PANAYIOTA ARGYRIOU, Appellant, v. HER MAJESTY THE QUEEN,, 2003 TCC 188

Docket: 2000-5154(IT)I BETWEEN: PANAYIOTA ARGYRIOU, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeals determined from written submissions of the parties by the Honourable Judge Campbell J. Miller Participants: For the Appellant: The Appellant herself Counsel for the Respondent: Jade Boucher ____________________________________________________________________ JUDGMENT The appeals from assessments of tax made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed. Signed at Ottawa, Canada, this 3rd day of April, 2003.

"Campbell J. Miller" J.T.C.C. Citation: 2003TCC188 Date: 20030403 Docket: 2000-5154(IT)I BETWEEN: PANAYIOTA ARGYRIOU, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Miller J. [ 1 ] Panayiota Argyriou appeals, by way of informal procedure, the assessments of the Minister of National Revenue (the Minister) of her 1997 and 1998 taxation years, on the basis that

section 217 of the Income Tax Act (the Act ) was improperly applied to her circumstances. The relevant facts the parties agreed upon are as follows: (

a) The Appelant was a resident of Greece and a non-resident of Canada during the 1997 and 1998 taxation years; (

b) In 1997 and 1998, the Appellant received Canada Pension Plan (CPP) benefits in the amounts of $7,722 and $7,869, respectively. ...; (

c) In 1997 and 1998, the Appellant also received Worker's Compensation payments from the Workplace Safety and Insurance Board in the amounts of $12,562 and $12,617, respectively; (

d) In filing her returns of income for the relevant taxation years, the Appellant elected to have

section 217 of the Income Tax Act (the Act) apply, resulting in paying tax under

Part I of the Act rather than

Part XIII; (

e) The Appellant calculated her net world income for the 1997 and 1998 taxation years as follows: 1997 1998 Net income per T1 Return $20,284 $20,486 Net Foreign Source Pension Income 850 1,364 Deduction of Worker's Compensation Payments 12,562 12,617 Net World Income $ 8,572 $ 9,233 (

f) By Notices of Assessment dated June 22, 1998 and May 10, 1999, ... the Minister of National Revenue (the Minister) in assessing as he did, calculated the Appellant's net world income for the 1997 and 1998 taxation years as follows:

1997 1998 Net income per T1 Return $ 7,722 $ 7,869 Other Canadian source of income Worker's Compensation Payments 12,562 12,617 Net Foreign Source Pension Income 850 1,364 Net World Income $21,134 $21,850 (

g) In assessing as he did, the Minister calculated the

Part I tax payable of the Appellant according to

section 217 of the Act as follows: Taxation year 1997 : $1,413.30 Notice of Assessment dated June 22, 1998; Taxation year 1998: $1,373.10 Notice of Assessment dated May 10, 1999; (

h) The Appellant objected to the assessments by way of Notice of Objection, dated September 22, 1999, ...; (

i) By way of Notices of Confirmation, dated August 2, 2000, ... the Minister confirmed the 1997 and 1998 assessments. [ 2 ] The issue is whether the Minister properly calculated the Appellant's tax liability pursuant to

section 217 by including Worker's Compensation benefits in the determination of the Appellant's taxable income earned in Canada. The Appellant argues: I receive Workers' Compensation benefits that are not taxable . However, the treatment of these benefits on the tax return (included as world income on

schedule A and not deducted on line 15 of the same schedule) for 1997 and 1998, results in a higher tax liability. This differential treatment for the non-residents penalizes them instead of enhancing the ability to use the full personal exemption. I am of the opinion that the spirit of the law, by giving these benefits tax-free, was to help workers for the injury they suffer since they cannot work. My case does not refer to any other type of "Canadian benefits" on which I would have definitely paid income taxes.

Again, the question is whether or not Workers' Compensation benefits should be taxed, directly or indirectly, as in my case. The Respondent argues: 6. A 217(2) election allows a taxpayer to be taxed under

Part I of the Act with respect to Canadian source income. Merrins V. Canada , [2002] T.C.J. No. 336 (Q.L.) at page 8, paragraph 27 , An application for judicial review was filed in the Federal Court of Appeal . 7. Without the election, a non-resident's "Canadian benefits" are subject to

Part XIII withholding tax under paragraphs 212(1) (h) , (

j) to (

m) and (

q) of the Act . The 217 election gives the non-resident taxpayer access to non-refundable tax credits in

section 118, which may reduce their tax payable. Yaremy v. Canada , [1994] T.C.J. No. 591 (Q.L.) at page 1, paragraph 1 . 8. Subsection 217(1) defines "Canadian benefits" in reference to the withholding provisions under subsection 212(1) of the Act as follows: 217.

(1) In this section, a non-resident person's "Canadian benefits" for a taxation year is the total of all each of which is an amount paid or credited in the year and in respect of which tax under this Part would, but for this section, be payable by the person because of any of paragraphs 212(1) (h) , 212(1) (

j) to 212(1) (

m) and 212(1) (q) . 9. Pension and superannuation benefits, Employment Insurance benefits, retiring allowances and RRSP payments, but not Workers' Compensation benefit amounts, are included in the definition of "Canadian benefits". 10. Amendments to

section 217 made in 1997 and applicable to 1997 and subsequent taxation years, included Worker's Compensation benefit amounts when calculating a non-resident's "Taxable Income Earned in Canada" ("TIEC"). Under subsection 217(3), a person's TIEC is deemed to be the greater of the two amounts: (A) 217(3) (b) (i): the first amount is the non-resident's TIEC included under subsection 115(1), taking into account the non- resident's "Canadian Benefits".

In this case of the Appellant, her TIEC for the 1997 and 1998 taxation years is equal to the amounts she received under the CPP for those years, $7,722 and $7,869 respectively. (B) 217(3) (b) (ii): the second amount deems the non-resident's world income as the TIEC. In the case of the Appellant, in addition to the CPP amounts, her Worker's Compensation benefit amounts and net foreign source pension income also form part of the net world income for a TIEC total of $21,134 and $21,850 for the 1997 and 1998 taxation years respectively. Canadian Tax Reporter, Volume 5A, CCH Canadian Limited, page 24, 324.

11. Paragraph 217(3) (

b) requires the use of the greater of the two amounts, and as a result, the Appellant's TIEC for the 1997 and 1998 taxation years are $21,134 and $21,850 respectively. These are the amounts used by the Minister of National Revenue in determining the rate of tax applicable. 12. While subparagraph 217(3) (b) (ii) takes into account the Appellant's Worker's Compensation benefits and the foreign source pension income, the Minister applied a special credit under subsection 217(6) to exclude those two amounts. Canada Tax Service, Stikeman, Volume 12, Election Respecting Certain Payments, p. 217-108. 13.

Accordingly, the Respondent submits that the Minister of National Revenue assessed the Appellant in accordance with subparagraph 217(3) (b) (ii) and properly included the Appellant's Worker's Compensation benefit amounts when determining the Appellant's taxable income earned in Canada for the relevant taxation years. [ 3 ] The applicable legislation reads as follows: 217(1) In this section, a non-resident person's "Canadian benefits" for a taxation year is the total of all amounts each of which is an amount paid or credited in the year and in respect of which tax under this Part would, but for this section, be payable by the person because of any of paragraphs 212(1) (h) , (

j) to (

m) and (q) .

(2) No tax is payable under this

Part in respect of a non-resident person's Canadian benefits for a taxation year if the person (

a) files with the Minister, within 6 months after the end of the year, a return of income under

Part I for the year; and (

b) elects in the return to have this

section apply for the year.

(3) Where a non-resident person elects under paragraph (2) (

b) for a taxation year, for the purposes of

Part I (

a) the person is deemed to have been employed in Canada in the year; and (

b) the person's taxable income earned in Canada for the year is deemed to be the greater of (

i) the amount that would, but for subparagraph (ii), be the person's taxable income earned in Canada for the year if (A) paragraph 115(1) (

a) included the following subparagraph after subparagraph (i): "(i.1) the non-resident person's Canadian benefits for the year, within the meaning assigned by subsection 217(1),", and (B) paragraph 115(1) (

f) were read as follows: "(

f) such of the other deductions permitted for the purpose of computing taxable income as can reasonably be considered wholly applicable to the amounts described in subparagraphs (a) (

i) to (vi)."; and (ii) the person's income (computed without reference to subsection 56(8)) for the year minus the total of such of the deductions permitted for the purpose of computing taxable income as can reasonably be considered wholly applicable to the amounts described in subparagraphs 115(1) (a) (

i) to (vi).

(4) Sections 118 to 118.91 and 118.94 do not apply in computing the tax payable under

Part I for a taxation year by a non-resident person who elects under paragraph (2) (

b) for the year, unless (

a) where

section 114 applies to the person for the year, all or substantially all of the person's income for the year is included in computing the person's taxable income for the year; or (

b) in any other case, all or substantially all of the person's income for the year is included in computing the amount determined under subparagraph (3) (b) (

i) in respect of the person for the year.

(5) In computing the tax payable under

Part I for a taxation year by a non-resident person to whom neither paragraph (4) (

a) nor paragraph (4) (

b) applies for the year there may, notwithstanding

section 118.94 and subsection (4), be deducted the lesser of (

a) the total of (

i) such of the amounts that would have been deductible under any of

section 118.2, subsections 118.3(2) and (3) and sections 118.6, 118.8 and 118.9 in computing the person's tax payable under

Part I for the year if the person had been resident in Canada throughout the year, as can reasonably be considered wholly applicable, and (ii) the amounts that would have been deductible under any of sections 118 and 118.1, subsection 118.3(1) and sections 118.5 and 118.7 in computing the person's tax payable under

Part I for the year if the person had been resident in Canada throughout the year, and (

b) the appropriate percentage for the year of the person's Canadian benefits for the year.

(6) In computing the tax payable under

Part I for a taxation year by a non-resident who elects under paragraph (2) (

b) for the year, there may be deducted the amount determined by the formula A x [(B - C) / B] where

A is the amount of tax under

Part I that would, but for this subsection, be payable by the person for the year; B is the amount determined under subparagraph (3) (b) (ii) in respect of the person for the year; and C is the amount determined under subparagraph (3) (b) (

i) in respect of the person for the year. Although the Respondent has provided an

interpretation of these provisions in argument, I want to attempt to express it as concisely as possible for the Appellant. The

section is meant to tax only the Appellant's CPP income. The tax on that income however is determined by figuring out the tax as if all the Appellant's world income was subject to

Part I tax. Then, the tax is reduced by a credit equivalent to the percentage of the CPP income to the total world income.

This effectively taxes the CPP income at a higher rate than if only the CPP income had been included in the determination of tax. [ 4 ] By way of example, using the 1997 figures, the mathematical calculation goes something like this: Total Income $21,134 Multiplied by tax rate of 17% yields tax of 3,593 Subtract personal credits 1,098 Federal tax before subsection 217(6) credit 2,495 Subtract subsection 217(6) special tax credit (2,495 x 21,134 - 7,722 ¸21,134 =) 1,583 Tax before surtax 912 Surtax for non-residents of 52% 474 Tax 1386 Federal surtax of 3% of $912 27 Total tax $1,413 [ 5 ] I am satisfied the Respondent has made the correct calculation in accordance with

section 217 for both 1997 and 1998, if the Worker's Compensation payments are considered income. As Worker's Compensation payments are specifically included in income pursuant to paragraph 56(1)(v), they must be included in income for purposes of the calculation pursuant to subparagraph 217(3) (b) (iii). The effect is that Worker's Compensation income is not taxed directly, but the calculation results in the tax on the CPP income at something higher than the 17 per cent marginal rate. While this means ultimately less tax liability than the withholding liability pursuant to

Part XIII, it does not provide as much of a tax break as the Appellant felt was warranted by the "spirit of the law". While there are opportunities in tax cases to address the spirit or policy of legislation, regrettably this is not one of them. There is no ambiguity, though there is some complexity, in the legislation at issue. There is no opportunity in this case to look beyond that clear meaning. When applied to the Appellant's situation it yields the result claimed by the Respondent. The Appellant looks on this as indirectly taxing the Worker's Compensation payments.

It is not difficult to see why she would think so, as in going through the calculation, it is clear that the Worker's Compensation payments are taxed, but then the tax is subject to a credit, hypothetically intended to carve out the portion of tax related to the Worker's Compensation payments. To Ms. Argyriou this must at best seem imperfect, and at worst unfair. It is, however, how the provision works. [ 6 ] I dismiss the appeals. Signed at Ottawa, Canada, this 3rd day of April, 2003. "Campbell J. Miller" J.T.C.C.

CITATION: 2003TCC188 COURT FILE NO.: 2000-5154(IT)I STYLE OF CAUSE: Panayiota Argyriou and Her Majesty the Queen PLACE OF HEARING: DATE OF HEARING: REASONS FOR JUDGMENT BY: The Honourable Judge Campbell J. Miller DATE OF JUDGMENT: April 3, 2003 PARTICIPANTS: For the Appellant: The Appellant herself Counsel for the Respondent: Jade Boucher COUNSEL OF RECORD: For the Appellant:

Name: N/A Firm: N/A For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada