1999-4048(IT)I
BETWEEN:
LEONARD PUGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on July 25, 2000 in Calgary, Alberta by
the Honourable Judge D. W. Beaubier
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Mark Heseltine
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 11th day of September, 2000.
|
"D. W. Beaubier" |
J.T.C.C.
Date: 20000911
Docket: 1999-4048(IT)I
BETWEEN:
LEONARD PUGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] This appeal pursuant to the Informal Procedure was heard at Calgary, Alberta on July 25, 2000. The Appellant was the only witness.
[2] At the opening of the hearing, on the application of the Appellant, he was granted leave to appeal his reassessment respecting 1998 and as a result his appeals of reassessments respecting 1997 and 1998 were heard together on common evidence.
[3] The Appellant's position respecting his appeal is best set out in the paragraphs from his Notice of Appeal which read as follows:
I was employed by Sunlife of Canada for twenty-seven years as an agent and branch manager, of which the last thirteen years were that of a branch manager. The year 1992 was my last complete year of employment for Sunlife before being disabled in September of 1993.
While I was working for Sunlife I was and am covered by a Defined Benefit replacement income plan. Under this plan it was defined that I was to receive seventy percent of my earnings. I am receiving this amount of replacement income.
...
Sunlife in 1992 purchased me a benefit for $253.33. I purchased a benefit for $262.50, to bring me up to 70% of my 1992 earnings. In 1993 Sunlife purchased me a benefit for $251.47 and I bought a benefit for $325.09 to bring me once again to 70% of my earnings.
The premium paid by Sunlife was tax deductable, where by the premium paid by me was not deducted. Therefore the benefit I purchased was paid by after tax dollars and the replacement income I received from this benefit should be tax free.
I am not disputing the fact that I should be paying income tax on the benefit Sunlife has purchased, however the income I receive from the benefit I purchase should not be taxable. Because the plan has two distinct and separate premium amounts, each premium is paid from two separate sources, one from before tax dollars and the other from after tax dollars.
[4] The Respondent's position is summarized in paragraphs 3, 14 and 15, which read:
3. With respect to unnumbered paragraph 9 of the Notice of Appeal:
(a) he admits the premium paid by Sun Life was tax deductible;
(b) he denies that the premium paid by him was not deducted and;
(c) the remaining allegations therein are in the nature of argument and contain no relevant facts to admit or deny.
...
14. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) the Appellant was employed with Sun Life Assurance Company of Canada (the "Employer");
(b) the Amounts received by the Appellant were payable on a periodic basis in respect of the loss of the Appellant's income from an office or employment pursuant to a disability insurance plan (the "Plan");
(c) the Employer has made contributions to the Plan which did not exceed the Amounts received by the Appellant;
(d) on average, the Employer paid 40% of the premiums and the Appellant paid 60% of the premiums;
(e) the Appellant was entitled to a deduction of $3,484.99 in the 1994 Taxation Year in respect of premiums paid by him to the Plan for the period of December 1, 1967 to December 31, 1994;
(f) the Appellant has not paid premiums in respect of the Plan since October, 1993.
B. ISSUES TO BE DECIDED
15. The issues are:
(a) whether the Notice of Appeal filed in respect of the 1998 Taxation Year is valid and;
(b) whether 60% of the Amounts received by the Appellant are employment insurance benefits according to paragraph 6(1)(f) and are properly included in income within the meaning of section 3 of the Act.
[5] Mr. Pugh testified that on a handshake with his superiors, and without ever getting any writing from Sun Life of Canada ("Sun Life"), he agreed, that upon becoming a manager, Sun Life would provide him with a Long Term Disability benefit policy which would include an income replacement clause. Then, in addition, Mr. Pugh would have a separate income replacement plan for which he alone would pay non-deductible premiums monthly. This would raise his long-term disability monthly payments to 70% of his ordinary income. This additional plan's income would then be non-taxable. In support of this Mr. Pugh submitted Exhibit A-3 dated November 12, 1993 which was written after Mr. Pugh became disabled in September, 1993. It refers to "group LTD benefits" in the plural. However, the first four paragraphs of that letter read, in total, as follows:
Further to our recent discussions, I wish to confirm the agreement between you and Sun Life regarding your transition from the position of Branch Manager to the position of Agent. This letter shall constitute formal notice of termination of your Branch Manager's Agreement effective December 12, 1993, being 30 days from the date hereof in accordance with the Branch Manager's Agreement.
I confirm that termination of your Branch Manager's Agreement will not affect your eligibility for group LTD benefits (or waiver of life insurance premiums) in respect of your current disability as long as you remain continuously and totally disabled as defined in the group policy applicable to Branch Managers.
Although Sun Life has no obligation to you regarding termination of your Branch Manager's Agreement other than to provide you with 30 days' notice, Sun Life is prepared to provide you with the additional compensation described in this letter on the understanding that you will enter into a standard Agent's Agreement effective December 13, 1993.
Sun Life Agent
As an Agent of Sun Life, you immediately will become entitled to all insurance, pension and other benefits which are available to Sun Life agents effective as of the date of your Agent's Agreement other than those benefits (group life and LTD) which you already are receiving by virtue of your current disability under the group policy applicable to Branch Managers. While you remain totally disabled as defined in the group insurance policy applicable to Branch Managers, any first-year commissions which you earn on a part-time basis as an agent will be treated as compensation from rehabilitative employment. As such, while you will continue to receive all earned commissions and renewals, 60% of your part-time first year agent's commissions only will be offset against your long-term disability benefits. On your return to work as an agent on a full-time basis, Sun Life will waive, for a twelve-month period, the life FYC requirement for performance bonus and expense allowance computation.
[6] Mr. Pugh agreed with this. Mr. Pugh stepped down from the position of Branch Manager to Agent, and the paragraph referring to benefits only refers to one "group policy applicable to Branch Managers". This latter reference is confirmed by the fact that Mr. Pugh receives one payment from Sun Life, plus a separate cost-of-living payment from Sun Life. They are paid by electronic transfer to his bank. He testified that he received no written detail respecting these payments.
[7] Mr. Pugh did not refute any of the assumptions. In particular, he testified that assumption 14(e) is true, since his accountant claimed that deduction in one of Mr. Pugh's income tax returns.
[8] Paragraph 6(1)(f) of the Income Tax Act (the "Act") reads:
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:
...
(f) the total of all amounts received by the taxpayer in the year that were payable to the taxpayer on a periodic basis in respect of the loss of all or any part of the taxpayer's income from an office or employment, pursuant to
(i) a sickness or accident insurance plan,
(ii) a disability insurance plan, or
(iii) an income maintenance insurance plan
to or under which the taxpayer's employer has made a
contribution, not exceeding the amount, if any, by which
(iv) the total of all such amounts received by the taxpayer pursuant to the plan before the end of the year and
(A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing the taxpayer's income, after the last such year, and
(B) in any other case, after 1971,
exceeds
(v) the total of the contributions made by the taxpayer under the plan before the end of the year and
(A) where there was a preceding taxation year described in clause (iv)(A), after the last such year, and
(B) in any other such case, after 1967;
[9] In Dagenais et al. v. The Queen 95 D.T.C. 5318 at 5322, Rouleau, J. said at paragraphs 14 and 15:
In Shuett v. The Minister of National Revenue, 80 D.T.C. 1168, the taxpayer maintained that since half the contributions to his benefit plan were made by himself, and the other half by his employer, only half should be included in the calculation of his income. The Tax Review Board held that once the employer made a contribution to the plan, all benefits were taxable:
The intention of the Act is to be derived from the words used by parliament. It is plain that it was the intention of Parliament that any contribution by the employer has the effect of "contaminating" the plan.
Once it is found that the employer has made a contribution, the proportion in which contributions are made by employer and employee ceases to have relevance. The scheme of the Act is then to tax all benefits received subject to the limitation found by the application of subparagraphs (iv) and (v) formula.
I am satisfied that when the amendments to the relevant sections of the Income Tax Act were promulgated in the early 1970's, it was Parliament's intention that various benefits received by employees, including employment insurance benefits, are to be included in income unless they qualify as an exemption. There is no ambiguity created by the language used in section 6 of the Act. In particular, paragraph 6(1)(f), is clear and unambiguous that benefits, such as those in the present case, are to be included in computing a taxpayers income.
[10] On the evidence, the Court finds that Mr. Pugh had only one disability insurance plan, or income maintenance insurance plan, to which he and Sun Life both contributed. As a result he received employment insurance benefits in 1997 and 1998 within the meaning of paragraph 6(1)(f) of the Act.
[11] For these reasons, the appeals are dismissed.
Signed at Ottawa, Canada, this 11th day of September, 2000.
|
"D. W. Beaubier" |
J.T.C.C.
COURT FILE NO.: 1999-4048(IT)I
STYLE OF CAUSE: Leonard Pugh v. Her Majesty the Queen
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: July 25, 2000
REASONS FOR JUDGMENT BY: The Honourable D. W. Beaubier
DATE OF JUDGMENT: September 11, 2000
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Mark Heseltine
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada