Stanley E J Deterry v. Minister of National Revenue, [1977] CTC 2332, 77 DTC 236

Delmer E Taylor:—This is an appeal against an income tax assessment for the year 1974 in which the Minister of National Revenue added to the taxable income an amount of $2,000 received by the appellant from a registered retirement savings plan. The appellant did not specify any section of the Income Tax Act upon which he based his case, but the respondent relied, inter alia, upon section 3, paragraph 56(1 )(h) and subsections 146(8) and (16) of the Income Tax Act, SC 1970-71-72, c 63, as amended. It should be noted that although the amount at issue indicated in both the notice of appeal and the reply to notice of appeal was $2,113.50, both parties at the commencement of the hearing agreed that only $2,000 was in dispute.

Facts

During the year in question the Royal Trust Company (hereinafter referred to as the "Company”) maintained for the convenience of its customers at least two (and perhaps more) different types of registered retirement savings plans. One such plan, in which the appellant had in prior years deposited $2,000 and had in the interim augmented to $2,113.50, was referred to by the Company as the “B & M fund”. In November 1974 the appellant instructed the Company to transfer from his B & M plan the amount of $2,113.50 and open a similar plan for him in its "guaranteed fund”. Such a direct transfer from one plan to another could be accomplished without the appellant incurring income tax liability. However, the transfer could only take place, because of the Company’s administrative requirements, partly on November 30, 1974 and the balance on December 31, 1974. Wishing to take advantage of the interest rate on the guaranteed plan existing on November 1, 1974 (which was subject to change), the appellant deposited from his own savings bank account early in November 1974 an amount of $2,000 in the “guaranteed fund’’. The appellant then withdrew the $2,113.50 from the ‘‘B & M fund’’ and declared on his income tax return the gain of $113.50 from the termination of the plan, claiming at the same time an amount of $3,000 (the $2,000 above, plus an additional $1,000) as a deduction from income for registered retirement savings plan premiums. The Company issued to the appellant TP4 slips for the total of $2,113.50, and also official tax receipts for the $3,000.

Contentions

The appellant contended that he had, in fact, been $2,000 short in his own savings account for approximately two months and had thereby been penalized, but primarily that:

(1) Although the letter of the law might have not been followed exactly, the spirit and purpose of the law has been strictly adhered to.

(2) Ordinary taxpayer is not familiar with provisions of paragraph 56(1)(h) of the Act, unless he is a student of taxation problems. Therefore is guided by simple logic and common sense. I feel the object and purpose of the law has been fulfilled.

(3) The law governing RRSP must be the same with regard to Federal and Provincial Taxation.

Therefore I wonder why the Provincial Government understood the reasoning behind this transfer and recognized the facts as being in compliance with the law and the Federal Government cannot see beyond the legality. After all there surely must be a human side to every law which takes into consideration the spirit of the law as well as the letter of the law.

Counsel for the respondent asserted as follows:

the payment from one registered savings plan to another registered retirement Savings plan was not transferred directly as requested under subsection 146(16) of the Income Tax Act’,

Accordingly, the amount of $2,113.50 withdrawn from the registered retirement B & M plan and received by the appellant must be included in the appellant’s income for his 1974 taxation year, accordingly and pursuant to sections 146(8) and 56(1 )(h) of the Income Tax Act.

Evidence

The appellant submitted a statement of his account with the Company regarding the plans, and the Board had previously been provided with a copy of a letter from the Company detailing the transactions which have been described above.

Argument

The appellant’s position was clear in that, in his opinion, there had only been the replacement of his own funds and no transaction which could result in taxation.

Counsel for the respondent argued that the law was clear and that the proceeds of the termination of the B & M fund must be included in income.

Findings

The appellant relied heavily upon his lack of knowledge or advice regarding the matter. However, the matter must be determined according to the existing legislation, regulations and directives. The appellant would have the Board hold that the intention and purpose met these requirements. However, it is not quite as certain to me that his intention to avail himself of the interest rate prevailing on the guaranteed fund at November 1, 1974 is entirely irrelevant. By all indications it was the governing factor in his considered decision to invest $2,000 of his own private and separate money early in November, rather than allow the prescribed administrative process of the Company to take its course and thereby ensure a direct transfer of the funds. It is my general opinion, in all such instances, that an appellant once having made a choice or decision from alternatives available to him, must then accept the income tax consequences, whether good or bad, which flow therefrom. Further, although the point was not pursued strenuously at the hearing, the Board notes that the appellant in filing his income tax return, took advantage as a deduction of the full amount of the $3,000 for which he had an official tax receipt from the Company. It might well be argued that if one followed the line of reasoning put forward by him at the hearing (the amount received on termination of the “B & M plan” only reimbursed him for his earlier advance to purchase the “guaranteed plan”), he would only have made an income tax deduction of the additional $1,000 since during 1974 he had only increased his total investment for retirement by that amount, not by $3,000.

The Board is mindful of a recent decision of the Honourable L J Cardin, PC, QC, Chairman of this Board, in the case of Robert P Grim- son v MNR, [1977] CTC 2095; 77 DTC 101, in which judgment a withdrawal of $2,500 under circumstances somewhat similar to the instant case was held to be non-taxable, and the appeal allowed. The following quotation is taken from that case (at p 2099 [104]), by way of distinguishing it from this matter:

In my opinion, . . . 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.

I have no hesitation in determining that in this case there was, indeed, both in fact and in law, a registered retirement savings plan— the “B & M fund” which was terminated by the withdrawal of the amount of $2,113.50.

Decision

The appeal is dismissed and the amount of $2,000 should be added to the taxable income of the appellant for the year 1974.

Appeal dismissed.