MABEL J. NICHOLAS, Appellant, v. HER MAJESTY THE QUEEN,, 2003 TCC 189

Docket: 2002-2983(IT)I BETWEEN: MABEL J. NICHOLAS, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal and motion heard on January 8, 2003 at Nanaimo, British Columbia Before: The Honourable Judge L.M.

Little Appearances: Agent for the Appellant: Benjamin Nicholas Counsel for the Respondent: Michael Taylor ____________________________________________________________________ JUDGMENT Upon motion by the Respondent for an Order seeking to quash the purported appeal filed for the 1997 taxation year on the ground that the Appellant failed to file a valid Notice of Objection pursuant to subsection 169(1) of the Income Tax Act : The purported appeal with respect to the 1997 taxation year is hereby quashed; The appeal from the assessment made under the Income Tax Act for the 2001 taxation year is dismissed, without costs, in accordance with the attached Reasons for Judgment.

Signed at Vancouver, British Columbia, this 3rd day of April 2003. "L.M. Little" J.T.C.C. Citation: 2003TCC189 Date: 20030403 Docket: 2002-2983(IT)I BETWEEN: MABEL J. NICHOLAS, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Little, J. A.

FACTS [ 1 ] The Appellant's former husband died in 1966 in an airplane crash while he was working for his employer. [ 2 ] For a short while the Appellant received a "survivor" pension from the Workers' Compensation Board of British Columbia ("WCB"). [ 3 ] After the Appellant married her current husband the survivor pension that was being paid to her by the WCB was discontinued. [ 4 ] In 1995-96 the Supreme Court of British Columbia heard an appeal from a person who had been denied survivor pension benefits from the WCB.

In the "other" case the British Columbia Supreme Court held that the denial of survivor pension benefits because of remarriage was discriminatory and in violation of the Charter of Rights and Freedoms .

As a result of this court decision the Appellant was advised that she was entitled to receive the unpaid portion of the survivor pension benefits from the WCB that had been discontinued at the time of the Appellant's remarriage. [ 5 ] The Appellant received a lump sum payment from the WCB in 1997. [ 6 ] The lump sum payment of $129,526.00 was included in the Appellant's net income for the 1997 taxation year pursuant to

section 56 of the Income Tax Act (the " Act ").

[ 7 ] For the purpose of determining taxable income the Appellant was allowed to deduct the lump sum payment of $129,526.00 pursuant to

section 110 of the Act . [ 8 ] Although the lump sum payment of $129,526.00 was deducted in determining the Appellant's taxable income the net effect of the original inclusion of the lump sum payment was to reduce the benefit payable to the Appellant under the Old Age Security Act and the age credit provided under subsection 118(2) of the Income Tax Act . [ 9 ] The Appellant attempted to file a Notice of Appeal to the Notice of Reassessment issued for the 1997 taxation year. [ 10 ] The Minister of National Revenue (the "Minister") maintains that the Notice of Appeal filed for the 1997 taxation year is invalid because the Appellant did not file a Notice of Objection to the final Notice of Reassessment issued for the 1997 taxation year. [ 11 ] In the year 2001 the Appellant received a payment in the amount of $12,644.04 from the WCB. [ 12 ] In reporting her income for the 2001 taxation year the Appellant did not report the amount of $12,644.04 received from the WCB. [ 13 ] The Minister issued a Notice of Assessment for the 2001 taxation year on the 8th day of April 2002.

In the Notice of Assessment the Minister included the benefit of $12,644.04 received from the WCB in determining the Appellant's net income and allowed a deduction of $12,644.04 in determining the Appellant's taxable income. B. ISSUES TO BE DECIDED 1. Is the Notice of Appeal that was filed by the Appellant for the 1997 taxation year a valid Notice of Appeal? 2. Is the Notice of Assessment that was issued for the 2001 taxation year correct? C. ANALYSIS (

i) Re: 1997 Taxation Year [ 14 ] The evidence shows that there were four Notices of Assessment or Notices of Reassessment issued by the Minister for the Appellant's 1997 taxation year. The last Notice of Reassessment for the 1997 taxation year was issued on the 5th day of October 1998. The Act provides that if the Appellant wishes to dispute a Reassessment the Appellant must file a Notice of Objection within 90 days of the date of the Notice of Reassessment.

In this situation the Appellant should have filed a Notice of Objection within 90 days of October 05, 1998, i.e. sometime prior to January 03, 1999. [ 15 ] The Act also provides that the Appellant could have applied for an extension of time within which to file a Notice of Objection if the application to extend the time is made within one year plus the 90 days from the date the Notice of Reassessment is issued (i.e. one year plus 90 days from October 05, 1999 or prior to January 03, 2000). [ 16 ] The Appellant did not file a Notice of Objection to the Reassessment issued for the 1997 taxation year, nor did she apply for an extension of time. [ 17 ] The only document filed by the Appellant in connection with the Notice of Reassessment issued on October 05, 1998 for the 1997 taxation year was the Notice of Appeal that was filed with the Court on July 30, 2002. [ 18 ] Counsel for the Respondent filed a Motion asking that the Notice of Appeal filed for the 1997 taxation year be dismissed because a Notice of Objection was not filed by the Appellant within the time specified in the Act . [ 19 ] Since the Appellant did not comply with the specific provisions in the Act for filing a Notice of Objection, the Motion of the Respondent is granted and the Notice of Appeal purportedly filed for the 1997 taxation year is quashed. (ii) The Validity of the Notice of Assessment Issued for the 2001 Taxation Year [ 20 ] The agent for the Appellant argued that since the amount of $12,644.04 received from the WCB was excluded from the Appellant's income the Appellant should not suffer a reduction in the benefits received under the Old Age Security Act or a reduction of the age credit in the 2001 taxation year. [ 21 ] Subparagraph 56(1)(

v) of the Act provides as follows: 56.

(1) Without restricting the generality of

section 3, there shall be included in computing the income of a taxpayer for a taxation year . . . (

v) Compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death; [ 22 ] This provision specifies that the payment of $12,644.04 received by the Appellant from the WCB must be included in income. [ 23 ] Subparagraph 110(1)( f )(ii) of the Act provides as follows: 110.

(1) 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:

. . . (ii) compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, disability or death, . . . [ 24 ] In

summary, compensation received under a workers' compensation law of Canada or a province is included in determining income and when income is refined into taxable income compensation of this type is removed. [ 25 ] In this case we are talking about two types of entitlement - payments under the Old Age Security Act and the age credit. [ 26 ] Tax on Old Age Security is imposed under

Part 1.2 of the Act . The tax on Old Age Security is triggered on a person's income, not their taxable income.

Because of these provisions the inclusion of the compensation from WCB in the Appellant's income results in the "clawback" of the Old Age Security payments received by the Appellant. [ 27 ] I believe that the Notice of Reassessment issued for the 2001 year is correct on this issue with respect to Old Age Security payments. [ 28 ] The other entitlement that has been questioned by the Appellant for the 2001 taxation year is the age credit provided for in subsection 118(2) of the Act . [ 29 ] Subsection 118(2) provides that an individual who is 65 years of age or older in the taxation year (the Appellant is 76 years old) may claim the appropriate percentage of $3,236.00 as an age credit. [ 30 ] In determining whether a taxpayer is entitled to receive an age credit the Act refers to net income as opposed to taxable income. [ 31 ] In Eric John v.

The Queen , 98 DTC 1324 my colleague, the Honourable Judge Sarchuk issued a decision involving the application of subsection 118(2). In that case, Judge Sarchuk said at page 1327: Subsection 118(2) was further amended by S.C. 1995, c. 3, s. 33(1) applicable to the 1994 and subsequent taxation years to incorporate what was effectively a clawback of a portion of the age credit.

The amendment was specifically enacted to reduce the age credit as a taxpayer's income increases to the point where at a certain level of income, a taxpayer would no longer be entitled to the credit although he might be 65 years of age in that particular taxation year. As counsel for the Respondent observed, the intent of Parliament in amending this provision was based on the obvious fact that not each person who attained the age of 65 necessarily required relief from tax otherwise payable by way of a tax credit and that therefore, relief would only be granted where the financial circumstances required.

With that intent in mind, it is reasonable to calculate the age credit on total income as opposed to taxable income. In my view, although the effect of the calculation might appear as though the foreign pension were being taxed, the Act does not impose tax by virtue of the provisions in subsection 118(2). It does no more than realize the reduction of a social benefit, i.e. the age tax credit, for those taxpayers "who, because of their higher incomes, have a lesser need of them". . . . [ 32 ] The Notice of Assessment "clawed back" the age credit claimed by the Appellant.

In my opinion, the Notice of Assessment for the 2001 taxation year is correct on this point. [ 33 ] I regret that I cannot grant any relief to the Appellant. However, it is my responsibility to interpret the law. I do not have the authority to amend the law. [ 34 ] The appeal is dismissed, without costs. Signed at Vancouver, British Columbia, this 3rd day of April 2003. "L.M. Little" J.T.C.C. CITATION: 2003TCC189 COURT FILE NO.: 2002-2983(IT)I STYLE OF CAUSE: Mabel J.

Nicholas and Her Majesty the Queen PLACE OF HEARING: Nanaimo, British Columbia DATE OF HEARING: January 8, 2003 REASONS FOR JUDGMENT BY: The Honourable Judge L.M. Little DATE OF JUDGMENT: April 3, 2003 APPEARANCES:

Agent for the Appellant: Benjamin Nicholas Counsel for the Respondent: Michael Taylor COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada