Date: 20020208
Docket: 2001-2666-IT-I
BETWEEN:
GARY MOULTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] This appeal, from an assessment for the appellant's 1999 taxation year, raises again the question whether a taxpayer who relies and acts upon advice given to him by the CCRA about the interpretation of the Income Tax Act can hold the CCRA to it.
[2] The answer, I am sorry to say, is no.
[3] Mr. Moulton is a high school English teacher. On August 30, 1997, while jogging, he was injured. I will let him tell the story in his own words. As one would expect of an English teacher, he does so with clarity and succinctness. His notice of appeal reads:
On August 30, 1997 I had an accident while jogging that rendered me incapable of working until January 1999. I was advised that in order to keep my pension status up to par, I would have to buy back pension time for the period I was injured at the rate applicable to the time. On September 4, 1998 I thought I would get the jump on this situation and called Revenue Canada to explain my situation, informing them that even though I had up to six month after my return to work to buy my pension back, I wished to get a head start by making an installment at this time. I explained to the official that I was in receipt of a tax free insurance while injured and would therefore not need to be able to use the amount of the installment as a deduction for income tax purposes until I filed my 1999 return. I asked if I made an installment in September 1998 would I be able to claim this amount on my 1999 income tax return. I was advised I certainly could. Before filing the return in 1999, I made a second call to inquire the same and again I was told that I could make the claim. On the advice of the first official, I proceeded to make the first installment on September 4, 1998 knowing that I did not have to do it for up to six months after a return to work but simply wishing to get a lead on the situation. I was shocked when I received a reassessment of my 1999 income tax return informing me that the claim I made for the installment I paid in 1998 was not valid and as a result I was in debt to Revenue Canada for nearly $1200.00. This situation is tearful; I was acting in such good faith and on what we rely to be proper advice.
I explained to the person I spoke to about the reassessment that I was acting on the advice of Revenue Canada Tax Officials when I made the claim and asked what can be done when someone like me gets in such an unfair situation. This resulted in me filing an Objection of Appeal and also writing my Member of Parliament in the hope of seeing fairness done. To date, I have received an enormous amount of sympathy from all but no one seems to be able to do anything to resolve the situation to my satisfaction. Still hoping for a fair settlement, I am asking the Tax Court of Canada to hear my case.
Surely, there must be room in the laws of this land for a situation like mine to be made right. Please near my plea.
[4] On September 4, 1998 he paid $2,470.25 as a contribution in respect of 1998 to his registered pension plan with the teachers' pension plan of the Department of Education of the Government of Newfoundland and Labrador. The salary replacement insurance payments that he was receiving were evidently not taxable and so he had no income in 1998 against which he could deduct the payments. He made the payment in 1998 on the basis of advice from the official of CCRA. He was informed that he could deduct in 1999 the payment made in 1998. He would not have made the payment in 1998 had he known the he could not deduct it in 1999. This is a clear case of detrimental reliance.
[5] He made the balance of the payment for 1998 on February 19, 1999, in the amount of $1,853.48. The deduction of this amount was not challenged by the CCRA and it is conceded by the respondent that if he had paid the $2,470.25 in 1999 it would have been allowed as a deduction.
[6] The provisions under which the deduction may be made are paragraph 8(1)(m) and subsection 147.2(4) of the Income Tax Act.
[7] Paragraph 8(1)(m) reads
8(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
...
(m) the amount in respect of contributions to registered pension plans that, by reason of subsection 147.2(4), is deductible in computing the taxpayer's income for the year.
[8] Subsection 147.2(4) reads
(4) There may be deducted in computing the income of an individual for a taxation year ending after 1990 an amount equal to the total of
(a) the total of all amounts each of which is a contribution (other than a prescribed contribution) made by the individual in the year to a registered pension plan that is in respect of a period after 1989 or that is a prescribed eligible contribution, to the extent that the contribution was made in accordance with the plan as registered,
(b) the least of
(i) the amount, if any, by which
(A) the total of all amounts each of which is a contribution (other than an additional voluntary contribution or a prescribed contribution) made by the individual in the year or a preceding taxation year and after 1945 to a registered pension plan in respect of a particular year before 1990, if all or any part of the particular year is included in the individual's eligible service under the plan and if
(I) in the case of a contribution that the individual made before March 28, 1988 or was obliged to make under the terms of an agreement in writing entered into before March 28, 1988, the individual was not a contributor to the plan in the particular year, or
(II) in any other case, the individual was not a contributor to any registered pension plan in the particular year
exceeds
(B) the total of all amounts each of which is an amount deducted, in computing the individual's income for a preceding taxation year, in respect of contributions included in the total determined in respect of the individual for the year under clause (A),
(ii) $3,500, and
(iii) the amount determined by the formula
($3,500 x Y) - Z
where
Y is the number of calendar years before 1990 each of which is a year
(A) all or any part of which is included in the individual's eligible service under a registered pension plan to which the individual has made a contribution that is included in the total determined under clause (i)(A) and in which the individual was not a contributor to any registered pension plan, or
(B) all or any part of which is included in the individual's eligible service under a registered pension plan to which the individual has made a contribution
(I) that is included in the total determined under clause (i)(A), and
(II) that the individual made before March 28, 1988 or was obliged to make under the terms of an agreement in writing entered into before March 28, 1988, and in which the individual was not a contributor to the plan, and
Z is the total of all amounts each of which is an amount deducted, in computing the individual's income for a preceding taxation year,
(A) in respect of contributions included in the total determined in respect of the individual for the year under clause (i)(A), or
(B) where the preceding year was before 1987, under subparagraph 8(1)(m)(ii) (as it read in its application to that preceding year) in respect of additional voluntary contributions made in respect of a year that satisfies the conditions in the description of Y, and
(c) the lesser of
(i) the amount, if any, by which
(A) the total of all amounts each of which is a contribution (other than an additional voluntary contribution, a prescribed contribution or a contribution included in the total determined in respect of the individual for the year under clause (b)(i)(A)) made by the individual in the year or a preceding taxation year and after 1962 to a registered pension plan in respect of a particular year before 1990 that is included, in whole or in part, in the individual's eligible service under the plan
exceeds
(B) the total of all amounts each of which is an amount deducted, in computing the individual's income for a preceding taxation year, in respect of contributions included in the total determined in respect of the individual for the year under clause (A), and
(ii) the amount, if any, by which $3,500 exceeds the total of the amounts deducted by reason of paragraphs (a) and (b) in computing the individual's income for the year.
[9] I have set out this rather complicated subsection in its entirety to demonstrate that no matter how hard one struggles to reach a different conclusion, Mr. Moulton's payment in 1998 for the 1998 taxation year is deductible only in 1998 and not later. In other words, he must fall under paragraph (a). That paragraph has to do with a payment in respect of a period after 1989 and the deduction for a taxation year must be of a payment made in the year.
[10] This may be contrasted with paragraphs (b) and (c) which deal with payments made in respect of a year prior to 1990. Such payments are deductible in the year if made in that year or in a preceding taxation year.
[11] The appellant argues with great conviction that he should be entitled to rely on advice given by the CCRA and relied upon by him in good faith. I agree that the result may seem a little shocking to taxpayers who seek guidance from government officials whom they expect to be able to give correct advice. Unfortunately such officials are not infallible and the court cannot be bound by erroneous departmental interpretations. Any other conclusion would lead to inconsistency and confusion. The only response I can make to what the appellant undoubtedly sees as an unsatisfactory state of affairs is what I said in S. Goldstein v. Canada, [1995] 2 C.T.C. 2036 at pp. 2045-6.
I come next to the question of estoppel.
There is much authority relating to the question of estoppel in tax matters and no useful purpose would be served by yet another review of the cases. I shall endeavour however to set out the principles as I understand them, at least to the extent that they are relevant. Estoppels come in various forms—estoppel in pais, estoppel by record and estoppel by deed. In some cases reference is made to a concept of "equitable estoppel", a phrase which may or may not be accurate. (See Canadian Pacific Railway Co. v. The King, [1931] A.C. 414 at page 429. Cf. Central London Property Trust Ltd. v. High Trees House Ltd., [1947] 1 K.B. 130.) It is sufficient to say that the only type of estoppel with which we are concerned here is estoppel in pais. In Canadian Superior Oil Ltd. v. Paddon-Hughes Development Co., [1970] S.C.R. 932 at pages 939-40 Martland J. set out the factors giving rise to an estoppel as follows:
The essential factors giving rise to an estoppel are I think:
(1) A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made.
(2) An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made.
(3) Detriment to such person as a consequence of the act or omission.
Estoppel is no longer merely a rule of evidence. It is a rule of substantive law.3 Lord Denning calls it "a principle of justice and of equity". (See Moorgate Mercantile Co. v. Twitchings, [1976] 1 Q.B. 225, at page 241.)
It is sometimes said that estoppel does not lie against the Crown. The statement is not accurate and seems to stem from a misapplication of the term estoppel. The principle of estoppel binds the Crown, as do other principles of law. Estoppel in pais, as it applies to the Crown, involves representations of fact made by officials of the Crown and relied and acted on by the subject to his or her detriment.4 The doctrine has no application where a particular interpretation of a statute has been communicated to a subject by an official of the government, relied upon by that subject to his or her detriment and then withdrawn or changed by the government. In such a case a taxpayer sometimes seeks to invoke the doctrine of estoppel. It is inappropriate to do so not because such representations give rise to an estoppel that does not bind the Crown, but rather, because no estoppel can arise where such representations are not in accordance with the law. Although estoppel is now a principle of substantive law it had its origins in the law of evidence and as such relates to representations of fact. It has no role to play where questions of interpretation of the law are involved, because estoppels cannot override the law.5
The question of the interpretation of paragraph 146(1)(c) is a matter of law and I must decide it in accordance with the law as I understand it. I cannot avoid that obligation because the Department of National Revenue may previously have adopted an interpretation different from that which it now propounds. The question is not whether the Crown is bound by an earlier interpretation upon which a taxpayer has relied. It is more to the point to say that the courts, who have an obligation to decide cases in accordance with the law, are not bound by representations, opinions or admissions on the law expressed or made by the parties.6
The result of the application of the rule in Maritime Electric and the many other cases to the same effect can have, in particular cases, unfortunate consequences for a taxpayer who, in good faith, relies upon a departmental interpretation that is subsequently changed. Nonetheless it is not in the interests of justice that the courts should be fettered by erroneous interpretations of the law by departmental officials.7
______________________
3Halsbury's Laws of England, 4th ed. vol. 16, page 840, paragraph 951.
4Robertson v. Minister of Pensions, [1949] 1 K.B. 227; The Queen v. Langille, [1977] C.T.C. 144, 77 D.T.C. 5086. The earlier cases are fully reviewed by Cameron J. in Woon v. M.N.R., [1950] C.T.C. 263, 50 D.T.C. 871.
5Maritime Electric Co. v. General Dairies Ltd., [1937] A.C. 610; M.N.R. v. Inland Industries Ltd., [1972] C.T.C. 27, 72 D.T.C. 6013 (S.C.C.); Stickel v. M.N.R., [1972] C.T.C. 210, 72 D.T.C. 6178 (F.C.T.D.); [1973] C.T.C. 202, 73 D.T.C. 5178 (F.C.A.); [1974] C.T.C. 416, 74 D.T.C. 6268 (S.C.C.); Granger v. Canada (Employment and Immigration Commission), [1986] 3 F.C. 70, 29 D.L.R. (4th) 501; [1989] 1 S.C.R. 141, 91 N.R. 63.
6C.(G.) v. V.-F.(T.), [1987] 2 S.C.R. 244, 9 R.F.L. (3d) 263, at pages 257-58 (S.C.R.); Custom Glass Ltd. v. M.N.R., [1967] C.T.C. 289, 67 D.T.C. 5207 (Ex. Ct.), at page 294 (D.T.C. 5210); L.I.U.N.A. Local 527 Members' Training Trust Fund v. Canada, [1992] 2 C.T.C. 2410, 92 D.T.C. 2365 (T.C.C.), at page 2415 (D.T.C. 2369).
7I leave aside entirely the question of advance rulings which form so important and necessary a part of the administration of the Income Tax Act. These rulings are treated by the Department of National Revenue as binding. So far as I am aware no advance ruling that has been given to a taxpayer and acted upon has ever been repudiated by the Minister as against the taxpayer to whom it was given. The system would fall apart if he ever did so.
[12] The result, unsatisfactory as it may seem, is reminiscent of one that arose in Watanabe v. R., [1999] 2 C.T.C. 2962. The appellant was, as here, a teacher. She communicated on several occasions with the Department of National Revenue and was assured she could deduct past service contributions. On reassessment the deduction was denied. I said at pp. 2964-5:
Notwithstanding the waiver of interest, the situation remains highly unsatisfactory for a number of reasons. In the first place, if she is not entitled to deduct the past-service payments that she made to the RPP, she will nonetheless be required to include the same amount in income under paragraph 56(1)(a) when it is paid to her out of the RPP as a pension benefit. Her apprehension of double taxation is well founded. Moreover, while it is true that she may, assuming no further change in the legislation, be able to deduct the payments in future years, this cannot happen until her current contributions to her RPP are less than $3,500. As a practical matter this will hot happen until she retires in a number of years and at that time she will presumably be in a lower income tax bracket.
It is obviously beyond my jurisdiction to order the Minister to obtain a remission under the Financial Administration Act. However, I can express the view that this would be a very appropriate case for him to do so. Otherwise, I cannot assist the appellant. I presume there is no need for me to refer the matter back to permit the Minister to implement his agreement to cancel the interest assessed.
[13] The same observation can be made here. The result is particularly unfortunate when one considers that the amount is not deductible when paid but it is certainly taxable when it comes out of the pension plan. Apart from suggesting a remission under the Financial Administration Act, as I did in Watanabe, there is nothing I can do and I must regretfully dismiss the appeal.
Signed at Toronto, Canada, this 8th day of February 2002.
|
"D.G.H. Bowman" |
A.C.J.
COURT FILE NO.: 2001-2666(IT)I
STYLE OF CAUSE: Between Gary Moulton and
Her Majesty the Queen
PLACE OF HEARING: St. John's, Newfoundland
DATE OF HEARING: January 16, 2002
REASONS FOR JUDGMENT BY: The Honourable D.G.H. Bowman
Associate Chief Judge
DATE OF JUDGMENT: February 8, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Cecil Woon, Esq.
John Bodurtha, Esq.
COUNSEL OF RECORD:
For the Appellant:
Name: --
Firm: --
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2666(IT)I
BETWEEN:
GARY MOULTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 16, 2002 at St. John's, Newfoundland, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Cecil Woon, Esq.
John Bodurtha, Esq.
JUDGMENT
It is ordered that the appeal from the assessment made under the Income Tax Act for the 1999 taxation year be dismissed.
Signed at Toronto, Canada, this 8th day of February 2002.
|
"D.G.H. Bowman" |
A.C.J.