Digests

Fédération des caisses populaires Desjardins de Montréal et de l'Ouest-du-Québec v. Canada

A-739-99

2001 FCA 27, Desjardins, Décary and Noël (dissenting) JJ.A.

23/2/01

58 pp.

Appeal from Tax Court of Canada ((1999), 99 DTC 1275) decision affirming MNR's decision denying appellant right to deduct sum of $752,640--Question whether amount (representing employer contributions and employee benefits appellant required to pay after December 31, 1992, but which pertained to vacation pay accumulated by its employees during 1992) deductible expense under Income Tax Act, s. 18(1)(a), (e)--Appellant's technical and professional employees and office employees governed by collective agreements--Under collective agreements, employees earned vacation during reference period extending from May 1 to April 30 of each year--At December 31, 1992, vacation pay payable in subsequent year set at $3,010,560--Amount for vacation earned which had not yet been paid in 1992 recorded as expenses during 1992 and accepted by Minister--Appellant set rate at 25% of amount of vacation pay payable at December 31, 1992 (25% x $3,010,560), or $752,640--Respondent disallowed deduction of amount of $752,640 on basis amount corresponded to provision or reserve for future or possible obligation and appellant had no obligation to pay amount at December 31, 1992--In Trial Judge's opinion obligation to pay these employer premiums did not arise until time at which vacation actually paid--Appeal allowed--Per Desjardins J.A. (reasons concurred in by Décary J.A.): Apparent from Act, ss. 9 and 18(1)(a), (e) that if appellant able to show employer contributions in question outlay or expense "made or incurred" by appellant in 1992, right to deduction must be accepted--Expense only "incurred" within meaning of Act, s. 18(1)(a) when obligation to pay sum of money--Must therefore be determined at what time employer's obligation to pay contributions in question arose, since it must be determined at what point expenses "incurred" for tax purposes--Distinction must be made between time employer's obligation to contribute to plan arises and time when employer has to perform obligation--Employer's commitment to pay its contribution arises well before payment of vacation pay--Legal fiction created by Unemployment Insurance Act, s. 51(3) clearly defined in provision and does not preclude reality--Does not prevent creation of debt or insurable earnings, which legally originate at time vacation pay acquired in 1992--Once vacation pay earned, obligation to pay employer contributions comes into being--Vacation pay which was all accumulated by appellant's employees during 1992 was to those employees in 1992 even though not yet liquidated--Employer contributions real obligation, existing one, not potential one or obligation subject to suspensive condition--In appellant's case, obligation to pay employer contributions real but term uncertain--Obligation suspended until vacation pay paid--Employer contribution associated with vacation pay earned in 1992 not same as employer contribution in respect of period salary earned in 1993--Per Noël J.A. (dissenting): Trial Judge right to conclude obligation to pay employer contributions did not arise during appellant's 1992 taxation year and accordingly amounts not deductible in calculating income for said year under Act, s. 18(1)(a)--In connection with s. 18(1)(a), courts have found expense not incurred in year unless legal obligation to pay amount--Employer's obligation to pay employer premiums, like employee's to pay employee premiums, only arises when salaries paid--Clearly, purpose of Unemployment Insurance Act, s. 51(3) to cause obligation of employer (and employee) to coincide with payment of insurable earnings in these circumstances--No other reason for existing--Expense must be incurred in year in order to be deducted in year, and not incurred unless legal obligation to pay exists--Trial Judge properly concluded deduction of expense of $752,640 in computing appellant's income for 1992 taxation year prohibited by Act, s. 18(1)(a)--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 9, 18(a), (e)--Unemployment Insurance Act, R.S.C., 1985 (5th Supp.), c. U-1, s. 51(3).