Tax Court of Canada


Tax

Income tax

Administration and enforcement

Distributions not needing legal character of death benefits to be classified as such for tax purposes

Taxpayers E, K, M and S were all in receipt of benefits payable under former pension plan of N Corp. which became insolvent and received payments from trust set up by N Corp. to cover health and welfare claims. E and K had insurance benefits and M and S death benefits. Taxpayers filed their income tax returns for 2011 on basis that distributions were income but later filed Notices of Objection taking position that distributions were not taxable. Assessments were confirmed and taxpayers appealed. Minister sought to introduce affidavit with copies of 2011 T3 return filed by trust and 2011 Trust Notice of Assessment issued to trust. Appeals allowed for E and K; appeal allowed in part for M; appeal dismissed for S. Affidavit inadmissible under general exclusion under s.89(1) of Income Tax Rules. No indication that Minister used T3 return in assessing taxpayers. Trust not given notice of intention to introduce trust’s confidential taxpayer information as evidence. Trust provisions of Income Tax Act (ITA) not determinative of appeals. As specific provisions did not capture distributions paid in 2011 by trust to E and K, s.6(1)(a) of ITA could not be used to fill in the gaps left by subsection 6(4) and Part XXVII or to sweep distributions into incomeGiven that orders provided that interim distributions were to be made “on account of” Income Benefits distributions came within s.56(1)(a)(iii) of ITA, as amount received on account of death benefit. Amounts of distributions to S and M calculated on understanding that amounts would partially replace, or be in lieu of, death benefits that would have been paid. Distributions did not need to have legal character of death benefits in order to come within s.56(1)(a)(iii) of ITA. Assessment of M referred back to Minister on basis that amount of 2011 distribution to be included in computing her income for 2011 was $6,152.42 and not $6,438.39.

Scott v. The Queen (2017), 2017 CarswellNat 6488, 2017 TCC 224, Don R. Sommerfeldt J. (T.C.C. [General Procedure]).

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