Pierre R. Clément v. Minister of National Revenue, [1993] 2 CTC 2390, 93 DTC 705

Garon, T.C.C.J.:—This is an appeal from an income tax assessment made by the Minister of National Revenue on May 16, 1988 for the 1986 taxation year. In that assessment, the Minister of National Revenue added in the computation of the appellant's income for 1986 the sum of $18,231.80 representing sums from an RRSP and, in that same computation for 1986, he made a deduction of $12,500 representing part of the sums paid into an RRSP during that same year.

At the hearing of the instant appeal, the appellant disputed in a general way the Minister of National Revenue's method of computation appearing in the first lines of the notice of the reassessment dated May 16, 1988 concerning the RRSP.

The following facts were not disputed.

At the start of the 1986 taxation year, the appellant received from his employer the sum of $22,500 as a retiring allowance within the meaning of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The appellant transferred $18,000 of that amount of $22,500 to an RRSP set up by the Toronto-Dominion Bank. During that same year 1986, the appellant withdrew sums totalling $18,231.80 from Ris RRSP. In his 1986 income tax return, the appellant claimed a deduction of $18,000 in respect of the sums transferred to an RRSP. At the hearing of the instant appeal, however, the appellant acknowledged that he had already deducted a sum of $5,500 from the amount of $18,000 in the computation of his income for the previous year, 1985, and that, consequently, he was entitled only to a deduction of $12,500 for 1986 in respect of that sum paid into an RRSP in 1986. He also admitted that the appellant's" net employment earnings" at line 111 of the 1986 income tax return amounted to $6,466.98.

The appellant could not understand why the amount of $47,197 appeared at the first line of the notice of reassessment of May 16,1988 as being his "total income". Given the nature of the appellant’s objection, it seems to me useful to examine the various stages in the computation relating to the appellant's retiring allowance and RRSP.

First, the retiring allowance of $22,500 received by the appellant must be included in whole in his income for that same year under subparagraph 56(1)(a)(ii) of the Income Tax Act, which reads 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,

(a) any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan,

The sum of $22,500 therefore constitutes an addition to the appellant's income for 1986.

Second, the appellant was entitled to the deduction of a sum of $18,000 under paragraph 60(j.1) of the Act. The relevant part of that paragraph reads as follows:

60. There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:

(j.1) such part of the aggregate of ail amounts each of which is an amount paid to the taxpayer by an employer as a retiring allowance and included in computing his income for the year by virtue of subparagraph 56(1)(a)(ii) as

(i) is designated by the taxpayer in his return of income under this Part for the year,

(iii) does not exceed the aggregate of all amounts each of which is an amount paid by the taxpayer in the year or within 60 days after the end of the year

(B) as a premium (within the meaning assigned by section 146) under a registered retirement savings plan under which he is the annuitant (within the meaning assigned by section 146), other than the portion thereof that has been designated for the purposes of paragraph (j) or (I),

Third, it must be taken into account that, of the amount of $18,000 paid by the appellant as a premium under an RRSP, the sum of $5,500 has been deducted by the appellant in computing his income for 1985. It follows — this point was admitted by the appellant — that he was entitled to a deduction of only $12,500 under paragraph 60(j.1) of the Act for 1986.

Fourth, since the appellant withdrew the sum of $18,231.80 from his RRSP during 1986, he must include that sum in his income for 1986 under subsection 146(8) of the Income Tax Act. See also paragraph 56(1)(h), which is essentially a referral provision, and the definition in paragraph 146(1)(b) of the term "benefit" used in subsection 146(8). Subsection 146(8) reads as follows:

There shall be included in computing the income of a taxpayer for a taxation year all amounts received by him in the year as a benefit out of or under a registered retirement savings plan, other than an amount that is included in computing his income pursuant to paragraph (12)(b).

It follows from the foregoing that the appellant must include the following items in the computation of his income for 1986:

This total of $47,198.78 represents the items added in the computation of the appellant's income. It is an amount which differs slightly from the sum of $47,197 which appears at the first line of the notice of reassessment. The difference is unimportant for the purposes of the instant appeal. This amount is described erroneously as the appellant's "total income", whereas it is in fact only a component in the determination of the appellant’s income; the other component relates to the deductions to which the appellant is entitled in the income computation. The expression "total amounts included in the computation of income” [translation] or “total of additions to income" [translation] should have been used at this first line of the notice of reassessment. As for the deductions, the entry in the notice of reassessment is correctly worded "total deductions” [translation]. If the entry at the first line of the notice of reassessment were described as I have just suggested, one would then clearly see the symmetry of the two operations — additions and deductions — in order to arrive at what is called net income” in the notice of reassessment and what is described as "income" in the Income Tax Act.

Of this sum of $47,198.78, the appellant was entitled to a deduction amounting to $12,650 consisting of the amount of $12,500 representing the part which in the computation of income for 1985 had not been deducted from the amounts paid into the RRSP, plus the sum of $150, deduction of which was allowed by the parties. The balance therefore stands at $34,548.78, that is $47,198.78 — $12,650 x $34,548.78. The notice of reassessment shows the sum of $34,547 as net earnings. There is no need to dwell on the slight difference that exists between the two net earnings amounts.

It appears clearly from the foregoing comments that the appellant's income was computed correctly and that the assessment was therefore correct.

Decision

For these reasons, the appeal is dismissed.

Appeal dismissed.