Robert P Grimson v. Minister of National Revenue, [1977] CTC 2095, 77 DTC 101

The Chairman:—This is the appeal of Robert P Grimson from an income tax assessment in respect of the 1973 taxation year.

The following Agreed Statement of Facts was filed with the Board:

1. On or about April 15, 1970, the Appellant established with Guaranty Trust Company of Canada (“Guaranty Trust”) a self-administered registered retirement savings plan numbered 16543.

2. In or about February 1972, the Appellant contributed an amount of $2500 to registered retirement saving plan T6543 (“RRSP T6543”) with Guaranty Trust and claimed a deduction thereof from his income for the 1971 taxation year. The Appellant in making such a contribution and claiming such a deduction did not realize that the deduction for amounts contributed to a registered retirement savings plan is limited to the lesser of $2500 and 20% of earned income by virtue of section 146(5) of the Income Tax Act and was not so advised by the trustee, Guaranty Trust.

3. By notice of reassessment dated May 28, 1973 the Appellant was denied a deduction for the amount contributed to RRSP 16543. The form accompanying the said notice explained that the amount deductible is limited to the lesser of $2500 and 20% of the Appellant’s earned income and since the Appellant did not have any earned income in the year, he was denied a deduction of the $2500.

4. The Appellant did not file a notice of objection to the said notice of reassessment dated May 28, 1973.

5. Since he had been denied the deduction of the $2500, the Appellant desired to withdraw the $2500 from the registered retirement savings plan T6543. The Appellant almost immediately consulted with Guaranty Trust and the Appellant was advised by Guaranty Trust that in order to withdraw the $2500 and still maintain the registration of RRSP T6543, it was necessary to establish a new registered retirement savings plan and transfer tax free the $2500 to the new plan. The $2500 could then be withdrawn from the new plan, the registration of which would then be cancelled. The taxpayer was aware at that time that the Minister considered the said sum would be taxable on withdrawal. Accordingly, the Appellant on or about November 1973 Caused:

a) $2500 to be transferred from RRSP T6543 to a new registered retirement savings plan (“RRSP R60076”);

b) the $2500 to be paid to the Appellant from RRSP R60076 thereby resulting in its deregistration.

6. The Appellant in filing his income tax return for 1973 did not include the $2500 in income but fully disclosed that he received the $2500 including attaching form T4RSP which indicated receipt of $2500 from RRSP R60076 in 1973.

7. By notice of assessment dated July 29, 1974, the Minister of National Revenue added to the taxpayer’s income for the taxation year 1973, the $2500 withdrawn from RRSP R60076. A deduction for this amount was disallowed by the Respondent for the 1971 taxation year and the $2500 was added back to income for that year.

8. By notice of objection dated September 16, 1974, the Appellant objected to the said reassessment dated July 29, 1974.

9. By notice dated May 12, 1975, the Minister of National Revenue confirmed the said assessment dated July 29, 1974.

The only issue in this appeal is whether the amount of $2,500 withdrawn by the appellant from Registered Retirement Savings Plan #R60076 in 1973 was, under the circumstances, taxable.

The appellant’s position, as I understand it, is:

1. “. . . there is a general presumption in law against taxing the same income dollars twice . . .”’: In support of this contention counsel for the appellant cited Canadian Eagle Oil Co, Ltd v The King, [1946] AC 119; 27 TC 205 (HL), and Inland Revenue Commissioners v FS Securities, Ltd, [1964] 1 WLR 742.

2. . . the tax must be imposed in categorical and unambiguous terms”; Then he cited Harry C Hatch v MNR, [1938] Ex CR 208; [1938-39] CTC 85; 1 DTC 447; Oriental Bank Corporation v Wright (1880), 5 App Cas 842; and Maxwell on Interpretation of Statutes, 10th edition, page 288, where it is stated:

A construction, for example, which would have the effect of making a person liable to pay the same tax twice in respect of the same subject matter would not be adopted unless the words were very clear and precise to that effect. In a case of reasonable doubt the construction most beneficial to the subject is to be adopted.

3. Paragraph 146(1 )(b), the pertinent paragraph, was ambiguous as it read in 1972, and the amendment made to it by SC 1974-75-76, c 26, subsection 99(1), retroactive to 1972, is still unclear and ambiguous and should be interpreted in favour of the appellant so as to avoid double taxation of the same moneys in the hands of the same taxpayer.

4. Counsel concludes that, since the appellant’s contribution of $2,500 to RRSP 16543 was not deductible in 1971 and was added back to the appellant’s 1971 income, that amount should not be taxed on withdrawal from the plan in 1973, pursuant to section 146 of the Income Tax Act, SC 1970-71-72, c 63, as amended, since double taxation would result and therefore, in the circumstances, section 146 should not be so interpreted.

The respondent’s position is that there is no ambiguity whatever in the Act; that the letter of the law should be applied; that the appellant “is not entitled under the Income Tax Act to a deduction as claimed” according to the provisions of section 146 and paragraphs 56(1)(h) and 60(a) of the new Act; and that the appeal should therefore be dismissed.

Before commenting on the wording of the pertinent sections of the Act, it is important to pinpoint the issue. From the Agreed Statement of Facts and from the argument, the following appears clear to me:

1. The appellant admits that his contribution of $2,500 to RRSP #T6543 was not deductible because he did not have any earned income in 1971. Therefore, the issue in this appeal is not the deductibility of the appellant’s contribution to RRSP #16543 in 1971.

2. The amount of $2,500, not being deductible, was therefore added back to the appellant’s 1971 income. In my opinion, the amount of income the appellant had in the pertinent years is immaterial, and whether or not the appellant knew that his contribution was not deductible is of little importance. In my view, what is material to the issue is that the appellant’s contribution was in fact not allowed as a deduction in the 1971 taxation year.

3. On withdrawing his 1971 contribution from RRSP #T6543, and in order to maintain its registration, the appellant was forced to utilize the mechanism of transferring the $2,500, tax free, from RRSP #T6543 to RRSP #R60076, which amount, when withdrawn from the latter plan, resulted in the deregistration and termination of RRSP #R60076. RRSP #T6543, however, was still registered.

4. On Form T462, included in the appellant’s notice of assessment dated July 29, 1974, the following explanation is made in reference to the appellant’s withdrawal of $2,500 from RRSP #R60076:

ANY WITHDRAWAL PAYMENTS RECEIVED FROM AN RRSP PRIOR TO MATURITY DUE TO AN AMENDMENT OR CANCELLATION OF THE PLAN IS TAXABLE IN FULL IN THE HANDS OF THE RECIPIENT. THIS APPLIES WHETHER OR NOT THE TAXPAYER WAS ENTITLED TO CLAIM A DEDUCTION FOR PREMIUMS IN HIS INCOME TAX RETURN.

The above explanation is of course the issue in this appeal.

In seeking to interpret the individual subsections of section 146 in reference to registered retirement savings plans as part of Division G of the Act, which in turn deals with “Deferred and Other Special Income Arrangements”, it is necessary, first, to read all of the subsections of section 146 as a whole; and secondly, to appreciate the obvious effort the legislature has made to encourage taxpayers to set aside a portion of their yearly income by deferring the income tax thereon to a period of time when the taxpayer is older and when his income will, in the great majority of cases, be considerably lower. I do not believe there can be any real dispute or doubt as to the Legislature’s intent and purpose in introducing the tax deferral scheme of section 146 of the Income Tax Act. However, there is no equity in tax law, and no amount of sympathetic understanding on the part of the Department of National Revenue or the courts can justify changing the clear, precise and unambiguous wording of the statute. On the other hand, if a section of the statute is not only ambiguous and confusing, but an allegedly literal interpretation and application of the law would also have a result which would be contrary to a basic principle of tax law, it would, in my opinion, in such a case be equally unjustifiable to interpret and apply the letter of the law in contravention with the Legislature’s evident intent. The cases referred to by the appellant and the quotation from Maxwell on Interpretation of Statutes are more than ample support for the position that the same income tax dollars should not be taxed twice, and that the wording of the Income Tax Act, when imposing a tax, must be clear, unambiguous and precise. The question that remains to be answered is whether section 146 and its subsections are as unambiguous as the respondent claims they are.

Subsection 146(8) reads:

146. (8) 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.* [1]

Paragraph 146(1 )(b) defines “benefit”:

146. (1) In this section,

(b) “benefit” includes any amount received out of or under a registered 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

(i) in accordance with the terms of the plan,

(ii) resulting from an amendment to or modification of the plan, or

(iii) resulting from the termination of the plan;*

Counsel for the respondent contended that, although subparagraphs (i) and (ii) of paragraph 146(1 )(b) are not applicable to the facts of this appeal, subparagraph (iii) does apply, because the plan was terminated and therefore the $2,500 withdrawn from the plan was a benefit by virtue of subparagraph 146(1 )(b)(iii).

I think it should be again noted here that, although the appellant wished to withdraw his contribution of $2,500 from RRSP T6543, he had no intention of terminating, nor did he in fact terminate or deregister that plan. In order to withdraw the $2,500 from RRSP T6543 without deregistering it, he had to transfer it to RRSP R60076, which was later terminated on withdrawal of the total amount of his transfer. Can it be said that the mechanics imposed on the appellant by the trustee so as to permit the appellant to withdraw the contribution made to his original RRSP T6543 without terminating it, constitute the termination of a registered retirement savings plan as defined in paragraphs 146(1)(i) and 146(1)(j) of the Income Tax Act? It seems clear to me that the whole purpose of the exercise was to withdraw his contribution from RRSP 16543, and there is no evidence that the appellant sought to enter into another annuity contract with the trustee within the meaning of paragraph 146(1 )(j). In my opinion, the appellant’s RRSP 16543 was not terminated by the withdrawal of the $2,500 and RRSP R60076, though terminated on the withdrawal of the $2,500, was not intended to be, nor was it in fact and in law, a registered retirement savings plan within the meaning of paragraphs 146(1 )(i) and 146(1 )(j) of the Income Tax Act. The amount of $2,500 withdrawn from RRSP R60076 was therefore not a benefit within the meaning of paragraph 146(1)(b) of the said Act; it was, in my opinion, a return of the appellant’s contribution.

Considerable debate centred around the interpretation to be given to the words “otherwise than as a premium’’ found in the definition of “benefit’’ in paragraph 146(1 )(b). Paragraph 146(1 )(f) of the Act defines “premium’’ as follows:

146. (1) In this section,

(f) “premium” means any periodic or other amount paid or payable under a retirement savings plan,

(i) as consideration for any agreement referred to in subparagraph (j)(i) to pay an annuity, or

(ii) as a contribution referred to in subparagraph (j)(ii) for the purpose stated in that subparagraph;

Counsel for the respondent contended that the amount of $2,500 paid into a registered retirement savings plan was a premium, but that the amount of $2,500 withdrawn from the Plan was an annuity and a benefit. She further contended that the words “otherwise than as a premium’’, included in the definition of “benefit’’, in paragraph 146(1 )(b) do not refer to the amount received by the appellant from RRSP R60076, but refer to the premium paid into the said RRSP which, in the absence of those words, would become a benefit for the trust company and taxable in the trustee’s hands pursuant to subsection 146(8) which reads:

146. (8) 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.

Perhaps paragraph 146(1)(b) in conjunction with subsection 146(8) of the Income Tax Act can be so interpreted, but it appears to me to be equally valid and logical, without forcing the meaning of words, to interpret those sections as referring to taxable benefits receivable by the annuitant, from which the return of premiums is specifically excluded.

It appears to me that the whole of Division G of the Act generally refers to registered retirement savings plans entered into by the taxpayer. Had the Legislature intended to have the definition of “benefit” apply only to the trust company, it could and should have said so in paragraph 146(1)(b) of the Income Tax Act.

As pointed out by counsel for the appellant, subsection 146(4) does specifically refer to the part that a trust plays in RRSP plans and deals effectively with the point on which the respondent bases his interpretation and application of the definition of the word “benefit” in paragraph 146(1 )(b) of the Act.

If the words “benefit” and ‘otherwise than as a premium” refer only to a trust, it appears to me that subsection 146(4) would then have to be considered as being redundant and useless, a result which the rules governing the interpretation of statutes do not permit.

In my opinion, which is apparently diametrically opposed to that of the respondent, it is clear that paragraph 146(1)(b) of the Income Tax Act does not refer to benefits received by the trust company, but refers to benefits received by the annuitant, which excludes premiums. Whatever administrative problems may arise from such an interpretation of the Act cannot and should not, in my view, be of concern to this Board in determining the specific issue on the basis of the facts and the wording of the Act.

Although I am satisfied that the interpretation given by the Board to paragraph 146(1)(b) is a legal and a reasonable one, the least that can be said in the light of the respondent’s different interpretation is that the section, even as amended, is not as clear, precise and unambiguous as is required by a taxing statute.

In support of her contention that fiscal legislation must be interpreted Strictly within the letter of the law, counsel for the respondent cited the case of Versailles Sweets Limited v Attorney General of Canada, [1924] SCR 466; 1 DTC 47; [1924] 3 DLR 884, in which the Supreme Court quotes the case of Partington v Attorney General (1869), LR 4 HL 100 in which Lord Cairns states:

. . . aS I understand the principle of all fiscal legislation, it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.

Although the issue and the facts in the Versailles Sweets Limited case are very different from the facts and issue of the instant appeal, no one can quarrel with the principle that if a taxpayer falls squarely within the letter of a taxing provision he must be taxed accordingly, and an interpretation which deviates from the clear wording of the taxing statute so as to obtain what may be considered to be a more equitable result is not admissible. However, there is nothing in Lord Cairns’ statement, as adopted by the Supreme Court of Canada, which contradicts the proposition that before a taxpayer can be said to fall within the letter of the law the pertinent taxing provision must be clear and unambiguous, and if it is not, any reasonable doubt that arises from the wording of the taxing provision should be resolved in favour of the taxpayer. The clarity or otherwise of the wording of section 146 and its subsections constitutes, in my view, the essence of the issue in this appeal.

Counsel for the respondent, if I understand her argument correctly, spent some time in proving that subsection 146(5) clearly does not permit the appellant to deduct the contribution of $2,500 made by him into RRSP 1716543. In my opinion, that is not the issue in this appeal. The non-deductibility of his contribution was admitted by the appellant in the Agreed Statement of Facts. The appellant is not claiming that his contribution to RRSP T6543 or RRSP R60076 was deductible. What the appellant contends is that, since his contribution to the plan was not deductible in 1971 and was added back to his taxable income for that year, it cannot, on withdrawal, be assessed as taxable as a benefit received from an RRSP Plan in 1973 without giving rise to double taxation.

Paragraph 60(a), also cited by counsel for the respondent, reads 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:

(a) the capital element of each annuity payment (other than a superannuation or pension benefit, a payment under a registered retirement savings plan, a payment under an income-averaging annuity contract or a payment of an annuity paid or purchased pursuant to a deferred profit sharing plan or pursuant to a plan referred to in subsection 147(15) as a “revoked plan’’) included in computing the taxpayer’s income for the year, that is to Say,

(i) if the annuity was paid under a contract, an amount equal to that part of the payment determined in prescribed manner to have been a return of capital, and

(ii) if the annuity was paid under a will or trust, such part of the payment as can be established by the recipient not to have been paid out of the income of the estate or trust;

Counsel contends that the appellant entered into a contract, viz a registered retirement savings plan, and was entitled to the tax sheltering provisions of the plan. When the money was withdrawn from the plan, the capital element was not deductible pursuant to paragraph 60(a) of the Income Tax Act.

The undisputed facts are:

1. The appellant, on learning that his contribution of $2,500 to RRSP T6543 was not deductible, decided to withdraw his contribution from that plan. Nothwithstanding the fact that although any amount may be contributed to an RRSP only a specific and limited amount is determined by subsection 146(5) of the Income Tax Act to be deductible, nowhere in the Act is the appellant prohibited from withdrawing his contribution from an RRSP Plan.

2. There was no intention on the part of the appellant to enter into a second RRSP. His only intention was to withdraw his contribution from RRSP T6543, and he followed the rules laid down by the trustee to withdraw his contribution from RRSP T6543 without deregistering or terminating that plan. On comparing the trust agreement, "Guaranty Trust Company of Canada Retirement Savings Plan—Trust #6543’’ (Exhibit R-3) with the Guaranty Trust Special Retirement Savings Plan Application R60076 (Exhibit R-4), it seems clear to me that such an application was not made to commence a new plan but to permit the withdrawal of the appellant’s $2,500 from RRSP T6543. The appellant’s contribution to RRSP R60076 was withdrawn as soon as possible; it did not benefit from the long-term tax shelter inherent in an RRSP. That is to say, the appellant did not pay an amount into RRSP R60076 for the purpose of receiving an annuity pursuant to paragraph 146(1 )(f) of the Act. The trustee was not called upon, nor was it his intention, to provide any of the considerations referred to in paragraph 146(1 )(j) of the Income Tax Act.

In the circumstances, can it be said that the $2,500 withdrawn from RRSP R60076 was the capital element of an annuity received under an RRSP within the meaning of paragraph 60(a) of the said Act? I do not think so, because, in my opinion, application R60076 was not an RRSP contract entered into either by the appellant or the trustee for the purposes of achieving the objectives set out in the definition of a “retirement savings plan’’ in paragraph 146(1)(j) of the Act. In my opinion, paragraph 60(a) is not applicable to the facts of this case. Paragraph 56(1 )(h) of the Income Tax Act, also referred to by counsel for the respondent, and which reads:

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;

is also not applicable to the facts of this appeal for the same reasons.

When dealing with the question of whether or not section 146 and its subsections are clear and unambiguous, it should also be noted that the Legislature defined the term “refund of premiums’’ in paragraph 146(1 )(h) of the Income Tax Act as follows:

146. (1) In this section,

(h) “refund of premiums’’ means any amount paid or payable under a retirement savings plan, on or after the death of the annuitant hereunder in the event of his death before maturity, as or on account of

(i) a return of premiums,

(ii) reasonable interest on premiums, or

(iii) a share or interest in or a bonus out of profits or gains;

Refund of premiums refers specifically to amounts paid to an annuitant, before maturity, on or after death, and includes the interests on premiums and/or a share of the profits or gain.

The Income Tax Act is silent on the withdrawal of a contribution to an RRSP by a taxpayer before his death, without benefiting from the tax shelter and without accumulating any interest or a share in the profits. It appears to me that a distinction must be made between a refund of premiums as defined in the Act and a refund or withdrawal of a contribution in the circumstances in which the appellant effected that withdrawal.

I have taken considerable pains with my reasons in this appeal in order to point out the differences between the facts in the instant appeal and the facts of the case of Cecil M Langille v MN Fl, [1975] CTC 2367; 75 DTC 280, referred to by counsel. Although the facts in this appeal may be somewhat different from those in the Langille case, it appears to me that the common issue in both cases is the same, and that is, whether the provisions of section 146 of the Income Tax Act were clearly meant to tax all and any amounts received out of a registered retirement savings plan, even though it might, in certain circumstances, result in double taxation for the recipient. Since the Board’s decision in the Langille case was appealed to the Federal Court and the Trial Division’s decision of February 22, 1977, accompanied by very complete reasons, upheld the Board’s decision in that case, I do not propose to make any further comment on the Langille case.

In the appeal presently before the Board, I have reached the conclusion that the amount of $2,500 withdrawn from RRSP R60076 was not a “benefit” (within the meaning of paragraph 146(1)(b) and subsection 146(8) of the Income Tax Act); that the withdrawal of the appellant’s contribution from RRSP R60076 was not the refund of a premium within the meaning of paragraph 146(1)(h) of the Act; that paragraphs 60(a) and 56(1 )(h) of the said Act do not apply to the facts of this appeal; and that the wording of section 146 and its related subsections is not sufficiently clear and precise to justify an interpretation which would impose double taxation on the appellant in the circumstances of this appeal.

For these reasons, the appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.