Sobier, J.T.C.C.:—The appellant appeals from the assessments by the Minister of National Revenue (the "Minister") for his 1990 taxation year whereby the Minister included in his income for that year, an amount equal to the amount the appellant became entitled to on deregistering a registered retirement savings plan (the "RRSP").
The parties filed an agreed statement of facts and the relevant portions are set out below:
1. The appellant made a proposal under the Bankruptcy Act, R.S.C. 1985, c. B-3, which was filed on July 11, 1990 (hereinafter referred to as the "proposal").
2. Under the terms of the proposal, the registered retirement savings plan (hereinafter referred to as the "RRSP") of the taxpayer was to be cashed and included in the appellant’s assets to be paid to the appellant’s creditors.
3. The RRSP was withdrawn and moneys were received by the trustee under the proposal.
4. Moneys received from the appellant’s registered RRSP were disbursed to creditors. 5. The Minister of National Revenue (hereinafter referred to as the "Minister") assessed tax on the appellant’s income for 1990, which income included the moneys withdrawn from the RRSP.
6. The appellant filed his tax return for 1990 on a split basis, that is, one return for the six months preceding the proposal and a second return for the six months after the proposal. 7. The Minister reassessed on the basis of a full taxation year.
8. For the 1990 taxation year there were three returns filed by, or on behalf of, the appellant as follows:
(a) Return for the period from January 1 to July 11, 1990, showing a total income of $11,133;
(b) Return for the period from July 11 to December 31, 1990, showing a total income of $4,210.93;
(c) A return showing income from the withdrawal from the appellant’s RRSP in the amount of $31,713.47.
9. Of the $31,713.47 withdrawn from the appellant’s RRSP a sum in the amount of $9,514.04 was withheld at source and the remainder in the amount of $22,199.43 was paid to the trustee.
10. The Minister, by notice of reassessment dated March 2, 1992, reassessed the appellant for the 1990 taxation year on the basis that the appellant had only one taxation year during 1990.
The appellant claimed the right to file returns on a split year basis relying on the provisions of subsection 128(2) which in effect splits the taxation year in two. The first portion being his own taxation year ending the day prior to becoming, as he claims, a bankrupt and the second commencing on the date he claims he became a bankrupt. The appellant claims that on filing his proposal with the trustee, he was a bankrupt. Since there is no definition of a bankrupt, we must turn to the Bankruptcy Act. The definition of "bankrupt" and "bankruptcy" are found in section 2 of the Bankruptcy Act as follows:
''bankrupt" means a person who has made an assignment or against whom a receiving order has been made or the legal status of that person;
“bankruptcy” means the state of being bankrupt or the fact of becoming bankrupt;
The difficulty with the appellant's position in alleging that he was a bankrupt is that the definition of a "bankrupt" does not include a person making a proposal in bankruptcy only a person who has made an assignment or one against whom a receiving order has been made.
The case law is also clear that a person making a proposal is not a bankrupt nor does he have the status of a bankrupt. This was clearly set out in Employers' Liability Assurance Corp. v. Ideal Petroleum (1959) Ltd., [1978] 1 S.C.R. 230, 26 C.B.R. 84. At page 239 (C.B.R. 92), de Grandpré, J. stated:
The proposal is a contract between the debtor and his creditors. When it is made in accordance with certain formalities prescribed in the Act this contract, which binds all creditors, even the dissenting minority, is not an act of bankruptcy, and the situation which results from it is not a situation of bankruptcy. This is what Kelly, J.A., speaking for the Court of Appeal of Ontario, held in Amanda Designs Boutique Ltd. v. Charisma Fashions Ltd., [1972] 3 O.R. 68, 17 C.B.R. (N.S.) 16. Although written in another context, the following sentence expresses the situation well (at page 20 (O.R. 71)):
Accordingly, when filed the proposal has the potentiality of bankruptcy which does not crystallize until the proposal is refused and never crystallizes if the proposal be approved.
Accordingly, the appellant was not a bankrupt at the time of the filing of the proposal nor thereafter.
In addition, the appellant claims that the Minister's claim arose prior to the proposal and therefore was dealt with under the proposal.
There is no basis in fact for this proposition. The liability for income tax arose when the RRSP was deregistered which event took place after the proposal was filed.
As stated above, in Employers Liability, supra, a proposal is a contract between the debtor and his creditors. Here the contract stated that the appellant would deregister the RRSP and use the funds to pay his creditors. In addition, the appellant claims that he never received the moneys from the RRSP and therefore cannot be taxed on its receipt. This argument is also without merit. All of the assets of the appellant remained the assets of the appellant and not the trustee under the proposal. (See Re Ano Ltée (1981), 39 C.B.R. (N.S.) 263 (Que. S.C.).)
Under the proposal, the appellant merely directed what was to happen to the proceeds of the RRSP. The proceeds were always his property just as the RRSP itself was his. The trustee was merely a conduit through which the funds passed on their way to the creditors. In fact, paragraph 5 of the proposal states:
5. That the net, after tax realization of the RRSP held by Central Guarantee Trust valued at $27,000 and the net proceeds of the two properties described below, which comprise all of the none-exempt [sic] assets of the debtor shall be made available to the trustee to satisfy the terms of this proposal:
[Emphasis added.] The operative words are "which comprise all of the none-exempt [sic] assets of the debtor shall be made available to the trustee to satisfy the terms of this proposal". The RRSP was an asset of the appellant and accordingly the amounts received on deregistration were also his. For these reasons, the appeal is dismissed with costs.
Appeal dismissed.
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