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Appeal heard on January 6, 2004 at Toronto, Ontario

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JUDGMENT

The appeal in respect of the reassessment made under the Income Tax Act for the 2001 taxation year is allowed, without costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that $7,801.34 is deductible by the Appellant in computing income pursuant to subsection 146(8.2).

Signed at Ottawa, Canada this 12th day of February, 2004.

J.M. Woods J.

REASONS FOR JUDGMENT

Woods J.

[1]      Early in the 2001 taxation year, Barbara Vale made an overcontribution to an RRSP. Once she became aware of the fact that she had contributed more than her deductible limit, Mrs. Vale withdrew an amount sufficient to offset the overcontribution. The withdrawal took place later in the same year. The withdrawal was made partly from the RRSP to which the overcontribution was made and partly from another RRSP.

[2]      Subsection 146(8.2) of the Income Tax Act allows a deduction for a withdrawal from an RRSP if the withdrawal is in respect of an inadvertent overcontribution. The question to be decided is whether a withdrawal from an RRSP that is different from the one to which the overcontribution was made qualifies for this deduction.

[3]      None of the facts are in dispute. On January 5, 2001, Mrs. Vale contributed $10,000 to a registered retirement savings plan with the Canadian Imperial Bank of Commerce. Upon realizing that the amount contributed exceeded her deductible limit, Mrs. Vale withdrew, in the same year, a total of $8,543.57. The withdrawal was divided into two parts and was made from two registered retirement savings plans, $5,093.44 from the CIBC plan to which the overcontribution was made and $3,450.13 from a plan with TD Canada Trust. Mrs. Vale testified that it was more cost effective to make the withdrawal from the two plans as opposed to withdrawing the entire amount from the CIBC plan.

[4]      In computing her 2001 income, Mrs. Vale included $8,543.57, the total amount withdrawn, pursuant to subsection 146(8) of the Act. An offsetting deduction was claimed for a portion of this amount, $7,801.34, pursuant to subsection 146(8.2). The Minister of National Revenue reassessed by reducing the deduction under subsection 146(8.2) to $5,903, the amount withdrawn from the CIBC plan.

Analysis

[5]      Subsection 146(8.2) provides a deduction for certain withdrawals of overcontributions to RRSPs. The deduction is intended to offset the general income inclusion required for withdrawals from an RRSP under subsection 146(8). Under paragraph 146(8.2)(b), the deduction is allowed only if the withdrawal reasonably is in respect of an overcontribution. Paragraph 146(8.2)(e) requires that the overcontribution be inadvertent but this is not an issue in this case. The only question to be decided is whether the withdrawal from the TD Canada Trust plan reasonably is in respect of the overcontribution to the CIBC plan.

[6]      The relevant part of subsection 146(8.2) reads:

(8.2) Where

(a) all or any portion of the premiums paid in a taxation year by a taxpayer to one or more registered retirement savings plans under which the taxpayer or the taxpayer's spouse or common-law partner was the annuitant was not deducted in computing the taxpayer's income for any taxation year,

(b) the taxpayer or the taxpayer's spouse or common-law partner can reasonably be regarded as having received a payment from a registered retirement savings plan or a registered retirement income fund in respect of such portion of the undeducted premiums as ...

(emphasis added)

[7]      The Crown suggests that the withdrawal from the TD Canada Trust plan does not qualify for the deduction because the withdrawal does not "relate" to the overcontribution. The Crown suggests that since all premiums paid to the TD Canada Trust plan had been deducted, the withdrawal from that plan cannot be considered to relate to undeducted premiums as required by the section.

[8]      Mrs. Vale was represented at the hearing by her husband who is an accountant. He suggests that the position taken by the Crown appears to be based on a technical interpretation published in Window several years ago that was based on a version of subsection 146(8.2) that is not applicable in the taxation year at issue. The earlier version of the section, which dates back to 1976, clearly requires that the withdrawal be from the same plan to which the overcontribution was made. The current wording of subsection 146(8.2) does not contain the same language.

[9]      I cannot accept the interpretation of subsection 146(8.2) suggested by the Crown in this case. This interpretation is not supported by the broad language used in subsection 146(8.2) and counsel for the Crown was unable to provide any policy reason why the withdrawal should be made from the same RRSP as the one to which the overcontribution was made.

[10]     The broad language used in subsection 146(8.2) suggests that Parliament did not intend to require a strict tracing of the withdrawal and overcontribution. The provision permits a deduction as long as the withdrawal can reasonably be regarded as being in respect of the overcontribution. The phrase "in respect of" has been consistently interpreted broadly by the courts - most recently by Mr. Justice Major in The Queen v. Markevich, 2003 DTC 5185 (S.C.C.):

The words "in respect of" have been held by this Court to be words of the broadest scope that convey some link between two subject matters.

[11]     In this case there is a clear link between the withdrawal from the TD Canada Trust plan and the overcontribution to the CIBC plan. The link is that the withdrawal from the TD Canada Trust plan was made in order to minimize the adverse tax consequences that would arise from the overcontribution to the CIBC plan. I find that this linkage is sufficient to satisfy the words of subsection 146(8.2). As long as the taxpayer can establish that the withdrawal is intended to minimize adverse tax consequences from an overcontribution to another plan, the withdrawal can reasonably be considered to be in respect of the overcontribution.

[12]     The appeal is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that $7,801.34 is deductible by the appellant in computing income pursuant to subsection 146(8.2) of the Act.

Signed at Ottawa, Canada this 12th day of February, 2004.

J.M. Woods J.