Gerald a Posen v. Minister of National Revenue, [1978] CTC 2435, [1978] DTC 1344

The Assistant Chairman:—When the appellant, a medical practitioner practising his profession in the City of Ottawa, in the Province of Ontario, filed his 1975 income tax return he claimed as a deduction in arriving at his net income, the sum of $4,000 as being a registered retirement savings plan (“RRSP”) premium. In due course, Dr Posen received a notice of assessment containing the following explanation of changes: “at the time of processing of your return, a reply to a letter requesting additional information has not been received. Therefore, the item questioned has been disallowed”. The claim for deduction on account of a payment to an RRSP of $4,000 was disallowed. Following that assessment, Dr Posen filed a notice of objection. The relevant parts of the notice of objection read as follows:

Objection is raised to disallowance of claim of investment into Registered Retirement Savings Plan.

Attached are copies of the following in support of our argument:

1. Letter dated October 19, 1976 received from Mr R Paul McTaggart.

2. United Trust Company form ‘‘Authority to Accept Contributions for RRSP Self-Administered” dated February 26, 1976.

3. Mortgage dated February 12, 1976 between Louise Cheff and Gerald A Posen.

4. Assignment of Mortgage (referred to in 3) by Gerald A Posen to United Trust Company in Trust for Gerald A Posen.

The disallowance of $4,000 was confirmed by notification by the Minister and it was on the premise that the payment of the amount of $4,000 was not made within 60 days after the end of the taxation year in question. The Minister’s reply to the notice of appeal took the same position and, in addition, stated that the appellant was not an annuitant within the meaning of subsection 146(1) of the Income Tax Act after tax reform.

Dr Posen gave evidence, as did an officer of the Royal Trust Company. Dr Posen advised that, in November 1974, he had attended the United Trust Company and on that date had executed with that company a trust agreement effecting an RRSP, a copy of which was filed as Exhibit A-1. It showed a plan No 252-222-1040. This agreement was in existence at all times relevant to this appeal. As I understand the evidence, this fact was not known to the respondent until the hearing or shortly before the hearing of the appeal. I should mention, as was indicated in the evidence at the trial, that some time after the execution of the trust agreement the Royal Trust Company took over the United Trust Company and, for this reason, one of the persons who gave evidence at the trial was an officer of the Royal Trust Company. In late January 1976 or early February of the same year Dr Posen’s solicitor, Mr R Paul McTaggart, advised him that he had a mortgage of about $4,000 if the doctor were interested in investing in it. The doctor stated he informed his solicitor that he would look into it and check with the trust company to ascertain whether or not such a mortgage would fit within. the trust agreement which he had with the trust company. In due course he was advised that it would and the doctor instructed his solicitor to proceed with the mortgage. The doctor advanced funds to his solicitor in the amount of $4,000 on or about February 17, 1976. The mortgage was prepared bearing date February 12, 1976 and it was. registered on February 17, 1976 in the Land Registry Division of Carleton as No 224474. Gerald A Posen, the appellant, was the mortgagee. The money which the appellant paid to his solicitor was entered in the solicitor’s clients’ trust account. On or about February 28, 1976 all of the funds secured by the mortgage were paid to the mortgagor or on the mortgagor’s behalf. By letter dated February 25, 1976 and received by the trust company on February 27, 1976 per the trust company’s stamp, the appellant wrote to them with respect to the mortgage which was being entered into. The body of that letter reads as follows:

Re: My Retirement Savings Account No 252-222-1040

There is to the account a mortgage being entered. The payments will be received every month. Would you please put the mortgage payments, principal and interest. into a special savings account. Whenever the amount in the savings account exceeds $500.00 would you please buy a short term investment certificate for 5 years compounded with all subsequent funds charged to my retirement savings plan.

There was filed with the Board as Exhibit A-5 a form of the United Trust Company which bears the date of February 26, 1976, which is captioned “Authority to Accept Contributions for Retirement Savings Plan Self-Administered’’. It reads in part as follows: ‘“. . for deposit to my Retirement Savings Plan, plan no 252 2221040 .” The description of the property referred to therein is “Mortgage between Dr Gerald A Posen. & Louise Cheff—Registered 2/17/76—#224474— Total Investment Contributions 4000.00’’. In the lower right corner of same is the provision for two signatures, one for the client and one for an authorized signature. In the space for the client’s signature there appears to be the words ‘‘as directed’’, and where there is a provision for an authorized signature there is a signature which appears to be “W Flynn’’. It was explained that Mr Flynn was an officer of the United Trust Company at that time but was no longer with that corporation. There was also filed with the Board a letter dated March 9, 1976 from the appellant’s solicitor to the appellant in effect reporting on the mortgage. A portion of the letter reads as follows:

We have requested Mrs Cheff to forward all payments due under this mortgage direct to the United Trust Company, Rideau and Nicholas Street, for deposit to the credit of your account number 252-222-1040.

In accordance with your instructions the duplicate registered mortgage was delivered to the United Trust Company, Rideau and Nicholas Street, Ottawa, and in this regard we also enclose authority to accept contributions for retirement savings plan.

The doctor clearly stated in his evidence that, as far as he was concerned, it was always his intention that this mortgage be turned over to the trust company and the money be handled by them in accordance with the trust agreement with respect to his RRSP. He stated he has not received any money from Mrs Cheff, the mortgagor. All that he can say is that, in February 1976, he was in touch with Mr Flynn of the trust company and, in so far as the "‘Authority to Accept Contributions document” is concerned, the information was given to him by Mr Flynn. An officer of the Royal Trust Company gave evidence and advised that that form was a form which was normally prepared in the course of business. As far as the trust company was concerned, Mr McTaggart was acting for it in February 1976 when the money was advanced in his trust account to Mrs Cheff. Another feature of the appeal which should be mentioned is that, by document dated the 23rd day of April 1976 and registered on April 28, 1976, the mortgage referred to herein was assigned by Dr Posen to the United Trust Company in Trust for Gerald A Posen.

Subsection 146(5) of the said Income Tax Act reads in part as follows:

146. (5) 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 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 . . .

As mentioned, initially the Crown took the position that the appellant was not, on or before 60 days after the end of the 1975 taxation year, an annuitant under a registered retirement savings plan. After this fact was established by the copy of the trust agreement he had signed in November 1974 with the United Trust Company, that position was abandoned. The position of the Crown thus remained only that no payment was made in the 1975 taxation year or within 60 days after the end of that taxation year. In approaching the determination of this issue as the Crown saw it, the submission was made that the provision of subsection 146(5) is a deduction provision and, like an exempting provision, it must be strictly construed. Reliance in this respect was made on the case of W A Sheaffer Pen Company of Canada Limited v MNR, [1953] CTC 345; 53 DTC 1223, where the former president of the Exchequer Court stated at page 349 [1225] as follows:

Then I put the rule of construction of an exempting provision of the Income War. Tax Act as follows:

“Just as receipts , of money in the hands of a taxpayer are not taxable income unless the Income War Tax Act has clearly made them such, so also, in respect of what would otherwise be taxable income in his hands a taxpayer cannot succeed in claiming .an exemption from income tax unless his claim comes clearly within the provisions of some exempting section of the Income War Tax Act: he must show that every constituent element necessary to the exemption is present in his case and that every condition required by the exempting section has been complied with.”

A similar rule of construction should be applied in the case of a statutory right of deduction such as that conferred by section 5(p), from which it follows that if a taxpayer cannot clearly bring his claim for deduction within the express terms of the provisions conferring the right of deduction he is not entitled to it.

Counsel for the appellant stated that the payment. by the appellant to him, the receipt of money by him from the appellant in trust, the preparing and registering of the mortgage? the payment by the: solicitor both as solicitor for the appellant and as solicitor for the trust company, all prior to 60 days after the end of the 1975 taxation year, constituted payment by the appellant as is required by subsection 146(5). The other documentation, especially the appellant’s letter to the trust company dated February 25, 1976, and the trust company document captioned “Authority to Accept Contributions for Retirement Savings Plan Self-Administered”, as well: as the solicitors reporting letter of March 9, 1976, all of which refer to Plan 252-222-1040 are clearly indicative not only of the intentions of all persons in the matter at that time, but is what in fact happened, and it was: his submission that the payment required by subsection 146(5) was made. He also submitted in making this argument that he had the money at the time of the disbursement as agent of the trust company. Such being the case—if the-solicitor had the money as agent of. the trust company—then the trust company had the money and the appellant had paid it as is required by subsection 146(5) of the Income Tax Act. His argument continued that, if that did not constitute payment, then by the assignment in April 1976, the trust which was created in February 1976 was retrospectively perfected, and made reference to the case of Rochefoucauld v Boustead, [1897] 1- Ch 196 at 206.

I have no hesitation in finding that things were done on the dates and at the times they were said to be done. There is no hesitation in saying that there was no backdating of any documents which were presented to this Board. I cannot see where an amount to be. paid pursuant to subsection 146(5) must be actually paid to the trustee and to no one else, be it to an agent of the trustee or to a person on the direction of the trustee. I am satisfied on the facts of this case that, by the expiration of the 60 days after the end of the 1975 taxation year, the appellant had paid, in the circumstances of this case, the sum as required by his RRSP and consequently judgment will go allowing this appeal.

Appeal allowed.