Guy Tremblay [TRANSLATION]:—This case was heard on June 9, 1977 in Montreal, Quebec.
1. Point at Issue
The Board must determine whether the appellant is entitled to enjoy the effective rate, that is, the average of the taxes paid for the three years prior to the 1974 taxation year, for the sum of $9,297.53 received from a liquidated pension fund in April 1974.
2. Burden of Proof
The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.
3. Facts
3.1 From 1962 to 1971, the appellnat made contributions to a pension fund set up by his employer, Les Placements Collectifs Inc.
3.2 In November 1971, the appellant started to work for the Quebec Trust Company. In 1974 he was, according to his income tax return, the manager of this company.
3.3 In the summer of 1973, the Quebec Trust Company proceeded to acquire all the shares of Les Placements Collectifs Inc.
3.4 In October 1973, the directors of Les Placements Collectifs Inc decided to liquidate the pension fund in accordance with the stipulations of the various organizations involved in this liquidation: the Quebec Pension Board, the Quebec Department, of Revenue and the Department of National Revenue.
3.5 The letter below, dated November 12, 1973, was sent to Mr R U Villeneuve of the pension and profit sharing plans section, Department of National Revenue, Taxation:
Dear, Sir:
The Quebec. Trust Company (QTC) recently proceeded to’acquire all the shares of Les Placements’'Collectifs Inc (PCI), which has handed over to QTC a number of account administration and portfolio management responsibilities. . .. , \
Hence, although PCI remains a distinct legal entity with a board of directors, it now employs only two persons, and they will be invited to contribute to the pension;fund of the parent company, QTC.
Given this state of affairs, PCI’s board of directors would like to liquidate its employees’ pension fund, by giving its present and former employees who still hold units in this fund units representing both their and the employer’s shares.
The purpose of this letter is to ask your Department for the necessary authorization. We should, nevertheless, outline for you the procedure we intend to follow:
— liquidate the pension fund on November 30, 1973;
— calculate the units representing the employer’s and the employee’s shares for each member to this date; the employer’s share which had been allocated to members who had left the company and had cashed in their units would be allocated in proportion to the number of. units held by each current unit holder;
— send a notice to each member informing him that the pension fund has been liquidated and that the units allocated to him have been transferred into an individual retirement savings plan, invested in Mutual Fund A, that is, into the same investment vehicle;
The QTC will nevertheless take the appropriate action to comply with the section pertaining to deferred annuities for employees who were forty-five years of age and had made contribution for ten years when they quit PCI (this section only affects about forty-five members).
— have each member complete a copy of Form TD2.
These are the intentions of our board of directors, which we are asking you to authorize. We await your instructions.
In anticipation of an early reply.
Yours truly,
Mr Jacques V Goyer
Secretary-Treasurer
3.6 The appellant completed a copy of Form TD2 in November 1973. This form is, among other things, designed to permit the transfer to a second pension fund of an amount received following the liquidation of a first pension fund, so as to avoid paying tax on the amount received.
3.7 On February 18, 1974 Mr R U Villeneuve replied to the letter of November 12 from Les Placements Collectifs Inc as follows:
Dear Sirs:
FIE: Employee pension plans
We hereby acknowledge receipt of your letter of November 12, 1973.
In view of the contents of your letter and the explanations provided during our telephone conversation of February 12, 1974, we acknowledge that the business and the pension plan have ceased and that the employees now work for the Quebec Trust Company, thereby making possible the liquidation of the funds in both plans in the form of transfers to registered retirement Savings plans.
The background information you agreed to send us will be placed on file.
Yours truly,
R U Villeneuve
Pension and Profit Sharing Plans Section
Department of National Revenue, Taxation
3.8 According to the appellant’s statement, as set forth in the notice of objection, his contributions were transferred into a registered retirement savings plan around mid-March 1974.
3.9 In April 1974 the appellant received a sum of $9,297.53, as stated in paragraph 6(a) of the respondent’s reply to the notice of appeal:
In April 1974 the appellant withdrew a sum of $9,297.53 from the pension fund of his employer, known as Les Placements Collectifs Inc . . .
3.10 The appellant, in filing his 1974 tax return, used in calculating his tax liability a special rate for single payments received, a rate cal- culated from taxes paid during the three preceding years on the aggregate income for these same years.
3.11 The respondent disallowed this rate, citing subsection 40(1) of the transitional Rules of the new Act, which states that such a special rate may only apply to single payments received prior to 1974.
3.12 The respondent, moreover, taxed the appellant by allowing him to enjoy the advantages of general averaging set forth in section 118 of the new Act.
3.13 The appellant maintained that if he did not receive the sum of $9,297.53 before 1974, it was due to the respondent’s tardiness in answering his letter of November 12, 1973. The respondent, in fact, took three months to reply.
3.14 The assessment was dated September 29, 1975.
3.15 On December 23, 1975 the appellant lodged his objection with the Minister. On July 28, 1976 the Minister informed the appellant that he was upholding the notice of assessment.
3.16 On August 27, 1976 the appellant appealed to the Tax Review Board.
4. Act and Comments
4.1 Subsection 40(1) of the transitional Rules of the new Act reads as follows:
40. Payments out of pension funds, etc
(1) In the case of
(a) a single payment
(i) out of or pursuant to a superannuation or pension fund or plan
the payment or payments made in a taxation year ending after 1971 and before 1974 may, at the option of the taxpayer by whom it is or they are received, be deemed not to be income of the taxpayer for the purpose of part I of the amended Act, in which case the taxpayer shall pay, in addition to any other tax payable for the year, a tax on the payment or aggregate of the payments equal to the proportion thereof that
(d) the aggregate of the taxes otherwise payable by the employee under that part for the 3 years immediately preceding the taxation year (before making any deduction under section 120, 121 or 126 of the amended Act),
is of
(e) the aggregate of the employee’s income for those 3 years.
4.2 One fact is clear — a payment of $9,297.53 was received in 1974.
The documents submitted and quoted would seem to indicate, however, that this amount was initially transferred in 1973. After the TD2 form was signed, the $9,297.53 was apparently transferred on the day of the liquidation or shortly after “into an individual retirement savings plan, invested in Mutual Fund A, that is, into the same investment vehicle.”
The Board admits that this phraseology is not as clear as it might be. Since the documents cited were submitted with the written pleadings and not during the hearing, no clarification could be requested. The appellant, the manager of the Quebec Trust Company, upon whom the burden of proof rested, should have provided any such clarification.
In any case, the appellant signed a copy of Form TD2 to avoid being taxed on the liquidation of his pension fund. The Board feels it must deduce that this form was not signed needlessly, and that its immediate effect was to prevent the appellant from being taxed in 1973. The liquidation occurred on November 30, 1973.
If the appellant wanted to withdraw his pension fund immediately in 1973, he should not have signed the copy of Form TD2 and requested the amount owing. The appellant has not proven that he was com- pelled to sign this form, nor that he had not signed it he would not have received the amount before 1974.
Having heard the appellant’s testimony, the Board concludes that it was not until 1974 that the latter decided to withdraw his funds.
The Board believes that if the appellant had not signed the Form TD2 and had not received the amount owing before 1974, he would be in a better position to complain about the Department’s administrative slowness, which moreover he did not prove. The Board cannot say whether three months is too long a time to authorize the liquidation of a pension fund, as no evidence on this point was submitted.
The Board is not certain that the appellant is not correct nevertheless, but the presumption that the assessment is correct in fact and in law has not been rebutted by the appellant, who as explained earlier bore the burden of proof.
If the appellant is convinced that he is right and is going to appeal this judgment, he need only prepare his evidence better.
5. Conclusion
The appeal is dismissed in accordance with the above reasons for judgment.
Appeal dismissed.