Thomas M Egan v. Minister of National Revenue, [1980] CTC 2882, 80 DTC 1739

The Assistant Chairman:—When Dr Egan (the appellant) filed his 1977 income tax return he claimed, as a deduction in computing his net income, a payment which he had made into a registered retirement savings plan (hereinafter called an “RRSP”) for his wife in the amount of $2,253.39, which he was entitled to do. With the return he did not file a receipt for the payment from the trustee of the plan, in this case the Canadian Medical Association (hereinafter referred to as the “CMA”), but rather he filed a letter outlining that he had sent $3,000 by mail on February 3, 1978, and that the trustee claimed it never received it. The Minister of National Revenue (the respondent) would not allow the deduction and the appellant ultimately appealed to this Board.

After the evidence on the appeal had been heard, counsel for the respondent promptly and, in my opinion, quite properly stated that in no way did she dispute the veracity of any statement made by the appellant. I agree completely with counsel, and had she not made that statement I would have, and I do say that I accept every fact the appellant stated.

The appellant recounted the relevant facts. At least in the latter part of 1977 and for the first several months of 1978, subject to one course of about seven weeks, he was stationed with the Canadian Armed Forces at their base in Chatham, New Brunswick. Chatham is a community with a population of about 8,000 not too far from the border of the Province of Quebec and about 90 miles from Moncton, New Brunswick. The appellant was married. In the latter part of 1977 (December) he was in communication with the CMA with respect to an RRSP for his wife and, he believes, in December 1977 or early January 1978 the RRSP was assigned the number 1133956 by the CMA. In January 1978 the appellant did not know how much he could contribute to the RRSP for his wife as he was not certain how much had been contributed on account of his pension and so he arranged for a loan from his bank in Chatham for $3,000. The arrangements were made about February 1, 1978, with the money to be deposited in his and his wife’s joint account in the Chatham branch of the Bank of Montreal in the week of February 5, 1978. The loan card (filed as an exhibit at the hearing) showed a $3,000 loan to the appellant in that week and a credit to the joint account in the same week of the same account. On February 3, 1978, the appellant wrote a cheque to the CMA and mailed it in an envelope duly addressed with the appropriate postage in a recepticle of the Canada Post in Chatham, New Brunswick. The appellant was sent to Toronto, Ontario, on a course. He left Chatham on February 4, 1978, (his wife followed a few days later) and he did not return until March 23,1978. He assumed that the letter and cheque had been received by the CMA a few days after February 3, 1978, and in any event well in advance of February 28,1978—the last day on which payment could be made to be referable to his 1977 taxation year.

Shortly after his return to Chatham on March 23, 1978, in a routine fashion he checked the balance in the joint account and was astounded to see such a generous balance. Following a further check and investigation he learned that his $3,000 cheque to the CMA not only had not been negotiated, but also had not been received by the CMA. Following his checking, in early April 1978, he wrote a further cheque to the CMA for the actual amount he could have paid ($2,253.39) (he now had received his T-4 Slip and knew what he could contribute) and sent it to the CMA as the payment for his wife’s RRSP with respect to 1977. It should be noted that this time the cheque was sent by registered mail with the Canada Post. The cheque even then only cleared his account at the same branch on May 8, 1978. Immediately before writing the second cheque the appellant stopped payment on the first. He also stated that the first cheque, to his knowledge, had never been presented for payment.

The appellant’s submission was that he had done everything humanly possible to comply with the requirements of subsection 146(5) of the Income Tax Act. There was money in the account at all times to meet the cheque. He had used the service which the Crown provided for mail, and really expects everyone to use, to convey his payment. It was the failure of the Crown that the payment was not conveyed to the addressee—even if late, but it was never conveyed—and now the Crown states that he cannot have the deduction. It was not that he mailed it from the most remote part of Canada or used an abnormal means of delivery.

Counsel for the Crown took the direct position; namely, the use of the word “paid” in the relevant submission. Since the premium clearly was not paid by the date stipulated, namely, February 28, 1978, the appellant was not entitled to the deduction claimed. Counsel could not refer to any case on the point.

The relevant portion of subsection 146(5) reads as follows:

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. . . . (Italics mine.)

An esteemed member of this Board, the late W S Fisher, had to consider the word “paid” with respect to medical expenses in similar circumstances in the case of Walter I Sheper v MNR, 12 Tax ABC 30; 55 DTC 31. He was considering paragraph 26(1)(b) of the 1948 Income Tax Act. That paragraph permitted a taxpayer to deduct from his income certain medical expenses in excess of 3% of ‘‘the taxpayer’s income for the year paid either by the taxpayer or his legal representatives.” In that case the issue was whether the bills were paid in 1951 as claimed by the appellant or in 1952 as claimed by the Minister. The appellant issued cheques to several doctors and mailed them to the several payees “by depositing them in a mail box as required by the Post Office Act on December 31, 1951.” In that case the cheques were received in 1952 and the receipts for them were dated in January 1952. Mr Fisher then referred to the Post Office Act, RSC 1952, c 212, section 39 and paragraph 2(1 )(i) (now RSC 1970, c P-14, section 41 and subsection 2(1) respectively) which (now) read as follows:

41. Subject to the provisions of this Act and the regulations respecting undeliverable mail, mailable matter becomes the property of the person to whom it is addressed when it is deposited in a post office.

2.(1) In this Act

“post office” includes any building, room, vehicle, letter box or other receptacle or place authorized by the Postmaster General for the deposit, receipt, sorta- tion, handling or dispatch of mail.

He then referred to the decision of Farwell, LJ in the case of Marreco v Richardson, [1908] 2 KB 584 at 593 as follows:

In the more recent case of Felix Hadley & Co v Hadley (1898), 2 Ch 680, Bryne, J held that a cheque or a bill of exchange given in respect of a pre-existing debt operated as a conditional payment thereof, and on the condition being performed by actual payment, the payment related back to the time when the cheque or bill was given. That is only expressing the same principle in another form, and I should myself prefer to say that the giving of a cheque for a debt is payment conditional on the cheque being met, that is, subject to a condition subsequent, and if the cheque is met it is an actual payment ab initio and not a conditional one.

Mr Fisher concluded his reasons as follows:

I am of the opinion, therefore, that the several cheques issued by the appellant on 31st December, 1951, and mailed by him on that date to the several doctors, (which cheques were subsequently presented to the appellant’s bank, were there met on the dates presented, and the various amounts debited to the appellant’s account on or before 15th January, 1952), were, in law, payments made by the appellant in the year 1951, and thus qualified for inclusion in the computation of his medical expenses in respect of the year 1951 under section 26(1)(b) of The 1948 Income Tax Act as ‘‘medical expenses . . . paid . . . within a period of 12 months ending in the year.”

Under these circumstances, the appeal is allowed.

It was suggested that to consider Dr Egan had paid the premium in 1977 would cause confusion and uncertainty and should not be allowed. What the status of the RRSP would be, insofar as quantum is concerned, is a matter between the appellant and the CMA. I am concerned, in effect, with determining the net income of Dr Egan. I do not know his rate of tax for 1977 but it would appear to be safe to say that it is in the vicinity of 20% or 25%. Such being the case, to deny him the right to deduct a premium of $2,253.39 would compel him to pay about $450 in additional tax. To say that is unfair is putting it mildly. To me it would be unjust in these circumstances.

Relying on the said decision of Mr Fisher, judgment will go allowing the appeal and remitting the assessment to the respondent for variation to allow as a deduction, in computing the appellant’s net income for 1977, the amount I have held he has paid on the spousal RRSP within the time period specified in subsection 146(5).

Appeal allowed.