Date: 20011107
Docket: 2000-2184-IT-I
BETWEEN:
MARCELLE DUMOULIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure concerning the 1998 taxation year.
[2] The issue is whether payments in the amount of $5,900.52 made under the Canada Pension Plan ("CPP") to the appellant, who is retired from the Public Service, are pensions within the meaning of paragraph 1 of Article 18 of the Convention Between the Government of Canada and the Swiss Federal Council for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, Canada Gazette Part II, Vol. 132, No. 20, SI/TR/98-94 (the "1998 Convention"), or whether they are payments made under the social security legislation of a contracting state.
[3] The appellant testified. She was born in Canada and worked for the Department of External Affairs for 35 years. At the end of her career, she married a Swiss and resides in Basel, Switzerland. She retired in 1990. The appellant filed a number of documents, including a letter dated January 31, 1996, from the Superannuation Directorate informing her that, since she had reached the age of 65, her Public Service superannuation would be reduced. She was told that the basic pension of $3,319.73 would be reduced to $2,919.98 starting on February 1, 1996, and that that reduction was based solely on pensionable service accumulated after January 1, 1966. She was further informed that, if she was not already receiving an early retirement pension under the CPP, she was to file a retirement pension application with the CPP.
[4] In 1998, she received a notice of assessment of non-resident tax of $808.98 not deducted at source. That notice stated in part:
[TRANSLATION]
Based on the information provided in your 1998 income tax return, you are a non-resident of Canada and have received income from a Canadian source which is subject to Part XIII non-resident tax.
As the payer withheld only a portion of the Part XIII non-resident tax, you must therefore pay the difference.
Please inform the Canadian payer that it must withhold the Part XIII non-resident tax on the next payments. . . .
[5] The appellant also referred to the Federal Superannuates National Association Newsletter, Spring 2001, Vol. 39, no. 1:
REDUCTION OF SUPERANNUATION PENSION
. . .
The superannuation plans of the Government of Canada are integrated with the Canada and Quebec pension plans. This means that these plans are treated as one when both the contribution rate and benefits are being calculated. Thus, Public Service employees and members of the Canadian Forces, and the RCMP have their contributions split between the superannuation plan and the CPP. Similarly, the superannuation pension and the CPP together will provide a retirement pension that accrues at the rate of 2% of the average earnings over the best 5 consecutive years times the number of years of pensionable service.
SOME HISTORY
When the CPP was introduced in 1966, the provisions of many pension plans, including those of the superannuation plans, were reviewed since many people considered that the CPP was simply duplicating some part of pension coverage already provided to members of those plans. Many plans decided to "integrate" with the CPP so that there would be no duplication of coverage.
. . .
Thus, someone earning average wages or below would be eligible to receive a combination of superannuation and CPP benefits that would provide a combined pension equal to 95% of pre-retirement earnings. In addition, that person would have been eligible for Old Age Security (OAS) with the result that total pension income would have been greater than pre-retirement income. It was felt this was too rich a pension scheme since most people agree that income in retirement needs only be about 70% of pre-retirement earnings.
As a result of these considerations, the superannuation plans, as well as many other plans, were integrated with the CPP so that they would not duplicate the CPP benefits. The employee superannuation contributions were thus reduced by the amount of their CPP contributions. . . .
Arguments
[6] The appellant argued that the CPP retirement pension is an integral part of Public Service superannuation and that, as such, it must be taxed at the same 15 percent rate as the latter. A CPP payment is in the nature of Public Service superannuation because entitlement thereto arises from the same source, work with the Public Service, and should receive the same tax treatment under the 1998 Convention. Counsel for the respondent argued that it is a payment made under social security legislation, that it is not a pension within the meaning of Article 18 of the 1998 Convention and that the amount paid is subject to the 25 percent tax provided for in paragraph 212(1)(h) of Part XIII of the Income Tax Act (the "Act"). Counsel for the respondent referred to another convention between Canada and the Swiss Confederation, namely the Convention on Social Security, Canada Gazette Part II, Vol. 129, No. 22, SI/TR/95-112, Article 2 of which states that, with respect to Canada, it applies to the Old Age Security Act and the Canada Pension Plan. That convention came into force on October 1, 1995. This, counsel for the respondent contended, leaves no doubt that the competent authorities view the CPP as being part of Canada's social security legislation.
Conclusion
[7] According to Article 28 of the 1998 Convention, the provisions of that convention are applicable in respect of tax withheld at the source on or after January 1, 1998. The 1998 Convention replaces the Convention Between Canada and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, Schedule VI, S.C. 1976-77, c. 29 (the "1976 Convention"). Paragraph 1 of Article 18 of the 1976 Convention read as follows:
ARTICLE XVIII
Pensions and Annuities
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension or annuity payments (except payments under an income-averaging annuity contract), the tax so charged shall not exceed 15 per cent of the gross amount of the payment.
[8] Paragraph 1 of Article 18 of the 1998 Convention reads as follows:
Article 18
Pensions and Annuities
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension or annuity payments (except lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, and payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract), the tax so charged shall not exceed 15 per cent of the gross amount of the payment. For the purposes of this Article, the term "pension" does not include payments under the social security legislation in a Contracting State.
[9] As may be seen, the present Article 18 provides that "pensions", which are the subject of Article 18, do not include payments made under social security legislation. The 1976 Convention contained no such provision. In 1996 and 1997, the appellant thus paid only 15 percent on the total amounts received in respect of pensions, Public Service superannuation and CPP retirement pensions.
[10] It is interesting to note here that paragraph 212(1)(h) of the Act was amended effective January 1996. Old age pensions and retirement pensions under the CPP were previously not subject to Part XIII tax, that is, the tax on income from Canada of non-resident persons.
[11] Subsections 4(1) and 11(2) of the Public Service Superannuation Act read as follows:
4(1) Subject to this Part, an annuity or other benefit specified in this Part shall be paid to or in respect of every person who, being required to contribute to the Superannuation Account or the Public Service Pension Fund in accordance with this Part, dies or ceases to be employed in the Public Service, which annuity or other benefit shall, subject to this Part, be based on the number of years of pensionable service to the credit of that person.
11(2) Notwithstanding subsection (1), unless the Minister is satisfied that a contributor
(a) has not reached the age of sixty-five years, and
(b) has not become entitled to a disability pension payable under paragraph 44(1)(b) of the Canada Pension Plan or a provision of a provincial pension plan similar thereto,
there shall be deducted from the amount of any annuity to which that contributor is entitled under this Part an amount equal to thirty-five per cent of
(c) the average annual salary received by the contributor during the period of pensionable service described in subsection (1) applicable to him, not exceeding his Average Maximum Pensionable Earnings,
multiplied by
(d) the number of years of pensionable service after 1965 to the credit of the contributor, not exceeding thirty-five, divided by fifty.
[12] Under subsection 11(2) of the Public Service Superannuation Act, the Public Service superannuation which the appellant received was reduced when she reached the age of 65, whereupon she was entitled to a retirement pension under the CPP. It is the payment of that pension which is in issue. It must be noted that this was not a Public Service superannuation payment but a CPP retirement pension payment.
[13] There is no doubt that the Canada Pension Plan is a piece of social security legislation. This Court has rendered two decisions confirming this fact, although the points at issue therein were different. Those cases are: Trsic v. Canada, [1998] T.C.J. No. 279 (Q.L.), and Hausmann Estate v. Canada, [1998] T.C.J. No. 401 (Q.L.). There is also the Convention on Social Security referred to by counsel for the respondent.
[14] It is hard not to sympathize with the appellant over the difference in taxation of the two retirement pension payments, but the 1998 Convention is drafted in such a way that the payment under the CPP is not subject to the 15 percent tax limit. It is subject to the 25 percent tax provided for in paragraph 212(1)(h) of the Act.
[15] The appeal must be dismissed.
Signed at Ottawa, Canada, this 7th day of November 2001.
[OFFICIAL ENGLISH TRANSLATION]
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
2000-2184(IT)I
BETWEEN:
MARCELLE DUMOULIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 26, 2001, at Montréal, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Alain Gareau
JUDGMENT
The appeal from the assessment made under the Income Tax Act notice of which bears number 6105444 and is dated July 2, 1999, is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 7th day of November 2001.
|
"Louise Lamarre Proulx" |
J.T.C.C.