Alan E Valdes v. Minister of National Revenue, [1979] CTC 2463, 79 DTC 410

The Assistant Chairman:—This case came up for hearing before me at Calgary, on April 9, 1979. The parties agreed on most of the facts of the case and the argument was confined solely to an interpretation of some subsections of section 146 of the Income Tax Act after tax reform.

Originally the issue was whether or not the appellant, Mr Valdes, was entitled to a married exemption. He contended that he was so entitled as his wife had no income in the 1976 taxation year.

The Minister disagreed, contending that she had income in that year inasmuch as she had received a benefit from a registered retirement savings plan in the 1976 taxation year and, since the amount of that benefit was income, her income was above that which would permit Mr Valdes to have any married exemption, and so disallowed the married exemption in totality.

The facts and the background which gave rise to this matter were as follows: before February 28, 1976, Mr Valdes paid into a registered retirement savings plan, in the name of his wife, a substantial sum and he claimed the amount so paid as a deduction from his income in the 1975 taxation year (This amount was allowed as a deduction by the Minister when the appellant filed his 1975 income tax return.); and, on or about May 18, 1976, the registered retirement savings plan was redeemed by Mrs Valdes and she was paid an amount in excess of the amount which would wipe out the marital exemption to which her husband would otherwise be entitled if the amount so paid were income.

Mr Valdes acted on his own behalf and centered his case entirely on subsection 146(15), which subsection reads as follows:

Notwithstanding anything in this section, where an amount is received in a taxation year as a benefit under a registered retirement savings plan that was not, at the end of the year in which the plan was entered into, a registered retirement savings plan, such part, if any, of the amount so received as may be perscribed shall be deemed, for the purposes of this Act, to have been received in the taxation year otherwise than as a benefit or other payment under a registered retirement savings plan.

He felt that once his wife took the money out of that registered retirement savings plan on or about May 18, 1976, that at the end of that year (1976) that registered retirement savings plan was not in existence; it was not a registered retirement savings plan. Consequently, the amount was not a benefit. Mr Valdes, on being queried as to the interpretation of that subsection, could not point out what amount, if any, had been prescribed by a regulation made pursuant to that subsection. He stated that to his knowledge there was no such regulation.

Mr Ruskin, on behalf of the Crown, took the position that any benefit received from a registered retirement savings plan was income to the recipient in the year of receipt. In this respect he referred to subsection (8) of section 146 which 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.

Mr Ruskin then turned to paragraph 146(1)(b) and quoted same as follows:

“benefit” includes any amount received out of or under a retirement savings plan otherwise than as a premium and without restricting the generality of the foregoing includes any amount paid to an annuitant under the plan

(iii) resulting from the termination of the plan.

It was his submission that the amount which Mrs Valdes received in 1976 was received by her as a benefit as it was as a result of the termination of the plan, and consequently it was a benefit and was income to her pursuant to subsection (8) of section 146.

Mr Ruskin submitted that subsection (15) of section 146 had no application whatsoever in this appeal. He stated that that subsection had no application on two grounds:

(a) that for that subsection to be operative in the year in which the payment was made, the plan must not be a registered retirement savings plan accepted by the Minister; and

(b) that, assuming it was so registered later, to be exempt when it was paid out there would have to be a regulation.

His submission was that that subsection was designed to assist persons who paid money into a retirement savings plan which was not registered and accepted by the Minister of National Revenue in one year, but it was so registered by the Minister and accepted as a registered retirement savings plan in the next year or at some later time. In that way the amount paid out at a later date would not be subject to double taxation; namely, if it were not a deduction when the premium was paid in, then it would not be income to the recipient when paid out if, of course, there were a regulation to so exempt it. His suggestion was the regulation presumably would exempt an amount equal to the amount paid into the plan if the plan was not a registered retirement savings plan. Consequently, it was his submission that that subsection has no application in the circumstances of this case. Mr Ruskin also pointed out that, to his knowledge and from his search, he could find no regulation made pursuant to subsection 146(15).

I am of the view that the submission made to this Board by Mr Ruskin is correct; namely, that the amount that Mrs Valdes received was a benefit pursuant to paragraph 146(1 )(b) and subsection 146(8) of the Income Tax Act after tax reform, and so is income to her.

I am of the view that subsection 146(15) has no application to the circumstances of this case.

Judgment will go accordingly.

Appeal dismissed.