A W Prociuk:—The appellant, at all times material hereto, being an American citizen and resident, appeals from the Minister’s reassessment for the taxation year 1969 in the sum of $40,000 received from a Canadian source and on which a tax of $17,041 was levied.
The facts are brief and are not in dispute. On September 5, 1963 the appellant, then 49 years of age, assumed the position of president of MacMillan Bloedel Limited of British Columbia at a yearly salary of $120,000. The terms of his employment are more specifically stipulated in an agreement dated September 16, 1963, filed as Exhibit A-1. The appellant, inter alia, agreed to remain in the company’s employ until age 65 and not to terminate his employment without the company’s consent prior to that time.
Upon retirement, termination of employment with consent, or termination of his employment by the company otherwise than for cause, the company covenanted to pay to the appellant monthly for life a sum equal to one-third of the average monthly salary received by him in the 36-month period immediately prior. In the year 1968 the company underwent a certain structural reorganization and the appellant was asked to assume the position of Chief Financial Officer, which he declined. There then followed certain negotiations between the appellant and the company, and agreement was reached on or about April 29, 1968, to take effect one day later.
This agreement is in letter form dated April 29, 1968 and signed by the chairman of the board on behalf of the company and by the appellant. It was filed as Exhibit A-2 and reads as follows:
MacMillan Bloedel Limited
1199 West Pender Street
Vancouver 1, British Columbia
The Honourable J. V. Clyne Telephone 683-6711
Chairman of the Board
and
Chief Executive Officer
April 29, 1968. C. A. Specht, Esq.,
1199 West Pender Street,
Vancouver 1, B.C.
Dear Mr. Specht:
I am writing this letter on behalf of the Company to confirm the arrangements which have been made between us arising from the situation which will result from the proposed reorganization of the Company and your decision to decline the position of Chief Financial Officer. These arrangements are as follows:
You undertake to:
a) Resign as a full-time employee of the Company, effective as of April
30. This will give you the freedom of action which you will require in order to make other arrangements.
b) Continue as a member of the Board of Directors and a member of the Executive Committee until such time as you, or the Company, may decide otherwise. You will be reimbursed for your expenses but will receive no fees or salary for these particular services in view of the fact that you will be receiving $40,000 per annum for five years as hereinafter provided. The receipt of such sum, however, does not obligate you to remain on the Board or the Executive Committee.
c) Provide me with an undated resignation from the Board of Directors and the Executive Committee.
The Company undertakes to:
a) Pay to you at the customary intervals, your salary at the present rate to the end of August 1968, irrespective of whether you obtain other employment.
b) Pay you as from September 1, 1968, at the customary fortnightly intervals, at the rate of $40,000 per annum for the five years ending August 31, 1973, making $200,000 in total. These amounts will be paid irrespective of whether or not you accept employment elsewhere. In the event of your death during such five-year period any balance remaining unpaid of the $200,000 will be paid to your estate. In the event of your resignation from the Board of Directors or the Executive Committee the Company will pay to you at that time the balance remaining unpaid of the $200,000 in such instalments as may be mutually agreed upon. It goes without saying that you will at all times scrupulously refrain from disclosing any confidential information now within your knowledge as President of this Company.
c) Remunerate you on a mutually agreeable basis for any special services which you may be asked to provide and which you may be willing to undertake in the form of consultation or otherwise.
If you agree that the foregoing correctly outlines the arrangements between us I shall be obliged if you will be good enough to sign the copy of this letter where marked and return it to me. For purposes of the record it is understood that your Service Contract with the Company, dated September 16, 1963, is null and void.
Yours sincerely,
(Signed) J. V. Clyne
Chairman and
Chief Executive Officer (Signed) C. A. Specht
C. A. Specht
In the summer of 1968 the appellant returned to the United States of America and has lived there ever since. Pursuant to further arrangements in that year payments to the appellant by the company in the sum of $40,000 per year commenced in 1969.
At the hearing learned counsel for the appellant argued that the said sum of $200,000 payable at the rate of $40,000 a year, was a pension within the meaning of Article VIA of the Canada-United States Tax Convention, and therefore tax exempt. He further argued that the provisions of paragraph 31A(d) of the Income Tax Act do not apply in the instant case. Article VIA of the Canada-United States Tax Convention reads:
ARTICLE VIA
Pensions (including Government pensions) and life annuities derived from within one of the contracting States by a resident of the other contracting State shall be exempt from taxation in the former State.
Section 31A of the Income Tax Act reads:
31 A. Where, in a taxation year, a payment is made by a person resident in Canada to an individual who is not resident in Canada and who during the 5 years immediately preceding the year in which the payment is made
(a) was resident in Canada, or
(b) was employed in Canada
for a period or periods the aggregate of which was at least 36 months, if the payment is
(c) a payment
(i) out of or pursuant to a superannuation or pension fund or plan,
(ii) upon retirement of an employee in recognition of long service and not made out of or under a superannuation fund or plan,
(iii) pursuant to an employees profit sharing plan in full satisfaction of all rights of the payee in or under the plan, to the extent that the amount thereof would otherwise be included in computing the payee’s income for the year in which the payment was received if the payee had been resident in Canada throughout the taxation year in which the payment was received or
(iv) pursuant to a deferred profit sharing plan upon the death, withdrawal or retirement from employment of an employee or former employee, to the extent that the amount thereof would otherwise be included in computing the payee’s income for the year in which the payment was received if the payee had been resident in Canada throughout the taxation year in which the payment was received, or
(d) a payment made by an employer to an employee or former employee upon or after retirement in respect of loss of office or employment, the payment shall be deemed to be income of the payee, for the year in which it was received, from duties that shall be deemed to have been performed by him in Canada in that year, unless it can be established, by subsequent events or otherwise, that the payment was made as part of a series of annual or other periodic payments payable throughout the lifetime of the payee.
While the cases cited by both counsel were of some limited assistance in determining whether or not Article VIA applies, it is clear that each case has been decided on its own set of circumstances. In the instant case Exhibit A-2 in my opinion governs the situation. In consideration of receiving $200,000 payable within a period of five years the appellant agreed to three undertakings by him as therein set forth. Any reneging on his part would have justified the company to withhold payments in whole or in part or to commence appropriate legal proceedings.
It is abundantly obvious from a careful perusal of this document that it was a lump sum settlement for loss of office within the meaning of paragraph 31A(d) of the Income Tax Act. Accordingly, the appeal is dismissed,
Appeal dismissed.