A-61-73
Cam Gard Supply Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Thurlow and Ryan JJ., Bastin
D.J.—Winnipeg, June 24 and July 3, 1974.
Income tax—Pension plan—Contribution by company—
No "obligations of the fund or plan to pay employees"—
Deduction of contribution disallowed—Income Tax Act, s.
76.
The appellant company made a payment of $309,414 on
April 15, 1965, to the trustees of a pension plan established
April 1, 1965, for the company's executives. The Minister
re-assessed the appellant for the years 1964-1967, disallow
ing the deduction of this amount. An appeal to the Trial
Division was dismissed.
Held, per Thurlow and Ryan JJ., the decision of the Trial
Division, following the reasoning of the Supreme Court of
Canada in M.N.R. v. Inland Industries Limited [ 1974] S.C.R.
514, should be affirmed. The Trial Division held that 1.
there was no obligation on the company to make payments
to the fund and hence there were, at the material time, no
"obligations of the fund or plan to the employees" who were
members of the plan, within section 76(1) of the Income Tax
Act; 2. the material time, in the application of section 76(1)
was immediately before the company's payment was made.
Per Bastin D.J. (dissenting): The word "obligations"
means the specific scale of benefits recited in the present
plan. The terms of the plan in M.N.R. v. Inland Industries
(supra) failed to establish an obligation on the trustee to pay
specific benefits, whereas in the case at bar this requirement
was met. As there was full compliance with section 76 the
appellant was entitled to the deduction.
INCOME tax appeal.
COUNSEL:
G. R. Hunter, Q.C., and A. J. Irving for
appellant.
J. A. Scollin, Q.C., and C. H. Fryers for
respondent.
SOLICITORS:
Pitblado & Hoskin, Winnipeg, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
delivered in English by
THURLOW J.: This appeal is from a judgment
of the Trial Division which dismissed the appel
lant's appeal from re-assessments of income tax
for the years 1964, 1965, 1966 and 1967. The
question at issue with respect to all four years is
whether the appellant was entitled to a deduc
tion of the amount of a payment of $309,414.00
which was made on April 15th, 1965 to the
trustees of a pension plan established on April
1st, 196'5 for the executives of the appellant
company. The particular payment was made as
a contribution to provide pensions for the
executives in respect of their past service to the
appellant.
With respect to such plans, section 76 of the
Income Tax Act provided as follows:
76. (1) Where a taxpayer is an employer and has made a
special payment in a taxation year on account of an
employees' superannuation or pension fund or plan in
respect of past services of employees pursuant to a recom
mendation by a qualified actuary in whose opinion the
resources of the fund or plan required to be augmented by
an amount not less than the amount of the special payment
to ensure that all the obligations of the fund or plan to the
employees may be discharged in full and has made the
payment so that it is irrevocably vested in or for the fund or
plan and the payment has been approved by the Minister on
the advice of the Superintendent of Insurance, there may be
deducted in computing the income of the taxpayer for the
taxation year the amount of the special payment.
(2) For greater certainty, and without restricting the gen
erality of subsection (1), it is hereby declared that subsec
tion (1) is applicable where the resources of a fund or plan
required to be augmented by reason of an increase in the
superannuation or pension benefits payable out of or under
the fund or plan.
The appeal to the Trial Division was dealt
with on an agreed statement of the facts and of
the issues to be determined. The statement is set
out in full in the reasons for judgment of the
learned Trial Judge and need not be repeated. It
is sufficient for present purposes to say that it
was common ground that the conditions
imposed by subsection 76(1) in respect of the
deductibility of the payment of $309,414.00
were met, save that there was issue as to wheth
er at the material time there were any "obliga-
tions of the fund or plan to the employees" in
respect of which the fund required to be
augmented.
On this point the plan provided as follows:
SECTION IX-CONTRIBUTIONS
(a) Members' Required Contributions
The Members of this plan shall not be required nor
permitted to make contributions to this Plan, the said Plan
being completely non-contributory by the Members.
(b) Contributions by the Company
The Company shall contribute on behalf of each Member
an amount equal to the maximum permitted under the
Income Tax Act of Canada being $1,500.00 per year per
Member as hereinafter set forth. The Company intends to
contribute, subject to the funds for such purpose being
available, such amounts as may be required in accordance
with the certification of an Actuary to provide the Past
Service Pensions mentioned in Section X (a) hereof.
SECTION X-AMOUNT OF RETIREMENT INCOME
(a) For Past Service
The Company expects to purchase, subject to the funds for
such purposes being available, a Past Service Pension for "
each designated Executive, and more particularly, the Presi
dent and the Secretary, who enter the Plan at the effective
date. The Past Service Pension, shall be related in each case
to the Member's completed years of service with the Com
pany, prior to the effective date, and shall be a monthly
amount of Past Service Pension, commencing at normal
retirement age, for each completed year of prior service, as
indicated below.
President—$ 180.90 per month
Secretary—$285 .85 per month.
In determining the number of years under this section,
any fractional years will be treated as completed years. In
determining the number of years of accredited past service
that shall be allowed and taken into account in calculating
the said Past Service Benefit, the decision of the Board of
Directors of the Company shall be final and binding on all
parties, but in no event shall such number of years exceed
the actual number of years the Employee has been in the
service of the Company or its predecessors at such time.
In calculating or determining the amount of Past Service
Pension Benefits which may be paid hereunder, any pension
benefits received by the Employee in respect of any contri
butions to any general fund of the Company made prior to
his enrollment in this Plan, shall be taken into account and
be deemed to form part of the Past Service Pension Benefit
herein described.
The learned Trial Judge held that under these
provisions there was no obligation on the appel
lant to make payments to the fund and that in
' Counsel were in agreement that the word "Company" is
in error and that the provision should be read as saying "The
Trustees expect".
consequence there were at the material time no
obligations of the fund or plan to the employees
who were members of the plan. In his view
prior to the making of the payment there was no
obligation within the meaning of subsection
76(1) and after the payment had been made,
there was no longer any need to augment the
resources of the fund. He, therefore, concluded
that the appellant was not entitled to a deduc
tion in respect of the $309,414.00 which it had
paid.
I agree with the view of the learned Trial
Judge that the case is governed by the reasoning
of the Supreme Court of Canada in M.N.R. v.
Inland Industries Limited 2 and with his conclu
sion and I am also in substantial agreement with
his reasons therefor. In my opinion, the material
time, so far as the application of section 76(1) is
concerned, was immediately before the payment
was made. At that time there was no financial
obligation of the appellant to the fund or plan or
of the fund or plan or its trustees to the mem
bers of the plan. An essential prerequisite of the
applicability of section 76(1) was therefore lack
ing because the payment cannot be regarded as
having been made "to ensure that obligations of
the fund or plan to the employees (might) be
discharged in full" within the meaning of sec
tion 76(1) where there were in fact no such
obligations. Vide M.N.R. v. Inland Industries
Limited [supra] . The fact that obligations of the
fund and its trustees to the employees may have
arisen upon the payment being made, in my
opinion, is not material.
It was submitted on behalf of the appellant
that this case differed from the Inland Indus
tries case, in that if the language of section
IX(b) of the plan was inept and did not give rise
to an enforceable obligation on the part of the
appellant company to make payments to the
fund or plan the shortcomings of the language
used were cured by the actual payment to the
trustees of the plan upon the recommendation
of the actuary and before application was made
to the Minister for registration of the plan and
for his approval of the payment under section
2 [ 1974] S.C.R. 514.
76(1). In this connection it was contended that
had the appellant an hour before making the
payment exercised its right under article IX of
the trust agreement to amend the plan by chang
ing the wording of sections IX and X thereof so
as to impose enforceable obligations on the
appellant to make the payment and on the trus
tees to purchase past service pensions, the pay
ment subsequently made would have qualified
for deduction. Assuming that article IX of the
trust agreement authorized such an amendment
of the plan and that such an amendment would
have served to make the payment deductible, it
is unfortunate for the appellant that the amend
ment was not made, but I know of no principle
upon which this Court may change the actual
facts to what they might have been, and it
appears to me that there is no basis for deciding
the case otherwise than on the basis of the
language of the documents as it existed at the
material time. Nor, in my opinion, can it be
taken that the making of the payment by the
appellant obviated or served to satisfy the statu
tory requirement of an obligation of the fund to
the employees as a condition of the deductibility
of the payment. The statutory provision must,
as I see it, be limited to what fairly falls within
the meaning of the language used and there is
no room for extending it by supposed intend-
ment to situations which do not meet that
language.
The appellant also submitted that the Minis
ter's approval once given could not be with
drawn but in my opinion this point as well is
covered by the judgment in the Inland Indus
tries case and is not sustainable. Where a statu
tory requirement for the deduction has not been
met, the deduction for that reason must be
disallowed and it does not matter that the
approval of the payment, which is another of
the essential conditions of deductibility, had
been given.
In my opinion, the appeal should be dismissed
with costs.
RYAN J.: I agree.
* * *
The following are the reasons for judgment
delivered in English by
BASTIN D.J. (dissenting): This is an appeal
from a judgment of the Trial Division delivered
on February 22, 1973, dismissing an appeal by
the appellant of its assessments under Part 1 of
the Income Tax Act for the 1964-1967 taxation
years. The sequence of events leading to the
appeal are as follows:
1. The appellant established what is commonly
known as an executive pension plan. That is, a
pension arrangement for the benefit of the prin
cipal shareholders and employees of the appel
lant corporation. Pursuant to same, the
appellant:
i. on April 1, 1965 passed and enacted
By-law No. 13 of the company, authorizing
the pension plan;
ii. on April 1, 1965 entered into a pension
trust agreement with trustees for the purpose
of holding and administering funds on behalf
of the pension plan.
2. The pension plan was attached to the pension
trust and formed a part thereof.
3. The pension plan provided for two kinds of
retirement income:
i. a past service pension based upon a mem
ber's years of service up to the "effective
date". The "effective date" was April 1,
1965;
ii. a future service pension.
4. In order to provide funds for the purposes of
pension payments, the appellant was to
contribute:
i. $1,500.00 per year per member in respect
of future service pensions;
ii. an actuarially determined amount in
respect of past service pensions.
5. The appellant engaged an actuary who deter
mined the past service requirements of the pen-
Sion plan as of April 1, 1965 at $309,414.00.
6. On April 15, 1965, the appellant paid to the
trustees of the pension plan the said sum of
$309,414.00 in respect of past service.
7. On April 15, 1965, the appellant forwarded
to the respondent an application for registration
of the pension plan and being Form T510, to
gether with attached documents.
8. The respondent:
i. on May 31, 1965, accepted the trusteed
pension plan for registration under the
Income Tax Act;
ii. on July 28, 196'5, advised that the actuarial
calculations had been confirmed and that
"special past service payments to the plan"
may be claimed as deductions under the
Income Tax Act.
9. The appellant did deduct the aforementioned
payment of $309,414.00 in calculating income
for its 1965 taxation year and the respondent
subsequently in 1969, re-assessed, denying the
deduction so claimed.
The issues in this appeal are as follows:
1. Upon the agreed assumption that the other
requisites of section 76(1) of the Income Tax
Act have been satisfied, was the payment of
$309,414.00 within the provisions of section
76(1) in so far as the same relates to the obliga
tions of the fund or plan to the employees?
2. Is the respondent functus officio, and
estopped from making the re-assessment in
question?
Counsel for the appellant did not abandon the
second issue but did not argue it. In view of my
decision on the first issue, it is not necessary for
me to consider it.
The learned Trial Judge in his reasons for
judgment relied on the decision of the Supreme
Court of Canada in the case of M.N.R. v. Inland
Industries Limited [1974] S.C.R. 514. In my
opinion the case at bar is clearly distinguishable
on its facts from the Inland Industries judgment.
Furthermore, the learned Trial Judge has given
to the word "obligations" in section 76 a differ
ent interpretation from that given to the word in
the Supreme Court of Canada judgment in the
Inland Industries case.
Section 76 reads as follows:
76. (1) Where a taxpayer is an employer and has made a
special payment in a taxation year on account of an
employees' superannuation or pension fund or plan in
respect of past services of employees pursuant to a recom
mendation by a qualified actuary in whose opinion the
resources of the fund or plan required to be augmented by
an amount not less than the amount of the special payment
to ensure that all the obligations of the fund or plan to the
employees may be discharged in full and has made the
payment so that it is irrevocably vested in or for the fund or
plan and the payment has been approved by the Minister on
the advice of the Superintendent of Insurance, there may be
deducted in computing the income of the taxpayer for the
taxation year the amount of the special payment.
(2) For greater certainty, and without restricting the gen
erality of subsection (1), it is hereby, declared that subsec
tion (1) is applicable where the resources of a fund or plan
required to be augmented by reason of an increase in the
superannuation or pension benefits payable out of or under
the fund or plan.
I would paraphrase this section as follows:
A taxpayer employer may deduct from his
income, when computing his income tax, the
amount of a special payment made in that year
to the trustees of an employees' pension fund
for past services provided that:
1. The special payment, in the opinion of a
qualified actuary, is necessary to provide the
funds to carry out the obligations of the fund to
the employees, that is, the amount required to
enable the trustees of the fund to pay the pen
sions in accordance with the specific scale of
benefits provided by the terms of the plan.
2. The company has made the special payment
to the fund so that it is irrevocably vested in the
trust fund.
3. The special payment has been approved by
the Minister of National Revenue on the advice
of the Superintendent of Insurance.
In my opinion the word "obligations" in sec
tion 76 means the specific scale of benefits
recited in the pension plan. That this is the
meaning given to the word by Mr. Justice
Pigeon in the Inland Industries judgment is
indicated by the following quotation from his
judgment at page 523:
Furthermore, subs. 2 of s. 76 clearly shows that "obligations
of the Fund or Plan to the employees" means "superannua-
tion or pension benefits payable". It is apparent that the
situation intended to be met by the special payments pro
vided for is that which arises when a pension plan specifies
a scale of benefits payable.
The learned Trial Judge held the word "obliga-
tions" to means legally, presently enforceable
liabilities which in my opinion is not the mean
ing intended by Parliament.
It is not necessary to recite all the facts
relating to the pension plan in the Inland Indus
tries case. It appears probable that on the
strength of many of them the Minister of Na
tional Revenue came to the conclusion that the
plan was not a genuine employees' pension plan
and on that ground disallowed the income tax
deduction for the amount paid by the company
into the fund. However, Mr. Justice Pigeon held
that it was not necessary or desirable to express
an opinion on any matter other than the legal
point which he then proceeds to discuss. I quote
from his reasons on pp. 521-524:
This is that the deduction claimed was not allowable
because there were no `obligations" of the Fund or Plan to
Mr. Lloyd Parker that required any special payment to
ensure that they might be discharged in full, as section 76 of
the Income Tax Act expressly requires:
That there was no "obligation" of the pension fund to Mr.
Parker that "required" the special payments is readily
apparent from the terms of the Plan. The only obligations to
a member were to use in the prescribed manner the funds
that became available. In fact, it was not contended at the
hearing that an obligation had been created, either on the
fund or on the Company to provide to Mr. Parker the
benefits which were intended to be provided by the special
payments.
The contention was that "obligation" was to be taken to
mean what the actuary making a recommendation under
stood it to mean. It is to be noted first that in the memoran
dum from the Department of Insurance, the statement is
not, as in the actuarial certificate, that the Fund requires to
be augmented "to ensure that all obligations of the Fund in
respect of past services may be discharged in full" but that
"the Fund requires to be augmented by an amount not less
than the amount quoted above to ensure that the maximum
possible benefits under the Plan may be provided". This
follows the statement that "the Plan does not provide a
specific amount of pension but only sets a maximum limit to
the total pension". The difference between the wording of
this memorandum and the wording of the actuarial certifi
cate is quite substantial and it is somewhat surprising that,
notwithstanding such advice, departmental approval was
given to the payments on behalf of the Minister. However, it
seems clear to me that the Minister cannot be bound by an
approval given when the conditions prescribed by the law
were not met.
Furthermore, subs. (2) of s. 76 clearly shows that `obliga-
tions of the Fund or Plan to the employees" means "super-
annuation or pension benefits payable". It is apparent that
the situation intended to be met by the special payments
provided for is that which arises when a pension plan
specifies a scale of benefits payable.
It cannot be said that because the intention of making, at
some future time, payments in the amount now claimed was
disclosed to the department in the application for registra
tion of the Plan, an obligation to make the payments was
created. On the contrary, the terms of the Plan were perfect
ly clear to the effect that no obligation towards Mr. Parker
would arise in respect of those sums unless and until the
company chose to, and actually did, make the contemplated
payments into the Fund.
My conclusion is that the plan submitted by
Inland Industries Ltd. was held defective for the
following reasons:
1. the plan did not specify a scale of benefits
payable, so the terms of the plan were not
defined;
2. on the date the plan was submitted for
approval to the Minister of National Revenue,
no special payment had been made by the com
pany to the trustees of the fund, so neither by
its covenant nor by the irrevocable payment of
money to the fund, had the company committed
itself to carry out the plan, so what was submit
ted was merely a proposal.
In the case at bar, the terms of the plan
established an obligation on the trustees to pay
specific benefits. These are recited on page 8 of
the plan as follows:
The Past Service Pension shall be related in each case to the
Member's completed years of service with the Company,
prior to the effective date, and shall be a monthly amount of
Past Service Pension, commencing at normal retirement age,
for each completed year of prior service, as indicated below:
President—$180.90 per month
Secretary—$285.85 per month.
In determining the number of years under this section, any
fractional years will be treated as completed years.
Furthermore, on the date the application for
approval was made by the appellant, the amount
which the actuary had calculated was required
to be paid into the fund to ensure that all the
obligations of the fund or plan to the employees
could be discharged in full, namely, $309,-
414.00, had been irrevocably paid by the appel
lant to the trustees of the fund. In my opinion
words in the agreement indicating that the plan
was conditional upon the ability of the company
to make the special payment are not a defect or
unreasonable in the case of a small company. A
plan might well be abandoned after the drafting
and passing of the by-law and the execution of
the agreement, due to the size of the special
payment in relation to its resources and the
attitude of its bank and creditors. Section 76
does not mention the obligation of the company.
It requires that the company should commit
itself to the plan, not by its covenant, but by the
irrevocable payment to the trustees of the
amount of the special payment. For these rea
sons I consider that the appellant had complied
in every respect with the requirements of sec
tion 76 of the Income Tax Act and was entitled
to make the deduction claimed.
I would allow the appeal with costs here and
below against the respondent.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.