Bergeron v. The Queen, docket 98-2730-IT-I (Informal Procedure)

Date: 19991030

Docket: 98-2730-IT-I

BETWEEN:

GILLES BERGERON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Lamarre Proulx, J.T.C.C.

[1] This is an appeal under the informal procedure concerning the 1997 taxation year. The issue is whether, in computing the appellant's income, the Minister of National Revenue (the "Minister") correctly included the amount of $14,000 as a taxable benefit from a Registered Retirement Savings Plan ("RRSP") for the 1997 taxation year under paragraph 56(1)(h) and subsection 146(8) of the Income Tax Act (the "Act").

[2] The facts on which the Minister relied in making the assessment are set out in paragraph 5 of the Reply to the Notice of Appeal (the "Reply") as follows:

[TRANSLATION]

(a) the appellant, having made an initial application for withdrawal under the Home Buyers' Plan, withdrew $6,000 from an RRSP on December 9, 1996;

(b) the Minister considered the $6,000 withdrawal eligible under the Home Buyers' Plan;

(c) the appellant made a second application for withdrawal under the Home Buyers' Plan and on February 6, 1997 withdrew $14,000 from an RRSP;

(d) for the 1997 taxation year, the appellant could not participate in the Home Buyers' Plan again given his previous participation in the 1996 taxation year;

(e) as a result, the $14,000 withdrawal from a Registered Retirement Savings Plan was added in computing the appellant's income for the 1997 taxation year.

[3] The facts set out in the Notice of Appeal are as follows:

[TRANSLATION]

. . .

The circumstances of this case are as follows:

— In 1996, Gilles decided to purchase a home in order to live there;

— He had a cash amount of approximately $8,000;

— It was suggested to him that he participate in the Home Buyers' Plan as he had a $6,000 RRSP with an insurance company;

— The banker consulted regarding the mortgage suggested that Gilles borrow $14,000 to purchase another RRSP which would give him the authorized maximum of $20,000;

— The loan proceeds were deposited in an RRSP in early November 1996;

— In December 1996, Gilles inquired with the insurer managing his $6,000 RRSP as to the procedure for withdrawal under the Home Buyers' Plan;

— He was asked to sign a form without being given any explanation;

— A few days later, to his great surprise, Gilles received a $6,000 cheque from the insurer;

— Unaware of the technicalities of the Home Buyers' Plan, he deposited the money at the bank because he did not need it until May 1997;

— In early February 1997, the banker managing the $14,000 RRSP had him sign a Home Buyer's Plan transfer form;

— In the spring of 1997, Gilles claimed a $14,000 RRSP tax deduction in filing his returns of income;

— Revenue Canada and Revenu Québec granted him a total refund of approximately $5,000;

— Gilles purchased his residence in May 1997;

— He made a $12,000 cash down payment and paid $2,000 for expenses;

— He had $4,000 worth of work done;

— On August 20, 1997, Gilles was informed by letter that the $14,000 RRSP amount was disallowed for the purposes of the Home Buyers' Plan because he had used that Plan in 1996 when the $6,000 amount was refunded to him by the insurer;

. . .

[4] The appellant and Jean-Paul Tessier, acting as agent for the appellant, testified. As stated in the Notice of Appeal, in 1996, the appellant held $6,000 in an RRSP with an insurance company. On November 5, 1996, on the advice of a banker from whom he was seeking a mortgage loan, he borrowed $14,000 from the bank in order to deposit it to an RRSP managed by that bank. The documents showing this loan and this RRSP contribution were filed as Exhibit A-1.

[5] The appellant deducted the $14,000 paid into the RRSP in computing his income for the 1996 taxation year. The income tax returns for 1996 and 1997 were filed as Exhibits I-1 and I-2.

[6] The $14,000 contribution made to the appellant's RRSP on November 5, 1996 could not be withdrawn by him for the purposes of the Home Buyers' Plan less than 90 days after it was made, according to subparagraph 146(5)(a)(iv.1) of the Act (cited below), if the appellant wished to remain entitled to deduct the contribution for 1996. That is why this amount was not withdrawn until February 6, 1997.

[7] Subparagraph 146(5)(a)(iv.1) of the Act reads as follows:

146(5) There may be deducted in computing a taxpayer's income for a taxation year such amount as the taxpayer claims not exceeding the lesser of

(a) the amount, if any, by which the total of all amounts each of which is a premium paid by the taxpayer after 1990 and on or before the day that is 60 days after the end of the year under a registered retirement savings plan under which the taxpayer was the annuitant at the time the premium was paid, other than the portion, if any, of the premium

. . .

(iv.1) that would be considered to be withdrawn by the taxpayer as an eligible amount (within the meaning assigned by subsection 146.01(1)) less than 90 days after it was paid, if earnings in respect of a registered retirement savings plan were considered to be withdrawn before premiums paid under that plan and premiums were considered to be withdrawn in the order in which they were paid . . . .

[8] On November 28, 1996, the appellant withdrew $6,000 from his RRSP with the insurance company as a withdrawal under the Home Buyers' Plan. Exhibit A-2 consists of two forms respecting the Home Buyers' Plan: one is an application for withdrawal for 1996, the other a similar application for 1997. The 1997 application for the withdrawal of $14,000 is dated February 6, 1997. In Part 2, the Certification of participant, there is the following:

[TRANSLATION]

. . . I did not participate in the Home Buyers' Plan prior to January 1, 1997. . . .

[9] The circumstances of the first withdrawal are described in the paragraphs of the Notice of Appeal cited above. According to the Notice of Appeal, the appellant merely discussed the procedure for withdrawal with the insurer without applying for withdrawal. The Notice of Appeal also states that the $6,000 amount was withdrawn from the RRSP and simply deposited at the bank and not used until May 1997.

[10] Why did the appellant make an initial withdrawal in 1996 rather than wait until 1997, which would have meant he would not have had to include either of the amounts in question as a taxable benefit? The appellant's agent said that the withdrawal was a premature payment of $6,000 which had not been the subject of an informed application. All this is quite surprising. In the instant case, we have only the appellant's version of the facts. There is no other evidence such as the correspondence between the insurer and the appellant at the time of and after the withdrawal, or the correspondence with the banker. Nor were the contracts pertaining to the purchase of the property (the mortgage agreement, the offer to purchase and the purchase agreement) filed. That evidence might have helped to understand the unfortunate withdrawal of $6,000 in 1996. However, the absence of information on that matter does not prevent the Court from deciding this case.

[11] Paragraph 56(1)(h) and subsection 146(8) of the Act read as follows:

56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

. . .

(h) 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) There shall be included in computing the income of a taxpayer 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 (within the meaning assigned by subsection 146.01(1)) in respect of the taxpayer and amounts that are included under paragraph (12)(b) in computing the taxpayer's income.

The definition of "benefit" appears in subsection 146(1) of the Act and the relevant portion of that definition reads as follows:

"benefit" includes any amount received out of or under a retirement savings plan other than . . . .

[12] According to the above provisions, there shall be included in computing a taxpayer's income the total of all amounts which he has received in the year as benefits out of or under a Registered Retirement Savings Plan, except withdrawals excluded under subsection 146.01(1).

[13] Is the $14,000 amount which the appellant received as a benefit in 1997 out of an RRSP an excluded withdrawal for the purposes of the Home Buyers' Plan under subsection 146.01(1)? The definitions of "eligible amount" and "excluded withdrawal" in subsection 146.01(1) of the Act read as follows:

146.01(1) In this section,

"eligible amount" in respect of an individual means an amount received at a particular time by the individual as a benefit out of or under a registered retirement savings plan where

(a) the amount is received after February 25, 1992 pursuant to the written request of the individual in prescribed form in which the individual sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence,

. . .

(i) if the particular time is after 1994, the individual did not receive an eligible amount before the calendar year that includes the particular time;

"excluded withdrawal" in respect of an individual means

(a) an eligible amount received by the individual, or . . . .

[14] As may be seen from this subsection, an eligible amount is an amount that an individual receives in a calendar year as a benefit out of or under an RRSP if the conditions described in the definition of those words are met, in particular if the individual has not received any eligible amounts in respect of a qualifying home prior to that calendar year. This eligible amount is then considered an excluded withdrawal under the definition of "excluded withdrawal" in the same subsection. In other words, there cannot be an excluded withdrawal in more than one year.

[15] In the context of this case, it is also interesting to note paragraph 146.01(2)(f) of the Act, which reads as follows:

146.01(2) For the purposes of this section . . .

(f) where

(i) an individual receives an eligible amount in a particular calendar year,

(ii) at a particular time in January of the following calendar year (or at such later time in that following year as is acceptable to the Minister), an individual receives another amount that would, if the definition "eligible amount" in subsection (1) were read without reference to paragraph (i) thereof, be an eligible amount, and

(iii) the request described in paragraph (a) of the definition "eligible amount" in subsection (1) pursuant to which the other amount was received was made before the end of the particular calendar year

except for the purposes of this paragraph and paragraphs (a) to (h) of the definition "eligible amount" in subsection (1), the other amount shall be deemed to have been received by the individual at the end of the particular calendar year and not at the particular time.

[16] An eligible amount may be received in January and be considered an eligible amount for the previous year if the application for withdrawal was made before the end of that previous year. In the instant case, the payment could not be made until February, as explained in paragraph 6 of these reasons. There was thus no possibility of this paragraph applying and no error was therefore made in this respect.

[17] The error was in withdrawing the $6,000 amount in 1996, not 1997. The appellant's agent asks this Court to cancel the payment of the $6,000 amount. I do not know by what authority this could be done. As I noted in paragraph 9 of these reasons, I have no evidence before me that the payment was not made at the appellant's request. On the contrary, the application was filed as Exhibit A-2 and is signed by the appellant. If there had been any grounds for rescinding this legal document, remedy should first have been sought from the insurance company.

[18] With regard to what was in fact done, since an eligible amount of $6,000 was received in 1996, I must conclude that the amount of $14,000 received in 1997 as a benefit out of or under an RRSP is not an eligible amount within the meaning of subsection 146.01(1) of the Act. Accordingly, this amount must be included in the appellant's income under paragraph 56(1)(h) and subsection 146(8) of the Act. The appellant was thus correctly assessed both in fact and in law.

[19] The appeal is dismissed.

Signed at Ottawa, Canada, this 30th day of October 1999.

"Louise Lamarre Proulx"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]