Date: 20020301
Docket: 2001-567-IT-I
BETWEEN:
ESTATE OF PETER A. BAAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
McArthur, J.
[1]
The issue in this appeal is whether the proceeds of registered
retirement savings plans were properly included in the terminal
return of the Appellant in the 1998 taxation year on the basis
that RRSPs were deemed to have been received by the deceased
immediately prior to his death pursuant to
subsection 146(8.8) of the Income Tax Act and are not
be a right or thing within the meaning of subsection 70(2)
of the Act. Mr. Audries K. Baak, a retired
chartered accountant and the father of the deceased, represented
the Appellant as estate executor.
[2]
The parties agreed to the following Statement of Facts:
1.
Peter A. Baak (the "Deceased") was single and had no
dependents.
2.
The Deceased passed away on September 25, 1998.
3.
The administration of the Deceased's estate was granted by
the Supreme Court of British Columbia to Audries K. Baak, the
executor of the Deceased's estate,
(the "Executor") on November 26, 1998.
4.
The Registered Retirement Savings Plan of which the Deceased was
the annuitant (the "RRSP's") were unmatured
plans.
5.
T4RSP forms in the amounts of $1,003.49 and $46,416.86 were
issued to the Appellant by CIBC for the 1998 taxation year.
6.
The fair market value of the RRSPs at the time of death of the
Deceased was $47,420.35.
7.
In computing income for the 1998 taxation year the Executor
included $47,420.35 as RRSP income (the "RRSP Income")
in a return of income return filed pursuant to section 70(2)
of the Income Tax Act (the "70(2) Rights and Things
Return").
8.
The Executor also filed a section 70(1) return of income (the
"70(1) Terminal Return") for the 1998 taxation year in
respect of the Deceased.
9.
The Minister of National Revenue (the "Minister")
assessed both the Deceased's section 70(1) final return
for the year of death (the "Terminal Return") as
well as the Deceased's section 70(2) return
(the "Rights and Things Return") in which the
Minister;
a)
Deleted the RRSP Income from the Rights and Things Return;
b)
Included the RRSP Income in the Terminal Return;
c)
With respect to the Terminal Return, allowed a deduction of
$1,362.90 from income for the repayment of employment insurance
benefits (the "Benefits");
d)
With respect to the Terminal Return, requested a repayment of the
Benefits.
[3]
The position of the Appellant is summarized in the Notice of
Appeal, which reads:
1.
The $47,420.35 of RRSP amounts which were owned by my son at date
of his death, should be included as income under
Section 70(2) of the Income Tax Act as "Rights
or Things". RRSPs fall within the definition of "Rights
or Things" and their inclusion in income under
Section 70(2) is clearly consistent with the intent for
which this section was created as opposed to the inclusion under
section 70(1).
2.
Section 146(8) was relied by the Minister of National
Revenue to include the RRSP amount in the income under
Section 70(1). I disagree with this for the following
reasons:
a.
It should not be read in conjunction with or applied to
Section 70(2).
b.
It does not reflect the will of Parliament as expressed in
Section 70(2).
c.
It subverts the intent of Section 70(2).
d.
Exceptions to Section 70(2) would have normally been dealt with
within the section, consistent with the treatment of exceptions
in other Sections of the Act.
e.
It is the only section in the Income Tax Act to contain
the phrase "immediately before his death". It is
recognized that the end of life is not clearly established and to
attribute the characteristic "immediately" to an
ambiguous state i.e. death, creates a concept that is meaningless
and is a nullity. There is only life before death. Hence, the use
of "at the time of his death" in Section 70(2)
should prevail.
f.
When alive my son had no intention to collapse his RRSP and
clearly not in this case.
g.
All technical notes, Interpretation Bulletins and MNR
literature/tax guidelines, etc. acknowledge this by an absence to
any reference to the phrase "immediately before his
death" and generally refer to "at the time of
death".
3.
Under the Canadian Charter of Rights and Freedoms,
Section 15, every individual is equal before and under the
law. Section 146(9) when read with Section 146(8)
violates this principle and should be considered as an
unenumerated ground for discrimination.
Section 146(9), Interpretation Bulletins and MNR
literature/tax guidelines, etc. explain that for the spouse of a
deceased the rules are different than for a single person. My son
was single and had no dependents. The effect of
Section 146(9) in this regard is to exclude RRSP amounts
from income under Section 70(1).
4.
The clawback of employment insurance benefits is also the result
of discrimination. The tax return for a deceased who had a spouse
at the time of his death will not reflect a clawback since the
RRSP amounts are excluded.
Mr. Baak expanded on this outline in a 15-page written
"Outline and Highlights of Arguments", as well as
orally during the hearing.
[4]
The issues to be decided in this appeal include: (i) if a
taxpayer dies with RRSPs, can they be claimed as rights and
things pursuant to a subsection 70(2) tax return; (ii)
whether subsections 70(2) or 146(8.8) of the Act
(essentially the RRSP legislation) violate section 15 of the
Charter of Rights and Freedoms and if they do, can they be
justified under section 1; (iii) whether the Minister was
correct in determining that the Appellant was required to repay
an amount of benefits pursuant to subsection 145(1) of the
Employment Insurance Act; and (iv) whether
subsection 145(1) of the EI Act also violates
section 15 of the Charter.
Legislation
[5]
Subsection 70(1) sets out how a deceased taxpayer's
income is to be calculated for the year of death and commonly
referred to as the terminal return. Subsection 70(2) reads:
70(2) Where a taxpayer who
has died had at the time of death rights or things
(other than any capital property or any amount included in
computing the taxpayer's income by virtue of subsection (1)),
the amount of which when realized or disposed of would have been
included in computing the taxpayer's income, the value
thereof at the time of death shall be included in
computing the taxpayer's income for the taxation year in
which the taxpayer died, unless the taxpayer's legal
representative has, not later than the day that is one year after
the date of death of the taxpayer or the day that is 90 days
after the mailing of any notice of assessment in respect of the
tax of the taxpayer for the year of death,
whichever is the later day, elected otherwise, in which case the
legal representative shall file a separate return of income for
the year under this Part and pay the tax for the year under this
Part as if
(a)
the taxpayer were another person;
(b)
that other person's only income for the year were the value
of the rights or things; and
(c)
subject to sections 114.2 and 118.93, that other person were
entitled to the deductions to which the taxpayer was entitled
under sections 110, 118 to 118.7 and 118.9 for the year in
computing the taxpayer's taxable income or tax payable under
this Part, as the case may be, for the year.
Other relevant provisions of the Act are as
follows:
146(8) There shall be included in
computing a taxpayer's income for a taxation year the total
of all amounts received by the taxpayer in the year as benefits
out of or under registered retirement savings plans, other than
excluded withdrawals (as defined in subsection 146.01(1) or
146.02(1)) of the taxpayer and amounts that are included under
paragraph (12)(b) in computing the taxpayer's
income.
146(8.8)Where the annuitant under a registered retirement
savings plan (other than a plan that had matured before June 30,
1978) dies after June 29, 1978, the annuitant shall be
deemed to have received, immediately before
the annuitant's death, an amount as a benefit
out of or under a registered retirement savings plan equal to the
amount, if any, by which
(a)
the fair market value of all the property of the plan at the
time of death
exceeds
(b)
where the annuitant died after the maturity of the plan, the fair
market value at the time of the death of the portion of the
property described in paragraph (a) that, as a consequence
of the death, becomes receivable by a person who was the
annuitant's spouse or common-law partner immediately
before the death, or would become so receivable should
that person survive throughout all guaranteed terms contained in
the plan.
[Emphasis added]
[6]
The Appellant in his submissions devoted considerable time to
defining certain words and phrases, including whether an RRSP was
"rights or things", "deem or deemed",
"immediately", "death" and
"context". The subsection 15(1) Charter
submissions appear to be the Appellant's primary
argument.
Analysis
[7] I
will first deal with whether, upon a taxpayer's death, RRSPs
can be claimed as "rights or things" within the meaning
of subsection 70(2). Subsection 70(1) sets out how a
taxpayer's income shall be calculated for the year of death.
Subsection 70(2) permits the taxpayer's legal
representative to claim on a separate income return, the value of
rights or things that the taxpayer had at the time of his death.
Subsection 146(8) applies to this case. It requires the
Appellant to include in income for the year, the total amount of
benefits received out of his RRSPs during the year.
Subsection 146(8.8) deems any amount of the RRSPs held by
the taxpayer at the time of his death to have been received
immediately before his death.
[8] I
agree with the Minister of National Revenue's position that
RRSPs are not "rights or things" within the meaning of
subsection 70(2).
[9]
Counsel for the Respondent referred me to L. Lamash
Estate v. M.N.R., [1990] 2 C.T.C. 2534. The facts in
Lamash are similar to the present ones. The Minister
denied the executor of the Lamash Estate's claim that RRSPs
were "rights or things" and not to be included as
income. The Tax Court upheld the Minister's decision. I agree
with the decision and reasons for it set out by Christie J.
I will not review his reasons in detail, but refer to his
comments on page 2539:
I regard subsections 70(2) and 146(8.8) as being in the same
context for the purposes of statutory interpretation and I agree
that the late Lillian Lamash is deemed to have received,
immediately before her death, the $19,096.67 in dispute and
consequently she could not have had rights, within the meaning
attributable to that word in subsection 70(2), in relation to
those funds at the time of her death. The subsection speaks of
rights the amount whereof when realized or disposed of would have
been included in computing the deceased's income. In
Cullity, Forbes, Brown, Taxation and Estate Planning, 2d
ed. Carswell, Toronto, this is said at pages 68-69:
Registered Retirement Savings Plans, Etc.
17. A taxpayer is not considered to have a right or thing in
respect of a registered retirement savings plan, whether matured
or not, of which he was, until his death, the annuitant. However,
except in the case of a plan that had matured before June 30,
1978, where the annuitant dies after June 29, 1978, the fair
market value of all the property of the plan at the time of death
(less amounts receivable by the spouse of the deceased or
received as a refund of premiums by a child, grandchild or other
beneficiary of the deceased, as described in subsections 146(8.8)
to (8.91)) must be included in the income of the deceased on his
final return by virtue of subsection 146(8.8). Similarly, a
taxpayer is not considered to have a right or thing in respect of
a registered retirement income fund or a registered home
ownership savings plan.
[10] I find
the wording of subsections 70(2), 146(8) and 146(8.8) clear
and unambiguous. Their plain and ordinary meaning is
determinative with respect to their interpretation.[1] I do not find the
phrase "immediately before death" ambiguous and do not
accept the Appellant's argument. I accept the
Respondent's reasons for concluding that Parliament intended
that RRSP proceeds are income in the year of death unless they
qualify under certain exceptions that do not apply to the present
circumstances.
[11] The
second question is whether subsections 70(2) or 146(8.8)
violate section 15 of the Charter.
Subsection 15(1) of the Charter reads as follows:
15(1) Every individual is
equal before and under the law and has the right to the equal
protection and equal benefit of the law without discrimination
and, in particular, without discrimination based on race,
national or ethnic origin, colour, religion, sex, age or mental
or physical disability.
[12] The
Appellant argues that his deceased son is being discriminated
against because he was a taxpayer who did not have a surviving
spouse or dependent child or grandchild that would qualify for
the transfer of his RRSP upon his death. He states that this
group is treated differently by the Income Tax Act than
those who do have a surviving spouse or qualifying dependent
child at the time of death.
[13] The
Appellant has the burden of establishing that the legislative
provisions are discriminatory.[2]
[14] Counsel
for the Respondent referred to the Supreme Court of Canada
decision of Law v. Canada (Minister of Employment and
Immigration).[3] The Supreme Court states that to determine whether
there is a subsection 15(1) violation, the Court must go
through a three-step analysis.
[15] I will
attempt to apply these steps to the present circumstances. First,
is a differential treatment imposed? Clearly, the answer is yes
since the Income Tax Act does impose differential
treatment on deceased taxpayer's estates who have no
surviving spouse or dependent children. Second, is this
differential treatment based on an enumerated or analogous ground
of distinction? The answer is yes. And third, whether this
distinction is discriminatory,. I have no problem in finding that
the distinction and the differential treatment is not
discriminatory within the meaning of section 15. I agree
with counsel for the Respondent who stated:
... it could not be said that persons who do not have
surviving spouse or financially dependent children or
grandchildren have been socially, politically or historically
disadvantaged in Canada, nor would this group be a discreet -- be
described as a discreet or insular minority. Nor are they an
independently disadvantaged group. This group is not subject to a
pre-existing disadvantage, vulnerability or prejudice, and
it's my submission that the treatment by the RRSP scheme on
this group does not have the effect of demeaning their dignity.
All of those factors are set out in Law -- the Law
decision, to be taken in consideration in determining whether a
particular distinction made by the provision is in fact
discriminatory within the meaning of section 15 as it's
intended.
... the Supreme Court in Law sets out the purpose of
section 15, and specifically I refer to page 39 at the top
of the page where it says:
The purpose of section 15(1) is to prevent the violation
of essential human dignity and freedom through the imposition of
disadvantage, stereotyping or political or social
prejudice.
[Transcript, page 20]
[16] The
Income Tax Act is filled with distinctions that have been
found not to be discriminatory with section 15.[4] Justice Galligan in the
decision of Ontario Public Service Employee's Union et al
v. The National Citizens Coalition Inc. et al[5] stated:
... I have some difficulty in understanding how tax laws
can be said to bestow benefits on taxpayers, but having said
that, it's clear that some taxpayers are entitled to certain
deductions from their income while others are not. The Income
Tax Act is full of examples where one taxpayer for certain
reasons has certain deductions which another taxpayer does not
have. Also, certain taxpayers are called upon to pay more taxes
than others. Some taxpayers are called upon to pay taxes at a
higher rate than others.
The Charter, as it has been said in many, many cases
too numerous to mention, it's an important piece of
legislation which constitutionally protects important rights and
freedoms of people who live in this country. ...
I agree with these statements. It is the jurisdiction of the
Legislature to determine entitlement to income tax
deductions.
[17] I will
not comment in detail on the cases cited by the Appellant. I find
that they did not deal with relevant discrimination under the
Income Tax Act.
[18] The third
issue is whether the Appellant is required to repay benefits
pursuant to subsections 145(1) of the Employment
Insurance Act. This question arises because I have found that
the $47,000 of RRSP income is to be included in the
Appellant's income for 1998, making his net income
approximately $48,000, thus disqualifying him from employment
insurance benefits. The Appellant does not dispute that if the
RRSPs are included in the 1998 income, then the Appellant's
income exceeds the base amount.
[19] The
Appellant states that the word "income" in
section 145 should not include "deemed income".
Section 144 of the Employment Insurance Act refers to
the Income Tax Act to define income and the Income Tax
Act requires the Appellant to include RRSPs as income in the
year of death, pursuant to subsections 146(8) and 146(8.8).
I find the value of the RRSPs held by the deceased at the time of
death are properly included in the calculation of the
Appellant's income for the purposes of section 145 of
the Employment Insurance Act.
[20] The
fourth and final issue is whether subsection 145(1) violates
section 15 of the Charter. Counsel for the Respondent
referred me to the decision in Spence v. Canada.[6] In Spence, the
Minister assessed the Appellant and required him to repay Family
Allowance Benefits on the basis that he had earned income greater
than the base amount specified in the relevant provision. The
Appellant argued that he was discriminated against mainly because
he was unfairly required to repay the benefits only because his
wife lived at home, whereas if both the Appellant and his wife
had been out in the work force earning income, if they had earned
income which were both less than the base amount, they would not
be required to repay the benefits, notwithstanding that both of
their incomes' total combined would actually exceed the base
amount. He felt that section 15 was violated by this
particular provision. The court found that, because that
particular provision merely made a distinction based on the level
of income of a particular taxpayer, that in fact that was not
discriminatory within the meaning of section 15. At
paragraph 17 of the Spence decision, Archambault J.
stated:
The distinction being based on the level of income and not on
family status, it remains to be determined whether the level of
income of an individual constitutes a personal characteristic.
Judge Tremblay in Thomson also dealt with this issue and
he concluded on page 12 of his judgment:
In view of these judgments, and many others, George v.
Attorney General of Canada, Tanguay v. Minister ...
Attorney General for Canada v. Pattinson, my opinion is that
the distinction made in Part I.2 of the Income Tax
Act is not a distinction based on a personal characteristic.
It's a distinction based on economic grounds that does not
come within section 15 of the Charter.
I see no reasons in this particular case to adopt a different
conclusion. ...
The fact situation in Spence is similar to the present
case. I agree with Judge Archambault's reasoning and
decision and apply it as my own to this appeal.
[21] For the
above reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of March, 2002.
"C.H. McArthur"
J.T.C.C.
COURT FILE
NO.:
2001-567(IT)I
STYLE OF
CAUSE:
Estate of Peter A. Baak and
Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
January 25, 2002
REASONS FOR JUDGMENT
BY:
The Honourable Judge C.H. McArthur
DATE OF
JUDGMENT:
March 1, 2002
APPEARANCES:
Agent for the
Appellant:
Audries K. Baak
Counsel for the
Respondent:
Johanna Russell
COUNSEL OF RECORD:
For the
Appellant:
Name:
N/A
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-567(IT)I
BETWEEN:
ESTATE OF PETER A. BAAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 25, 2002 at Vancouver,
British Columbia by
the Honourable Judge C.H. McArthur
Appearances
Agent for the
Appellant:
Audries K. Baak
Counsel for the
Respondent:
Johanna Russell
JUDGMENT
The
appeal from the assessment of tax made under the Income Tax
Act for the 1998 taxation year is dismissed.
Signed at Ottawa, Canada, this 1st day of March, 2002.
J.T.C.C.
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