Date: 20010803

Docket: 1999-566-IT-I, 1999-568-IT-I

BETWEEN:

EDWARD LEVERT, JACQUELINE LEVERT,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Hamlyn, J.T.C.C.

[1]            These are appeals for Edward Levert (the "Appellant") for the 1994, 1995 and 1996 taxation years. It is also the appeal of Jacqueline Levert, the Appellant's spouse, for the 1996 taxation year. Her appeal was heard by way of common evidence with the appeals of Edward Levert. Jacqueline Levert's appeal is contingent on the appeal of the Appellant, Edward Levert, as it relates to her 1996 taxation year entitlement of the Goods and Services Tax credit in accordance with section 122.5 of the Income Tax Act[1].

[2]            In computing income for the 1994, 1995 and 1996 taxation years, the Appellant did not include into income any amounts received from the United Steel Workers of America Staff Pension Plan (hereinafter referred to as the "Pension Plan") as or on account of pension benefits out of a pension fund or plan.

[3]            In reassessing the Appellant for the 1994, 1995 and 1996 taxation years on January 6, 1998, the Minister, inter alia, included into income the amounts of $19,526.00 for 1994, $19,623.00 for 1995 and $19,494.00 for 1996 as pension income.

[4]            The Appellant appealed this reassessment.

[5]            In reassessing the Appellant, the Minister made the following assumptions of fact:

(a)            the Appellant is a resident of Canada;

(b)            the Appellant's date of birth is August 7, 1927;

(c)            in or about 1986 the Appellant became disabled;

(d)            the Appellant commenced to receive disability benefits from the Pension Plan on or about June 1, 1986;

(e)            the Pension Plan provides that participants are no longer eligible to receive disability benefits under the Pension Plan once the participant reaches the age of 60;

(f)             upon reaching the age of 60, the Pension Plan provides that participants would receive an unreduced early retirement pension;

(g)            upon reaching the age of 60, the Appellant commenced to receive pension benefits from the Pension Plan;

(h)            the Appellant received the amounts of $19,526.00 in 1994, $19,623.00 in 1995 and $19,494.00 in 1996 from the Pension Plan;

(i)             the amounts paid out of the Pension Plan as stated in paragraph 12(h) above were paid out and received by the Appellant in each year as pension benefits;

(j)             the pension benefits received by the Appellant from the Pension Plan in the 1994, 1995 and 1996 taxation years would not have been excluded from taxable income under the laws of the United States of America, if the Appellant was a resident thereof.

ISSUE

[6]            The issue is whether the Minister properly included into income the amounts of $19,526.00, $19,623.00, and $19,494.00 for the 1994, 1995, and 1996 taxation years respectively, as pension income.

THE APPELLANT'S POSITION

[7]            The Appellant's position from the Notice of appeal is:

The Appellant, Mr. Levert receives and has received in each of the taxation years, disability payments pursuant to the terms and conditions of the United Steel Workers of America Staff Pension Plan (the "Plan") dated January 1, 1949, as amended August 1, 1980. His rights regarding this disability pension vested at the time of its commencement and are not altered by any later provisions in this Pension Plan. A reassessment was carried out by Revenue Canada, on the basis that the entire amount of income received from both plans was tax exempt, pursuant to the Canada/United States Income Tax Convention (1980) (the "Tax Treaty") and Section 105(c) of the Internal Revenue Code of the United States (the "Code"). Pursuant to the provisions of the Pension Plan, he receives a disability payment of approximately $18,000.00 per year. Payments were made from the Union National Bank of Pittsburgh, which acted as Trustee under the Agreement. Mr. Levert also received an additional payment for the Permanent and Total Disability Benefit (PTD) under the group term life insurance plan provided to the USWA by the Continental Assurance Company. The latter benefit expired some time ago.

The Canada-U.S. Tax Treaty provides that the tax treatment in Canada of a payment that originates in the United States shall not exceed the amount that the United States would tax.

...

                In the present circumstances, Mr. Levert receives disability payments from the United States, pursuant to his previous employment with the USWA. If Mr. Levert was a resident of the United States, he would be entitled to claim exemption pursuant to the relevant section of the Code. Accordingly, under the provisions of the Tax Treaty and the provisions of the U.S. Code, Mr. Levert's disability payments are not taxable.

                Relevant documentation regarding a review and analysis undertaken in 1990, including the notes which would have been made by Revenue Canada are no longer available as they have been destroyed by Revenue Canada. Notwithstanding this, Revenue Canada has placed the onus on the taxpayer to re-establish the applicability of the U.S. tax exemption. The destruction of this evidence by Revenue Canada amounts to spoliation of evidence.

THE EVIDENCE

[8]            The Appellant, Edward Levert, was born in 1927. From the early 1960s, he was employed as a union representative. His final employer was the United Steelworkers of America. In 1986, he commenced to receive a disability pension from the United Steelworkers of America Staff Pension Plan. The Appellant's identified disability was limited vision in his left eye and complete blindness in his right eye. Pursuant to the Pension Plan the Appellant received payments (converted to Canadian dollars) in the amounts of $19,526.00, $19,623.00 and $19,494.00 for the 1994, 1995 and 1996 taxation years respectively. The Appellant has never been taxed with respect to the disability pension of the United Steelworkers of America.

[9]            The disability payment is made up of two parts:

(i)                    a permanent and total disability benefit under the group term life insurance provided to the United Steelworkers of America by the "Continental Assurance Company" ($400.00 U.S. per month)[2] and

(ii)            a disability pension paid by the United Steelworkers of America through a trustee.

[10]          The Minister of National Revenue originally proposed to reassess the Appellant with respect to the disability payments paid to the Appellant for the 1987 taxation year[3]. After some discussion a reassessment followed.

[11]          For this initial reassessment the Appellants' son, Daniel Levert, who is also a Canadian lawyer, represented and negotiated on behalf of the Appellant through the objection stage.

[12]          The result of these negotiations was a further reassessment[4] wherein the Appellant was refunded $21,143.06 and both disability pensions were found to be not taxable in Canada.

[13]          The evidence given at this hearing comes primarily from the documents and facts adduced and used to support the Appellant's submission at the prior objection stage. This evidence was from two witnesses, the Appellant and the Appellants' son, Daniel Levert. This viva voce evidence incorporated the extracted references from the following correspondence identified below.

[14]          A letter to the Appellants' son from the United States Department of the Treasury Internal Revenue Service dated 5-11-90 (David Wind, Technical Dept.)[5]:

...the disability pension payments your father is receiving are not taxable in the U.S. I have enclosed the appropriate code & regulations to support this position.

[15]          Letter to the Appellants' son from the United Steelworkers of America dated May 16, 1990 signed by Paul K. Janus, Assistant Personnel Administrator[6]:

                Your father, Edward Levert, is in receipt of a disability pension from the United Steelworkers of America Staff Pension Trust Fund. This disability pension was awarded to your father by the United Steelworkers of America Staff Pension Trust Committee based upon the medical evidence submitted at the time of his disability application and upon the disability benefits award of the Canada Pension Plan.

                The amount of your fathers disability pension under our Staff Pension Plan is based on the fact of his disability, his final average salary, and his years of service, as provided by the Staff Pension Plan. This disability pension is payable for life.

                The amount of your fathers disability pension is not based on the period that the disabled participant is absent or is expected to be absent from work.

...

c: Revenue Canada - Taxation

[16]          Letter to the Appellant from the United Steelworkers of America dated May 24, 1990 signed by Paul K. Janus, Assistant Personnel Administrator[7]:

                Please be advised that you are in receipt of a permanent and total disability (PTD) benefit under the group term life insurance provided to the United Steelworkers of America by the Continental Assurance Company (CNA Insurance). This PTD benefit was approved by CNA Insurance based upon the medical evidence submitted to them at the time of your application for such PTD benefit.

                The amount of your PTD benefit, $400 per month, is the maximum monthly benefit under our policy. The monthly benefit will continue until 60% of your life insurance is paid out.

...

[17]          Letter to United States of America, Department of the Treasury, Internal Revenue Service dated 6-22-90 signed by Dave Wind, Technical Dept.[8]:

I have received your letter of 5-31-90 & the letter from Paul Janus of the USWA. This disability benefit would also be exempt from U.S. tax if it meets the necessary conditions (see attached) I have forwarded this information to Debbie Ferguson of Revenue Canada Taxation.

...

[18]          Letter to Revenue Canada from United States of America, Department of the Treasury Internal Revenue Service dated 8-7-90 signed by Dave Wind, Technical Dept.[9]:

I recently received a letter from the United Steelworkers of America regarding a permanent and total disability benefit paid to Edward Levert. This benefit would also be exempt from U.S. tax under code section 105. ...

[19]          Part of the matters prior to this proceeding was a letter sent to the Appellants' son from Revenue Canada dated April 4, 1997. In that letter Tiina Wainman, C.A., an employee of Revenue Canada stated[10]:

In attempting to address this question, we have had discussions with the IRS and the USWA. Based on these discussions and our interpretation of this section, taking into consideration our understanding of the USWA plan, the payments received do not represent amounts received through accident or health insurance. Our understanding is that, for U.S. tax purposes, an accident or health insurance plan is very different from a pension plan that also provides for disability pension payments.

[20]          In a letter to the Appellants' son from the United Steelworkers of America dated April 10, 1997, Paul K. Janus, Assistant Personnel Administrator stated[11]:

                Your father, Edward Levert, remains in receipt of a disability pension from the United Steelworkers of America Staff Pension Trust Fund.

                The circumstances of your father's pension have not changed since he retired, that is, his USWA disability pension was awarded based upon the medical evidence submitted when he retired and upon the Canada Pension Plan disability award.

[21]          It is to be noted after the Appellant called evidence to support his position as set forth and that the Minister chose not to call any evidence. Yet the Minister indicated in Exhibit A-7 (the view of Tiina Wainman) that he had apparently information or evidence of a contrary view.

[22]          As previously noted, with respect to the burden of proof the Appellant has chosen to rebut the assumptions of the Respondent and to discharge the onus incumbent upon him by introducing documentary evidence successfully presented at the objection stage for earlier taxation years.

[23]          The evidentiary approach of the Appellant in this informal procedure was reasonable.

THE LEGISLATION

[24]          The pleadings in this proceeding indicate the Canada - U.S. Tax Convention, 1980[12] and the U.S. Internal Revenue Code[13] have not changed since 1990. The following are the relevant legislative provisions.

A. INTERNAL REVENUE CODE

Sec. 105 - Amounts received under accident and health plans.

...

(c)            Payments unrelated to absence from work.

Gross income does not include amounts referred to in subsection (a) to the extent such amounts --

(1)    constitute payment for the permanent loss or loss of use of a member or function of the body, or the permanent disfigurement, of the taxpayer, his spouse, or a dependent (as defined in section 152), and

(2)    are computed with reference to the nature of the injury without regard to the period the employee is absent from work.

B. THE CANADA-UNITED STATES TAX CONVENTION, 1980

Article XVIII - Pensions and Annuities

1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.

...

3. For the purposes of this Convention, the term "pensions" includes any payment under a superannuation, pension or retirement plan, Armed Forces retirement pay, war veterans pensions and allowances and amounts paid under a sickness, accident or disability plan, but does not include payments under an income averaging annuity contract or any benefit referred to in paragraph 5.

C. INCOME TAX ACT

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, without limiting the generality of the foregoing,

110. (1) Deductions permitted. — For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

...

(f) deduction for payments — any social assistance payment made on the basis of a means, needs or income test and included because of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) in computing the taxpayer's income for the year or any amount that is

(i) an amount exempt from income tax in Canada because of a provision contained in a tax convention or agreement with another country that has the force of law in Canada,

...

248. (1) Definitions. — 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 beneficiary 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;

D. Canadian Charter of Rights and Freedoms[14]

Guarantee of Rights and Freedoms

Rights and freedoms in Canada

1.              The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

Equality Rights

Equality before and under law and equal protection and benefit of law

15. (1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

Affirmative action programs

(2) Subsection (1) does not preclude any law, program or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

ANALYSIS

[25]          Under paragraph 56(1)(a) of the Income Tax Act the disability pension payment received by the Appellant is a pension benefit taxable in Canada but for subparagraph 110(1)(f)(i).

[26]          Subparagraph 110(1)(f)(i) provides for a deduction from Canadian taxable income for amounts that are exempt from income tax in Canada because of a provision contained in a tax convention with another country that has the force of law in Canada.

[27]          The Appellant is a resident of Canada in receipt of a disability pension arising in the United States of America. Thus, the Canada-United States Tax Convention, 1980, in force since August 16, 1984, applies to the tax treatment of the disability pension paid to the Appellant, Edward Levert, by the United Steelworkers of America.

[28]          Paragraph 1 of article XVIII of the Convention provides that pension payments arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State. Paragraph 3 of article XVIII of the Convention states that the term "pension" includes amounts paid under a sickness, accident or disability plan.

[29]          The evidence provided shows that under the Pension Plan[15] the Appellant received a disability pension under the incapacity section of his pension plan and that this part of the pension plan was a disability plan. Thus, article XVIII of the Convention applies to the disability pension payment in question.

[30]          The evidence also shows the payments received by the Appellant are excluded from taxation in the United States by virtue of section 105(c) of the Internal Revenue Code. Accordingly, the disability pension payments received by the Appellant are also excluded from taxation in Canada by virtue of article XVIII of the Convention.

[31]          Given this finding I will now consider the age issue that arose under the Minister's assumptions in the Reply and the Charter issue that arose as a consequence as noted in the Notice of Appeal.

[32]          The Minister's assumptions fundamental to the Minister's reassessment were the following from the Reply to the Notice of Appeal:

(e)            the Pension Plan provides that participants are no longer eligible to receive disability benefits under the Pension Plan once the participant reaches the age of 60;

(f)             upon reaching the age of 60, the Pension Plan provides that participants would receive an unreduced early retirement pension;

(g)            upon reaching the age of 60, the Appellant commenced to receive pension benefits from the Pension Plan;

[33]          During the course of the evidence it became quite clear there was no evidence to support these assumptions. There was no evidence whatsoever to show that participants, such as the Appellant, are no longer eligible to receive disability benefits under the Pension Plan once a participant reaches the age of 60.

[34]          These assumptions on the evidence were totally demolished. After the age of 60 the Appellant continued to be in receipt of a disability pension based on incapacity.

[35]          The Appellant also sought a ruling under the Canadian Charter of Rights and Freedoms that the Canada Customs and Revenue Agency has applied a discriminatory provision to the Appellant, Edward Levert, in that:

(a)                  His disability pension has not been taxed and is not taxable under the provisions of the Internal Revenue Code and the Tax Convention however solely because of age Canada Customs and Revenue would tax it.

(b)                  This differential treatment is based solely on age which is an enumerated ground under Section 15 of the Charter.

(c)                  This treatment has an effect that is substantively discriminatory.

[36]          As indicated, the pleaded assumption basis in relation to age from the Minister's Reply (paragraphs 12(e), (f) and (g) have been demolished by the Appellant as being factually incorrect. Therefore the Charter issue is no longer an issue.

CONCLUSION

[37]          The evidence shows that the Appellant has never been taxed by the United States of America on his receipt of a disability pension from the United Steelworkers of America. Moreover, the Internal Revenue Service reviewed the pensions payable to the Appellant and advised the Appellant and Revenue Canada that the disability pension received by the Appellant is not taxable in the United States of America by virtue of section 105(c) of the Internal Revenue Code[16].

[38]          The evidence also shows from 1990 onward nothing has changed respecting the disability pension received by the Appellant and nothing has changed affecting the taxation of disability pension in the Tax Convention, specifically Article XVIII.

[39]          The Appellant has discharged his onus and shown the Minister's assessment was incorrect. The Appellant has shown the subject disability pension is not taxable pursuant to article XVIII the Canada-United States Income Tax Convention, 1980 and subparagraph 110(1)(f)(i) of the Income Tax Act.

DECISION

[40]          The appeal is allowed and referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that disability provisions received from the United Steelworkers of America Staff Pension Plan is not taxable pursuant to the provisions of the Canada-United States Income Tax Convention Act, 1980 and the Income Tax Act.

[41]          With the allowance of the appeal of the Appellant, Edward Levert, it follows the appeal of Jacqueline Levert is allowed on the basis that she is entitled to the Goods and Service Tax Credit for the 1996 taxation year in accordance with section 122.5 of the Income Tax Act.

[42]          The Appellants are entitled to one set of costs.

Signed at Ottawa, Canada, this 3rd day of August 2001.

"D. Hamlyn"

J.T.C.C.

COURT FILE NO.:                                                 1999-566(IT)I

STYLE OF CAUSE:                                               Edward Levert and

                                                                                Her Majesty the Queen

PLACE OF HEARING:                         Moncton, New Brunswick

DATE OF HEARING:                           July 16, 2001

REASONS FOR JUDGMENT BY:      the Honourable Judge D. Hamlyn

DATE OF JUDGMENT:                       August 3, 2001

APPEARANCES:

Counsel for the Appellant: Priscilla Kennedy

Counsel for the Respondent:              John Bodurtha and

                                                                Cecil Woon

COUNSEL OF RECORD:

For the Appellant:                                                

Name:                      Priscilla Kennedy

Firm:                        Parlee McLaws

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                Ottawa, CanadaCOURT FILE NO.:     1999-568(IT)I

STYLE OF CAUSE:                               Jacqueline Levert and

                                                                Her Majesty the Queen

PLACE OF HEARING:         Moncton, New Brunswick

DATE OF HEARING:           July 16, 2001

REASONS FOR JUDGMENT BY:      the Honourable Judge D. Hamlyn

DATE OF JUDGMENT:       August 3, 2001

APPEARANCES:

Counsel for the Appellant: Priscilla Kennedy

Counsel for the Respondent:              John Bodurtha and

                                                                                Cecil Woon

COUNSEL OF RECORD:

For the Appellant:                

Name:                      Priscilla Kennedy

Firm:                        Parlee McLaws

                                                                                               

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

1999-566(IT)I

BETWEEN:

EDWARD LEVERT,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeal of Jacqueline Levert (1999-568(IT)I) on July 16, 2001 at Moncton, New Brunswick, by

the Honourable Judge D. Hamlyn

Appearances

Counsel for the Appellant:                    Priscilla Kennedy

Counsel for the Respondent:                John Bodurtha and

                                                          Cecil Woon

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 3rd day of August 2001.

"D. Hamlyn"

J.T.C.C.

1999-568(IT)I

BETWEEN:

JACQUELINE LEVERT,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on common evidence with the appeals of Edward Levert (1999-566(IT)I) on July 16, 2001 at Moncton, New Brunswick, by

the Honourable Judge D. Hamlyn

Appearances

Counsel for the Appellant:                    Priscilla Kennedy

Counsel for the Respondent:                John Bodurtha and

                                                          Cecil Woon

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1996 taxation years is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 3rd day of August 2001.

J.T.C.C.

"D. Hamlyn"

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