Date: 19990716
Docket: 1999-173-IT-I
BETWEEN:
SHIRLEY E. MANUEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Watson, D.J.T.C.C.
[1] This appeal was heard in Edmonton, Alberta, on June 3, 1999, under the Informal Procedure and is in respect of the Appellant's 1994, 1995 and 1996 taxation years.
[2] By Notices of Reassessment for 1994, 1995 and 1996 taxation years, the Minister of National Revenue (the "Minister") included into income superannuation or pension benefits in the amounts of $11,388 for 1994, $12,468 for 1995 and $5,230 for 1996.
[3] The facts are not at issue. The Appellant married Donald S. Manuel (the "former spouse") on June 11, 1960; they separated in May 1985 and ultimately divorced on March 12, 1993. Throughout the marriage, the former spouse served in the Canadian Forces retiring in the rank of Lieutenant-Colonel. The Minutes of Settlement signed on March 12, 1993 provided the former spouse to pay the Appellant spousal support indefinitely in the amount of $1,018.03 and to share his pension under the Canadian Forces Superannuation Act (the "CFSA") on an equal basis. Paragraph 8 of the Minutes of Settlement reads as follows:
"8. a) The parties acknowledge that the wife shall share in the husband's pension benefits with the Canadian Forces Superannuation Pension Plan as a result, and for the period, of the parties' cohabitation from June 1960 to May 1985. The parties further acknowledge that the proposed legislation pursuant to the Pension Benefits Division Act may enable the wife to receive a division of the husband's pension benefits on a lump sum basis.
b) The parties also acknowledge that the husband is presently receiving pension benefits from his Canadian Forces Superannuation Pension Plan in the gross amount of $2,743.77 per month. The parties agree that until the proposed legislation is enacted, the husband shall pay to the wife from his Canadian Forces Pension cheque, the sum of $1,018.03 per month (calculated/as gross amount less federal tax divided by 2) effective April 1, 1993.
c) The parties agree that the foregoing payments to the wife shall be taken into account in determining the value of the husband's pension benefits pursuant to the proposed legislation. The husband agrees that the foregoing payments to the wife shall be increased for any cost of living adjustments as provided by the Canadian Forces Superannuation Act.
d) The husband hereby authorizes the Canadian Forces Pension authorities to release any and all information with regard to his pension to the wife.
e) The parties further agree that either party may apply to this Honourable Court for advice and directions as may be necessary regarding the division of the pension benefits between them."
[4] Paragraphs 3 to 6 of the Consent Judgment of the Court of Queen's Bench of Alberta made on March 12, 1993 reads as follows:
"3. The Defendant shall pay to the Plaintiff from his Canadian Forces Pension cheque the sum of $l,018.03 per month, calculated, as gross amount less federal tax divided by two, effective April 1, 1993 until the proposed legislation pursuant to the Pension Benefits Division Act is enacted.
4. The payments pursuant to paragraph 3 herein shall be taken into account in determining the value of the Defendant's pension benefits pursuant to the proposed legislation and shall be increased for any cost of living adjustments as provided by the Canadian Forces Superannuation Act.
5. If the Defendant dies and the Plaintiff becomes entitled to any survivor benefits under the Pension Plan, the Plaintiff shall only be entitled to 50 percent of the survivor benefits. The Plaintiff is hereby constituted a Trustee for the Defendant's estate of the Defendant's share of the survivor benefits, being 50 percent of the survivor benefits. In the event of the death of the Defendant and a third person becomes entitled to survivor benefits in the Pension Plan, it is hereby declared that the third party receiving the survivor benefits be and is hereby constituted a Trustee for the Plaintiff of 50 percent of those survivor benefits.
6. The Defendant shall authorize the administrators or the trustees of his Canadian Forces Pension Plan to provide to the Plaintiff information requested by her from time to time relating to the pension benefits accruing thereunder."
[5] The parties have agreed that the only issue in this appeal is whether the Minister properly included into the income of the Appellant pension benefits received in the amounts of $11,388 for 1994, $12,468 for 1995 and $5,230 for 1996 in accordance with paragraph 56(1)(a) of the Income Tax Act (the "Act").
[6] Paragraph 56(1) of the Act reads in part as follows:
"56. (1) Amounts to be included in income for year – 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,
(i) a superannuation or pension benefit including ..."
[7] In their excellent and well prepared submissions, counsel for both the Appellant and the Respondent referred to three cases: Clarke v. Clarke [1990] 2 S.C.R. 795, Walker v. the Queen, 95 D.T.C. 753, and Turner v. the Queen, 1997 Carswell Nat. 84.
[8] I have thoroughly studied the transcript of counsel's submissions, the documentary evidence and the case law provided to me.
[9] The Appellant has the onus in this appeal of establishing on a balance of probabilities that the reassessments were ill-founded in fact and in law.
[10] Counsel for the Respondent submits that the words of paragraph 56(1)(a) of the Act clearly apply to the facts of this appeal. Counsel for the Appellant submits that paragraph 56(1)(a) is not applicable to the facts of this appeal because the payments she received from her former spouse were not pension benefits but rather equalization payments made in anticipation of a lump sum division of the pension; furthermore, subsection 8(6) of the CFSA provided that "... amounts payable under this Part are not capable of being assigned, charged, attached, anticipated or given as security ..."
[11] The Clarke case is of great assistance even though it did not contemplate the meaning to be ascribed to a "pension benefit" under the Income Tax Act. The Walker and Turner cases were most interesting even though they had different results and the facts are not identical to those of this appeal.
[12] The pension paid to the Appellant's former spouse under the CFSA were his alone; his entitlement arose from his 25-year military service. He received the gross amount and paid the federal taxes on that amount; he remitted to the Appellant half of the net amount because of the agreement of the parties under the Minutes of Settlement and because of the Court Order. The Appellant had no entitlement to the pension benefits under the CFSA. The agreement of the parties is quite clear: until such time that the pension could be divided into two lump sums pursuant to the Pension Benefits Division Act, the former spouse was to pay the tax on his pension benefits and pay the Appellant half of the balance. The amounts received by the Appellant are, in my view, after-tax payments from a family asset. There was no nexus between the Appellant and the pension authorities until the legislation was amended.
[13] Considering all of the circumstances of this appeal, including the submissions of counsel, the admissions and the documentary evidence in the light of the case law provided to me, I am satisfied that the Appellant has succeeded in her onus. Accordingly, the appeal is allowed, with costs, and the assessments are referred back to the Minister for reconsideration and reassessment on the basis that the amounts of $11,388 for 1994, $12,468 for 1995 and $5,230 for 1996 are not to be included in her income for those taxation years as pension benefits under paragraph 56(1)(a) of the Act.
Signed at Ottawa, Canada, this 16th day of July 1999.
"D.R. Watson"
D.J.T.C.C.