Martin v. The King, 2024 TCC 153 -- summary under Subparagraph 115(1)(a)(i)

The taxpayers (two baseball players), who performed 40% of their duties in Canada rather than the US, agreed with the Toronto Blue Jays (the “Club”) that a portion of their total package would take the form of annual contributions to a retirement compensation arrangement (RCA). The Crown position was that the RCA contributions did not enter into computing the taxpayers’ income for the purposes of the allocation of 40% thereof to Canada because they were not received by the taxpayers and because of the specific exclusion under s. 6(1)(a)(ii) of RCA benefits from employment income. Hence, in the case, for example, of the 2017 taxation year of Russel Martin, his taxable income earned in Canada was computed by CRA as follows:

Gagnon J agreed with the taxpayer submissions that the exclusion of RCA contributions in s. 6(1)(a)(ii) only applies against the amount of Canadian-source income subject to taxation in Canada, so that those contributions were to be deducted solely from the 40% of their remuneration that was earned in Canada. Hence, the above example would be corrected to read as follows:

Before so concluding, Gagnon J indicated inter alia:

• The ITA’s computational rules, including the exclusion in s. 6(1)(a)(ii) for RCA contribution benefits, “cannot apply to a non‑resident’s foreign-source income as the Act only grants jurisdiction over a non‑resident’s Canadian-source income” (para. 95, see also para. 105).
• Before their exclusion under that computational rule, the RCA contributions “made up a portion of the Appellants’ compensation and remuneration for the year” given the broad scope of the concept of an employment benefit, and those amounts would have been paid to them directly but for the subsequent decision “to defer receipt of a portion of that compensation and remuneration through the use of an RCA” (para. 98), so that those contributions were “part of the Appellants’ compensation during the taxation years in which the contributions were made” (paras. 99, 109); and it was this total income that was to be allocated between Canada and the US under s. 2(3) and s. 115((1)(a)(i) and in accordance with s. 4(1)(b) before the domestic income-computation rules were applied.
• The Crown’s “position only treat[ed] 40% of the RCA Contributions as Canadian-source income with respect to the exclusion in subparagraph 6(1)(a)(ii) ITA, yet it treat[ed] 100% of the RCA Contributions as Canadian-source income with respect to levying tax [under s. 207.5]” (para. 109).

2017-0702061E5 concerned a non-resident athlete playing for a Canadian team, who performed 40% of his duties in Canada and who received $1,200,000 in annual salary, with an additional $800,000 annually contributed by the team to his RCA. Applying the same methodology as above to that situation, such athlete would have nil Canadian-source income. However, Gagnon J agreed with the taxpayers that such an arrangement would not meet the requirements of an RCA and would instead likely constitute a salary deferral arrangement (SDA). – whereas here the taxpayers had substantiated the existence of an RCA by obtaining an actuarial report to support the amount of contributions necessary to provide them with a reasonable pension on retirement.