Bryan A. Walsh v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2350

Mogan, T.C.C.J. (orally):—This is an appeal in respect of the 1991 taxation year and the appellant has elected the Informal Procedure. The issue in the case relates to deductions permitted as premiums or contributions payable to a registered retirement savings plan under section 146 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). Although that is the tax issue, the appellant comes to Court on a broader claim, maintaining that in his circumstance — and I should say the circumstances of Canadians earning their income in a manner similar to the appellant — the provisions of section 146 of the Income Tax Act violate sections 7 and 15 of the Charter of Rights and Freedoms.

The appellant is a licenced real estate agent whose earnings are entirely dependent upon commissions. He is employed by one of the prominent real estate firms in the city of Calgary; and he earns his income from what he described as commercial real estate which is the purchase, sale and leasing of commercial properties. Operating on a commission basis, his income fluctuates from year to year, sometimes with very wide fluctuations because his business is tied to the economy.

Although his income depends upon a transaction closing, he is not always paid promptly by his client when the transaction does close. There will often be a significant delay. In a particular year, he may have a number of closings but, if some clients delay in paying, his income could be low in that year. But if in the following year all clients pay promptly and the delinquent clients from the preceding year pay, his income in the second year can balloon to a high amount. The years under appeal seem to exemplify this fact because in 1990 his income was in the range of $50,000 to $60,000; in 1991 his income was in the range of $300,000; and in 1992 it was significantly less than $50,000.

These fluctuations in income are caused by forces over which the appellant has no control because all of his income is derived from commissions. In 1990/91, the Income Tax Act was amended with respect to contributions to registered retirement savings plans. The relevant provisions are found in subsection 146(5) which permits the deduction of amounts paid into an RRSP. The terminology in subsection 146(5) is technical and it refers back to certain defined terms in subsection 146(1). Specifically, in paragraph 146(1)(g.1) there is a definition of “RRSP deduction limit" which in turn uses the phrase "unused RRSP deduction room" which is defined in paragraph 146(1)(l). The main thrust of the definition of" unused RRSP deduction room" is an element identified as "B" which is really 18 per cent of a taxpayer's earned income for the immediately preceding taxation year. That phrase, as it applies to the appellant, means this. Whereas his net income in 1990 was in the range of $50,000 to $60,000, 18 per cent of that amount, for all practical purposes, became his maximum deductible contribution to an RRSP in the following year 1991. The 18 per cent computation resulted in an amount less than $11,500 which was the maximum contribution limit for 1990 and 1991.

Because the appellant's RRSP contribution in 1991, when his income was very high, was dependent upon this limit established by reference to his income from the prior year, he was left in the exasperating position in 1991 of not being able to contribute the full amount that might otherwise have been available because his income for the prior year was not high enough. That is the basis on which he comes to Court. And he claims that the way the limits are structured harm him in his not being able to make the maximum contribution to his RRSP for 1991. He goes farther and claims that he and other entrepreneurs are discriminated against as a class; the class being either what he referred to as the entrepreneurial class or those employees who earn their income only by commissions and therefore cannot predict or determine with certainty during the course of any calendar year what their income will be in the year.

In paragraphs 8 and 12 of the reply to the notice of appeal, there is a concession by the Minister of National Revenue which, as I understand, works this way. The appellant's gross commission income for 1990 was in the range of $95,000. From that amount, he deducted certain expenses in the range of $40,000 incurred to earn those commissions, leaving him with a net income of approximately $55,000. Based on that, his maximum allowable contribution to an RRSP for 1991 was 18 per cent of approximately $55,000 which, in more precise detail, came to $10,232. The Minister reviewed the appellant's 1990 return and decided that out of the $40,000 in expenses, $2,000 were not permissible deductions. Therefore, the appellant's deductions should have been only $38,000, and that would increase his net income from $55,000 to $57,000. I am using, of course, nothing but rounded amounts. Eighteen per cent of the additional $2,000 would be another $360. The Minister therefore concedes that the maximum permissible amount to be deducted as an RRSP contribution for 1991 should be increased from $10,232 to $10,616. The Minister makes that concession in paragraphs 8 and 12 of the reply to the notice of appeal, and also in a notice of assessment which was sent to the appellant on July 7,1992 with respect to his 1991 taxation year.

Therefore, before proceeding further with the legal arguments, I would make this finding. The appellant is entitled to deduct as an RRSP contribution for 1991 a maximum amount of $10,616 on condition that he has made the appropriate contributions within the prescribed time limits to one or more registered retirement savings plans that would justify such a deduction, and also on condition that such contributions have not been used in computing income for some other taxation year. I have to place those conditions on my decision because there was not enough evidence put before me by the appellant or the Minister to indicate what the real contributions were.

But in the appellant's favour, I find that he is entitled to that deduction of $10,616 for 1991 subject to the two conditions that I have mentioned. Although I will go on to deal with the rest of the appeal this afternoon, if there should be any problem concerning whether those conditions were satisfied, I can hear further submissions from the parties by conference telephone if necessary, or when I am next in Calgary.

I turn now to the broader arguments put forward by the appellant. On the application of the Charter, the respondent has raised a preliminary question as to whether I have jurisdiction to deal with the Charter argument. That question may be well-founded because it appears that the appellant is looking for a declaration that section 146 is invalid because it contravenes the Charter of Rights and Freedoms. if he is right on that and if I should strike down section 146, then no one would be entitled to any deductions in respect of registered retirement savings plans. This Court does not have authority to grant declaratory judgments. I think, however, that the appellant does not go that far. He makes his claim in layman's language because his appeal is drafted apparently without the benefit of legal counsel and he comes to Court arguing his own case. Therefore, his claims under the Charter were, in a legal sense, a little less defined than they might otherwise have been.

Although the respondent may be justified in raising that preliminary question, I am not going to refuse to consider the appellant's Charter argument because I have reached the conclusion that the appellant's claim for relief under the Charter has no merit whatever. I will deal with his claim briefly on that basis. The appellant claims that he should get relief under section 7 of the Charter because his security in retirement is imperilled by the restrictions on his deductible contributions to an RRSP, and he maintains that that kind of security is contemplated in section 7 of the Charter:

7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

Let me say firstly that relying on two authorities cited by counsel for the respondent, I can state with absolute assurance that the word "security" in section 7 has no reference whatsoever to economic security. In Androwich v. Canada, [1990] 1 C.T.C. 78, 90 D.T.C. 6084 (F.C.T.D.) at page 82 (D.T.C. 6086) Teitelbaum, J. stated:

Section 7 deals with the life, liberty and security of the person and the manner in which the individual may be dealt with by governmental authority and by the way the individual is granted procedural fairness. It is not an economic guarantee.

In Parkdale Hotel Ltd. v. A.-G. (Canada), [1986] 2 F.C.R. 514, 27 D.L.R. (4th) 19, Joyal, J. stated at page 536 (D.L.R. 34-35):

I must conclude that the right to liberty in section 7 of the Charter is a restricted legal right to the physical liberty of the person as opposed to an economic right to a free exercise of commercial activity.

I readily accept those two statements as being an accurate analysis of what "security" means in section 7 of the Charter because, when that section is read in context with the heading" Legal Rights" and the other provisions in section 8 (the right to be secure against unreasonable search or seizure), section 9 (the right not to be arbitrarily detained or imprisoned) and section 10 (the right on arrest or detention to be informed promptly of the reasons therefor and to be given the opportunity to retain and instruct counsel), I look on those rights in section 7 as being for the security of the person himself. They are the kind of rights that are usually recited in any Charter, like the Canadian Constitution or the United Nations Bill of Rights. That disposes of section 7.

Section 15 is the well-known provision of the Charter dealing with equality rights and, in particular, equality without discrimination. In order to come within section 15, the appellant maintains that the groups enumerated in section 15 are only representative of other groups of which he is within one. He refers to his group as entrepreneurs or those whose income fluctuates and is not based on a stated salary like the majority of employees. I would comment briefly on this claim. The Income Tax Act taxes persons in relation to income from three basic sources: business, property and employment. Persons whose income is derived from business or property need, in effect, a profit and loss statement to determine what that income is. And there is considerable scope for what can be deducted in computing income from business or property. Section 9 of the Act states that income from business or property is the profit therefrom; and the courts have construed section 9 to mean that profit is determined by commercial principles (sometimes referred to as Generally Accepted Accounting Principles) subject to the provisions of the Act which may impose restrictions on the commercial concept of profit. Income from employment is really determined by the salary or wages of the individual, and there are very restricted deductions (set out in section 8 of the Income Tax Act) that are permitted in computing income from employment.

I make those comments only to emphasize that the Income Tax Act categorizes taxpayers by their source of income. The appellant claims that the group of individuals whose income is from business is discriminated against. Corporations are excluded from his group because they do not need pensions and cannot contribute to RRSPs. My question is: can such a group be brought within the ambit of section 15 of the Charter as being a group that is discriminated against? Here I rely on two other authorities cited by counsel for the respondent. One is the well-known decision of the Supreme Court of Canada in Law Society of British Columbia v. Andrews, [1989] 1 S.C.R. 143, [1989] 2 W.W.R. 289. I will read briefly from the reasons for judgment of McIntyre, J. at pages 168-69 (W.W.R. 303), where he states:

It is not every distinction or differentiation in treatment at law which will transgress the equality guarantees of section 15 of the Charter. It is, of course, obvious that legislatures may — and to govern effectively — must treat different individuals and groups in different ways. Indeed, such distinctions are one of the main preoccupations of legislatures. The classifying of individuals and groups, the making of different provisions respecting such groups, the application of different rules, regulations, requirements and qualifications to different persons is necessary for the governance of modern society. As noted above, for the accommodation of differences, which is the essence of true equality, it will frequently be necessary to make distinctions.

I place special emphasis on that last sentence, "for the accommodation of differences, which is the essence of true equality”. We would not be talking about inequality in section 15 of the Charter if it were not obvious that all persons are not equal; they are not born equal and they do not live in equal circumstances. There are real differences. McIntyre, J. says it is the accommodation of differences which is the essence of true equality, and that it will frequently be necessary to make distinctions. Those are the distinctions which I think the Income Tax Act has made. It has had to deal with persons who derive income in significantly different circumstances.

Some persons derive their income from employment in which they may have a pension plan. Others derive income from property if they are fortunate enough to own such property. And others derive income from business. These persons are not employed in the employer/employee sense but they receive truly earned income. Because they do not have an employer-assisted pension plan, a scheme is developed within the Income Tax Act (like the registered retirement savings plan) to assist them. I think those are the kinds of distinctions that McIntyre, J. was talking about in Andrews.

Lastly, in the same connection, I refer to the decision of the Ontario Court of Appeal in OPSEU v. National Citizens Coalition, [1990] 2 C.T.C. 163, 90 D.T.C. 6326, in which Blair, J.A., delivering the judgment of the Court, stated at pages 166-67 (D.T.C. 6328):

In my opinion, Canadian taxpayers earning income from employment, who constitute the great majority of the working population, do not constitute a group suffering discrimination on grounds analogous to those enumerated in subsection 15(1) of the Charter. This huge group of taxpayers is not a "discrete and insular minority”. It is a large segment of the population which we described in Mirhadizadeh v. Ontario (1989), 69 O.R. (2d) 422, 60 D.L.R. (4th) 597 (C.A.) at page 426 (D.L.R. 601) as "not linked by any personal characteristics relating to them as individuals or to members of a group". They are what we called in Mirhadizadeh, supra, at page 426 (D.L.R. 601) "a disparate and heterogeneous group”, linked together only by the fact that they are taxed on their employment income. They are incapable of being discriminated against on grounds analogous to those enumerated in subsection 15(1). The appellants’ claim that the Income Tax Act infringes the equality rights of taxpayers earning income from employment must fail.

To me, that passage clinches the argument against the appellant's claim to be under section 15 because, if the Ontario Court of Appeal can conclude in such straightforward language that Canadian taxpayers earning income from employment cannot constitute a group suffering discrimination on grounds analogous to those of section 15 of the Charter, I would turn the coin and ask: how can those Canadian taxpayers earning income from some source other than employment constitute such a group? I adopt the specific words of Blair, J.A.: they are “not a discrete and insular minority"; they are "not linked by any personal characteristics relating to them as individuals or to members of a group". They are, as entrepreneurs, a disparate and heterogeneous group of which the appellant is only one.

Therefore, although I have reservations concerning whether this Court has jurisdiction to entertain the kind of claims put forward by the appellant, I have dealt with his Charter claims as if I have that jurisdiction because it is so clear in my mind that there is no merit in the appeal put forward by the appellant to the extent that he claims relief under the provisions of the Charter of Rights and Freedoms.

I conclude that the appellant’s claim, to the extent that it is based on the Charter, must fail; and the appeal would be dismissed subject to the concession of the Minister of National Revenue in paragraphs 8 and 12 of the reply, referred to above.

Appeal dismissed.