T-4416-78
Sun Life Assurance Company of Canada (Plain-
tiff)
v.
The Queen (Defendant)
T-4417-78
Sun Life Assurance Company of Canada (Plain-
tiff)
v.
The Queen (Defendant)
Trial Division, Gibson J.—Montreal, January 17;
Ottawa, January 26, 1979.
Income tax — Non-residents — Pension funds — Trustee
of pension plan funds transferring amount from pension plan
in Canada to subsidiary's fund in U.S. — Minister assessing
tax on funds transferred — Whether or not tax should be
deducted pursuant to s. 212(1)(h) — Income Tax Act, S.C.
1970-71-72, c. 63, ss. 212(1)(h), 215(1),(6), 248(1) — Canada-
United States of America Tax Convention Act, 1943, S.C.
1943-44, c. 21, Art. VI A; Protocol, par. 7.
In 1973 and 1974 certain employees of Dominion Bridge
Company Limited who had been resident in Canada were
transferred to the employment of a subsidiary and became
residents of the United States. At the time of their transfer,
these employees were members of an Employees' Contributory
Pension Plan of Dominion Bridge for which Sun Life acted as
trustee and custodian of funds. The plan provided that in the
event of specific transfer of employment to the subsidiary, Sun
Life would transfer from the plan's funds to the subsidiary's
funds an amount equal to the actuarial liability in respect of
those member employees on the date of their transfer. The
Minister contended that income tax should be deducted from
the funds transferred pursuant to section 215(1)(h), and that
Sun Life is liable to pay the tax from its own funds for failing
to withhold or deduct it. The question for determination is
whether or not these pension funds were portable without 'being
subject to income tax.
Held, the appeals are allowed. The transfer of the sums 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. Part
XIII of the Income Tax Act and specifically sections 212 and
215 are not applicable. There were no other provisions in the
Income Tax Act in force during the relevant years which would
deem these payments to be income from Canada of persons
non-resident in Canada. The payments of these monies were
not within the meaning of Article VI A and paragraph 7 of the
Canada-United States of America Tax Convention and
Protocol.
INCOME tax appeal.
COUNSEL:
Peter F. Cumyn and Michelle Boivin for
plaintiff.
W. Lefebvre and J. Côté for defendant.
SOLICITORS:
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
GIBSON J.: These two appeals from assessments
for income tax were heard on common evidence.
Certain pension funds of some employees were
transferred to another pension fund when such
employees were transferred from the employment
of one company to the employment of another.
The issue on these appeals is whether or not
such pension funds were portable without being
subject to income tax.
What took place was that in 1973 and 1974
certain employees of Dominion Bridge Company
Limited who had been resident in Canada were
transferred to the employment of AMCA Interna
tional Corporation (a wholly-owned subsidiary
corporation of Dominion Bridge) and thereupon
ceased to reside in Canada and became residents
of the United States.
At the time of such transfer of employment,
these employees were members of an Employees'
Contributory Pension Plan of Dominion Bridge for
which Sun Life Assurance Company of Canada
acted as trustee and custodian of funds of the plan.
For such employees, this plan provided at Clause 2
of Article XIV that in the event of such specific
transfer of employment to AMCA International,
Sun Life would transfer from the funds of the plan
to the funds of the AMCA International
Employees Pension Plan an amount equal to the
actuarial liability in respect of such member
employees of the plan on the date of their transfer
calculated in accordance with assumptions and
methods agreed upon between Sun Life and
AMCA International pension fund trustees.
These amounts were agreed upon in the case of
the transfer of these employees, and on February
28, 1974 and July 1, 1975, the amounts of $221,-
742 and $28,882 were transferred by Sun Life
trustee and custodian of Dominion Bridge's pen
sion plan to the trustees of AMCA International
pension plan in accordance with said Clause 2 of
Article XIV; and as of the date of transfer of each
of the said employees, AMCA International pen
sion plan assumed the liability of each of such
employees previously the burden of the Dominion
Bridge pension plan.
Section 215(1) of the Income Tax Act, S.C.
1970-71-72, c. 63, requires a person who pays or
credits or is deemed to have paid or credited an
amount on which an income tax is payable under
Part XIII of the Act to deduct or withhold the
amount of tax and remit it to the Receiver General
of Canada (on behalf of the non-resident person on
account of the tax).
Section 215 (1) of the Act reads as follows:
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.
The assessors for the Minister by their assess
ments have in effect said that Sun Life should
have deducted income tax in the sum of
$44,142.21 under the provisions of section
215(1)(h) of the Act, that is, 15% of the amount
of the said monies transferred by Sun Life as
trustee and custodian of Dominion Bridge pension
fund to the trustees of AMCA International pen
sion fund; and that having failed to do so, Sun
Life, out of its own funds, is liable to pay the tax
being a person who "has failed to deduct or with
hold any amount as required by this section from
an amount paid or credited or deemed to have
been paid or credited to a non-resident person" by
reason of the provisions of section 215(6) of the
Act which reads:
215. ...
(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 assessors for the Minister rely on section
212(1) (h) of the Act for their determination that
Sun Life paid or credited or was deemed to have
paid or credited an amount on which an income
tax is payable under Part XIII of the Act. Section
212(1) (h) of the Act reads in part 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 I to 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;
In the assessments for income tax against Sun
Life and also in the pleadings in this action, the
Minister claims that Sun Life, a resident in
Canada, paid or credited or was deemed by Part I
to have paid or credited the said amounts of
$221,742 and $28,882 to the trustees of AMCA
pension plan, a non-resident person, within the
meaning of section 212(1)(h) of the Act. At trial
however, counsel for the Minister submitted that
Sun Life as a resident in Canada paid or credited
or was deemed to have paid or credited the said
sums to the said employees who were transferred
from the employment of Dominion Bridge to the
employment of AMCA International within the
meaning of section 212(1)(h) of the Act.
All parties agree that the subject pension funds
are and were at all material times a "superannua-
tion or pension benefit" within the meaning of
section 212(1)(h) of the Act and as defined in
section 248 of the Act which reads as follows:
248.(1)...
"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
(e) resulting from the termination of the fund or plan;
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 satisfaction of" and
"a payment of a superannuation or pension bene
fit", 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 as claimed in the assessments and as
pleaded. Sun Life as trustee also did not "pay or
credit", within the same meaning, the said sums to
the said former employees of Dominion Bridge on
their transfer of employment to AMCA Interna
tional in that none of these employees was then
beneficially entitled to any part of those sums and
none of these funds became income at that time in
their hands.
As noted at the beginning of these reasons in
respect to what was the issue on these appeals, the
question for determination is whether or not these
pension funds were portable without being subject
to income tax.
This issue would not have arisen except for the
peculiar facts of this case. The peculiar facts of
this case are that these funds were transferred
from a pension fund in Canada to a pension fund
in the United States. Undoubtedly if the issue was
as to the portability of pension funds in Canada,
that is from one pension fund to another fund in
Canada, there would have been no question raised
by the assessors for the Minister as to whether.
there was income to be assessed for tax.
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 Inter
national was not a transfer of income from Canada
of persons non-resident in Canada.
Accordingly, Part XIII of the Income Tax Act
and specifically sections 212 and 215 are not
applicable.
Also, there were no other provisions in the
Income Tax Act in force during the relevant years
which would deem these payments to be income
from Canada of persons non-resident in Canada.
Accordingly, the premises for the assessments
and re-assessments and the premises as changed by
the said submission of counsel at trial, are not
valid.
One other point was argued, namely, whether or
not the payments of said monies were payments of
"pensions" within the meaning of Article VI A
and paragraph 7 of the Protocol of The Canada-
United States of America Tax Convention. Obvi
ously they were not.
The appeal is therefore allowed with costs and
the re-assessments are ordered vacated.
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