Citation: 2008TCC168
Date: 20080325
Docket: 2007-3184(IT)I
BETWEEN:
RAMDAI MISIR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The issue in this appeal is whether the Appellant was
entitled to deduct $10,000 in computing her income in 2005 pursuant to
subsection 146(8.2) of the Income Tax Act ("Act"). This
subsection permits a taxpayer to deduct from his or her income an amount
withdrawn from an RRSP provided that the taxpayer did not claim a deduction for
the amount when it was contributed to the RRSP and provided that the amount is
withdrawn by the taxpayer from the RRSP within the time period specified in
paragraph 146(8.2)(c) of the Act. Paragraph 146(8.2)(c) of the Act
provides as follows:
146(8.2) Where
…
(c) the payment is received by the taxpayer or the taxpayer's spouse or
common-law partner in a particular taxation year that is
(i) the year in which the premiums were paid by the taxpayer,
(ii) the year in which a notice of assessment for the taxation year
referred to in subparagraph (i) was sent to the taxpayer, or
(iii) the year immediately following the year referred to in subparagraph
(i) or (ii),
[2] The Appellant was employed by Bombardier but was laid off in 2002. She
now only has a modest pension income and is supporting her parents. For several
years she made contributions to her RRSP. She indicated that she would do this
early in the year. However, the amounts that she contributed to her RRSP over
the years were in excess of the amounts that she was permitted to deduct in
computing her income. She was not aware of this until 2005.
[3] The following table was attached to the Reply and sets out the summary
of the amounts contributed by the Appellant to her RRSP and the amounts
deducted by the Appellant in computing her income:
|
Tax
Year
|
Undeducted
Contributions From Prior Years
|
Current
Year Contributions (includes Transfers)
|
Total
Contributions Available to Deduct
|
Repayments
to HBP & LLP
|
Contributions
Deducted (includes Transfers)
|
|
2007
|
9,121
|
|
|
|
|
|
2006
|
9,121
|
1,085
|
10,206
|
1,085
|
0
|
|
2005
|
10,206
|
0
|
10,206
|
1,085
|
0
|
|
2004
|
10,206
|
1,085
|
11,291
|
1,085
|
0
|
|
2003
|
12,501
|
14,290
|
26,791
|
1,085
|
15,500
|
|
2002
|
9,077
|
6,346
|
15,423
|
1,100
|
1,822
|
|
2001
|
8,690
|
9,757
|
18,447
|
1,086
|
8,284
|
|
2000
|
8,690
|
6,203
|
14,893
|
1,086
|
5,117
|
|
1999
|
8,765
|
4,696
|
13,461
|
1,086
|
3,685
|
|
1998
|
8,690
|
6,500
|
15,190
|
1,086
|
5,339
|
|
1997
|
1,555
|
14,536
|
16,091
|
1,086
|
6,315
|
|
1996
|
1,186
|
8,586
|
9,772
|
1,086
|
7,131
|
|
1995
|
0
|
7,891
|
7,891
|
1,086
|
5,619
|
|
1994
|
0
|
5,602
|
5,602
|
0
|
5,602
|
[4] The column labeled "Repayments to HBP & LLP" is related to
the home buyers plan payments that the Appellant was making to her RRSP to
repay the home buyers plan loan that she had earlier received from her RRSP.
Although the table indicated that there was no contribution made in 2005, the
Appellant testified that she did make the required home buyers plan
contribution of $1,085 in 2005 and I accept her testimony in this matter.
[5] No explanation was provided for the reference to “(includes Transfers)”
and therefore it is not clear what was intended to be included as a “transfer”.
However since the Canada Revenue Agency (“CRA”) in Interpretation Bulletin
337R4 — Retiring Allowances [Consolidated] (referred to below), refers to
amounts contributed to an RRSP from a retiring allowance as a transfer, I
assume that, for the purposes of this case, that the “includes transfers” would
include amounts contributed from a retiring allowance.
[6] When the Appellant became aware of the fact that she had undeducted
contributions to her RRSP that would be taxable when paid to her unless she
withdrew the amounts within the time period permitted by subsection 146 (8.2)
of the Act, she talked to a representative of the CRA, who told her that
she could withdraw these amounts without incurring tax. She prepared the forms
based on the advice she received from the CRA. These forms showed excess
contributions for 1995, 1996, 1997, 1998 and 2001. Since the Appellant withdrew
the funds in 2005, it is very important to determine the year in which the
undeducted contributions were made, given the time limitations for a deduction
under subsection 146(8.2) of the Act set out in paragraph 146(8.2)(c) of
the Act.
[7] The Appellant testified that she filed her tax return each year before
the deadline and therefore I conclude that the 2003 tax return would have been
assessed in 2004. Therefore any undeducted amounts contributed in 2003 and
withdrawn in 2005 would qualify for the deduction provided in subsection
146(8.2) of the Act as 2005 is the year following the year that the 2003
tax return was assessed.
[8] The assumptions made by the Minister in reassessing the Appellant were
based on the assumption that for each year the amount that was deducted would
first be considered to have been paid from the current year's contribution and
then, if the amount deducted exceeded the current year's contribution, the
excess amount deducted would be considered to be from the undeducted
contributions from prior years. Although this is not expressly stated in the
Reply, it is implicit in the assumption in paragraph 9(a) of the Reply that the
Appellant had undeducted contributions in respect of the 1995, 1996, 1997, 1998
and 2001 taxation years. If the amount deducted each year would have been
considered to have been paid first from the undeducted contributions from prior
years, there would not be any undeducted contributions in respect of the 1995,
1996, 1997, 1998 and 2001 taxation years.
[9] The assumption in the Reply, then, was that the last payments made were
the first ones credited towards the amounts deducted. On this basis, since the
contributions deducted in 2003 exceeded the contributions made in 2003, the
$10,000 that the Appellant withdrew from her RRSP in 2005 would have been in
relation to premiums paid in 2002 or earlier, and hence would not be withdrawn
within the time period permitted for a deduction under subsection 146(8.2) of
the Act. The only amounts contributed in 2004 and 2005 were the home
buyers plan repayments of $1,085 per year.
[10] However, the appeals officer for the CRA testified during the hearing,
and she stated that the amounts deducted each year would first be considered to
be from the undeducted contributions from prior years. If the amount deducted
exceeded the undeducted contributions from prior years, then the excess would
be considered to be paid from the amount contributed in that year. On this
basis, the payments to the RRSP would be treated on a first-in, first-out
basis. For example for the year 1996, the amount deducted of $7,131 would first
be considered to be from the undeducted contributions from prior years (which
would have been from 1995) of $1,186 and the balance of $5,945 would be from
the contribution of $8,586 made in 1996. On this basis the contributions
deducted in 2003 of $15,500 would first be considered to be from the undeducted
contributions from prior years of $12,501, and the balance of $2,999 would be
considered to be from the payment of $14,290 made in 2003. On this basis, the
undeducted contributions from prior years in 2004 and 2005 of $10,206 would all
relate to the amount contributed in 2003, and hence the withdrawal of $10,000
in 2005 would be made within the time restrictions in paragraph 146(8.2) of the
Act.
[11] In my opinion, without considering the implications of paragraph
60(j.1) of the Act, the methodology recited by the appeals officer is
the correct methodology to determine whether the amounts deducted in each year
were from the undeducted contributions from prior years or the current year's
contribution. Subsection 146(5) of the Act provides that there is a
deduction for premiums paid after 1990 and there is nothing to suggest that
deductions made in any particular year should first be considered to be from
contributions made in that year. The application of a first-in, first-out
approach is valid and in my opinion is the logical approach to be applied in
this case, without considering the implications of paragraph 60(j.1) of the Act.
The contributions deducted in each year, in this case, should first be
considered to be from the undeducted contributions of prior years and any
excess should then be considered to be from the contributions made in that
particular year.
[12] The appeals officer testified that the amount in 2003 was a retiring
allowance. There is no indication in the Reply that the amount in 2003 was paid
from a retiring allowance. A retiring allowance is defined in subsection 248(1)
of the Act as follows:
“retiring allowance” means an amount (other than a superannuation or
pension benefit, an amount received as a consequence of the death of an
employee or a benefit described in subparagraph 6(1)(a)(iv)) received
(a) on or after retirement of a taxpayer from an office or employment in
recognition of the taxpayer's long service, or
(b) in respect of a loss of an office or employment of a taxpayer,
whether or not received as, on account or in lieu of payment of, damages or
pursuant to an order or judgment of a competent tribunal,
by the taxpayer or, after the taxpayer's death, by a dependant or a
relation of the taxpayer or by the legal representative of the taxpayer;
[13] A retiring allowance is included in income under subparagraph
56(1)(a)(ii) of the Act.
[14] Paragraph 60(j.1) of the Act provides for an additional
deduction for retiring allowance amounts that are contributed to an RRSP equal
to $2,000 per year multiplied by the number of years that the individual was
employed by the employer prior to 1996 (and an additional amount if the
individual was employed prior to 1989 and had an equivalent number of years
before 1989 in respect of which neither a pension plan nor a deferred profit
sharing plan had vested in the employee).
[15] Counsel for the Respondent argued that the retiring allowance was not a
premium as defined in subsection 146(1) of the Act. While it is correct
that the retiring allowance itself is not a premium, when the amount received
as a retiring allowance is contributed to an RRSP, the amount so contributed is
a premium as defined in subsection 146(1) of the Act. This is the same
result whether the individual actually receives the retiring allowance and then
makes the contribution to his or her RRSP or whether the employer makes the
contribution directly to the employee's RRSP (which may be done to avoid the
withholding tax on the retiring allowance if the amount of the retiring
allowance is equal to the additional deduction provided in paragraph 60(j.1) of
the Act). If the employer makes the payment directly, the employee is
still deemed to have received the retiring allowance and therefore the employee
would still be deemed to have made the contribution to his or her RRSP.
[16] The amount shown as contributions by the Appellant in 2003 of $15,500
would be premiums paid by the Appellant even though a portion or all of this
was funded by a retiring allowance that may have been paid directly by the
Appellant's employer to the Appellant's RRSP.
[17] In Interpretation Bulletin 337R4 — Retiring Allowances [Consolidated],
the CRA made the following comments in relation to paragraph 60(j.1) of the Act
and the requirement to withhold tax from retiring allowance payments made
directly to an RRSP of the employee:
19. Paragraph 60(j.1) provides for a deduction for all or part of a
retiring allowance included in a taxpayer's income and transferred to an RPP or
to an RRSP under which the taxpayer is the annuitant….
…
25. Subject to § 26, a person paying a retiring allowance to a recipient
is required, pursuant to paragraph 153(1)(c), to withhold tax therefrom in such
amount as is prescribed by Regulation. However, the payer is not required to
deduct income tax on the amount of retiring allowance transferred directly to
the recipient's RPP. If the retiring allowance or a part thereof is paid
directly to an RRSP (see §s 19 and 21), there is no requirement for the payer
to withhold income tax on the transferred amount if the payer has reasonable
grounds to believe the transfer is within the deduction limits under paragraph
60(j.1) or can be deducted pursuant to subsections 146(5) or (5.1). For more
information, see the current version of the guide entitled Employers' Guide:
Payroll Deductions (Basic Information).
[18] Since the Respondent has not pleaded paragraph 60(j.1) of the Act
in the Reply nor has the Respondent made any assumptions in relation to the
number of years prior to 1996 that the Appellant was employed by Bombardier or
made any reference in the Reply to any retiring allowance, the Respondent had
the onus of proving the facts required to determine the potential application
of paragraph 60(j.1) of the Act to the question of whether the
contributions deducted in 2003 were first from the undeducted contributions
from prior years or first from the contributions made in 2003.
[19] In Pollock v. The Queen,
[1994] 1 C.T.C. 3, 94 DTC 6050, Justice Hugessen, on behalf of the Federal
Court of Appeal, made the following comments:
Where, however, the Minister has pleaded no assumptions, or where
some or all of the pleaded assumptions have been successfully rebutted, it
remains open to the Minister, as defendant, to establish the correctness of his
assessment if he can. In undertaking this task, the Minister bears the ordinary
burden of any party to a lawsuit, namely to prove the facts which support his
position unless those facts have already been put in evidence by his opponent.
This is settled law.
[20] In Loewen 2004 FCA 146, Justice Sharlow,
on behalf of the Federal Court of Appeal, made the following comments:
11 The constraints on the Minister that
apply to the pleading of assumptions do not preclude the Crown from asserting,
elsewhere in the reply, factual allegations and legal arguments that are not
consistent with the basis of the assessment. If the Crown alleges a fact
that is not among the facts assumed by the Minister, the onus of proof lies
with the Crown. This is well explained in Schultz v. R. (1995), [1996]
1 F.C. 423, [1996] 2 C.T.C. 127, 95 D.T.C. 5657 (Fed. C.A.) (leave to appeal refused, [1996]
S.C.C.A. No. 4 (S.C.C.)).
(emphasis added)
[21] Leave to appeal the decision of the Federal
Court of Appeal in Loewen to the Supreme Court of Canada was refused (338
N.R. 195 (note)).
[22] Since the Respondent has not led any evidence with respect to the facts
that would be required to determine the potential application of paragraph
60(j.1) of the Act and in particular any evidence in relation to the
number of years that the Appellant was employed by Bombardier prior to 1996 nor
did counsel for the Respondent raise any argument in relation to the potential
application of this paragraph of the Act, I cannot consider whether the
application of paragraph 60(j.1) of the Act would alter the
determination of whether the amount deducted in 2003 was first from the amount
contributed in 2003 from the retiring allowance or from the undeducted
contributions from prior years. As well the table attached to the Reply does
not indicate any different treatment for the amounts deducted for 2003 from the
treatment of the amounts deducted in the other years. As the Respondent has
failed to establish the facts necessary to determine the application of
paragraph 60(j.1) of the Act, the Respondent cannot succeed on this
issue.
[23] As a result, the appeal is allowed and the assessment is vacated.
Signed at Halifax, Nova Scotia, this 25th day of March 2008.
“Wyman W. Webb”
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