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Citation: 2004CCI152
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Date: 20040303
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Docket: 2003‑615(IT)I
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BETWEEN:
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PATRICE BEAUDOIN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Angers J.
[1] This is an appeal from an assessment dated
May 13, 2002, respecting the taxation year 2001. Trust
La Laurentienne ("La Laurentienne") sent the appellant a
"Statement of Registered Retirement Savings Plan Income (T4RSP)" form
reporting an amount of $84,761 for the year in issue. The Minister of National
Revenue ("the Minister") therefore included this amount in the appellant's
income. The appellant objects to this inclusion. Thus, the issue is whether the
Minister properly included this amount in the appellant's income. The appellant
has chosen to limit the amount in issue in this appeal to $12,000, the maximum
permitted under the informal procedure.
[2] The
events that gave rise to this dispute occurred some years ago.
The chronology can be summarized as follows:
1 — On February 4, 1992,
the appellant completed and signed an enrolment form for a fixed‑term
annuity retirement savings plan from Société nationale de fiducie, now
La Laurentienne. The plan was registered and eligible under the Income
Tax Act (the Act), the Taxation Act, R.S.Q., c. I‑3, and
the regulations thereunder. The appellant designated his de facto
spouse as revocable beneficiary in the event of death. Under the rules of the
retirement savings plan, annuity payments could not begin before the
appellant's 60th birthday. The appellant was born in 1937.
2 — On March 9, 1992,
the appellant completed and signed a new enrolment form in order to change
beneficiaries. The appellant designated his two children as revocable
beneficiaries.
3 — On December 10,
1993, the appellant had a tax debt amounting to $203,907.47.
4 — On the same date,
the Minister sent Société nationale de fiducie a lettter of requirement for an
amount not exceeding $203,907.47, the amount of the appellant's tax debt at the
time.
5 — On December 22, 1993,
the Minister sent La Laurentienne, the appellant's new trustee, a letter
of requirement similar to the one just mentioned.
6 — Société nationale de
fiducie and La Laurentienne both failed to comply with the letter of
requirement.
7 — On February 1, 1994,
the appellant made an assignment of his property under the Bankruptcy and
Insolvency Act, R.S.C. 1985, c. B‑3. The funds
invested in the appellant's RRSP were not remitted to the trustee in
bankruptcy. The appellant was discharged on an unspecified date.
8 — On April 11, 1994,
the Minister issued a notice of assessment to La Laurentienne claiming
$61,673, the amount invested in the appellant's RRSP at the time.
9 — La Laurentienne
objected to this assessment within the prescribed time limits. The Minister
ratified the assessment on April 11, 1994.
10 — La Laurentienne
appealed the assessment in question before the Tax Court of Canada by
Notice of Appeal filed on March 5, 1996. The Reply to the Notice
of Appeal was filed on May 2, 1996.
11 — On January 30,
1998, the Superior Court of Quebec, Bankruptcy Division, issued a certificate
of unconditional discharge in favour of the appellant.
12 — On December 8, 1998,
the Tax Court of Canada allowed a motion by the Minister to dismiss the appeal
on the basis that La Laurentienne had not attended the examination for
discovery.
13 — On May 7, 1999,
the appellant, his two sons and La Laurentienne moved for leave to
intervene and asked that the judgment rendered by the Tax Court of Canada on
December 8, 1998, be set aside. The motion was dismissed on
November 9, 1999.
14 — The decision dismissing
the motion was appealed and, on May 28, 2000, the Federal Court of
Appeal dismissed the appeal.
15 — In 2001, La
Laurentienne paid the Minister the amount of $84,761.32, hence the issuance of
the "Statement of Registered Retirement Savings Plan Income" (T4RSP)
form for the appellant's 2001 taxation year.
16 — The appellant
followed the advice of his tax accountant, who prepared his income tax return
for the year in issue; he included the amount of $84,761.32 as Registered
Retirement Savings Plan (RRSP) income and entered the amount of $12,641.81 as
income tax withheld.
[3] The
respondent submits that the inclusion of $84,761 in the appellant's income for
the 2001 taxation year is mandatory under paragraph 56(1)(h) and
subsection 146(8) of the Income Tax Act ("the Act").
Those provisions read as follows:
56(1) Amounts to
be included in income for year — Without restricting the generality of
section 3, there shall be included in computing the income of a taxpayer
for a taxation year,
. . .
(h) registered
retirement savings plan, etc. [RRSP or RRIF] — amounts required
by section 146 in respect of a registered retirement savings plan or a
registered retirement income fund to be included in computing the taxpayer's
income for the year;
146(8) Benefits [and
withdrawals] taxable — 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.
[4] Thus,
a taxpayer is required to include, in computing his income, benefits received
out of or under a registered retirement savings plan. The term
"benefit" is defined in subsection 146(1) of the Act:
"benefit" includes any
amount received out of or under a retirement savings plan other than
(a) the
portion thereof received by a person other than the annuitant that can
reasonably be regarded as part of the amount included in computing the income
of an annuitant by virtue of subsections 146(8.8) and 146(8.9),
(b) an
amount received by the person with whom the annuitant has the contract or arrangement
described in the definition "retirement savings plan" in this
subsection as a premium under the plan,
(c) an
amount, or part thereof, received in respect of the income of the trust under
the plan for a taxation year for which the trust was not exempt from tax by
virtue of paragraph 146(4)(c), and
(c.1) a tax‑paid
amount described in paragraph (b) of the definition "tax‑paid
amount" in this subsection that relates to interest or another amount
included in computing income otherwise than because of this section
and without restricting the
generality of the foregoing includes any amount paid to an annuitant under the
plan
(d) in
accordance with the terms of the plan,
(e) resulting
from an amendment or modification of the plan, or
(f) resulting
from the termination of the plan;
[5] Counsel
for the appellant submits that the $84,761.32 remitted by La Laurentienne
to the Minister must not be considered RRSP income in the appellant's hands
because the RRSP benefit resulted from an annuity contract managed by a trust
company and is therefore exempt from seizure. Alternatively, in the event that
the amount is liable to seizure, counsel for the appellant submits that the
amount should not be included in the appellant's income because the RRSP income
was included in computing the appellant's income following a transaction aimed
at paying a debt which the appellant's discharge from bankruptcy had already
extinguished. In either case, it is submitted that the amount was not received
by the appellant as a benefit out of or under an RRSP within the meaning of the
Act.
[6] The
amount in question in the instant case was clearly not paid directly to the
appellant. Rather, La Laurentienne paid the amount to the Minister on the
appellant's behalf in order to pay down the appellant's tax liability.
Consequently, the payment, by a third party, of a taxypayer's tax liability out
of his RRSP, is equivalent to the payment of a benefit to the appellant, which
means that the appellant can be considered to have been paid a benefit
indirectly and must include that amount in computing his income.
[7] In
view of the submissions made by counsel for the appellant, it must be asked
whether the amount in question was exempt from seizure because
La Laurentienne is a trustee under an annuity contract that it manages. If
the amount is not exempt from seizure, it must be asked whether the amount paid
by La Laurentienne is really a benefit within the meaning of the Act and
whether the appellant received a sum of money that was of potential benefit to
him, assuming that the amount remitted was used to pay a debt that was
extinguished by virtue of the appellant's discharge from bankruptcy.
[8] La
Laurentienne's payment of the appellant's RRSP to the Minister, following the
appellant's bankruptcy, for the purpose of paying a tax debt that pre‑dates
the bankruptcy, raises an interesting question about the Minister's priority in
relation to the appellant's other creditors at the time that he made an
assignment of his property under the Bankruptcy and Insolvency Act. If
the RRSP was liable to seizure, it seems to me that it should have been
assigned to the appellant's trustee in bankruptcy, thereby becoming part of his
estate for the benefit of all creditors with provable claims under the Bankruptcy
and Insolvency Act. Having said this, in order to determine whether or
not the appellant's RRSP was liable to seizure in the event of the appellant's
bankruptcy or following a garnishment by the Minister, one must analyze the
RRSP annuity contract and the legislation relevant to bankruptcy or to the
ensuing period that is in issue in the instant case. The nature of the
investment and the conditions that entitle the appellant to request funds from
his RRSP must be analyzed.
[9] The
evidence in the instant case is incomplete. The respondent submits that the
appellant's RRSP consisted of 30‑day to one‑year term deposits, and
that the appellant could demand the funds invested in these deposits upon their
maturity. As for the appellant, he submits that the terms of his plan provided
that annuity payments could not begin until his 60th birthday (he was born
in 1937). According to the appellant, the plan's rules state that, as long as
the plan is eligible under tax laws, the funds held and managed by the trustee
cannot be withdrawn, transferred or assigned, whether in whole or in part.
These facts are set out in the Notice of Appeal filed by La Laurentienne,
and the respondent denied them in the Reply to the Notice of Appeal (see
Exhibit A‑1, tabs 1 and 2). Moreover, none of the witnesses
addressed this issue at the trial and no document was tendered that would
enable us to resolve this issue. I have no choice but to reject the argument
that the amount in question was exempt from seizure.
[10] Subsection 178(1) of the Bankruptcy and Insolvency Act sets
out a list of debts not released by the discharge of a bankrupt. Tax debts are
not on the list. Under subsection 178(2), an order of discharge releases
the bankrupt from all other claims provable in bankruptcy. By virtue of the
definition of "provable claim" in section 2 and section 121
of the Bankruptcy and Insolvency Act, a bankruptcy applies to all debts
and liabilities of the bankrupt, present or future, except those listed in
subsection 178(1) of the Bankruptcy and Insolvency Act:
"claim provable in
bankruptcy", "provable claim" or "claim
provable" includes any claim or liability provable in proceedings
under this Act by a creditor;
Claims provable
121. (1) All debts
and liabilities, present or future, to which the bankrupt is subject on the day
on which the bankrupt becomes bankrupt or to which the bankrupt may become
subject before the bankrupt's discharge by reason of any obligation incurred
before the day on which the bankrupt becomes bankrupt shall be deemed to be
claims provable in proceedings under this Act.
[11] Section 128 of the Act contains special rules that apply when an
individual becomes bankrupt. One such rule is that the trustee in bankruptcy is
deemed to be the agent of the bankrupt. The evidence adduced at trial does not
enable me to determine whether these rules were followed in the case at bar, or
whether the trustee in bankruptcy received notices of assessment concerning the
appellant's tax liabilities. What is certain is that the appellant's tax debt
amounted to $203,907.47 on December 10, 1993, and was the subject of
a letter of requirement sent to La Laurentienne on that date. The
appellant made an assignment of his property on February 1, 1994. At
that time, the Minister became a creditor with a claim in the bankruptcy
because the claim existed at the time that the appellant assigned his property
to the trustee. The certificate of unconditional discharge issued to the
appellant is dated January 30, 1998, and has the effect, in my
opinion, of releasing the appellant's tax debt. Thus, the measures that the
respondent took against La Laurentienne after January 30, 1998,
were taken to recover a discharged debt.
[12] Judge Teskey of our Court was faced with a similar question in Meltzer v. Canada,
[1995] T.C.J. No. 1433. The question was whether certain annuity
payments that London Life made to the two appellants' creditors under an
order of the Court of Queen's Bench were taxable as income in the appellants'
hands. The appellants had converted their RRSPs into annuities a few
months before they assigned their property to a trustee in bankruptcy. The
Court ordered that the annuities purchased in this manner be paid to the
creditors's benefit, and that order was made part of the appellants' order of
discharge in bankruptcy. Judge Teskey held as follows at
paragraphs 23‑24:
The result of Justice Morse's judgment is that the
transfer of the funds realized on the collapse of the RRSPs was void. By
directing that the annuity payments be made directly to the creditors, he
effectively removed the ownership from the Appellants to the creditors. Of
particular importance here is that at least following the judgment (if not
earlier) the Appellants had no beneficial ownership of, or interest in, the
annuities and income arising therefrom, was not their income.
In any event, the sums are not taxable as neither
Appellant received any money from London Life after the date of the judgment
and received no benefit, as their debt and obligations to the plaintiffs
therein had been extinguished by their discharge in bankruptcy.
[13] In the instant case, for reasons that were not explained, the amount
invested with La Laurentienne was not assigned to the trustee of the
assignment under the Bankruptcy and Insolvency Act. It is equally clear
that the amount was not directly paid to the appellant, though the payment of
the amount by La Laurentienne could be beneficial to the appellant in the
sense that it serves to pay down the appellant's debt to the Minister, thereby
constituting an "indirect receipt" that would require the appellant
to add the amount to his income for the taxation year in issue. However, since
the tax debt was cancelled by the order discharging the appellant, one can, in
my view, conclude that La Laurentienne's payment of RRSP income to the
Minister, with a view to paying an extinguished debt, is not an amount received
by the appellant as a benefit within the meaning of subsection 146(8) of
the Act because the appellant obtained no sum of money or advantage as a result
of the payment.
[14] Having said this, the Court does not have the jurisdiction to make any
order regarding the reimbursement of this amount to La Laurentienne. The
Court must respect the powers that it has been granted under
subsection 171(1) of the Act:
171(1) Disposal of
appeal — The Tax Court of Canada may dispose of an appeal by
a) dismissing it;
or
b) allowing it
and
(i) vacating the
assessment,
(ii) varying the
assessment, or
(iii) referring
the assessment back to the Minister for reconsideration and reassessment.
[15] In McMillen Holdings Ltd. v. Canada (Minister of National Revenue), [1987] T.C.J. No. 825,
Judge Rip specified the scope of the Tax Court of Canada's jurisdiction:
I cannot overemphasize that the Court's original
jurisdiction is to hear and determine appeals in matters arising under the Act;
an action against the Crown based on the Act, but is not an appeal from an
assessment, is not an appeal arising under the Act, which is within the
jurisdiction of this Court.
[16] In Collins v. Canada, 96 DTC 1034, Judge Bowman held
that the jurisdiction of the Court over an assessment made by the Minister
includes the jurisdiction to determine legal questions raised by the
assessment:
If this court is to exercise the
jurisdiction that it has to determine the existence of legal rights that are
relevant to the determination of tax liability under the Income Tax Act
it must be able to consider such questions.
[17] Consequently, the appeal is allowed and the assessment is referred
back to the Minister for reconsideration and reassessment on the basis that the
payment made by La Laurentienne is not to be considered income in the
appellant's hands.
Signed at Ottawa, Canada,
this 3rd day of March 2004.
Angers
J.
Translation
certified true
on this 10th day
of February 2005.
Jacques Deschênes,
Translator
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