Guy
Tremblay:—This
case
was
heard
July
28,
1980
in
Saint
John,
New
Brunswick.
1.
Point
of
Issue
The
first
point
is
whether
the
interest
of
$730,
included
in
the
amount
of
$16,271.84
received
by
the
appellant
from
his
registered
retirement
savings
plan
that
he
withdrew
during
the
1978
year,
may
be
considered
as
deducti-
ble
in
accordance
with
section
110.1
of
the
Income
Tax
Act.
The
respondent
denies
the
application
of
the
said
section.
The
second
point
is
whether
the
amount
of
$4,000
contributed
by
the
appellant
to
a
new
registered
retirement
savings
plan
during
the
first
60
days
of
1979
is
deductible
in
the
taxation
year
1978.
The
respondent
permitted
the
deduction
of
$2,904
only
on
the
basis
that
this
amount
is
20%
of
the
appellant’s
earned
income
for
the
year
1978.
2.
Burden
of
Proof
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessment
is
incorrect.
This
burden
of
proof
results
especially
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
3.
Facts
2.01
The
appellant
had
worked
for
eight
years
for
the
City
of
London
Police
Force
when
he
left
in
November
1977.
3.2
He
then
received
refunds
for
registered
pension
plan
contributions
in
the
amounts
of
$4,316
and
$7,693
and
was
allowed
a
deduction
of
$12,007
under
paragraph
60(j)
of
the
Income
Tax
Act
for
his
1977
taxation
year.
3.03
In
December
1978,
the
appellant
withdrew
a
total
amount
of
$16,271.84
from
his
registered
retirement
savings
plan
and
used
the
proceeds
to
acquire
a
farm.
The
trustee
of
the
plan
withheld
the
amount
of
$4,881.55
from
the
withdrawal
and
remitted
the
said
amount
to
the
Receiver
General
of
Canada.
Of
the
amount
of
$11,390.29
actually
received,
the
sum
of
$730
was
interest.
3.04
The
appellant
affirms
that,
to
purchase
the
farm,
he
had
to
borrow
$15,000
and
pay
interest
on
this
capital.
However,
according
to
him,
he
never
received
interest
from
the
amount
of
$4,881.55
withheld
for
tax
and
sent
to
the
respondent.
The
appellant
wrote
in
his
notice
of
appeal:
In
1978
I
ended
up
paying
$2,938.40
income
tax
and
receiving
a
refund
of
$2,266.35.
If
I
could
have
used
my
money
$4,881.55
I
could
have
payed
my
mortgage
without
borrowing
and
still
have
paid
the
tax
at
the
end
of
the
year,
not
six
months
before
the
year
ended.
By
this
time
I
was
thoroughly
dissolussioned
(sic)
with
RRSP
but
had
been
put
in
a
position
where
I
had
to
open
another
to
try
to
relieve
(sic)
this
tax
burden
($4,881.55).
3.05
The
appellant
contributed
$4,000
to
a
new
registered
retirement
savings
plan
during
the
first
60
days
of
1979.
He
claimed
a
deduction
for
this
amount
on
his
1978
income
tax
return.
3.06
In
asssessing
the
appellant
for
his
1978
taxation
year,
the
Minister
of
National
Revenue
only
allowed
an
amount
of
$2,904
as
a
deduction
for
registered
retirement
savings
plan
contribution,
being
20%
of
the
appellant’s
“earned
income”
for
the
year.
3.07
In
the
calculation
of
the
appellant’s
earned
income
for
his
1978
taxation
year,
the
Minister
of
National
Revenue
included
his
total
employment
earnings
of
$3,282.57,
his
deemed
receipt
on
RRSP
deregistration
of
$16,271.84
and
deducted
his
employment
expense
deduction
of
$98.46,
his
unemployment
insurance
commission
deduction
of
$48.19
and
his
farming
losses
for
the
year
of
$4,884.40
for
a
total
earned
income
of
$14,523.35,
20%
of
this
latter
amount
is
$2,904.
3.08
In
filing
his
1978
return
the
appellant
sought
to
deduct
the
interest
of
$730
by
virtue
of
section
110.1
of
the
Income
Tax
Act.
The
respondent
disallowed
the
deduction
on
the
basis
that
the
sum
received
must
be
considered
as
a
fully
taxable
benefit.
4.
Law
—
Analysis
4.01
Law
The
main
sections
of
the
Income
Tax
Act
involved
in
the
present
case
are
paragraph
56(1
)(h);
section
110.1;
paragraphs
146(1
)(a),
(c),
(i)
and
(j);
subsection
146(5);
paragraph
153(1
)(j);
and
subsection
164(3).
They
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
in
respect
of
a
registered
retirement
savings
plan
required
by
section
146
to
be
included
in
computing
the
taxpayer’s
income
for
the
year;
110.1(1)
For
the
purpose
of
computing
the
taxable
income
for
a
taxation
year
of
an
individual
(other
than
a
trust
that
is
not
a
testamentary
trust
within
the
meaning
assigned
by
paragraph
108(1
)(i)),
there
may
be
deducted
from
his
income
for
the
year
an
amount
equal
to
the
lesser
of
(a)
$1,000,
and
(b)
the
aggregate
of
(i)
the
amount
of
interest
included
in
computing
the
taxpayer’s
income
for
the
year,
and
(11)
the
taxpayer’s
grossed-up
dividends
for
the
year.
146.
(1)
In
this
section
(a)
“annuitant”
means
an
individual
referred
to
in
subparagraph
(j)(i)
or
(ii)
to
whom,
under
a
retirement
savings
plan,
any
annuity
for
life
is
agreed
to
be
paid
or
is
to
be
provided;
(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
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;
(i)
“registered
retirement
savings
plan’’
means
a
retirement
savings
plan
accepted
by
the
Minister
for
registration
for
the
purposes
of
this
Act
as
complying
with
the
requirements
of
this
section;
and
(j)
“retirement
savings
plan”
means
(i)
a
contract
between
an
individual
and
a
person
licensed
or
otherwise
authorized
under
the
laws
of
Canada
or
a
province
to
carry
on
in
Canada
an
annuities
business,
under
which,
in
consideration
of
payment
by
the
individual
of
any
periodic
or
other
amount
as
consideration
under
the
contract,
that
person
agrees
to
pay
to
the
individual,
commencing
at
maturity,
an
annuity
for
life,
or
(ii)
an
arrangement
under
which
payment
is
made
by
an
individual
(A)
in
trust
to
a
corporation,
licensed
or
otherwise
authorized
under
the
laws
of
Canada
or
a
province
to
carry
on
in
Canada
the
business
of
offering
to
the
public
its
services
as
trustee,
or
any
periodic
or
other
amount
as
a
contribution
under
the
trust,
or
(B)
to
a
corporation
approved
by
the
Governor
in
Council
for
the
purposes
of
this
section
that
is
licensed
or
otherwise
authorized
under
the
laws
of
Canada
or
a
province
to
issue
investment
contracts
providing
for
the
payment
to
or
to
the
credit
of
the
holder
thereof
of
a
fixed
or
determinable
amount
at
maturity,
of
any
periodic
or
other
amount
as
a
contribution
under
any
such
contract
between
the
individual
and
that
corporation,
to
be
used,
invested
or
otherwise
applied
by
that
corporation
resident
in
Canada
or
that
investment
corporation,
as
the
case
may
be,
for
the
purpose
of
providing
to
the
individual,
commencing
at
maturity,
an
annuity
for
life.
(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.
153.
(1)
Every
person
paying
(j)
a
payment
out
of
under
a
registered
retirement
savings
plan
or
a
plan
referred
to
in
subsection
146(12)
as
an
“amended
plan”,
or
at
any
time
in
a
taxation
year
shall
deduct
or
withhold
therefrom
such
amount
as
may
be
prescribed
and
shall,
at
such
time
as
may
be
prescribed,
remit
that
amount
to
the
Receiver
General
of
Canada
on
account
of
the
payee’s
tax
for
the
year
under
this
Part.
164(3)
Where
an
amount
in
respect
of
an
overpayment
is
refunded,
or
applied
under
this
section
on
other
liability,
interest
at
a
prescribed
rate
per
annum
shall
be
paid
or
applied
thereon
for
the
period
commencing
with
the
latest
of
(a)
the
day
when
the
overpayment
arose,
(b)
the
day
on
or
before
which
the
return
of
the
income
in
respect
of
which
the
tax
was
paid
was
required
to
be
filed,
and
(c)
the
day
when
the
return
of
income
was
actually
filed,
and
ending
with
the
day
of
refunding
or
application
aforesaid,
unless
the
amount
of
the
interest
so
calculated
is
less
than
$1,
in
which
event
no
interest
shall
be
paid
or
applied
under
this
subsection.
4.02
Analysis
4.02.1
Interest
of
$730
Is
the
amount
of
$730,
which
is
the
part
of
interest
for
$11,390.29
actually
received
by
the
appellant
as
“annuitant”
of
RRSP,
subject
to
interest
income
deduction
of
section
110.1?
The
respondent
referred
to
the
case
of
James
P
Campbell
v
MNR,
[1979]
CTC
2237;
79
DTC
231.
In
this
case,
as
in
the
instant
case,
the
taxpayer
in
1976
withdrew
money
from
his
registered
retirement
savings
plan
and
deducted
a
portion
of
that
money
from
his
income.
He
claimed
such
action
was
justified
because
that
portion
was
interest
income
subject
to
the
interest
income
deduction.
The
Minister
as
in
the
present
case
had
assessed
the
sum
as
a
fully
taxable
benefit
received
by
the
taxpayer
from
his
registered
retirement
savings
plan.
Mr
Taylor
of
the
Tax
Review
Board
maintained
the
assessment.
The
Board
found
no
basis
upon
which
to
conclude
that
the
total
sum
withdrawn
could
reasonably
be
regarded
as
being
partly
interest
and
partly
capital.
It
was
all
of
an
income
nature.
The
taxpayer
received
a
“benefit”
the
proceeds
of
a
“right”
which
he
had
as
the
annuitant
(which
is
the
sense
of
benefit
of
section
146
quoted
above)
and
not
as
an
investor
(which
is
the
sense
of
interest
of
section
110.1).
Accordingly,
he
did
not
receive
the
sum
in
question
as
interest,
but
as
a
fully
taxable
benefit.
The
Board
accepts
the
reasons
given
above
to
maintain
the
respondent’s
assessment
in
the
instant
case.
4.02.2
Deduction
of
$2,904
Concerning
this
point,
the
facts
described
above
(paragraphs
3.05,
3.06
and
3.07)
are
clear.
The
point
in
law
is
settled
by
paragraph
146(1
)(c)
and
subsection
146(5)
quoted
above.
The
crucial
point
in
subsection
146(5)
is
that
the
amount
deductible
is
not
more
than
20%
of
the
appellant’s
earned
income
for
the
year
1978
(paragraph
146(5)(b)).
The
definition
of
earned
income
(paragraph
146(1)(c))
applied
for
the
year
1978
gives
the
computation
described
in
paragraph
3.07.
The
total
earned
income
is
$14,523.35,
20%
of
which
is
$2,904.
The
respondent’s
assessment
must
be
maintained
in
this
respect.
4.02.3
Interest
not
received
on
$4,881.55
The
complaint
of
the
appellant
on
the
point
described
in
paragraph
3.04
is
legally
settled
first
by
paragraph
153(1)(j).
According
to
this
section
an
amount
must
be
withheld
for
“a
payment
out
of
or
under
a
registered
retirement
plan”.
This
amount
of
$4,881.55
is
in
accordance
with
the
Income
Tax
Regulations.
The
only
interest
paid
on
overpayments
is
the
one
provided
by
subsection
164(3)
quoted
above.
In
the
present
case
the
interest
can
be
calculated
only
from
the
day
when
the
return
of
income
was
actually
filed,
not
from
the
date
of
withholding
and
only
on
the
overpayment,
not
on
the
whole
amount
withheld.
Hence
the
appellant’s
complaint
on
this
point
cannot
be
retained
by
the
Board.
5.
Conclusion
The
appeal
is
dismissed
in
accordance
with
the
above
reasons
for
judgment.
Appeal
dismissed.
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