C W Moncrieff v. Minister of National Revenue, [1980] CTC 2039, 80 DTC 1035

Delmer E Taylor:—This is an appeal heard in the City of Vancouver, British Columbia, on December 3, 1979, against an income tax assessment in which the Minister of National Revenue disallowed the $1,000 pension deduction claimed by the appellant for the 1977 taxation year. In assessing the appellant, the respondent relied, inter alia, upon subsection 110.2(2) and paragraph 110.2(3)(b) of the Income Tax Act, SC 1970-71-72, c 63 as amended.

Background

The appellant was born in 1919, making him 58 years of age in the taxation year under review. In 1973, the appellant retired and entered into a contract with North American Life Assurance Company (hereinafter referred to as “the Company’’) to provide him with a life annuity. The said annuity was purchased with $38,795.68 from a registered pension plan of the appellant’s company, $7,117.90 from two RRSP’s previously owned by the appellant, and $1,000 from his personal funds. In 1977 the appellant received income from the Company in the amount of $4,931.52.

Contentions

The appellant contended that:

— although only one annuity was purchased from the Company in 1973, the funds to so do came from two distinctly different sources—the registered pension plan funds, and the previously held RRSP’s;

— the subsequent income tax amendment (section 110.2) upon which the Minister relies discriminates against the income from one original source (the RRSP’s);

—the $1,000 exemption claimed should be allowed at least with reference to the income generated from the funds originating in the registered pension plan.

For the respondent, the position was:

—the appellant’s “qualified pension income’’ under paragraph 110.2(3)(b) was nil and therefore the appellant is only entitled to a “nil’’ credit for the pension exemption.

Evidence and Argument

The appellant provided the Board with data and information in support of his contentions (some of which is quoted later) which showed that the plan had been implemented by the Company through Investors Group Trust Co Ltd (hereinafter referred to as “Investors”). He requested that the Company be permitted to amend the T5 pension income slip (which the Company was prepared to do) to properly reflect the breakdown of the amount in question.

The respondent argued that the appellant had purchased an RRSP in 1973 with all the funds, and the income he received in 1977 was from that RRSP and did not qualify for the exemption under section 110.2 of the Act. While not specifically on point, counsel for the respondent referred the Board to the case of Fernand Landry v MNR, [1976] CTC 2399; 76 DTC 1297, a decision of this Board, particularly the portion to be found at 2400 and 1298 respectively:

However, the fact that he transferred this amount from the University of Ottawa pension plan to a registered retirement savings plan and subsequently withdrew the total amount means that appellant forfeited the tax advantage he is now seeking through the retroactive application of paragraph 40(1)(a) of the 1971 Rules.

Findings

The portions of section 110.2 relevant to this appeal are as follows:

(2) Qualified pension income exemption. For the purpose of computing the taxable income for a taxation year of an individual (other than a trust or an individual referred to in subsection (1)), there may be deducted from his income for the year an amount equal to the lesser of

(a) $1,000, and

(b) his qualified pension income received in the year.

History: s 110.2(2) was added by 1974-75-76. Related Section: s 110.2(3). c 26, s 70(1), applicable to the 1975 and subsequent taxation years.

(3) Definitions. For the purposes of this section, subject to subsection (4),

(a) “pension income”.—“Pension income” received by a taxpayer in a taxation year means any amount received by him in the year

(i) as a payment out of or under a Superannuation or pension fund or plan,

(b) “qualified pension income”.—“qualified pension income” received by a taxpayer in a taxation year means any amount described in subparagraph (a)(i) ...

It is clear from the context of section 110.2 that proceeds from an RRSP paid to an individual before that individual has attained the age of 65 years were specifically excluded from the definition of ‘‘qualified pension income”. It is equally clear in a letter from Investors dated January 17, 1979, submitted by the appellant, that the basis of the payment in question is an RRSP:

However, when purchasing the annuity in December, 1973, although the available funds came from two sources, namely $38,795.68 from the registered pension plan and $13,590.12 from registered retirement savings plans, Investors requested that only one policy be issued and submitted only one annuity application. We did so as a matter of administrative convenience so that Mr Moncrieff could receive only one monthly annuity cheque and also so that only one policy fee would be charged. To facilitate this request, NALACO proceeded on the basis that the pension plan proceeds were first transferred to an RRSP, the entire proceeds of which were then used to purchase the single annuity. Payments issued have thus been reported on a T4RSP.

Investors acknowledges that in light of subsequent amendments to the Income Tax Act permitting a pension income deduction under certain conditions, Investors erred in the processing of Mr Moncrieff’s benefit under his registered pension plan. A separate policy, distinct from that purchased with RRSP monies, should have purchased with the pension plan proceeds.

We therefore request that the above circumstances be taken into consideration in Mr Moncrieff’s appeal and that of the annuity payments reported on the T4RSP issued by NALACO, an amount proportional to the pension plan proceeds/total annuity premium be considered eligible for the pension plan deduction in 1977 and future years.

It is also clear from the same letter that certain advantages were obtained by Mr Moncrieff in the procedure followed by the Company: “We did so as a matter of administrative convenience so that Mr Moncrieff could receive only one monthly annuity cheque and also so that only one policy fee would be charged.’’ It is not as clear to me, however, that it can be said “Investors erred” because future amendments to the Income Tax Act were not foreseen, but even if “Investors erred”, relief is not available from the Board to retroactively adjust the tax results of a business transaction entered into by a taxpayer simply because another procedure might have been followed by him or his agent.

Decision

The appeal is dismissed.

Appeal dismissed.