Guy Tremblay:—The present case was heard at Montreal, Quebec, on May 12, 1978.
1. Point at Issue
The point at issue is whether section 110.1 of the new Act allowing a deduction up to $1,000 in the computation of the taxable income may be applied for an amount received in 1975 following the annulment of the Shell Savings Fund. The respondent has refused such a deduction.
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. The Facts
3.1 The appellant worked for the Shell Company for ten years.
3.2 From 1966 to 1975, he participated in a savings plan officially named “Shell Savings Fund’’.
3.3 According to a letter (Exhibit R-1) dated February 3, 1977 sent by Shell Savings Fund to the respondent, this plan is a Deferred Profit Sharing Plan. It was approved as such by the Department of National Revenue and registered under number 10209.
3.4 During the year 1975, the plan was withdrawn.
3.5 For the period 1966 to 1975, the appellant paid the capital amount of $3,522.08. At the date of the withdrawal, the total amount of capital and interest was $7,206.58.
3.6 According to form T4A issued by the Shell Company following the withdrawal of the plan, the appellant had a gained income of $3,684.50 which was, in fact, the amount of interest accumulated during the years 1966 to 1975.
3.7 From the amount of $3,684.50 of interest, the sum of $453.81 represents the interest for 1975 as computed in October 1975.
3.8 The capital paid during the above period was not deductible by virtue of the Income Tax Act in the computation of the annual income.
3.9 The interests gained every year were not included (and could not be included) in the computation of the income of the appellant.
3.10 In his 1975 return, the appellant, in the computation of the taxable income, deducted the amount of $1,000 because of the interest income received from the Shell Savings Fund following its withdrawal.
3.11 On May 17, 1976 the respondent, by issuing the assessment, refused the above deduction.
3.12 Following the Notice of Objection and the decision of the respondent to maintain the above assessment, an appeal was lodged before the Tax Review Board on April 18, 1977.
4. Law—Jurisprudence—Comments
4.1 Law
The main sections of the new Act implied in the case at bar are 110.1 and paragraph 110.1 (2)(b) which read as follows.
110.1 Interest and dividend income deductible. (1) For the purpose of computing the taxable income for a taxation year of an individual (other than a trust that is not a testamentary trust within the meaning assigned by paragraph 108(1 )(i)), there may be deducted from his income for the year an amount equal to the lesser of
(a) $1,000, and
(b) the aggregate of
(i) the amount of interest included in computing the taxpayer’s income for the year, and
(ii) the taxpayer’s grossed-up dividends for the year.
110.1(2) Interest income. For the purposes of this section, interest shall not include any amount that is
(b) an annuity payment
(i) under a registered retirement savings plan or under a plan referred to in subsection 146(12) as an “amended plan”, or
(ii) under a deferred profit sharing plan or under a plan referred to in subsection 147(15) as a “revoked plan”.
4.2 Comments
(a) During his pleading, the counsel for the respondent made an admission to the effect that the interest computed for the year 1975 ($453.81) (see paragraph 3.7 of the Facts) was deductible according to section 110.1. The Board considers it is bound for the purposes of the present case.
(b) Interests computed for the years 1966 to 1974
One of the main arguments of the appellant is that when he invested in the Shell Savings Fund, it was not a deferred profit sharing plan even if it was registered and approved as such by the Department of National Revenue.
Unfortunately, the appellant has not proven that affirmation. Nevertheless, he had the burden of proof as explained above. Also, unfortunately subparagraph 110.1 (2)(b)(ii) cited above applied in the case at bar for the interest received.
The Board must disallow the appeal concerning the interest computed for the years 1966 to 1974.
5. Conclusion
The appeal is allowed in part and the matter is referred back to the respondent for reassessment in accordance with the above Reasons for Judgment.
Appeal allowed in part.