[OFFICIAL ENGLISH TRANSLATION]
2000-4926(IT)I
BETWEEN:
GUY LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on November 27, 2001, at Québec, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Counsel for the Appellant: Reynald Auger
Counsel for the Respondent: Dany Leduc
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 11th day of January 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020111
Docket: 2000-4926(IT)I
BETWEEN:
GUY LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure concerning the 1999 taxation year. The point at issue is whether the appellant can benefit from the provisions concerning lump-sum payments in sections 110.2 and 120.31 of the Income Tax Act (the "Act") and, more specifically, whether a lump-sum payment received in 1999 concerns a calendar year during which the appellant went bankrupt within the meaning of the definition of "eligible taxation year" in subsection 110.2(1) of the Act.
[2] The facts are not really in dispute. I have reproduced the relevant subparagraphs of paragraph 10 of the Amended Reply to the Notice of Appeal (the "Reply"), which described the facts on which the Minister of National Revenue (the "Minister") relied in making his reassessment:
[TRANSLATION]
(a) the appellant declared bankruptcy on February 17, 1998;
(b) the Department of Human Resources Development Canada issued a notice of violation against the appellant on June 30, 1997, in response to a purportedly fraudulent claim for employment insurance benefits, which he had made;
(c) on February 24, 1999, a board of referees of Human Resources Development Canada rendered a decision in the appellant's favour;
(d) after the board of referees' decision on February 24, 1999, the appellant received a lump-sum amount of $13,259 in respect of employment insurance benefits during the 1999 taxation year;
. . .
(f) "Human Resources Development Canada" issued the appellant a T4E slip confirming that the sum of $13,259 had been paid to him in 1999 in respect of regular and other employment insurance benefits;
(g) on March 16, 2000, the appellant made an application to the Canada Customs and Revenue Agency (hereinafter "CCRA") to carry back to the 1998 taxation year the amount of $13,259, which he had reported in his income for the 1999 taxation year;
. . .
[3] The facts stated in the Notice of Appeal are as follows:
[TRANSLATION]
1. Around January 1998, the appellant filed an employment insurance claim;
2. That claim was denied for the reason that he did not have 1,400 insurable hours in order to be eligible for benefits;
3. Although a claimant in the appellant's situation should have qualified with 510 insurable hours, the fact that there was a notice of violation in his file penalized him, requiring him to have 1,400 hours in order to qualify;
4. On October 8, 1997, the notice of violation had been appealed from to the board of referees, which had dismissed the appellant's claims;
5. That decision by the board of referees was the subject of an appeal to the umpire, who allowed the appellant's appeal and returned the case to the board of referees;
6. On February 24, 1999, a new board of referees allowed the appellant's appeal and cancelled the notice of violation;
7. On July 23, 1999, the appellant requested a reconsideration on the basis of the new decision by the board of referees so that he would be paid benefits in response to his claim of January 1998;
8. Human Resources Development Canada agreed to reconsider the January 1998 claim and paid him $13,259 retroactively;
9. In 1999, Revenue Canada assessed the appellant on the basis of the amounts that had been paid to him for 1998, hence the instant case.
[4] The appellant testified. He described himself as a foreman, carpenter and cabinet-maker. He declared bankruptcy on February 17, 1998, because, he said, he had not received the employment insurance benefits to which he was entitled. He stated that he had lost his house and his car. The appellant was discharged on November 26, 1998.
Arguments
[5] Counsel for the appellant argued that, under the Bankruptcy Act, the amount received by the appellant should have been included in the property of the bankrupt and, consequently, that it should not be included in the appellant's income for 1999. He referred on this point to the decision by the Supreme Court of Canada in Marzetti v. Marzetti, [1994] 2 S.C.R., 765, more particularly to the following passage at page 786:
For these reasons, a bankrupt's interest in a post-bankruptcy income tax refund can be considered "property" for the purposes of s. 67(c) of the Bankruptcy Act. Moreover, it can be considered "property of a bankrupt divisible among his creditors " for the purposes of s. 67 as a whole, since s. 67(d) in no way qualifies the operation of s. 67(c). This then, is my initial conclusion.
[6] He also referred to section 128 of the Act and argued that the lump-sum amount of $13,259 received by the appellant in 1999 should be included in the income tax return made by the trustee in accordance with the aforementioned section.
[7] Counsel for the respondent referred to paragraph 56(1)(a) and section 110.2 of the Act and argued that it is in the year of receipt of the amount paid that it must be included in computing the income for the year, even if it consists of payments made under previous obligations. He referred on this point to my decisions in Lacombe v. Canada, [2000] T.C.J. No. 15 (QL), and Poulin v. Canada, [1998] T.C.J. No. 36 (QL). He cited paragraph 15 of the last-mentioned decision:
15 The concept of the receipt of an amount and the relevant taxation year has already been considered by the courts; I am referring, inter alia, to Vegso v. M.N.R., 56 DTC 173, M.N.R. v. Claude Rousseau, 60 DTC 1236, and the decision cited by the agent for the respondent, Archambault v. M.N.R., 88 D.T.C. 1722. The courts have been consistent on this point. When the legislation provides that an amount received must be included in computing income for the year, the amount must be included in the year it is received, not the years for which it was paid.
[8] Counsel for the respondent added that the Act moreover provides for some tax relief for lump-sum payments received by an individual after 1994. Those provisions are found in sections 110.2 and 120.31 of the Act. Section 110.2 states the conditions in which amounts received by an individual in a taxation year may be deducted where they are amounts that the individual was entitled to receive in a year that ended after 1977 and before the year in which the individual received the amount.
[9] Counsel for the respondent referred to section 110.2 of the Act and confirmed that the appellant would qualify under the meaning of "qualifying amount". That meaning includes a benefit paid under Parts I, VIII or VIII.I of the Employment Insurance Act. He would not qualify, however, within the meaning of the "specified portion" of a qualifying amount since that portion must relate to an eligible taxation year. "Eligible taxation year" is defined as a year that ended after 1977 and before the year in which the individual received the qualifying amount and that did not end in a calendar year in which the individual became a bankrupt. The appellant in fact declared bankruptcy in 1998.
[10] Counsel for the respondent stated that the appellant party himself always contended that the applicable eligible year was 1998, that is the year to which payment of the employment insurance benefits relates. The notice of appeal states that it was around January 1998 that the appellant filed an employment insurance claim and that that claim was denied. It is that January 1998 claim that was reconsidered and as a result of which the employment insurance benefits were paid in 1999.
Conclusion
[11] The relevant statutory provisions are as follows:
56 Amounts to be included in income for year -
(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
(a) Pension benefits, unemployment insurance benefits, etc. - any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,
...
(iv) a benefit under the Unemployment Insurance Act, other than a payment relating to a course or program designed to facilitate the re-entry into the labour force of a claimant under that Act, or a benefit under Part I, VIII or VIII.1 of the Employment Insurance Act,
110.2 Definitions -
(1) The definitions in this subsection apply in this section and section 120.31.
"eligible taxation year" in respect of a qualifying amount received by an individual, means a taxation year
(a) that ended after 1977 and before the year in which the individual received the qualifying amount;
....
(c) that did not end in a calendar year in which the individual became a bankrupt; and
(d) ....
"qualifying amount" received by an individual in a taxation year means an amount (other than the portion of the amount that can reasonably be considered to be received as, on account of, in lieu of payment of or in satisfaction of, interest) that is included in computing the individual's income for the year and is
(a) an amount
(i) that is received pursuant to an order or judgment of a competent tribunal, an arbitration award or a contract by which the payor and the individual terminate a legal proceeding, and
(ii) that is
(A) included in computing the individual's income from an office or employment, or
(B) received as, on account of, in lieu of payment of or in satisfaction of, damages in respect of the individual's loss of an office or employment,
(b) a superannuation or pension benefit (other than a benefit referred to in clause 56(1)(a)(i)(B)) received on account of, in lieu of payment of or in satisfaction of, a series of periodic payments (other than payments that would have otherwise been made in the year or in a subsequent taxation year),
(c) an amount described in paragraph 6(1)(f), subparagraph 56(1)(a)(iv) or paragraph 56(1)(b), or
(d) a prescribed amount or benefit,
except to the extent that the individual may deduct for the year an amount under paragraph 8(1)(b), (n) or (n.1), 60(n) or (o.1) or 110(1)(f) in respect of the amount so included.
"specified portion", in relation to an eligible taxation year, of a qualifying amount received by an individual means the portion of the qualifying amount that relates to the year, to the extent that the individual's eligibility to receive the portion existed in the year.
110.2(2) Deduction for lump-sum payments. There may be deducted in computing the taxable income of an individual (other than a trust) for a particular taxation year the total of all amounts each of which is a specified portion of a qualifying amount received by the individual in the particular year, if that total is $3,000 or more.
120.31 Lump-sum Payments
(1) Definitions - The definitions in subsection 110.2(1) apply in this section.
(2) Addition to tax payable. There shall be added in computing an individual's tax payable under this Part for a particular taxation year the total of all amounts each of which is the amount, if any, by which
(a) the individual's notional tax payable for an eligible taxation year to which a specified portion of a qualifying amount received by the individual relates and in respect of which an amount is deducted under section 110.2 in computing the individual's taxable income for the particular year
exceeds
(b) the individual's tax payable under this Part for the eligible taxation year.
(3) Notional tax payable. For the purpose of subsection (2), an individual's notional tax payable for an eligible taxation year, calculated for the purpose of computing the individual's tax payable under this Part for a taxation year (in this subsection referred to as "the year of receipt") in which the individual received a qualifying amount, is the total of
(a) the amount, if any, by which
(i) the amount that would be the individual's tax payable under this Part for the eligible taxation year if the total of all amounts, each of which is the specified portion, in relation to the eligible taxation year, of a qualifying amount received by the individual before the end of the year of receipt, were added in computing the individual's taxable income for the eligible taxation year
exceeds
(ii) the total of all amounts each of which is an amount, in respect of a qualifying amount received by the individual before the year of receipt, that was included because of this paragraph in computing the individual's notional tax payable under this Part for the eligible taxation year, and
(b) where the eligible taxation year ended before the taxation year preceding the year of receipt, an amount equal to the amount that would be calculated as interest payable on the amount determined under paragraph (a) if it were so calculated
(i) for the period that began on May 1 of the year following the eligible taxation year and that ended immediately before the year of receipt, and
(ii) at the prescribed rate that is applicable for the purpose of subsection 164(3) with respect to the period.
[12] Counsel for the appellant's proposal that the lump-sum amount of $13,259 be part of the property of the bankrupt under sections 67 or 68 of the Bankruptcy and Insolvency Act is irrelevant to the instant case. It is not presented by the person who has an interest in it or before the competent tribunal. It is not for me to determine whether the trustee was entitled to the amount in question because it is for him to claim it if he deems it appropriate and before the court that has jurisdiction.
[13] On the facts, it is not the trustee but the appellant who received the payment of this amount and, according to the Act, who must report it in his income tax return. Subsection 56(1) of the Act is quite clear: any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of an unemployment insurance benefit must be included in computing the taxpayer's income for that taxation year. It is up to the appellant to take this into account since he accepted the payment.
[14] The amount may not be deducted from his income for the 1999 taxation year because the tax relief provided for in section 110.2 cannot apply. The appellant is not entitled thereto since he became a bankrupt in the year in which he was entitled to receive employment insurance benefits. The year 1998 is thus not an "eligible taxation year" for the purposes of section 110.2 of the Act.
[15] The appeal must be dismissed.
Signed at Ottawa, Canada, this 11th day of January 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.