Foreman v. MNR, 93 DTC 7, [1992] 2 CTC 2621 (TCC)

Garon, T.C.C.J.:—By his reassessments for the 1986 and 1987 taxation years in respect of each of the appellants, the Minister of National Revenue included in their income the acquisition costs of non-qualified investments by trusts governed by self-directed registered retirement saving plans (“RRSP”) and disallowed the deductions of the amounts claimed in respect of the disposition of such non-qualified investments. The appellants are appealing these reassessments in respect of the disallowance from income of amounts deducted on the disposition of non-qualified investments.

In the narration of facts set out below, I am making extensive use of the notices of appeal filed on behalf of the three appellants.

With respect to the appellant Foreman, a resident of British Columbia, the evidence shows that he borrowed on September 15, 1986 and October 6, 1986, a total of $146,000 from two self-directed RRSPs and issued to the trustee of those plans, Yorkshire Trust Company, three demand promissory notes evidencing this total borrowing. The payment of these loans was secured by three letters of guarantee from Continental Bank of Canada.

On December 22, 1986, $76,000 of these loans was repaid with two bank drafts issued by the same bank to the same trustee. Each bank draft constituted a loan from Continental Bank of Canada to the appellant Foreman.

On January 12, 1987, the appellant borrowed $76,000 from his RRSPs and used these funds to repay the 1986 loan from the bank.

In December of 1987, the appellant repaid $16,000 to the RRSP with a bank draft issued by the Lloyds Bank Canada to the trustee, Yorkshire Trust Company. This bank draft also constituted a loan from the latter bank to the appellant.

By notice of reassessment dated April 5, 1990, the respondent reassessed the appellant Foreman in respect of the 1986 taxation year by including in his income the loans from the RRSPs, totalling $146,000 and disallowing a deduction for the repayment of $76,000.

By notice of reassessment dated April 5, 1990, the respondent reassessed the appellant Foreman in respect of the 1987 taxation year by neither including in income the $76,000 borrowed from the RRSP nor allowing the deduction of the repayment of $16,000.

In the case of the appellant Wilson, the record shows that the latter, a resident of British Columbia, borrowed on August 21, 1986, a total amount of $159,000 from two self-directed RRSPs and issued to the trustee of those plans, Yorkshire Trust Company, two demand promissory notes evidencing these borrowings. The payment of these two loans was secured by two letters of guarantee from Continental Bank of Canada.

On December 22, 1986, the loans from the RRSP were repaid in full with two bank drafts issued by Continental Bank of Canada to the trustee, Yorkshire Trust Company. Each bank draft constituted a loan from the latter bank to the appellant.

On January 12, 1987, the appellant Wilson again borrowed $159,000 from the same self-directed RRSPs. New letters of guarantee were issued by the Lloyds Bank Canada to the trustee Yorkshire Trust Company; however, no new notes were signed by the appellant Wilson. The funds borrowed by the appellant Wilson were used to repay the loans from the bank.

In December 1987, $109,000 of these RRSP loans was repaid with two bank drafts issued by Lloyds Bank Canada to the same trustee. These bank drafts also constituted loans from the bank to the appellant Wilson.

By notice of reassessment dated January 22, 1990, the respondent reassessed the appellant Wilson in respect of the 1986 taxation year by including in his income the RRSP loans of $159,000 and disallowing the deduction for the repayment in full of the two loans.

By notice of reassessment dated January 22, 1990, the respondent reassessed the appellant Wilson in respect of the 1987 taxation year by neither including in his income the RRSP loans in the total amount of $159,000 nor allowing any deduction in respect of the repayment of $109,000.

With regard to the appellant Chambers, it was established that the latter, a resident of British Columbia, borrowed on November 19, 1986, $30,000 from a selfdirected RRSP and issued to the trustee of that plan, Yorkshire Trust Company, a demand promissory note evidencing the borrowing. The payment of this loan was secured by a letter of guarantee from Lloyds Bank Canada.

On December 22, 1986, the RRSP loan was repaid in full with a draft issued by LLoyds Bank Canada to the same trustee. This bank draft constituted a loan from the bank to the appellant Chambers.

On January 12, 1987, the appellant Chambers again borrowed $30,000 from his RRSP on the security of a letter of guarantee from Lloyds Bank Canada and used those funds to repay the bank loan.

On May 1st, 1987, the appellant borrowed $70,000 from his RRSP and a letter of guarantee dated May 1st, 1987, was issued by the same bank in respect of the total amount of $100,000.

In December 1987, the two loans made in 1987 by the RRSP totalling $100,000 were repaid in full with a bank draft issued by the Lloyds Bank Canada to the trustee, Yorkshire Trust Company. This bank draft also constituted a loan from the bank to the appellant Chambers.

By notice of reassessment dated March 16, 1990, the respondent reassessed the appellant Chambers in respect of the 1986 taxation year by including in his income the first RRSP loan of $30,000 and disallowing the deduction in respect of the repayment of the latter amount.

By notice of reassessment dated March 16, 1990, the respondent reassessed the appellant Chambers in respect of the 1987 taxation year by including in his income $70,000, the latter amount representing the amount borrowed by the appellant from his RRSP on May 1, 1987.

Also, in the case of the appellant Foreman, it would appear from the evidence that the appellants outstanding debt to his RRSP trusts as of December 31, 1987, was repaid in subsequent years by means of regular payments without resorting to the system of loans and repayments involving the RRSP trusts and the bank.

With respect to the appellants Wilson and Chambers, there is no evidence as to whether this series of loans and repayments, to which the RRSP trusts and the bank were parties, was continued after 1987.

It is also worth noting that the promissory notes evidencing the borrowings by the three appellants from their respective RRSPs did not bear interest. The evidence is also to the effect that the appellants did not actually pay interest on the funds advanced by the RRSP trusts.

In making the arrangements described earlier with respect to the use of the funds of their self-directed registered retirement savings plans, the three appellants relied on the advice of a Vancouver firm of financial planners.

To complete this recital of the facts, I should mention that the Minister of National Revenue in reassessing the appellant Chambers made certain assumptions of fact which are found in paragraph 5 of the reply to notice of appeal. Paragraph 5 reads thus:

5. In so reassessing the appellant, the respondent made certain assumptions of fact, inter alia:

(a) the appellant entered into a scheme whereby he would borrow funds from his self-administered Registered Retirement Savings Plan ("RRSP") with the plan acquiring a promissory note of the appellant being backed by a Letter of Guarantee;

(b) the repayment of the promissory note prior to the year-end does not constitute a disposition of the non-qualified investment as the appellant, the trustee and the bank agreed that the appellant would be able to borrow the same amount in January of the following year;

(c) the repayment of the loan at the end of one taxation year and the alleged reborrowing of the same amount at the beginning of the immediately following taxation year was not a bona fide reacquisition of a new loan;

(d) the debt was not forgiven.

The assumptions set out in subparagraphs 5(b), 5(c) and 5(d) above are reproduced almost verbatim in the replies to notice of appeal in the files concerning the appellants Foreman and Wilson. The substance of subparagraph 5(a) does not appear in the replies to notice of appeal filed in connection with the appeals of appellants Foreman and Wilson.

It was also agreed by the parties that the loans made to the appellants by the RRSP trusts in the years in issue secured by the appellants’ promissory notes and the corresponding letters of guarantee from a bank were non-qualified investments, having regard to the provisions of paragraphs 146(1)(e), 146(1)(g) and 204(e) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and Part XLIX of the Income Tax Regulations.

Appellants’ submissions

The appellants’ view is that section 146 is a complete scheme with respect to the tax treatment of RRSPs. It was advanced by counsel for the appellants that Parliament has conceived of the possibility of an RRSP trust holding nonqualified investments. Furthermore, to guard against this contingency, Parliament has specifically provided for the tax consequences flowing from the acquisition and disposition of such investments in subsections 146(10), 146(6) and 146(5) of the Income Tax Act.

It was also urged on behalf of the appellants that the repayments of the loans by the appellants to the RRSP trusts constitute under the principles relied on in the case law a" disposition” within the purview of subsection 146(6) of the Act entitling the appellants to the deduction therein provided.

With respect to the application of subsection 245(1) it was also contended on behalf of the appellants that the repayments of the loans did not unduly or artificially reduce their income in those years within the purview of this subsection because this provision is directed towards disbursements or ex- penses that go to reduce income in a real sense and that the repayments of loans are neither a disbursement nor an expense within the meaning of subsection 245(1) of the Act. On the assumption that the repayments of the loans by the appellants to the trusts governed by the RRSP constitute a disbursement or expense within the meaning of subsection 245(1), this subsection is not applicable in the present cases because section 146 has specially contemplated the type of factual situation that is in issue here, that is, the repayments of loans by the appellants to the trusts and provided for the tax consequences arising from such action. Also, the repayment of loans does not artificially reduce income.

Respondent's submission

In setting out below the respondent's submissions, I am adopting almost literally the language found in the appropriate paragraphs of the replies to notice of appeal filed in the present appeals.

The respondent first advanced the contention that the appellants did not dispose of non-qualified investments in either of the 1986 and 1987 taxation years on account of the fact that the appellants entered into an arrangement with a bank whereby they would repay the loans at the end of one taxation year and reborrow the money at the beginning of the immediately following taxation year with the result that there was no disposition of the loans through any settlement of the debts.

The respondent submitted, as an alternative proposition, relying on subsection 245(1) of the Income Tax Act, that if it was found that there were dispositions of non-qualified investments, the disbursements or expenses made or incurred in respect of these transactions, if allowed, would unduly or artificially reduce the appellants' income in that each appellant's series of transactions enable him to have access to his RRSP funds without having to report the full benefit into income as required by subsection 146(8) of the Income Tax Act.

Analysis

The first question to determine is whether the trusts governed by the RRSPs disposed of non-qualified investments in the 1986 and 1987 taxation years on the repayments of the loans by the appellants to the subject trusts.

The term "disposition" is defined in paragraph 54(c) of the Income Tax Act and it includes, inter alia, as set out in clause 54(c)(ii)(B) "any debt owing to a taxpayer or any other right of a taxpayer to receive an amount is settled or cancelled”. This definition is, however, only applicable for the purposes of Subdivision c of Division B of Part I of the Income Tax Act. This Subdivision c deals with taxable capital gains and allowable capital losses. On the other hand, the phrase “disposition of property" in paragraph (c) of the definition subsection 13(21) of the Act “includes any transaction or event entitling a taxpayer to proceeds of disposition of property" and the latter expression "proceeds of disposition" is in turn defined in paragraph 13(21)(d). However, these two definitions of "disposition of property" and "proceeds of disposition" are mainly applicable in the context of the system of capital cost allowances, as appears from the opening words of subsection 13(21) "In this section, section 20 and any regulations made under paragraph 20(1)(a)”.

With respect to what constitutes a disposition, I have been referred to the decision of the Exchequer Court of Canada in the case of Victory Hotels Ltd. v. M.N.R., [1962] C.T.C. 614, 62 D.T.C. 1378 and to the judgment of the Supreme Court of Canada in The Queen v. Compagnie Immobilière BCN Ltée, [1979] C.T.C. 71, 79 D.T.C. 5068. While it is true that these decisions dealing with the concept of disposition involve the application of provisions of the Income Tax Act dealing with the subject matter of capital cost allowances, I am satisfied that some of the general observations made in these cases about the import of the words "dispose of” may be of some assistance in connection with the present appeals. The decisions stand for the proposition that a disposition is a term of wide import. Also, the phrase "disposes of" used in subsection 146(6), in the absence of an indication to the contrary, must be given a broad meaning according to its usual significance, as appears from the definitions below. Thus, the words "dispose of" are defined in part in the Oxford English Dictionary, second edition, at page 820 as follows:

b. To put or get (anything) off one’s hands, to put away, stow away, put into a settled state or position; to deal with (a thing) definitely; to get rid of; to get done with, settle, finish. In recent use sometimes spec. to do away with, "settle", or demolish (a claim, argument, opponent, etc.); also humorously, to make away with, consume (food).

In Black's Law Dictionary, (5th ed.), the terms "dispose of" are assigned the following meaning:

To alienate or direct the ownership of property, as disposition by will. Used also of the determination of suits. To exercise finally, in any manner, one’s power of control over; to pass into the control of someone else; to alienate, relinquish, part with, or get rid of; to put out of the way; to finish with; to bargain away. Often used in restricted sense of "sale" only, or so restricted by context.

In my view, the terms "dispose of" used in a broad context are wide enough to include the act of extinguishment of a liability and the bringing to an end of the corresponding antecedent right or claim.

In the present case, there was an actual and substantive payment to each trust by each appellant at the end of the 1986 taxation year and an acquisition of a new investment at the beginning of the 1987 taxation year. These transactions were very Carefully structured so that these events in fact took place. Once the appellants had repaid the money lent to them by the RRSP trusts, the debts were extinguished and the non-qualified investments disposed of. Counsel for the respondent even recognized, and these are his own words, in argument, "that the form is there in essence, to say that there has been a disposition". All the required documentation attests to the dispositions of the non-qualified investments. However, counsel for the respondent argued that there was an agreement between each appellant, the Yorkshire Trust Company and the bank, that the money would be reborrowed by each appellant in 1987. The weight of the evidence does not support that an agreement such as this, oral or written, existed at any time. The three parties were under no obligation to each other in respect of these transactions although it was likely, that possibility having been discussed beforehand, that barring any unforeseen event the appellants would reborrow from the trusts at the beginning of 1987 and the bank would be repaid at the same time in respect of the loans made in December of the previous year. If, in the intervening period, on account of a drastic change in the situation of any one appellant, the latter would not have reborrowed money, in such a case it could not have been disputed that the non-qualified investments would have been disposed of by the particular RRSP trust at the end of 1986 and the liability of such appellant to his RRSP trust would have at the same time been discharged. Also, if an appellant would have died immediately prior to the time he was expected to reborrow at the beginning of the 1987 taxation year from his self-administered registered retirement savings plan, it would be obvious that no one could seriously contend that the indebtedness of a particular appellant to a particular trust had not been extinguished by the payment of such liability at the end of 1986. I have therefore no difficulty in concluding that the respondent's argument that there were no dispositions of these non-qualified investments at the end of 1986 or 1987 is not tenable.

I shall now advert to the alternative argument put forward by the respondent relating to the application of subsection 245(1), which read at the relevant time as follows:

In computing income for the purposes of this Act, no deduction may be made in respect of a disbursement or expense made or incurred in respect of a transaction or operation that, if allowed, would unduly or artificially reduce the income.

According to this argument, on the assumption that there were, having regard to the facts in the present appeals, dispositions of non-qualified investments as a result of the repayment by each appellant of his loans to his own RRSP trust or trusts, the respondent contends that the disbursements or expenses made or incurred by the appellants in respect of these repayments to the subject trusts have unduly or artificially reduced income.

In order to appreciate fully the ramifications of this argument, it is necessary to consider the scheme of the Income Tax Act respecting the tax treatment involving an RRSP and more particularly the annuitant and a trust governed by an RRSP.

The provisions of the Income Tax Act that have a bearing on an RRSP are found in section 146 of the Act. These provisions were grafted on for the specific purpose of encouraging taxpayers by a means of a deduction from income to provide for a retirement income in their later years.

Section 146 allows a taxpayer to make contributions within specified limits during the course of a year to a registered retirement savings plan and provides a deduction from income in respect of a taxation year for a taxpayer who is or becomes an annuitant within 60 days after the end of the year. As long as the funds are held in the registered retirement savings plan any income or capital gain that accrues on these funds is tax-sheltered. In many instances, as in the present situation, a trust is created and it is said in such cases that the trust is governed by a registered retirement savings plan. It is provided in subsection 146(4) that, subject to certain exceptions which do not obtain here, no tax is payable under Part I of the Act by a trust on the taxable income of the trust for a taxation year throughout the period in the year during which the trust was governed by a registered retirement savings plan.

A number of possible situations are considered in the management of a registered retirement savings plan. One of these events has to do with the acquisition by an RRSP trust of a non-qualified investment or with the use of the property of a trust as security for a loan. The consequences of an RRSP trust acquiring a non-qualified investment are spelled out in subsection 146(10) of the Act. It is set out in this subsection that the fair market value of the nonqualified investment at the time it was acquired by the trust shall be included in computing the income for the year of the taxpayer who is the annuitant under the plan at that time. If the trust makes an investment that is a non-qualified one, it constitutes income to the annuitant. It is a kind of penalty since under the ordinary principles of the Income Tax Act, the making of such a nonqualified investment will not in itself be income. An express statutory enactment was required to achieve this result. Also, part of the scheme, Parliament provided in subsection 146(6) that when an RRSP trust disposes of what was a non-qualified investment at the time of its acquisition, the annuitant under the plan is entitled to deduct in computing his income the lesser of (a) the amount Originally included by virtue of subsection 146(10) in respect of the acquisition of such investment and (b) the proceeds of disposition of such property. As a result of the combined operation of subsections 146(10) and 146(6) it follows that if both the acquisition and disposition of the same property take place in the same taxation year, the net result might be in many instances, but not necessarily in all, a nil addition to income or, so to speak, an in/out situation.

There is one other consequence (under Part I of the Income Tax Act) affecting the annuitant with respect to the taxation year during which an RRSP trust disposes of a non-qualified investment. This consequence is set out in subsection 146(5) of the Act. In effect, it is laid down that the maximum amount deductible by an annuitant as a premium is reduced by the amount deductible under subsection 146(6) in respect of the disposition of a non-qualified investment. This reduction in the maximum amount of premiums provided in the concluding portion of subsection 146(5) is in the nature of a penalty imposed on the annuitant in respect of the year in which an RRSP trust disposes of a non-qualified investment. Of course, this consequence adversely affects the annuitant only if in the particular year in which the disposition of a non-eligible investment takes place, the annuitant would have otherwise made, and been allowed to make, a contribution to an RRSP that is in part or totally wiped out by the amount deductible in respect of the disposition of a non-eligible investment.

From the above, it seems clear that Parliament has provided for the situation where an RRSP trust acquires a non-qualified investment and subsequently disposes of it. In this respect, it is to be noted that while Parliament has dealt with the matter of a series of similar transactions or operations in a number of contexts under the Income Tax Act it chose not to concern itself with a situation involving a string of acquisitions and dispositions of non-qualified investments made by an RRSP trust. It is however, clear that Parliament really wanted to discourage taxpayers from acquiring non-qualified investments by enacting provisions which are in the nature of a penalty. The scheme found in section 146 with respect to the acquisition and disposition of non-qualified investments appears to be complete and I see no justification for the application of subsection 245(1) as it stood since Parliament has set out in detail the adverse income tax consequences from the annuitant’s standpoint flowing from the acquisition and subsequent disposition of non-qualified investments. In this respect, the observations formulated by Chief Justice Jackett of the Federal Court of Canada on the application of subsection 245(1) of the Income Tax Act in the case of The Queen v. Alberta and Southern Gas Co., [1977] C.T.C. 388, 77 D.T.C. 5244, are of some interest, although the Federal Court of Appeal was dealing in that instance with totally different facts and with a provision of an incentive nature. The Chief Justice said this at page 397 (D.T.C. 5248-49):

When one reads section 66, one finds that one of the things that is permitted is a deduction of the cost of a “Canadian resource property” and, when one reads section 59 and paragraph 12(1)(g), one finds that the proceeds of disposition of such a property must be brought into income. These provisions for deduction and taxation of capital amounts seem to me to have the obvious purpose of encouraging taxpayers to put money into such resource properties and keep it there. That being what the provisions seem to have been intended to encourage, as it seems to me, a transaction that clearly falls within the object and spirit of section 66 cannot be said to unduly or artificially reduce income merely because the taxpayer was influenced in deciding to enter into it by tax considerations.

In this review of the scheme of the Income Tax Act respecting the holding by a trust governed by a registered retirement savings plan of non-qualified investments, it is not necessary for me to consider Part XI.I of the Act which, inter alia, imposes on such a trust a special tax of one per cent per month of the fair market value of all property at the time it was acquired held by the trust at each month end that is not a qualified investment since this tax is expressly made non-applicable to any property included in the income of an annuitant under subsection 146(10) of the Act.

Moreover, in order for subsection 245(1) to be applicable the taxpayer must be incurring or making an expense or disbursement that would unduly or artificially reduce the taxpayer's income.

I do not think that it can be disputed that the appellants made disbursements when they paid out money to the RRSP trusts in settlement of their indebtedness to the trusts in question. However, the question remains whether the payments made by the appellants to the trusts resulted in an undue or artificial reduction of income within the purview of subsection 245(1) of the Income Tax Act. In considering the application of this subsection, one must bear in mind the observations of the Federal Court of Appeal in the case of Canada v. Irving Oil Ltd., [1991] 1 C.T.C. 350, 91 D.T.C. 5106. Justice Mahoney on behalf of that Court said this at page 360 (D.T.C. 5114):

In order to come within the terms of subsection 245(1), a transaction or operation must have the effect of unduly or artificially reducing income; the artificiality of the transaction or operation itself does not determine the issue. Heald, J.A., speaking for the Court in Spur Oil, supra, at page 124, said:

.. the finding of artificiality in the transaction does not, per se, attract the prohibition set out in subsection 245(1) of the Income Tax Act. To be caught by that subsection, the expense or disbursement being impeached must result in an artificial or undue reduction of income. “Undue” when used in this context should be given its dictionary meaning of "excessive". In light of the Crown's concession . . . that under the Tepwin contract the appellant would be paying slightly less than fair market value, it cannot be said that the Tepwin contract and the Tepwin charge result in an excessive reduction of income. Turning now to artificial, the dictionary meaning when used in this context is, in my view, "simulated" or fictitious”. On the facts in this case, the reduction in the income of the appellant can, in no way, be said to be fictitious or simulated.

It is likewise here. Since the respondent paid Irvcal fair market value, it cannot be said that payment resulted in an excessive reduction of income. There was nothing fictitious or simulated in the reduction of the respondent's income as a result of paying Irvcal 66¢ more per barrel of crude than the crude cost Irvcal. It was very real.

In the present appeals, to paraphrase Justice Mahoney, there was nothing fictitious or simulated in the reduction of the income of each appellant herein as a result of each of them paying off his indebtedness to the RRSP trust or trusts. In the present cases, the appellants gave value for value.

With some reluctance I have therefore come to the conclusion that subsection 245(1) of the Income Tax Act does not prevent the appellants from claiming the deduction provided by subsection 146(6) in respect of the disposition by their RRSP trusts of non-qualified investments. I said with some reluctance, because if I am right in my conclusion concerning the application of subsection 245(1) of the Act, this would mean in an extreme case described below that the only disadvantage or penalty that might be suffered by the annuitant and the RRSP trust, to the extent that the application of subsections 146(10), 146(6) and 146(5) is concerned, would come from the reduction of premium that would otherwise be deductible by the annuitant under subsection 146(5). As I have indicated earlier, this disadvantage or penalty may not exist in some situations. Overall, this disadvantage or penalty in cases where it is actually existing appears to me to be rather insignificant in the total scheme of the Act. The extreme case I have in mind; which I call situation A, involves an annuitant and his RRSP trust where both of them take part each year in a series of acquisitions and dispositions of such non-qualified investments so that in the course of many years the RRSP trust could hold non-qualified investments each year for a period of, say, 11 months. However, the combined operation of subsections 146(10), 146(6) and 146(5) would lead to a fairer result if the acquisition and disposition of non-qualified investments do not take place in the same year, which I call situation B, even if such acquisitions and dispositions are part of a series over the years. On the other hand, if subsection 245(1) was applicable to situation A as well as to situation B, the income taxation consequences would appear unduly harsh and severe since there would be constant additions to the annuitants income generated by the series of acquisitions of non-qualified investments without any corresponding deduction in respect of the dispositions of those non-qualified investments. It should also be borne in mind that if a taxpayer, say, at the maturity of an RRSP, instead of converting his RRSP to either an annuity or a registered retirement income fund (RRIF), simply withdraws money held by the RRSP trust, these funds will be required to be included in income pursuant to subsection 146(8) and paragraph 56(1)(h) of the Act.

The overriding considerations, in my view, are that (a) Parliament has specifically provided for particular income tax consequences in the event of an acquisition and disposition by an RRSP trust of a non-qualified investment and (b) the disbursements made here by the appellants on the dispositions of nonqualified investments by the RRSP trusts do not result in an artificial or undue reduction of income within the purview of subsection 245(1) of the Act, but reflects a concrete situation and a business reality.

If the matter is looked at from a more technical angle, there may be the further point, although I have not come to a final view on the matter, that the deduction that is disputed here by the respondent is the result of an action taken here by another person, namely the RRSP trust since a trust is deemed to be an individual in respect of the trust property, by virtue of subsection 104(2) of the Income Tax Act. In effect, the deduction provided by subsection 146(6) is granted to an annuitant where a RRSP trust disposes of a non-qualified investment. It is true that, on the evidence, the trustee, the Yorkshire Trust Company was acting in conformity with the wishes of the particular annuitant who was the beneficiary under the trust but the fact remains nonetheless that the act entitling each annuitant to the deduction was that of another person in law. The deduction is not granted to the annuitant in respect of his paying off his liability to the trust but is granted to him in respect of the trust disposing of its non-qualified investments. The payments of the loans by each appellant to the RRSP trust of which he was the beneficiary do not in themselves entitle the appellant to any deduction. It is the decision of the RRSP trust to accept these payments in discharge of an existing liability that triggered the application of subsection 146(6) and the entitlement to the deduction. In my view, it is doubtful whether subsection 245(1) is applicable when the deduction that is granted to a taxpayer is attributable in law to the act of another person.

It therefore follows from the above that the appellants are entitled to the deduction provided by subsection 146(6) of the Income Tax Act in respect of the disposition during the 1986 and 1987 taxation years of non-qualified investments by the RRSP trusts but the amounts to be deducted cannot exceed the amounts included under subsection 146(10) in respect of the acquisition of these non-qualified investments. The appeals must be allowed with costs to this extent.

Since the evidence regarding the 1987 taxation year in particular may not altogether be clear with respect to the precise basis on which each assessment must be referred back to the respondent for reassessment, it is appropriate, under the circumstances, to ask counsel for both parties to prepare for my consideration draft judgments which are not inconsistent with these reasons dealing with the appeals for both the 1986 and 1987 taxation years by each appellant. Such draft judgments should be transmitted to the Court, if at all possible, by December 7, 1992.

Appeal allowed.