Thurlow, J (concurred in by Ryan, J):—This appeal is from a judgment of the Trial Division which dismissed the appellant’s appeal from reassessments of income tax for the years 1964, 1965, 1966 and 1967. The question at issue with respect to all four years is whether the appellant was entitled to a deduction of the amount of a payment of $309,414 which was made on April 15, 1965 to the trustees of a pension plan established on April 1, 1965 for the executives of the appellant company. The particular payment was made as a contribution to provide pensions for the executives in respect of their past service to the appellant.
With respect to such plans, section 76 of the Income Tax Act provided as follows:
76. (1) Where a taxpayer is an employer and has made a special payment in a taxation year on account of an employees’ superannuation or pension fund or plan in respect of past services of employees pursuant to a recommendation by a qualified actuary in whose opinion the resources of the fund or plan required to be augmented by an amount not less than the amount of the special payment to ensure that all the obligations of the fund or plan to the employees may be discharged in full and has made the payment so that It is irrevocably vested in or for the fund or plan and the payment has been approved by the Minister on the advice of the Superintendent of Insurance, there may be deducted in computing the income of the taxpayer for the taxation year the amount of the special payment.
(2) For greater certainty, and without restricting the generality of subsection (1), it is hereby declared that subsection (1) is applicable where the resources of a fund or plan required to be augmented by reason of an increase in the superannuation or pension benefits payable out of or under the fund or plan.
The appeal to the Trial Division was dealt with on an agreed statement of the facts and of the issues to be determined. The statement is set out in full in the reasons for judgment of the learned trial judge and need not be repeated. lt is sufficient for present purposes to say that it was common ground that the conditions imposed by subsection 76(1) in respect of the deductibility of the payment of $309,414 were met, save that there was issue as to whether at the material time there were any “obligations of the fund or plan to the employees” in respect of which the fund required to be augmented.
On this point the plan provided as follows:
Section IX—Contributions
(a) Members’ Required Contributions
The Members of this plan shall not be required nor permitted to make contributions to this Plan, the said Plan being completely non-contributory by the Members.
(b) Contributions by the Company
The Company shall contribute on behalf of each Member an amount equal to the maximum permitted under the Income Tax Act of Canada being $1,500.00 per year per Member as hereinafter set forth. The Company intends to contribute, subject to the funds for such purpose being available, such amounts as may be required in accordance with the certification of an Actuary to provide the Past Service Pensions mentioned in Section X (a) hereof.
SECTION X—AMOUNT OF RETIREMENT INCOME
(a) For Past Service
The Company* [1] expects to purchase, subject to the funds for such purposes being available, a Past Service Pension for each designated Executive, and more particularly, the President and the Secretary, who enter the Plan at the effective date. The Past Service Pension, shall be related in each case to the Member’s completed years of service with the Company, prior to the effective date, and shall be a monthly amount of Past Service Pension, commencing at normal retirement age, for each completed year of prior service, as indicated below.
President—$180.90 per month
Secretary—$285.85 per month
In determining the number of years under this section, any fractional years will be treated as completed years. In determining the number of years of accredited past service that shall be allowed and taken into account in calculating the said Past Service Benefit, the decision of the Board of Directors of the Company shall be final and binding on all parties, but in no event shall such number of years exceed the actual number of years the Employee has been in the service of the Company or its predecessors at such time.
In calculating or determining the amount of Past Service Pension Benefits which may be paid hereunder, any pension benefits received by the Employee in respect of any contributions to any general fund of the Company made prior to his enrollment in this Plan, shall be taken into account and be deemed to form part of the Past Service Pension Benefit herein described.
The learned trial judge held that under these provisions there was no obligation on the appellant to make payments to the fund and that in consequence there were at the material time no obligations of the fund or plan to the employees who were members of the plan. In his view prior to the making of the payment there was no obligation within the meaning of subsection 76(1) and after the payment had been made there was no longer any need to augment the resources of the fund. He, therefore, concluded that the appellant was not entitled to a deduction in respect of the $309,414 which it had paid.
I agree with the view of the learned trial judge that the case is governed by the reasoning of the Supreme Court of Canada in MNR v Inland Industries Limited, [1972] CTC 27; 72 DTC 6013, and with his conclusion and I am also in substantial agreement with his reasons therefor. In my opinion, the material time, so far as the application of subsection 76(1) is concerned, was immediately before the payment was made. At that time there was no financial obligation of the appellant to the fund or plan or of the fund or plan or its trustees to the members of the plan. An essential prerequisite of the applicability of subsection 76(1) was therefore lacking because the payment cannot be regarded as having been made “to ensure that obligations of the fund or plan to the employees (might) be discharged in full” within the meaning of subsection 76(1) where there were in fact no such obligations. Vide MNR v Inland Industries Limited (supra). The fact that obligations of the fund and its trustees to the employees may have arisen upon the payment being made, in my opinion, is not material.
It was submitted on behalf of the appellant that this case differed from the Inland Industries case in that if the language of section IX(b) of the Plan was inept and did not give rise to an enforceable obligation on the part of the appellant company to make payments to the fund or plan the shortcomings of the language used were cured by the actual payment to the trustees of the plan upon the recommendation of the actuary and before application was made to the minister for registration of the plan and for his approval of the payment under subsection 76(1). In this connection it was contended that had the appellant an hour before making the payment exercised its right under Article IX of the trust agreement to amend the plan by changing the wording of sections IX and X thereof so as to impose enforceable obligations on the appellant to make the payment and on the trustees to purchase past service pensions, the payment subsequently made would have qualified for deduction. Assuming that article IX of the trust agreement authorized such an amendment of the plan and that such an amendment would have served to make the payment deductible, it is unfortunate for the appellant that the amendment was not made, but I know of no principle upon which this Court may change the actual facts to what they might have been, and it appears to me that there is no basis for deciding the case otherwise than on the basis of the language of the documents as it existed at the material time. Nor, in my opinion, can it be taken that the making of the payment by the appellant obviated or served to satisfy the statutory requirement of an obligation of the fund to the employees as a condition of the deductibility of the payment. The statutory provision must, as I see it, be limited to what fairly falls within the meaning of the language used and there is no room for extending it by supposed intendment to situations which do not meet that language.
The appellant also submitted that the Minister’s approval once given could not be withdrawn but in my opinion this point as well is covered by the judgment in the Inland Industries case and is not sustainable. Where a statutory requirement for the deduction has not been met, the deduction for that reason must be disallowed and it does not matter that the approval of the payment, which is another of the essential conditions of deductibility, had been given.
In my opinion, the appeal should be dismissed with costs.
Bastin, DJ:—This is an appeal from a judgment of the Trial Division delivered on February 22, 1973, dismissing an appeal by the appellant of its assessments under Part I of the Income Tax Act for the 1964-1967 taxation years. The sequence of events leading to the appeal is as follows:
1. The appellant established what is commonly known as an executive pension plan. That is, a pension arrangement for the benefit of the principal shareholders and employees of the appellant corporation. Pursuant to same, the appellant:
(i) on April 1, 1965 passed and enacted by-law No 13 of the company, authorizing the pension plan;
(ii) on April 1, 1965 entered into a pension trust agreement with trustees for the purpose of holding and administering funds on behalf of the pension plan.
2. The pension plan was attached to the pension trust and formed a part thereof.
3. The pension plan provided for two kinds of retirement income:
(i) a past service pension based upon a member’s years of service up to the “effective date”; the “effective date” was April 1, 1965;
(ii) a future service pension.
4. In order to provide funds for the purposes of pension payments, the appellant was to contribute:
(i) $1,500 per year per member in respect of future service pensions;
(ii) an actuarially determined amount in respect of past service pensions.
5. The appellant engaged an actuary who determined the past service requirements of the pension plan as of April 1, 1965 at $309,414.
6. On April 15, 1965 the appellant paid to the trustees of the pension plan the said sum of $309,414 in respect of past service.
7. On April 15, 1965 the appellant forwarded to the respondent an application for registration of the pension plan and being Form T510, together with attached documents.
8. The respondent:
(i) on May 31, 1965 accepted the trusteed pension plan for registration under the Income Tax Act;
(ii) on July 28, 1965, advised that the actuarial calculations had been confirmed and that “special past service payments to the plan” may be claimed as deductions under the Income Tax Act.
9. The appellant did deduct the aforementioned payment of $309,414 in calculating income for its 1965 taxation year and the respondent subsequently in 1969, reassessed, denying the deduction so claimed. The issues in this appeal are as follows:
1. Upon the agreed assumption that the other requisites of subsection 76(1) of the Income Tax Act have been satisfied, was the payment of $309,414 within the provisions of subsection 76(1) in so far as the same relates to the obligations of the fund or plan to the employees?
2. Is the respondent functus officio, and estopped from making the reassessment in question?
Counsel for the appellant did not abandon the second issue but did not argue it. In view of my decision on the first issue, it is not necessary for me to consider it.
The learned trial judge in his reasons for judgment relied on the decision of the Supreme Court of Canada in the case of MNR v Inland Industries Limited (supra). In my opinion the case at bar is clearly distinguishable on its facts from the Inland Industries judgment. Furthermore, the learned trial judge has given to the word “obligations” in section 76 a different interpretation from that given to the word in the Supreme Court of Canada judgment in the Inland Industries case.
Section 76 reads as follows:
76. (1) Where a taxpayer is an employer and has made a special payment in a taxation year on account of an employees’ superannuation or pension fund or plan in respect of past services of employees pursuant to a recommendation by a qualified actuary in whose opinion the resources of the fund or plan required to be augmented by an amount not less than the amount of the special payment to ensure that all the obligations of the fund or plan to the employees may be discharged in full and has made the payment so that it is irrevocably vested in or for the fund or plan and the payment has been approved by the Minister on the advice of the Superintendent of Insurance, there may be deducted in computing the income of the taxpayer for the taxation year the amount of the special payment.
(2) For greater certainty, and without restricting the generality of subsection (1), it is hereby declared that subsection (1) is applicable where the resources of a fund or plan required to be augmented by reason of an Increase in the superannuation or pension benefits payable out of or under the fund or plan.
I would paraphrase this section as follows:
A taxpayer employer may deduct from his income, when computing his income tax, the amount of a special payment made in that year to the trustees of an employees’ pension fund for past services provided that:
(1) the special payment, in the opinion of a qualified actuary, is necessary to provide the funds to carry out the obligations of the fund io the employees, that is, the amount required to enable the trustees of the fund to pay the pensions in accordance with the specific scale of benefits provided by the terms of the plan;
(2) the company has made the special payment to the fund so that it is irrevocably vested in the trust fund;
(3) the special payment has been approved by the Minister of National Revenue on the advice of the Superintendent of Insurance.
In my opinion the word “obligations” in section 76 means the specific scale of benefits recited in the pension plan. That this is the meaning given to the word by Mr Justice Pigeon in the Inland Industries judgment is indicated by the following quotation from his judgment at page 32 [6017]:
Furthermore, subsection (2) of section 76 clearly shows that “obligations of the Fund or Plan to the employees” means ‘‘superannuation or pension benefits payable”. It is apparent that the situation intended to be met by the special payments provided for is that which arises when a pension plan specifies a scale of benefits payable.
The learned trial judge held the word “obligations” to mean legally, presently enforceable liabilities which in my opinion is not the meaning intended by Parliament.
It is not necessary to recite all the facts relating to the pension plan in the Inland Industries case. It appears probable that on the strength of many of them the Minister of National Revenue came to the conclusion that the plan was not a genuine employees’ pension plan and on that ground disallowed the income tax deduction for the amount paid by the company into the fund. However, Mr Justice Pigeon held that it was not necessary or desirable to express an opinion on any matter other than the legal point which he then proceeds to discuss. I quote from his reasons on pages 31-2 [6016-17]:
This is that the deduction claimed was not allowable because there were no “obligations” of the fund or plan to Mr Lloyd Parker that required any special payment to ensure that they might be discharged in full, as section 76 of the Income Tax Act expressly requires: . . .
That there was no “obligation” of the pension fund to Mr Parker that “required” the special payments is readily apparent from the terms of the plan. The only obligations to a member were to use in the prescribed manner the funds that became available. In fact, it was not contended at the hearing that an obligation had been created, either on the fund or on the company to provide to Mr Parker the benefits which were intended to be provided by the special payments.
The contention was that “obligation” was to be taken to mean what the actuary making a recommendation understood it to mean. It is to be noted first that in the memorandum from the Department of Insurance, the statement is not, as in the actuarial certificate, that the fund requires to be augmented “to ensure that all obligations of the Fund in respect of past services may be discharged in full” but that “the Fund requires to be augmented by an amount not less than the amount quoted above to ensure that the maximum possible benefits under the Plan may be provided”. This follows the Statement that “the Plan does not provide a specific amount of pension”. The difference between the wording of this memorandum and the wording of the actuarial certificate is quite substantial and it is somewhat surprising that, notwithstanding such advice, departmental approval was given to the payments on behalf of the Minister. However, it seems clear to me that the Minister cannot be bound by an approval given when the conditions prescribed by the law were not met.
.. . Furthermore, subsection (2) of section 76 clearly shows that “obligations of the Fund or Plan to the employees” means “superannuation or pension benefits payable”. It is apparent that the situation intended to be met by the special payments provided for is that which arises when a pension plan specifies a scale of benefits payable”.
... It cannot be said that because the intention of making, at some future time, payments in the amount now claimed was disclosed to the department in the application for registration of the plan, an obligation to make the payments was created. On the contrary, the terms of the plan were perfectly clear to the effect that no obligation towards Mr Parker would arise in respect of those sums unless and until the company chose to, and actually did, make the contemplated payments into the fund.
My conclusion is that the plan submitted by Inland Industries Ltd was held defective for the following reasons:
(1) the plan did not specify a scale of benefits payable, so the terms of the plan were not defined;
(2) on the date the plan was submitted for approval to the Minister of National Revenue, no special payment had been made by the company to the trustees of the fund, so neither by its covenant nor by the irrevocable payment of money to the fund, had the company committed itself to carry out the plan, so what was submitted was merely a proposal.
In the case at bar, the terms of the plan established an obligation on the trustees to pay specific benefits. These are recited on page 8 of the plan as follows:
The Past Service Pension shall be related in each case to the Member’s completed years of service with the Company, prior to the effective date, and shall be a monthly amount of Past Service Pension, commencing at normal retirement age, for each completed year of prior service, as indicated below:
President—$180.90 per month
Secretary—$285.85 per month.
In determining the number of years under this section, any fractional years will be treated as completed years.
Furthermore, on the date the application for approval was made by the appellant, the amount which the actuary had calculated was required to be paid into the fund to ensure that all the obligations of the fund or plan to the employees could be discharged in full, namely, $309,414, had been irrevocably paid by the appellant to the trustees of the fund. In my opinion words in the agreement indicating that the plan was conditional upon the ability of the company to make the special payment are not a defect or unreasonable in the case of a small company. A plan might well be abandoned after the drafting and passing of the by-law and the execution of the agreement, due to the size of the special payment in relation to its resources and the attitude of its bank and creditors. Section 76 does not mention the obligation of the company. lt requires that the company should commit itself to the plan, not by its covenant, but by the irrevocable payment to the trustees of the amount of the special payment. For these reasons I consider that the appellant had complied in every respect with the requirements of section 76 of the Income Tax Act and was entitled to make the deduction claimed.
I would allow the appeal with costs here and below against the respondent.
‘Counsel were in agreement that the word “Company” is in error and that the provision should be read as saying “The Trustees expect”.