A-137-79
The Queen (Appellant) (Defendant)
v.
Sun Life Assurance Company of Canada
(Respondent) (Plaintiff)
Court of Appeal, Pratte and Le Dain JJ. and
Lalande D.J.—Montreal, September 9; Ottawa,
October 7, 1980.
Income tax — Non-residents — Pension funds — Appeal
from decision of Trial Division allowing respondent's appeal
from an income tax reassessment — Trustee of pension plan
funds transferred amount from pension plan in Canada to
subsidiary's fund in the U.S. — Minister reassessed respond
ent on the basis that payment was within s. 212(1) of the
Income Tax Act — Whether an amount paid or credited to a
non-resident must have the characteristics of "income" in
order to be taxable under s. 212(1) — Whether the payment
otherwise falls within purview of par. 212(1)(h) — Whether
payment was a pension within the meaning of the Canada-U.S.
Tax Convention — Appeal allowed — Income Tax Act, S.C.
1970-71-72, c. 63, ss. 212(1)(h), 215(1),(6), 248—Income Tax
Application Rules, 1971, S.C. 1970-71-72, c. 63, s. 10(2), as
amended.
APPEAL.
COUNSEL:
Wilfrid Lefebvre and Jacques Côté for appel
lant (defendant).
Claude P. Desaulniers and Peter Cumyn for
respondent (plaintiff).
SOLICITORS:
Deputy Attorney General of Canada for
appellant (defendant).
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for respondent (plaintiff).
The following are the reasons for judgment
rendered in English by
PRATTE J.: This is an appeal from a judgment
of the Trial Division [[1979] 2 F.C. 76] allowing
the respondent's appeal from an income tax reas
sessment in respect of its 1974 taxation year.
The facts that gave rise to the reassessment here
in question are stated in an "agreed statement of
facts" which was filed at the trial. That document
reads as follows:
With respect to the appeal from the reassessment of tax for
the Plaintiffs 1974 taxation year, the Plaintiff and the Defend
ant, by their respective solicitors, for the purposes of this action
only, admit the following facts:
1. At all material times, Sun Life Assurance Company of
Canada has acted as custodian and owner of the Fund of the
Employees' Contributory Pension Plan of Dominion Bridge
Company, Limited.
2. In 1973 and 1974, certain employees of Dominion Bridge
Company, Limited, a corporation resident in Canada, were
transferred to the employment of AMCA International Corpo
ration (formerly Dombrico Inc.), a wholly-owned subsidiary
corporation of Dominion Bridge Company, Limited, resident in
the United States, whereupon said employees ceased to reside
in Canada and became residents of the United States.
3. Clause 2 of Article XIV of the rules governing the
Employees' Contributory Pension Plan of Dominion Bridge
Company, Limited, provides as follows:
2. If on any date a Member is transferred to AMCA Inter
national Corporation all of his rights and benefits hereunder
shall cease and determine and he will cease to be a Member.
In such event, there shall be transferred from the fund held
by the Assurance Company under its Policy No. 9309-G to
the AMCA International Corporation pension fund an
amount equal to the actuarial liability in respect of such
Member on the date of his transfer calculated in accordance
with the assumptions and methods agreed upon between the
Company and AMCA International Corporation.
4. On February 28, 1974 and July 1, 1975 respectively, the
amounts of $221,742 and $28,882 were transferred by the
Plaintiff from the Employees' Contributory Pension Plan of
Dominion Bridge Company, Limited, to the AMCA Interna
tional Corporation Pension Plan, a trusteed plan resident in the
United States and not in Canada, upon direction by the Domin
ion Bridge Company, Limited, and pursuant to Clause 2
Article XIV of the rules governing the Employees' Contributo
ry Pension Plan of Dominion Bridge Company, Limited.
5. As of the date of transfer of each employee, the AMCA
International Corporation Pension Plan assumed the liability to
that employee previously carried by the Employees' Contribu
tory Pension Plan of Dominion Bridge Company, Limited.
The Minister of National Revenue reassessed
the respondent in respect of its 1974 taxation year
on the basis
(a) that, under subsection 212(1) of the Income
Tax Act, R.S.C. 1952, c. 148 as amended by
S.C. 1970-71-72, c. 63, a tax of 15% was pay
able on the sum of $221,742 that the respondent
had paid to the AMCA International Corpora-
tion Pension Fund since that payment was one
of a kind described in that provision, namely, a
payment by a resident of Canada to a non-resi
dent of a "superannuation or pension benefit" as
that expression is defined in subsection 248(1);
(b) that, as a consequence, the respondent
should, under subsection 215(1), have withheld
the amount of the 15% tax and should have paid
it to the Receiver General of Canada on behalf
of AMCA International Corporation Pension
Fund; and
(c) that, as a result of its failure to withhold and
pay the tax on behalf of the AMCA Internation
al Corporation Pension Fund, the respondent
was personally liable to pay that tax under
subsection 215(6).
The relevant provisions of the Income Tax Act
read as follows:
212. (1) Every non-resident person shall pay an income tax
of 25%' on every amount that a person resident in Canada pays
or credits, or is deemed by Part Ito pay or credit, to him as, on
account or in lieu of payment of, or in satisfaction of,
(h) a payment of a superannuation or pension benefit, ...
except such portion, if any, of the payment as may reason
ably be regarded as attributable to services rendered by the
person, to or in respect of whom the payment is made, in
taxation years at no time during which he was resident or
employed in Canada;
248. (1) In this Act,
"superannuation or pension benefit" includes any amount
received out of or under a superannuation or pension fund or
plan and without restricting the generality of the foregoing
includes any payment made to a beneficiary under the fund
or plan or to an employer or former employer of the benefici
ary thereunder,
(a) in accordance with the terms of the fund or plan,
(b) resulting from an amendment to or modification of the
fund or plan, or
(c) resulting from the termination of the fund or plan;
' Subsection 10(2) of the Income Tax Application Rules,
1971, S.C. 1970-71-72, c. 63, as amended, provides that, for the
payments and credits made before 1976, the reference to
"25%" in subsection 212(l) shall be read as a reference to
"15%".
215. (1) When a person pays or credits or is deemed to have
paid or credited an amount on which an income tax is payable
under this Part, he shall, notwithstanding any agreement or any
law to the contrary, deduct or withhold therefrom the amount
of the tax and forthwith remit that amount to the Receiver
General of Canada on behalf of the non-resident person on
account of the tax and shall submit therewith a statement in
prescribed form.
(6) Where a person has failed to deduct or withhold any
amount as required by this section from an amount paid or
credited or deemed to have been paid or credited to a non-resi
dent person, that person is liable to pay as tax under this Part
on behalf of the non-resident person the whole of the amount
that should have been deducted or withheld, and is entitled to
deduct or withhold from any amount paid or credited by him to
the non-resident person or otherwise recover from the non-resi
dent person any amount paid by him as tax under this Part on
behalf thereof.
The Trial Division allowed the respondent's
appeal from the reassessment. The learned Trial
Judge reached that conclusion for two reasons,
which he expressed [at pages 80-81] as follows:
Employing the dictionary definitions of "pays" and "credits"
and having regard also to certain of the other words in section
212(1)(h) namely, "on account or in lieu of ..., or in satisfac
tion of' and "a payment of a superannuation or pension
benefit", it is incontrovertible that Sun Life, in paying the said
sums of $221,742 and $28,882 to the trustees of AMCA
International plan, did not "pay or credit" to the latter "a
payment of a superannuation or pension benefit" within the
meaning of section 212(1)(h) and section 248 of the Act ....
Part XIII of the Income Tax Act is concerned with charging
income tax on income from Canada of persons non-resident in
Canada at the material time they were paid or credited with
such income.
The transfer of the said sums in this case from Sun Life, the
trustee of the pension funds of Dominion Bridge to the trustees
of AMCA International was not a transfer of income from
Canada of persons non-resident in Canada.
Accordingly Part XIII of the Income Tax Act and specifical
ly sections 212 and 215 are not applicable.
The first question to be resolved is whether the
learned Judge correctly held that subsection
212(1) imposes a tax on income so that, in order to
be taxable under that subsection, an amount paid
or credited to a non-resident must have the charac
teristics of "income".
The tax imposed by subsection 212(1) must be
paid "on every amount" paid or credited to a
non-resident in the circumstances described in the
subsection. As I read that provision, the tax must
be paid "on every amount" irrespective of its
capital or income nature provided that the pay
ment in question be of a kind described in para
graphs 212(1)(a) to (p). True, most of these para
graphs refer to payments having the
characteristics of income. But paragraph (h) is
different since the expression "superannuation or
pension benefit" is defined by subsection 248(1) as
including "any amount received out of or under a
superannuation or pension fund". As an amount so
received may have the characteristics either of
capital or of income, I cannot share the opinion of
the learned Trial Judge that the payment of a
capital nature is not taxable under subsection
212(1).
The second main question to be considered is
whether the payment here in question otherwise
falls within the purview of paragraph 212(1)(h).
In order to attract tax under that paragraph, a
payment must be made
(a) by a resident of Canada;
(b) to a non-resident; and
(c) on account or in lieu of payment of, or in
satisfaction of a superannuation or pension ben
efit as that term is defined in subsection 248(1)
of the Act.
It is common ground that the sum paid by the
respondent to the AMCA International Corpora
tion Pension Plan was paid by a resident to a
non-resident. The only remaining problem is
whether that sum was paid in lieu of or in satisfac
tion of a "superannuation or pension benefit", a
phrase that subsection 248(1) defines as including
"any amount received out of or under a superan-
nuation or pension fund or plan ...". The sum
paid to the trustees of the AMCA pension plan
was clearly paid out of the Dominion Bridge pen
sion funds in accordance with the provisions of
article XIV-2 of the Dominion Bridge Pension
Plan. It was, therefore, in my view, a payment
made in satisfaction of a superannuation or pen
sion benefit. I do not see any merit in the respond-
ent's submission that subsection 248(1) implies
that the benefit be paid to a beneficiary of the
pension plan. That submission ignores the plain
words of subsection 248(1).
Counsel for the respondent also argued that, in
any event, the appeal was bound to fail for two
additional reasons: first, because the notice of
reassessment sent to the respondent by the Minis
ter of National Revenue was vitiated by an
irregularity, and, second, because the payment
made to the trustees of the AMCA plan was the
payment of a "pension" within the meaning of the
Canada-U.S. Tax Convention.
The argument founded on the Canada-U.S. Tax
Convention was made in the Trial Division. It was
rightly rejected by the Trial Judge as "obviously"
ill-founded. The Protocol of the Convention speci
fies that the word "pensions" in the Convention
means "periodic payments made in consideration
for services rendered or by way of compensation
for injuries received."
The allegation of an irregularity in the notice of
reassessment refers to the fact that the notice of
reassessment erroneously referred to a payment
made to AMCA International Corporation rather
than to the AMCA International Corporation Pen
sion Fund. No one was mistaken by reason of that
irregularity which was little more than a clerical
error. I fail to see why it would vitiate the
reassessment.
For these reasons, I would allow the appeal, set
aside the judgment of the Trial Division and
restore the reassessment made by the Minister of
National Revenue. I would order the respondent to
pay the appellant's costs both in this Court and in
the Trial Division.
* * *
LE DAIN J.: I agree.
* * *
LALANDE D.J.: I agree.
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.