Western Smallware & Stationery Company Lim
ited (Appellant)
v.
Minister of National Revenue (Respondent)
Trial Division, Cattanach J.—Winnipeg, Manito-
ba, October 5, 6, 7 and 8, 1971; Ottawa, Janu-
ary 12, 1972.
Income tax—Registered pension plan—Contributions for
past services—Amount recommended by qualified actuary—
No obligation to make contributions for past services—
Contributions voluntarily made not deductible—Income Tax
Act, section 76(1).
Under the terms of a pension plan registered in 1965
pursuant to section 139(1)(ahh) of the Income Tax Act,
appellant company was authorized but not obliged to make
contributions for the past services of certain employees. In
1965, 1966 and 1967, appellant contributed to the plan over
$151,000 for the past services of those employees, that
being the amount recommended by a qualified actuary
pursuant to section 76(1). In accordance with the terms of
the plan, $140,400 of the contributions for past services
was invested by the plan's trustees in preferred shares of
appellant company. In assessing appellant for 1965, 1966
and 1967, the Minister disallowed the deduction of the sum
so invested in appellant's preferred shares.
Held, affirming the Minister's assessment. Since appellant
was not obliged by the terms of the plan to make contribu
tions for past services, a deduction therefor was not author
ized by section 76(1). In order to qualify, there must be an
irrevocable vesting of the payments in the pension plans.
M.N.R. v. Inland Industries Ltd. (1972) 23 D.L.R. (3d)
677, followed.
INCOME tax appeal.
Allan J. Irving for appellant.
J. A. Scollin, Q.C. and G. J. Rip for
respondent.
CATTANACH J.—These are appeals from the
Minister's assessment of the appellant to
income tax for its 1964, 1966 and 1967 taxation
years ending December 31 whereby the Minis
ter disallowed the sums of $128,000, $6,300
and $6,100 in the appellant's 1965, 1966 and
1967 taxation years and denied a resultant busi
ness loss of $10,798.52 in 1964 which forego
ing sums the appellant had claimed as deduc
tions as contributions to pension plans,
commonly referred to as "Executive pension
plans" or "top-hat pension plans" for the bene-
fit of its President, Vice-President and
Secretary.
The appellant is a joint stock company incor
porated pursuant to the laws of the Province of
Manitoba in 1942 and has been engaged in a
successful business of wholesalers and distribu
tors of housewares, toys, hobbies and like nov
elties to supermarkets from Sault Ste. Marie,
Ontario to Vancouver, British Columbia, as its
principal customers.
The appellant had under consideration for
some time a pension plan for its three executive
officers. It discussed a variety of plans with
different insurance companies but the appellant
was reluctant to deplete its working capital by
laying out the requisite costs.
In 1965 the appellant's auditor, who was
aware of self-administered pensions, devised a
plan, no doubt after discussion with a firm of
pension consultants familiar with these matters,
which was eminently suitable to the appellant
and tailored to its needs. Basically the plan was
that the appellant should enter into three sepa
rate trust agreements under which trustees
would administer a pension plan for the benefit
of the President, the Vice-President and Secre
tary of the appellant. The contributions to the
pension plans by the appellant would be invest
ed in insurance policies on the life of the par
ticular beneficiary and the balance of the contri
butions would be invested in 5%
non-cumulative, non-voting, non-participating
redeemable Class "B" shares of the appellant to
be created. The initial liability for past service
of these three officers was calculated to be in
the amount of $131,752. The annual future
liability for past service contributions on behalf
of these three officers was calculated to be
$5,491. These payments would be in addition to
the premiums on the life insurance policies.
The auditor advised the appellant that a lump
sum payment for past service would be deduct
ible for income tax purposes as would the cur
rent contributions to the pension plans.
The officers of the appellant were dubious.
The advice given to them sounded too good to
be true. In effect they would have the best of
two worlds. The officers of the appellant would
be provided with pensions as they had desired,
the contributions of the appellant to those plans
would be tax exempt and the appellant would
not be deprived of working capital, which cir
cumstance it was anxious to avoid, because the
contributions would find their way back into the
coffers of the appellant by way of the purchase
of its redeemable Class "B" preferred shares.
To reassure the officers of the appellant and
dispel their apprehensions the auditor was sent
to the head office of the Department of Nation
al Revenue in Ottawa to submit these proposed
pension plans and trust agreements (which had
been drafted but not executed) to officers of the
Department for consideration and approval and
to advise those officers that it was the intention
of the proposed trustees to invest the contribu
tions to the plans in preferred shares of the
appellant, as yet to be created. The purpose of
the auditor's visit was to ascertain what
changes, if any, might be required in respect of
the objectives of the appellant. It is apparent
that verbal approval was given to the proposals
without change because subsequently written
approval to the plans was given when applica
tion for approval of the executed material was
made.
The President of the appellant was Morley
Leonard Bell, the Vice-President was Dick
Daniel Bell and the General Manager and Secre
tary was Alan Omson who were also the con
trolling shareholders of the appellant.
After having received verbal approval from
the officers of the Department three separate
pension plans and trust agreements were
entered into each of which was dated Novem-
ber 30, 1965 and to be effective as of that date.
Other than providing for three different
beneficiaries, slightly different benefits in
amounts and different sets of three trustees, the
beneficiary in each case was one of the trustees
and the other two common to all three trust
agreements and plans were the appellant's audi-
tor and solicitor, the terms and conditions of the
three trust agreements and plans were identical
in all respects.
Basically under the terms of the trust agree
ments the trustees were to manage the plans
and their duties were limited to carrying out the
terms of the agreements and administering the
plans and to conform to the directions of the
appellant given in accordance with the terms of
the trust agreements. The appellant reserved the
right to amend the provisions of the trust agree
ments subject to prior vested rights. In the
event that the appellant terminated the plans the
fund held by the trustees was to be paid to the
member of the plans in a manner to be
approved by the appellant. Under the trustee
agreements, the trustees were authorized to
invest in any security which they considered
advisable. The appellant had the right to disap
prove of any investment made by the trustees in
which event the trustees were then required to
sell such investment.
Under the terms of each of the plans the
appellant was to make past service contribu
tions in respect of the member of each of the
plans on a "hopes and expects" basis, that is,
subject to the appellant having available funds
for that purpose. On retirement a member was
entitled to receive a past service annual pension
to the extent that the appellant had purchased
such past service annual pension.
On December 13, 1965 the pension plans and
trust agreements were formally submitted to the
Minister for approval by way of an application
for registration together with an actuary's
report dated December 6, 1965 to the effect
that, on the assumption that each annual pen
sion at the normal retirement date under the
plans would not exceed 70% of the average of
the last 6 years earnings of each beneficiary or
$40,000 each, the funds for the pension plans
for the President, the Vice-President and the
Secretary required to be augmented by the
respective amounts of $46,726, $30,680 and
$54,346 to ensure that the obligations of each
of the three respective funds in respect of past
services may be discharged in full, a total of
$131,752.
By three letters dated December 23, 1965,
December 29, 1965 and December 23, 1965 the
appellant was advised that the pension plans
had been accepted for registration with effect
from November 30, 1965 under section
139(1)(ahh) of the Income Tax Act and that the
appellant's contributions to the plans might be
claimed as deductions in determining taxable
income. In regard to special payments to the
plan in respect of past service of employees the
appellant was informed that advice had been
requested of the Superintendent of Insurance
under section 76 of the Income Tax Act upon
receipt of which the appellant would be
notified.
By three letters dated February 15, 1966 the
appellant was advised that the Superintendent
of Insurance had advised the Minister that he
might approve the special payments to the plans
under section 76 of the Act in respect of past
service liability in the respective amounts of
$46,726, $30,680 and $54,346 determined as of
November 30, 1965 and that such payments
may be claimed as deductions under section 76
of the Act.
In anticipation of the foregoing approvals
being forthcoming the appellant had passed the
requisite corporate resolutions and on Decem-
ber 21, 1965 had already made the special pay
ment contributions aggregating $131,752 to the
various trusts but contingent upon the pension
plans being accepted for registration.
Also in anticipation of the plans being regis
tered the appellant had applied by an applica
tion dated October 1, 1965 for supplementary
letters patent increasing its authorized share
capital by the creation of 2,000 Class "B" pref
erence shares. Supplementary letters patent so
increasing the authorized capital stock issued
under date of November 24, 1965.
On December 21, 1965 the appellant issued
the following cheques to the various trusts:
President's Trust $ 46,726.00
Secretary's Trust 54,346.00
Vice-President's Trust 30,680.00
Total $131,752.00
These cheques were negotiated by the three
trusts and the proceeds deposited in bank
accounts in the names of the three respective
trusts.
Upon the foregoing funds being available to
them the trustees of each trust forthwith invest
ed in an insurance policy for each of the
beneficiaries and subscribed for Class "B" pre
ferred shares of the appellant. The trustees of
the three trusts issued cheques to the appellant
in the amounts of $45,500 on behalf of the
President's trust for 455 Class "B" preferred
shares of the par value of $100 each of the
appellant, $53,000 on behalf of the Secretary's
trust for 530 like preferred shares and $29,500
on behalf of the Vice-President's trust for 295
preferred shares.
On December 22, 1965 the appellant issued
those shares to the respective trusts in accord
ance with the subscriptions therefor.
In addition the three trusts also acquired
insurance policies and paid the premiums
thereon.
In the 1966 taxation year the appellant con
tributed further amounts to the three trusts
aggregating $9,991 as follows:
President's Trust $2,879.00
Secretary's Trust 4,253.00
Vice-President's Trust 2,859.00
These amounts were deposited in the bank
accounts of the respective trusts by the trustees
who forthwith subscribed and paid for further
Class "B" preferred shares of the appellant to
the total of $6,300 as follows:
President's Trust, 19 preferred
shares for $1,900.00
Secretary's Trust, 24 preferred
shares for 2,400.00
Vice-President's Trust, 20 preferred
shares for 2,000.00
The appellant issued the shares as subscribed
for.
Again in the appellant's 1967 taxation year
the same thing happened. The appellant con
tributed further amounts to the three trusts
aggregating $9,991 of which $6,100 was used
by the trustees to purchase Class "B" preferred
shares, 19 shares for $1,900 for the President's
trust, 22 shares for $2,200 for the Secretary's
trust and 20 shares for $2,000 for the Vice-
President's trust.
In each instance the appellant issued its
cheques to the respective trusts which the trus
tees deposited the proceeds to the credit of the
bank account of each trust and then issued their
cheques to the appellant in payment for the
shares subscribed for.
The Minister's action in assessing the appel
lant for the taxation years under review can be
expressed in summary form as follows:
Amount
Amount allowed as
Contributed a deduction
to Fund by by the Amount
Year Appellant Minister Disallowed
1965 ... $131,752.00 $ 3,752.00 $128,000.00
1966 .... 9,991.00 3,691.00 6,300.00
1967 9,991.00 3,891.00 6,100.00
$151,734.00 $11,334.00 $140,400.00
The sums of $128,000, $6,300 and $6,100
which were disallowed by the Minister repre
sent the amounts expended by the trusts in the
respective taxation years to acquire Class "B"
preferred shares of the appellant.
During the taxation years under review there
was no Federal law, regulation, administrative
limitation or Departmental policy that restricted
the trustees of a pension plan from investing the
funds under their control as they deemed advis
able including the investment in shares of the
contributing company and in the present case
the appellant did pay dividends upon its Class
"B" preferred shares held by the three pension
trusts.
As I understood the submissions made by
counsel for the Minister they were basically
that the contributions made by the appellant to
the three pension plans are not properly deduct
ible in computing the appellant's income
because the contributions in question did not
comply with the conditions outlined in section
76 of the Income Tax Act which reads as
follows:
76. (1) Where a taxpayer is an employer and has made a
special payment in a taxation year on account of an
employees' superannuation or pension fund or plan in
respect of past services of employees pursuant to a recom
mendation by a qualified actuary in whose opinion the
resources of the fund or plan required to be augmented by
an amount not less than the amount of the special payment
to ensure that all the obligations of the fund or plan to the
employees may be discharged in full, and has made the
payment so that it is irrevocably vested in or for the fund or
plan and the payment has been approved by the Minister on
the advice of the Superintendent of Insurance, there may be
deducted in computing the income of the taxpayer for the
taxation year the amount of the special payment.
More particularly counsel for the Minister
contended first that no special payments were
made by the appellant which irrevocably vested
in the pension plans.
Looking at the transactions, as a whole,
whereby the appellant issued cheques payable
to the trusts, the trustees issued cheques pay
able to the appellant in substantially the same
amounts and the appellant issued Class "B"
preferred shares to the trusts in exchange for
these cheques, all in accordance with a prede
termined plan, counsel for the Minister submit
ted that in substance the payments were illusory
and that the intention of all parties by these
exchange of cheques was not to transfer the
sums to the pension plans and did not result in a
real payment. What the pension plans received
in reality were preferred shares of the appellant
through the machinery of an exchange of
cheques and that the shares did not have a
value equivalent to their par value because the
appellant was a private company with restric
tions upon the transfer of its shares and their
redemption could only be effected following
corporate acts by the appellant. It was the fur
ther contention on behalf of the Minister in this
respect that the trustees were under the direc
tion and control of the appellant so that the
appellant did not part with dominion over the
funds and accordingly there was no irrevocable
vesting of the payments in the pension plans.
Secondly, counsel for the Minister submitted
that the validity of the actuarial opinion, as
expressed in the certificate, is dependent upon
there being at law an absolute obligation on the
appellant, pursuant to the plans to make a pay
ment or payments to the trustees in respect of
past services of the beneficiaries. If no such
obligation exists then the actuary lacks jurisdic
tion to form an opinion as to the amounts by
which the resources of the funds or plans
require to be augmented. Further it was submit
ted that the appellant, at the most, was author
ized, but not compelled to make payments to
the pension plans so that pensions might be
purchased by the trustees in respect of past
services of the respective beneficiaries and
since the beneficiaries were entitled to no great
er pensions than those which might be pur
chased with the amounts paid into the pension
plans by the appellant it follows that resources
of the plans required no augmentation to ensure
that the obligations of the plans may be dis
charged in full.
Thirdly, the Minister submitted that the
deductions claimed by the appellant of $128,-
000, $6,300 and $6,100 in its 1965, 1966 and
1967 taxation years are prohibited by section
137(1) of the Income Tax Act which reads as
follows:
137. (1) In computing income for the purposes of this
Act, no deduction may be made in respect of a disburse
ment or expense made or incurred in respect of a transac
tion or operation that, if allowed, would unduly or artificial
ly reduce the income.
On the other hand, counsel for the appellant
contended that the transactions whereby the
appellant issued its cheques to the pension
plans and received from the pension plans their
cheques in payment for Class "B" preferred
shares issued by the appellant to the pension
plans were real transactions conducted in
accordance with commercial reality with the
result that the payments were real payments
that irrevocably vested in the pension trusts,
and that even if this should not be so then the
payment was a payment in the Class "B" shares
of the appellant and that payment was a pay
ment in law equivalent to the par value of the
shares so issued.
With respect to the contention on behalf of
the Minister that the disbursements or expenses
incurred by the appellant in these transactions
would, if allowed, "unduly or artificially reduce
the income" of the appellant within the meaning
of section 137(1) of the Income Tax Act, it was
the reply of the appellant that these were bona
fide expenses incurred in furtherance of a legiti
mate business purpose and that any tax advan
tage was merely incidental.
The principal thrust of the argument on
behalf of the appellant appeared to me to be
that the pension plans were submitted to the
Minister and accepted by him for registration.
Under section 139(1)(ahh) a registered pension
plan means one that has been accepted by the
Minister for registration for the taxation year
under consideration. The Minister registered
these plans and in no subsequent taxation year
did he "unregister" the plans. The appellant
sent its auditor to Ottawa to discuss the plans
with Departmental officials, making full disclo
sure of all proposals and of the intention of the
trustees of the plans to invest in preferred
shares of the appellant. If it was objectionable
to the Minister at some subsequent time for the
plans to invest in the shares of the appellant, no
opportunity was afforded the appellant to
change those investments to ones that would be
acceptable as could have been done under each
trust agreement. In short the appellant says that
the Minister has changed the rules in the middle
of the game to the detriment of the appellant, in
that the appellant will be obliged to pay the
increased amount of tax together with interest
thereon for late payment. Accordingly the
appellant contends that the actions of the Minis
ter preclude him from disallowing the deduc
tions claimed by the appellant.
This argument is to me tantamount to invok
ing the doctrine of estoppel. The essential fac
tors giving rise to an estoppel are (1) a represen
tation intended to induce a course of conduct
on the part of the person to whom the represen
tation is made, (2) an act resulting from the
representation by the person to whom the
representation was made and (3) detriment to
such person as a consequence of the act. (See
Greenwood v. Martins Bank [1933] A.C. 51.)
In Phipson on Evidence, 8th ed. 667 it is
stated that
Estoppels of all kinds, however, are subject to one gener
al rule: they cannot override the law of the land. Thus,
where a particular formality is required by statute, no
estoppel will cure the defect.
Where a statute imposes a duty of a positive
kind then it is not open to the appellant to set
up an estoppel to preclude the Crown from
producing evidence to show that the duty was
not performed. (See Maritime Electric Co. v.
General Dairies Ltd. [1937] A.C. 610.)
In the present case section 76(1) of the
Income Tax Act expressly requires that there
shall be a recommendation by a qualified actu
ary that in his opinion the resources of the fund
or plan are required to be augmented by an
amount not less than the amount of the special
payment "to ensure that all the obligations of
the fund or plan to the employees may be
discharged in full". It follows that the existence
of such an obligation on the part of the fund or
plan to the employees is a statutory condition
precedent to the right of the appellant to claim
the amount paid to the plan as a deduction. To
preclude the Minister from contending and
establishing that such an obligation of the plan
to the employee did not exist would nullify the
provisions of section 76(1) of the Act and
accordingly this argument is not available to the
appellant.
At the time the matter was argued before me
counsel did not have the advantage of having
before them the judgment of the Supreme Court
of Canada in M.N.R. v. Inland Industries Limit
ed pronounced on December 20, 1971, 23
D.L.R. (3d) 677.
In that case the only item in dispute was a
sum which the respondent claimed it was enti
tled to deduct under section 76 of the Income
Tax Act as special payments made to the trus
tees of its pension plan in respect of the past
services of its President.
Many reasons were given by the Minister in
his reply to the Notice of Appeal for his deci
sion to disallow the deduction claimed. Substan
tially the same reasons were given and argued
in the present appeals.
Mr. Justice Pigeon in delivering the unani
mous judgment of the Supreme Court of
Canada said:
... Those grounds were all raised again in this Court, but I
do not find it necessary or desirable to express an opinion
on any other than the following point which is, in my view,
decisive of the case. This is that the deduction claimed was
not allowable because there were no "obligations" of the
Fund or Plan to Mr. Lloyd Parker that required any special
payment to ensure that they might be discharged in full ...
Mr. Lloyd Parker was the President of the
company and the only Class "A" member of the
plan.
He goes on to say:
That there was no "obligation" of the pension fund to Mr.
Parker that "required" the special payments is readily
apparent from the terms of the Plan. The only obligations to
a member were to use in the prescribed manner the funds
that became available. In fact, it was not contended at the
hearing that an obligation had been created, either on the
Fund or on the Company to provide to Mr. Parker the
benefits which were intended to be provided by the special
payments.
The contention was that "obligation" was to be taken to
mean what the actuary making a recommendation under
stood it to mean. It is to be noted first that in the memoran
dum from the Department of Insurance, the statement is
not, as in the actuarial certificate, that the Fund requires to
be augmented "to ensure that all obligations of the Fund in
respect of past services may be discharged in full" but that
"the Fund requires to be augmented by an amount not less
than the amount quoted above to ensure that the maximum
possible benefits under the Plan may be provided". This
follows the statement that "the Plan does not provide a
specific amount of pension but only sets a maximum limit to
the total pension". The difference between the wording of
this memorandum and the wording of the actuarial certifi
cate is quite substantial and it is somewhat surprising that,
notwithstanding such advice, departmental approval was
given to the payments on behalf of the Minister. However,
it seems clear to me that the Minister cannot be bound by
an approval given when the conditions prescribed by the
law were not met.
It was contended at the hearing that, in s. 76, the word
"obligation", being used in the context of a provision relat
ing to a certificate by an actuary, should not be taken in its
ordinary meaning but in the special sense in which it would
be understood by an actuary. Assuming this to be so, there
is no evidence of such special meaning. The certificate and
the testimony of its author at the hearing in the Exchequer
Court do not show that the word "obligation" is generally
understood among actuaries as having the meaning contend
ed for. As a matter of fact, the memorandum from the
Department of Insurance is cogent evidence to the contrary.
Furthermore, subsection (2) of section 76 clearly shows that
"obligations of the Fund or Plan to the- employees" means
"superannuation or pension benefits payable". It is appar
ent that the situation intended to be met by the special
payments provided for is that which arises when a pension
plan specifies a scale of benefits payable.
Counsel for the Company pointed out that in some other
provisions of the Income Tax Act, for instance in section
11(1)(c) respecting the deduction of interest, the expression
used is "a legal obligation". He contended that the absence
of the adjective "legal" in s. 76 indicated the intention of
not requiring a legal obligation. Even at that, the inference
that s. 76 was intended to apply when there was no obliga
tion legal or otherwise could not be justified. Furthermore, I
would observe that in the Income War Tax Act, section
5(1)(b) respecting the deduction of interest said: "interest
payable". It could hardly have been intended by changing
this to read in the Income Tax Act: "pursuant to a legal
obligation to pay", to alter completely the requirements
respecting the special payments to pension plans with
respect to obligations for past services, which requirements
remained substantially unchanged (see section 5(1)(m) of
the Income War Tax Act as enacted in 1942 by 6 Geo. VI,
ch. 28, s. 5(5)).
As to the effect of the actuarial certificate which was said
to be "a subjective test", assuming this to be so, this could
not be true with respect to anything more than the quantum
of the obligations. It cannot have been intended to be
decisive of their existence. It is obvious that the author of
the memorandum from the Department of Insurance had
this distinction in mind. He clearly indicated that his advice
was limited to the actuarial computations and assumptions
refraining from any opinion as to the existence of any
obligation. In my view, the actuarial certificate was not, any
more than the approval on behalf of the Minister, decisive
of the existence of any obligation of the Fund towards the
employee in respect of past services. The existence of such
an obligation is a statutory condition of the right to the
deduction and in its absence, there is no right to deduct a
special payment. It cannot be said that because the intention
of making, at some future time, payments in the amount
now claimed was disclosed to the department in the applica
tion for registration of the Plan, an obligation to make the
payments was created. On the contrary, the terms of the
Plan were perfectly clear to the effect that no obligation
towards Mr. Parker would arise in respect of those sums
unless and until the company chose to, and actually did,
make the contemplated payments into the Fund.
I have carefully compared the Pension Plans
and the Pension Trust Agreements in the
present appeals with the Pension Plan and Pen
sion Trust Agreement in M.N.R. v. Inland
Industries Ltd. Subject to those variations dic
tated by different participants and slightly dif
ferent circumstances they are similar in content
and language.
Paragraph 7 of the Trust Agreement herein
provided:
The Trustees shall not be responsible for the adequacy of
the Trust fund to meet and discharge pensions and other
liabilities under the Fund.
Obviously this is the responsibility of the
appellant.
In the Pension Plan herein it is provided in
paragraph 2.2(c):
Payment of Pension
Upon a Participant attaining normal retirement age, or in the
case of a Participant who elects to defer his retirement date,
then upon such Participant actually retiring, all monies
contributed by the Company to the Trust Fund, together
with any interest accrued thereon, shall be used for the
purpose of establishing a pension in one of the forms
provided in Paragraph 2.5 hereof.
The amount of pension is provided in para
graph 2.3 as follows:
Amount of Pension
The Annual Pension payable to a Participant shall be as
follows;—
(a) For each year of service subsequent to his date of
entry into the Plan, each Participant will receive an
annual pension equal to 2% of the average of the best
six years earnings in the employ of the Company less
any pension being purchased in respect to such service
by the Company, and by any other registered pension
plan of the Company.
(b) Subject to the funds being available the Company
expects to purchase for each Participant an annual
pension equal to 2% of the average of the best six
years earnings for each year of continuous service with
the Company up to the date of entry into the Plan, less
any pension being purchased in respect to such service
by the employer under any other registered pension
plan of the Company.
(c) Notwithstanding the provisions in (a) and (b) above,
the total pension that would be purchased for any
Participant will not exceed the lesser of $40,000.00 or
70% of the average of the best six years earnings in the
employ of the Company. In the event that the total
pension purchased on the basis of the formula defined
in (a) and (b) above should exceed the maximum pen
sion as just defined, the pension under (a) and (b)
would be reduced in the ratios that the number of years
service on which the pensions under (a) and (b) are
based respectively bear to the total service as defined
in Section 1.2 (1) hereof.
The contributions to be made by the appellant
are provided for in paragraph 2.4(b) as follows:
(b) By the Company
i. In respect of each Participant the Company will
contribute in respect of service rendered after the date
of entry into the Plan an annual amount equal to
$1,500.00 less any contributions which the Company
may be making in respect of the Participant to any
other registered pension plan of the Company. Refer
ence to $1,500.00 shall be deemed to include any other
maximum which may be permitted from time to time
under the Income Tax Act.
ii. Subject to the recommendations of a qualified Actu
ary and subject to funds being available for this pur
pose, the Company will also contribute on each anni
versary date of the plan in respect of each Participant
such amount as may be required to make up the differ
ence between the pension required to be purchased
under Section 2.3 (a) of the Plan less the pension being
purchased by the Company contributions under Section
2.4 (b) (i).
The beneficiary does not contribute.
The normal form of pension is a monthly
amount of annuity income for the life of the
participant but in no event for less than 10
years. This is provided in paragraph 2.5. In
paragraph 3.3 (a) it is provided:
Benefit Payments and Liability
(a) The amounts of annuity income payable hereunder
shall only be paid to the extent that they are provided
for by the assets held under the Trust Fund, and no
liability or obligation to make any contributions thereto
other than as set out herein shall be imposed upon the
Company, the officer, directors or shareholders of the
Company....
It is readily apparent from the foregoing
provisions that there was no obligation on the
part of the appellant to make any contribution
to the trust funds for the purchase of pensions
for past services of the members. At the most it
was an "expectation" to do so subject to funds
being available.
It is equally apparent that the obligation on
the trustees of the pension plans was only to
purchase annuities to the extent that funds
available in the plans permitted.
As Mr. Justice Pigeon said in the conclusion
of his remarks that I have quoted above and I
repeat for the sake of emphasis:
... It cannot be said that because the intention of making,
at some future time, payments in the amount now claimed
was disclosed to the department in the application for
registration of the Plan, an obligation to make the payments
was created. On the contrary, the terms of the Plan were
perfectly clear to the effect that no obligation towards Mr.
Parker would arise in respect to those sums unless and until
the company chose to, and actually did, make the contem
plated payments into the Fund.
The actuarial certificate appears at pages 142
to 144 of Exhibit Book A.1. After reviewing the
ages of the three participants, their length of
service, their projected average salaries and
such like relevant material he concludes by
certifying, on page 144, that the lump sum cost
of past service pension on behalf of the three
participants is $30,680, $54,346 and $46,726 or
a total of $131,752. I interpret such certifica
tion to being his opinion of the amount required
to make up the quantum of the desired pensions
but, as Mr. Justice Pigeon pointed out, it cannot
be decisive of the existence of any obligation of
the plan towards the employee in respect of
past services.
I might also add that Mr. Justice Pigeon
effectively disposes of any question of estoppel
arising when he states:
... However it seems clear to me that the Minister cannot
be bound by an approval given when the conditions pre
scribed by law were not met.
I think it is expedient to point out that the
obligations contemplated by section 76(1) of the
Income Tax Act are the obligations of the fund
or plan to the employees. It is apparent that the
situation intended to be met by special pay
ments provided for in section 76 of the Act is
that which occurs when the pension plan speci
fies a scale of benefits payable and when the
resources available to the plan are insufficient
to meet that scale. In that instance special pay
ments may be made to cure that deficit and
such payments are deductible, which is not the
situation in the present appeals.
For the foregoing reasons the appeals are
dismissed with costs.
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