the 401K pension plan;
At the hearing, only the Appellant’s husband testified and his evidence was that the amount which the Minister added to the Appellant’s reported income was the amount which she contributed to the 401K plan. The following exchange took place at page 9 of the transcript:
HIS HONOUR: Now which one are we talking about?
MR. BUSSEY: The one that’s in question is the 401K.
HIS HONOUR: But you told me that she puts in a dollar and for every dollar she puts in, they put in 50 ¢ ?
WITNESS: 50 ¢ , correct.
HIS HONOUR: What I want to know is, in the income tax assessment that she’s appealing today, what has been added to her income? Just the amount she put in, or the amount she put in plus the amount her employer put in?
WITNESS: Just her amount that she put in.
HIS HONOUR: So the Minister has only included in her 1994 income her contribution to the 401K plan?
WITNESS: Right. Now this goes to where now her pension is being taxed twice fully now through Canada, Revenue Canada and at a later date, when it’s withdrawn, it will be taxed fully through the American government.
[3] The Appellant did not testify at all. She was represented in Court by her husband who both gave evidence and made representations on her behalf. There is clearly a conflict between the evidence given by the Appellant’s husband and the fact assumed by the Minister in subparagraph 6(c) of the Respondent’s Reply. While there is some confusion as to whether the amount in issue was contributed to the Plan by the employer or the Appellant, there is no dispute that the amount $3,486 (Canadian funds) is the equivalent of $2,552.94 (US funds). I am inclined to adopt the view of the Appellant’s husband that the $3,486 was the amount contributed to the Plan by the Appellant. The following exchange took place at pages 16 and 17 of the transcript:
HIS HONOUR: Do you raise any dispute as to - the computation of the $3,486? In other words, I’m looking at the Reply to the Notice of Appeal. It says:
The Appellant failed to include employment income received in the amount of $3,486.
Now I know you say she didn’t receive it and you may be right there in one sense. But do you agree that $3,486 Canadian is the Canadian equivalent of the US dollars that your wife paid into the 401K plan?
WITNESS: Yes.
HIS HONOUR: And do you agree that those amounts really came out of her take home pay, so to speak? That is if she hadn’t opted to go into the 401K plan, she would have received US dollars equivalent in value to $3,486 Canadian dollars?
WITNESS: Yes.
HIS HONOUR: So there is no dispute as to the amounts or the transposition of US dollars to Canadian dollars?
WITNESS: Correct.
HIS HONOUR: It’s just a question of whether this amount, which was withheld from your (sic) salary and put into the plan, can be included in her Canadian income?
WITNESS: Yes.
[4] According to the Appellant’s husband, her contributions to the 401K plan were by way of source deduction. That is to say, from each of her pay cheques there was an amount deducted at the source by the employer as her contribution to the 401K plan; and then the employer’s contribution to the plan was based on the amount contributed by the employee. If the Appellant were employed in Canada and contributing to an employer pension plan, I assume that her total income would be identified on the T4 information slip which an employer in Canada is required to deliver to an employee at the end of each calendar year, and that any contribution by the Appellant to the employer pension plan would be identified at a separate place on the T4 slip. None of that documentation was available as evidence in this appeal. If I assume that there was a similar information slip provided by the Michigan employer to the Appellant, it would reflect her aggregate gross salary for 1994 and also identify the amount out of that gross income which she would have contributed to the 401K plan. I will proceed on the basis that the amount $3,486 was a part of her aggregate salary or wages for 1994; and that it was also the Canadian equivalent of the amount (in US funds) which she contributed to the 401K plan. The only issue in this appeal is whether she can deduct in computing income for tax purposes in Canada that amount of $3,486. The Appellant has elected the informal procedure.
[5] The basic provision of the Income Tax Act which governs this appeal is paragraph 6(1)(a), the relevant part of which states:
6(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
(a) the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit
(i) derived from the contributions of the taxpayer’s employer to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,
(ii) under a retirement compensation arrangement, an employee benefit plan or an employee trust,
...
I would first draw attention to the following words in paragraph (a): “the value of ... other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment”. Over the last 40 years, those words have been given a very broad interpretation by the Courts. Having regard to subparagraph (i), a “registered pension plan” which appears to be the only plan applicable to the facts of this case, is defined in section 248 as follows:
248(1) In this Act,
“registered pension plan” means a pension plan that has been registered by the Minister for the purposes of this Act, which registration has not been revoked;
There was no evidence that either of the two plans available to the Appellant through her employment in Michigan was registered with the Minister of National Revenue. I would be surprised if either one of those plans was so registered.
[6] Under the scheme of the Income Tax Act, there are a very limited number of deductions which can be taken in the computation of income from office or employment. Specifically, the only section which appears to be available to the Appellant is paragraph 8(1)(m) which states:
8(1) In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
(m) the amount in respect of contributions to registered pension plans that, by reason of subsection 147.2(4), is deductible in computing the taxpayer’s income for the year;
Because there is no evidence that the 401K plan was registered with the Minister of National Revenue and therefore would qualify as a “registered pension plan”, the Appellant is not entitled to a deduction in respect of any amount contributed to the 401K plan. Accordingly, that portion of the Appellant’s gross income which she allocated as her contribution to the 401K plan must be included in computing her income from employment for Canadian tax purposes. It is not permitted as a deduction in the computation of her income.
[7] It was argued on the Appellant’s behalf that she had not “received” the amount in question in the sense that she never had it as money in hand. That is true from a practical point of view in the sense that she never had the money in her bank account, but she had notional receipt of that amount. It was part of her gross income but an amount which she voluntarily instructed the employer to withhold and contribute to the 401K plan. If I had any doubts on this question of whether she had constructive receipt of the $3,486 (and I do not have any such doubts), I would rely on the decision of the Federal Court Trial Division in The Queen v. Hoffman, 85 DTC 5508. Although the facts in Hoffman are different because the contributions there were under the Social Security Act (USA), the principle is the same with respect to amounts withheld from an employee’s gross income.
[8] The short answer in this case is that the Appellant is not permitted under the Canadian Income Tax Act to deduct her contribution to the 401K plan because that plan is not a “registered pension plan” as defined in the Act. The appeal for the 1994 taxation year is dismissed.
Signed at Ottawa, Canada, this 13th day of February, 1998.
"M.A. Mogan"
J.T.C.C.