Produits Ldg Products Inc. v. Minister of National Revenue, (1976) 13 N.R. 438 (FCA)

• Judge: Pratte and Le Dain, JJ., and Hyde, D.J.
• Court: Federal Court of Appeal (Canada)
• Case Date: May 17, 1976
• Jurisdiction: Canada (Federal)
• Citations: (1976), 13 N.R. 438 (FCA)

Produits Ldg Products Inc. v. MNR (1976), 13 N.R. 438 (FCA)

MLB headnote and full text

Produits Ldg Products Inc. v. Minister of National Revenue

Indexed As: Produits Ldg Products Inc. v. Minister of National Revenue

Federal Court of Appeal

Pratte and Le Dain, JJ., and Hyde, D.J.

May 17, 1976.

Summary:

This case arose out of the taxpayer's claim to the deduction of payments made to a pension plan fund for certain of its employees. The taxpayer set up and made payments to a pension fund for some of its executives, which included payments for past services. The plan was of most benefit to two of the participating employees in the firm: the principal shareholder of the taxpayer and his wife. The Minister of National Revenue disallowed the deduction of the payments for income tax purposes, because it was alleged that the fund was a sham for the avoidance of income tax. The taxpayer appealed to the Tax Review Board, which dismissed the appeal. The taxpayer appealed to the Federal Court of Canada, Trial Division which dismissed the appeal and ruled that ss. 11(1)(g), 76(1) and 137(1) of the Income Tax Act, R.S.C. 1952, c. 148, did not allow the taxpayer to deduct the payments. The taxpayer appealed.

The Federal Court of Appeal allowed the appeal and held that the payments could be deducted. The Federal Court of Appeal held that the fund complied with the requirements of s. 76(1). See paragraphs 21 to 23. The Federal Court of Appeal held that s. 137(1) was inapplicable, because there was nothing unlawful in the taxpayer properly taking advantage of a tax deduction, even if the prime motivation for the plan was to avoid tax. See paragraphs 17 to 28, 24 to 26.

Income Tax - Topic 1233

Income from a business - Deductions in computing income - Pension fund contributions - Special contributions - Income Tax Act, R.S.C. 1952, c. 148, s. 76(1) [now S.C. 1970-71-72, c. 63, s. 20(1)(s)] - The taxpayer set up and made payments to a pension fund for some of its executives, which included payments for past services - The Minister of National Revenue disallowed the deductions of the payments for income tax purposes, because it was alleged that the fund was a sham for the avoidance of income tax - The Federal Court of Appeal allowed the taxpayer's appeal and held that the payments could be deducted - The Federal Court of Appeal held that the fund complied with the requirements of s. 76(1) in that benefits were obliged to be paid to beneficiaries and that the contributions to the fund were irrevocable - The Federal Court of Appeal held that it made no difference that the actuary in his certificate under s. 76(1) underestimated the salaries of participating employees or that the taxpayer could terminate the plan - See paragraphs 21 to 23 - See also Cam Gard Supply Ltd. v. M.N.R. (1975), 4 N.R. 525 (F.C.A.).

Income Tax - Topic 9543

Tax evasion - Artificial transactions - Income Tax Act, R.S.C. 1952, c. 148, s. 137(1) [now S.C. 1970-71-72, c. 63, s. 245(1)] - What constitutes - The taxpayer set up and made payments to a pension fund for some of its executives, which included payments for past services - The plan was of most benefit to two of the participants in the plan: the principal shareholder of the taxpayer and his wife - The Minister of National Revenue disallowed the deduction of payments into the plan on the ground that the plan was a sham, the primary purpose of which was to artificially reduce the income of the taxpayer within the meaning of s. 137(1) of the Income Tax Act - The Federal Court of Appeal held that the payments were deductible and that s. 137(1) was inapplicable - The Federal Court of Appeal held that it was not indicative of a sham that the taxpayer did not follow all of the formalities of the plan - The Federal Court of Appeal held that there was nothing unlawful in the taxpayer properly taking advantage of a tax deduction, even if the prime motivation for the plan was to avoid tax - See paragraphs 17 to 20 and 24 to 26.

Cases Noticed:

Inland Industries Limited v. M.N.R., [1974] S.C.R. 514.

Statutes Noticed:

Income Tax Act, R.S.C. 1952, c. 148, sect. 11(1)(g) [now S.C. 1970-71-72, c. 63, sect. 20(1)(q)] [paras. 1, 15]; sect. 76(1) [now sect. 20(1)(s)] [paras. 1, 15, 21]; sect. 137(1) [now. sect. 245(1)] [paras. 15, 24].

Counsel:

Henri-Paul Lemay, Q.C., for the appellant;

Andre Gauthier, for the respondent.

This case was heard on April 22, 1976, at Montreal, Quebec, before PRATTE and LE DAIN, JJ., and HYDE, D.J., of the Federal Court of Appeal.

On May 17, 1976, PRATTE, J., delivered the following judgment of the Federal Court of Appeal: