Donald R Hobsbawn v. Minister of National Revenue, [1982] CTC 2102, 82 DTC 1106

M J Bonner:—This is an appeal from an assessment of income tax for the 1978 taxation year. In his return of income the appellant claimed, under subsection 110.2(2) of the Income Tax Act, a deduction in the computation of taxable income in the amount of $1,000. The Minister, on assessment, limited the section 110.2 deduction to $653.20 on the basis that the latter figure was the appellant’s “qualified pension income received in the year’. It was common ground that the appellant’s qualified pension income received in the year had to be either $1,683.88, as contended by the appellant, or the $653.20 figure used by the Minister. The sole question on appeal was: “Which one is the correct figure?”

The answer in this case requires tracing a path through a rather complicated web of statutory provisions.

The Minister, on assessing, relied on paragraph 110.2(4)(f) of the Act which reads:

(4) For the purposes of this section, “pension income” and “qualified pension income” do not include any amount that is

(f) the amount, if any, by which

(i) an amount required to be included in computing the taxpayer’s income for the year

exceeds

(ii) the amount, if any, by which the amount referred to in subparagraph (i) exceeds the aggregate of all deductions taken by the taxpayer in the year in respect of that amount.

The difference between the parties arising on paragraph (f) lies in the computation of . the aggregate of all deductions taken by the (appellant) in the year in respect of...” $2,758.05 In pension income received by the appellant during the year.

It was common ground that the relevant deduction affecting the quantum of qualified pension income was the amount “rolled over” into a registered retirement savings plan under paragraph 60(j) of the Act. The amount paid by the appellant as a premium under a registered retirement savings plan during the year was $3,892, but that figure was not broken down by the appellant in his return of income into amounts deducted under subsection 146(5) and under paragraph 60(j). The latter two provisions read 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) such part of any amount included in computing the income of the taxpayer for the year by virtue of subparagraph 56(1 )(a)(i) or (ii) or subsection 147(10) or any refund of deductions as deferred pay under subsection 206.21(1) or (2) of The Queen’s Regulations and Orders as does not exceed the amount by which

(i) any amount paid by him in the year or within 60 days after the end of the year

(A) as a contribution to or under a registered pension fund or plan, or

(B) As a premium, as defined by section 146, under a registered retirement savings plan under which he is the annuitant (within the meaning of paragraph 146(1 )(a)),

to the extent that it was not deductible in computing his income for the immediately preceding year,

exceeds

(ii) the aggregate of the amounts, if any, deducted under paragraph (I), paragraph 8(1 )(m) or subsection 146(5) in computing his income for the year;

146. (5) There may be deducted in computing the income for a taxation year of a taxpayer who is an annuitant under a registered retirement savings plan or becomes, within 60 days after the end of the taxation year, an annuitant thereunder, the aggregate of all amounts each of which is the amount of any premium paid by the taxpayer under the plan during the taxation year or within 60 days after the end of the taxation year (to the extent that it was not deducted in computing his income for a previous taxation year), not exceeding however the amount, if any, by which

(a) where the taxpayer was employed in the year and as a consequence thereof was a person who is or may become entitled to benefits under a pension fund or plan that provides for payment of a pension to him payable in whole or in part out of contributions made or to be made to the fund or plan or out of or in respect of amounts credited or to be credited in lieu of such contributions by a person other than the taxpayer in respect of the taxpayer’s employment in that year, an amount that, when added to the amount, if any, deductible under paragraph 8(1 )(m) in computing the income of the taxpayer for that year, does not exceed the lesser of $3,500 and 20% of his earned income for that taxation year, or

(b) in any other case, the lesser of $5,500 and 20% of his earned income for that taxation year

exceeds the amount, if any, deductible under subsection (6) in computing his income for that taxation year.

It will be seen that the maximum amount deductible under paragraph 60(j) is limited by reference to amounts deducted under subsection 146(5) of the Act. It will also be seen that the amount deductible under subsection 146(5) is limited by reference to “earned income”, a term defined by paragraph 146(1 )(c) as follows:

(c) “earned income” means the aggregate of

(i) salary or wages, superannuation or pension benefits, retiring allowances, death benefits, royalties in respect of a work or invention of which the taxpayer was the author or inventor, amounts included in computing the income of the taxpayer by virtue of paragraph 56(1 )(b) or (c), amounts received by the taxpayer from a trustee under a supplementary unemployment benefit plan, amounts included in computing the income of the taxpayer by virtue of this section and amounts included in computing the income of the taxpayer by virtue of subsections 146.2(6) and 147(10) and (15),

(ii) income from the carrying on of a business either alone or as a partner actively engaged in the business,

(iii) rental income from real property, and

(iv) amounts deductible under paragraph 8(1 )(l) or (m) in computing the income of the taxpayer,

minus

(v) losses from the carrying on of a business either alone or as a partner actively engaged in the business,

(vi) losses from the rental of real property, and

(vii) amounts deductible under paragraphs 60(j) or (m) or under subsection (6) or (7) in computing the income of the taxpayer;

Thus, the amount deductible under subsection 146(5) is limited by reference to amounts deductible under paragraph 60(j).

There was no dispute as to the basic facts.* The appellant’s “earned income” within the meaning of paragraph 146(1 )(c), without reference to the subtractions required by subparagraphs (v), (vi) and (vii), was as follows:T

The appellant asserted that the deduction taken under subsection 146(5) was $2,208.12, calculated as follows:

The appellant asserted further that it followed that the deduction taken pursuant to paragraph 60(j) of the Act was $1,683.88. His calculation of that figure was as follows:

Finally, the appellant asserted that “qualified pension income” for the year was, by virtue of paragraph 110.2(4)(f), the $2,758.05 required to be included in computing his income as a pension benefit under paragraph 56(1 )(a) of the Act less the difference between that figure and the paragraph 60(j) amount previously calculated as being $1,683.88, which difference was $1,064.17, resulting in qualified pension income of $1,683.88.

*Given the number and length of the applicable statutory provisions one is inclined to rejoice.

fSubparagraphs (v) and (vi) are not relevant here.

The appellant admitted that no amount was subtracted as

. deductible

under paragraphs 60(j) . . in his calculation, under paragraph 146(1 )(c), of earned income. In effect, he treated subparagraph 146(1 )(c)(vii) as ineffective. In this regard he submitted that

(a) paragraph 146(1 )(e) defines “earned income”; and

(b) the Act directs the making of the paragraph 146(1 )(c) calculation of earned income first.

The second submission is based on the theory that the subsection 146(5) deduction has to be calculated, for purposes of subparagraph 60(j)(ii) of the Act, before the quantum of the rollover under paragraph 60(j) can be worked out and that the defined earned income figure is unchanging.

The Minister arrived at his figures for earned income under paragraph 146(1 )(c) and for the amount deducted under paragraph 60(j) by a series of calculations of increasingly accurate approximations. Those calculations, as set forth in the Reply to Notice of Appeal, are attached as Appendix A.

The genesis of the problem lies in the necessity of calculating two statutorily defined amounts, each of which depends on the other for its own calculation. I cannot see that the Minister, in making his series of calculations, was wrong. While I quite agree with the appellant’s submission that earned income is defined by paragraph 146(1 )(c), I can see no force in the argument that the first approximation of the paragraph 146(1 )(c) figure in the Minister’s series of calculations becomes a fixed 146(1 )(c) figure which cannot be changed. The first calculated paragraph 146(1 )(c) figure is, and is intended to be, an approximation only used for purposes of arriving at a final figure. That it can be nothing more is plain when it is observed that it ignores the clearly expressed direction in subparagraph 146(1 )(c)(vii) that “amounts deductible under paragraph 60(j)” be subtracted.

As I see it the Minister, by his series of calculations, arrived at a paragraph 60(j) figure which gave effect to the legislative intent expressed in that provision and in subsection 146(5) (read together with paragraph 146(1 )(c)) that:

1. no amount entering into the calculation of the maximum figure deductible under subsection 146(5) may enter also into the calculation of the amount eligible for rollover under paragraph 60(j); and

2. no amount deductible by virtue of the use of the elective provisions of paragraph 60(j) may enter into the calculation of earned income, thereby increasing the subsection 146(5) limit.

Where, as here, the choice lies between two calculations, one of which ignores plain statutory words and the other of which gives effect to the apparent statutory scheme, the former calculation must be rejected. The appeal is therefore dismissed.

Appeal dismissed.

APPENDIX A

CALCULATION OF 146(5) AND 60(j) AMOUNTS AND 110.2 (4) PENSION DEDUCTION

A. FIRST CALCULATION

1. Calculation of 146(5) via 146(1 )(c)

Employment Income	$ 9,142.79
Pension Income	2,758.05
RRSP Income	2,042.47
	13,943.31

UIC Premiums	(110.83)
Union Dues	(64.20)
Earned Income—146(1 )(c)	13,768.28
20%	.20
	2,753.66
Less RPP	545.54
146(5) Deduction	$ 2,208.12
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	2,208.12
Revised Total per 60(j)	$ 1,683.88

a) Position of the Appellant is that this is the correct amount.

b) Position of the Minister is that at this stage 146(1 )(c) must be recalculated to reduce earned income by those amounts directly trans- ferred via 146(5).

B. SECOND CALCULATION

1. Calculation of 146(1 )(c) and 146(5)

Earned Income—146(1 )(c)	$13,768.28	As there is now
Less 60(j)	1,683.88	a 60(j) amount,
		146(1)(c) must be
New Earned Income	12,084.40
		revised to delete
20%	.20
		this amount.
	2,416.88
Less RPP	545.54
146(5) Deduction	$ 1,871.34
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	1,871.34
Revised Total per 60(j)	$ 2,020.66
C. THIRD CALCULATION
1. Calculation of 146(1)(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,020.66
New Earned Income	11,747.62
20%	.20
	2,349.52
Less RPP	545.54
146(5) Deduction	$ 1,803.98
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	1,803.98
Revised Total per 60(j)	$ 2,088.02
D. FOURTH CALCULATION
1. Calculation of 146(1)(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,088.02
New Earned Income	11,680.26
20%	.20
	2,336.05
Less RPP	545.54
146(5) Deduction	$ 1,790.51

2. Calculation of 60(j)

Actual Contributions	3,892.00
Deduction per 146(5)	1,790.51
Revised Total per 60(j)	$ 2,101.49
E. FIFTH CALCULATION
1. Calculation of 146(1 )(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,101.49
New Earned Income	11,666.79
20%	.20
	2,333.36
Less RPP	545.54
146(5) Deduction	$ 1,787.82
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	1,787.82
Revised Total per 60(j)	$ 2,104.18
F. SIXTH CALCULATION
1. Calculation of 146(1)(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,104.18
New Earned Income	11,664.10
20%	.20
	2,332.82
Less RPP	545.54
146(5) Deduction	$ 1,787.28
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	1,787.28
Revised Total per 60(j)	$ 2,104.72
G. SEVENTH CALCULATION
1. Calculation of 146(1)(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,104.72
New Earned Income	11,663.56
20%	.20
	2,332.71
Less RPP	545.54
146(5) Deduction	$ 1,787.17
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	1,787.17
Revised Total per 60(j)	$ 2,104.83
H. EIGHTH CALCULATION
1. Calculation of 146(1)(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,104.83
New Earned Income	11,663.45
20%	.20
	2,332.69

Less RPP	545.54
146(5) Deduction	$ 1,787.15
2. Calculation of 60(j)
Actual Contributions	3,892.00
Deduction per 146(5)	1,787,15
Revised Total per 60(j)	$ 2,104.85
I. NINTH CALCULATION
1. Calculation of 146(1 )(c) and 146(5)
Earned Income—146(1 )(c)	$13,768.28
Less 60(j)	2,104.85
New Earned Income	11,663.43
20%	.20
	2,332.69

NO VARIANCE in calculation so stop.

Correct 60(j) amount	$ 2,104.85
Correct 146(5) amount	1,787.15

Pension Income Deduction per 110.2(4)

Pension Income	$ 2,758.05
60(j) Deduction		2,104.85
Pension Income Deduction	$	653.20