Earl C Adams v. Minister of National Revenue, [1978] CTC 3012, [1978] DTC 1736

Assistant Chairman:—Earl C Adams (the appellant) appealed to this Board from an assessment for income tax for the 1975 taxation year. In that year the appellant. in computing his taxable income, inter alia. claimed as a deduction a portion of an amount which he had paid in 1973 to American Motors’ registered pension plan, and also claimed as a deduction the amount of $2,500 which he had paid into a registered retirement savings plan (RRSP) on account of his spouse. There was no dispute that both of these amounts in principle are deductible by a taxpayer in computing his taxable income if they meet the requirements of the Income Tax Act. The respondent contended that the total deduction to which the appellant was entitled in 1975. in the circumstances. was $2.500 and that no amount could be claimed by him on account of the RRSP.

The appellant. who is by profession a chartered accountant, filed a very complete Notice of Appeal. It assisted the Board considerably in understanding the case and obviously helped the respondent to a large degree as, by his Reply, he admitted all the appellant’s allegations of fact. That counsel made only one allegation of fact in his Reply—which allegation the appellant admitted when the hearing commenced—was indicative of the completeness of the Notice of Appeal. A date in the Notice of Appeal was corrected by the parties. I reproduce paragraphs 1 to 10 inclusive, as corrected, of the Notice of Appeal, and paragraph 1 of the Reply to the Notice of Appeal:

Notice of Appeal

1. The taxpayer is employed by American Motors (Canada) Limited and has been a member of that Company's registered pension plan (hereinafter referred to as “the plan") since March 1965.

2. The plan does not require contributions to be made by members. However prior to 1974 the plan permitted voluntary contributions by members within limits set out in the plan.

3. By letter dated May 15. 1973 members of the plan were notified that the Company intended to amend the pian and as a result of such amendment voluntary contributions to the plan would not be permitted after June

30. 1973.

4. In June 1973 the taxpayer contributed the amount of $15.044 pursuant to the provisions of the plan which permitted voluntary contributions.

5. The taxpayer deducted or will be deducting in computing his income for tax purposes the following amounts in respect of the amount of $15.044 contributed by the taxpayer to the plan in June 1973.

Taxation year	Amount
1973	S 2.500
1974	2.900
1975	2.500
	7.500
Available for carryforward
to subsequent years	7-544
	$15.044

6. The taxpayer did not claim a deduction in computing income for tax purposes in his 1975 taxation year in respect of a contribution to a Registered Retirement Savings Plan (hereinafter referred to as an “RRSP") under which the taxpayer is the annuitant.

7. The taxpayer deducted in computing income for tax purposes in his 1975 taxation year the amount of $2.500 contributed by him on February 29, 1976 to an RRSP which was established for his spouse.

8. By notice of assessment number 70261718 dated June 28. 1976 the Minister of National Revenue (hereinafter referred to as the '‘Minister”) disallowed the deduction of $2,500 claimed by the taxpayer in his 1975 taxation year in respect of his contribution to the RRSP established for his spouse.

9. On September 1, 1976 the taxpayer filed a notice of objection with the Minister in respect of the said assessment.

10. On January 4, 1978 the Minister confirmed the said assessment on the basis that “the contribution in the amount of $2,500 to a spousal Registered Retirement Savings Plan was properly disallowed within the provisions of subsections 146(5.1) and 146(5) and paragraph 8(1)(m) of the Act”.

Reply to Notice of Appeal

1. He admits the allegations of fact in paragraphs 1 to 10 of the Notice of Appeal and says that he based his assessments of the Appellant described therein on the facts alleged in paragraphs 1 to 7 of the Notice of Appeal and on the fact that the American Motors (Canada) Limited pension plan to which the Appellant contributed was a registered pension fund or plan within the meaning of the Income Tax Act.

The contention of the appellant was that what he claimed as a deduction on account of past service was claimed (and allowed) pursuant to subsection 8(8) of the Income Tax Act as amended by SC 1970-71-72, c 63. Such being the case, no amount was deducted or deductible pursuant to the provisions of paragraph 8(1 )(m) of the said Act. The appellant then contended that the amount which he could have deducted pursuant to the provisions of subsection 146(5) on account of an RRSP was. $2,500. However, not contributing on his own account in 1975 to an RRSP, he could then, if he wished, contribute and claim as a deduction an amount up to $2,500 on account of an RRSP on behalf of his wife pursuant to the provisions of subsection 146(5.1). He did so contribute and did so claim.

The respondent’s position is that an amount paid into a pension plan in prior years may be carried forward to another year pursuant to the provisions of subsection 8(8) and claimed as a deduction in the current year pursuant to the provisions of paragraph 8(1 )(m). The limit of the appellant’s claim is set forth in subsection 8(6). The respondent contends, in the circumstances of the appellant’s case, that the amount the appellant claimed in 1975, being a portion of the amount he paid in 1973, is deductible pursuant to the provisions of subparagraph 8(1 )(m)(iii), not (i) or (ii) because his facts do not agree with those specific subparagraphs. The limit of the deduction pursuant to subparagraph 8(1)(m)(iii) is $2,500. The respondent then turns to subsection 146(5). In making his submission with respect to that subsection he pointed out that it was amended by SC 1970-71-72, c 26, and the amendment applied to payments made to an RRSP after June 1975. The RRSP payment in this case with respect to the 1975 taxation year was made (as agreed) on February 29, 1976, and so, that amendment applied to this appeal. He referred to the subsection as it was prior to the amendment. He contended that, from June 1975 until the date of payment into the RRSP in February 1976, subsection 146(5), in the circumstances of this appeal, only permitted a deduction on account of an RRSP of $2,500 less the amount deducted pursuant to paragraph 8(1)(m). Since he had deducted $2,500 pursuant to that paragraph, there was no amount deductible pursuant to subsection 146(5). He continued that, since the same limitation applied to subsection 146(5.1) as applied to subsection 146(5), there was no amount deductible pursuant to it.

The above-mentioned sections read as follows:

Paragraph 8(1 )(m)

In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(m) amounts contributed by the taxpayer in the year to or under a registered pension fund or plan,

(i) not exceeding in the aggregate his contribution limit for the year under this subparagraph in respect of the fund or plan, if retained by his employer from his remuneration for or under the fund or plan in respect of services rendered in the year or paid into or under the fund or plan by the taxpayer as part of his dues for the year as a member of a trade union,

(ii) not exceeding in the aggregate, the lesser of

(A) his. contribution limit for the year under this subparagraph in respect of the fund or plan, paid by him in the year into or . under the fund or plan in respect of services rendered by him previous to the year while he was not a contributor, and

(B) that part of an amount paid by him in the year into or under the fund or plan in respect of services rendered by him previous to the year while he was not a contributor that is not in excess of the product obtained by multiplying the number of years previous to the year in which he rendered services while he was not a contributor by his contribution limit for the. year under this, Subparagraph in respect of the fund or plan, and subtracting from the product so obtained,the aggregate of all amounts deducted under this subparagraph In previous years,

to the extent not deductible in the immediately preceding year under paragraph 60(j), and

(iii) not exceeding in the aggregate $2,500 minus any amount deducted under subparagraph (i) or (ii) in computing his -income for the year, paid by him in the year whether into or under the fund or plan or into or under any other such fund or plan in respect of services rendered by him previous to the year while he was a contributor, to the extent not deductible in the immediately preceding year under paragraph 60(j).

Subsection 8(6)

For the purposes of paragraph (1)(m), a taxpayer’s ‘‘contribution limit” for a taxation year under subparagraph (1)(m)(i) or. (ii) in respect of a. registered pension fund or plan means such amount as is designated by the taxpayer in his return of income for the year to be his contribution limit for the year under subparagraph (1)(m)(i) or (ii), as the case may be, in respect of that fund or plan, not exceeding however the amount, if any, by which $2,500 exceeds the aggregate of amounts each of which’ is his contribution limit for the year under subparagraph (1)(m)(i) or (ii), as the case may be, in respect of any other such fund or plan.

Subsection 8(8)

Where an amount has been contributed by a taxpayer to or under a registered pension fund or plan

(a) after 1945, in respect of services rendered by him in a year while he was not a contributor, or

(b) after 1962, in respect of services rendered by him in a year while he was a contributor,

it may be included in computing a deduction under

(c) subparagraph (1)(m)(ii), in the case of an amount described in paragraph (a), or

(d) subparagraph (1)(m)(iii), in the case of an amount described in paragraph (b),

for taxation years subsequent to the year in which it was contributed to the extent that it exceeds the aggregate of amounts deductible in respect thereof under this subsection, subparagraph (1)(m)(ii) or (iii) or paragraph 60(j) in computing incomes for years preceding the taxation year.

Subsection 146(5)—as amended by SC 1974-75, c 26

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 fter the end of the taxation year (to the extent that it was not deductible in computing his income for a previous taxation year), not exceeding however the amount, if any, by which

(a) where the taxpayer was employed in the year and as a consequence thereof was a person who is or may become entitled to benefits under a pension fund or plan that provides for payment of a pension to him payable in whole or in part out of contributions made or to be made to the fund or plan or out of or in respect of amounts credited or to be credited in lieu of Such contributions by a person other than the taxpayer in respect of the taxpayer’s employment in that year, an amount that, when added to the amount, if any, deductible under paragraph 8(1)(m) in computing the income of the taxpayer for that year, does not exceed the lesser of $2,500 and 20% of his earned income for that taxation year, or

(b) in any other case, the lesser of $4,000 and 20% of his earned income for that taxation year

exceeds the amount, if any, deductible under subsection (6) in computing his income for that taxation year.

Subsection 146(5) as it reads before the above-mentioned amendment

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 (to the extent that it was not deductible in computing his income for a previous taxation year), not exceeding however the amount, if any, by which

(a) in the case of a taxpayer in respect of whom any amount is deductible under paragraph 20(1)(q) or (r) in computing the income of any other person for that taxation year (or would be so deductible if that other person were a person taxable under subsection 2(1)), an amount that, when added to the amount deductible under subparagraph 8(1)(m)(i) in computing the income of the taxpayer for that taxation year, does not exceed the lesser of $2,500 and 20% of his earned income for that taxation year; and

(b) in the case of any other taxpayer, the lesser of $4,000 and 20% of his earned income for that taxation year

exceeds the amount, if any, deductible under subsection (6) in computing his income for that taxation year.

Subsection 146(5.1)

There may be deducted in computing the income for a taxation year of a taxpayer whose spouse 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 paid by the taxpayer to or under the plan during the taxation year or within 60 days after the end of the taxation year (to the extent that it was not deducible in computing his income for a previous taxation year) not exceeding however the amount, if any, by which the amount determined in respect of the taxpayer under whichever of paragraphs (5)(a) and (b) is applicable to him exceeds the aggregate of

(a) the aggregate of amounts paid by the taxpayer in the taxation year or within GO days after the end of the taxation year as a premium under a registered retirement savings plan under which he is the annuitant; and

(b) the amount, if any, deductible by him under subsection (6) in computing his income for that taxation year.

Were it not for subsection 8(8), the appellant would not be able to claim any amount paid to or under a registered pension fund or plan in 1975 if it were not paid in 1975. However, that subsection, in the circumstances set forth therein, permits a taxpayer to claim as a deduction in the current year contributions made in a.prior year. Thus the appellant may claim, in 1975, some amount on account of a contribution in a prior year. The claim for a deduction which the appellant may make in 1975 is, based on the facts agreed upon, within. the ambit of paragraph 8(8)(b), being a contribution made after 1962 in respect of services rendered by him in a year when he was a contributor. Such being the case, the amount he may deduct pursuant to paragraph 8(8)(b) "may be included in computing a deduction under . . . (d) subparagraph (1 )(m)(iii), in the case of an amount described in paragraph (b).’’

The respondent contended that the claim the appellant was asserting with respect to the deduction for the payment into the plan was pursuant to subparagraph 8(1)(m)(iii) as authorized by subsection 8(8). The appellant contended that his claim was solely within the ambit of subsection 8(8) and that subparagraph 8(1)(m)(iii) was not applicable. The appellant’s position was that there was no deduction by him pursuant to paragraph 8(1 )(m) and so, in effect, he had used up none of his "contribution limit’ when he came to consider the contribution to the RRSP. The Crown’s position at this stage is that he has deducted $2,500—not just pursuant to paragraph 8(1 )(m), but also pursuant to subparagraph 8(1 )(m)(iii).

I am of the opinion that subsection 8(8) does not of itself permit the appellant to deduct, in the current year, contrbiutions not used in prior years. As I view that subsection, were it not in the Income Tax Act, a person, who had contributed in a previous year to a registered pension fund or plan an amount in excess of the contribution limit for that year, could not claim as a deduction in the current year the excess amount contributed in the prior year. The effect of subsection 8(8) is, as I read it, that the excess contributed in a prior year may be considered as a contribution to a registered pension fund or plan in the current year. That subsection goes further and, based on the facts of the case, states pursuant to which specific subparagraph of paragraph 8(1)(m) it will be deductible. It is then that subparagraph which permits the deduction, not subsection 8(8), and in this instance it is subparagraph 8(1 )(m)(iii).

Having determined that the prior contribution of the appellant is deductible in the current year pursuant to subparagraph 8(1 )(m)(iii), with respect to the deductibility of a payment into an RRSP, reference must then be made to subsection 146(5) and, in this case, subsection 146(5.1) to ascertain how much of the payment, if any, is deductible. As mentioned, since the payment was made in February 1976, the law as it existed at the time of the payment must be considered. It is therefore subsection 146(5) as amended by SC 1974-75, c 26, applicable to premiums paid after June 23, 1975, which must be considered. The effect of that subsection is that, in the circumstances of this case, the maximum deduction with respect to an RRSP under this subsection is an amount that “when added to the amount, if any, deductible under paragraph 8(1 )(m) . . . does not exceed the lesser of $2,500 and 20% of his earned income for that taxation year . . .”. The parties agreed that, in this case, $2,500 was the lesser. Since $2,500 was deductible pursuant to paragraph 8(1)(m), there cannot be any amount paid into an RRSP in 1975 which is deductible by the appellant. With respect to the RRSP in the name of his wife, there is nothing which can be deducted pursuant to subsection 146(5.1) as it has the same limitation as subsection 146(5). It should be noted that, had this subsection not been amended in respect of premiums paid after June 1975, the result could have been different. The reference in the subsection, before the amendment, was to subparagraph 8(1 )(m)(i) and, after the amendment, to paragraph 8(1)(m). After the amendment, if the deduction were pursuant to any of subparagraph i). (ii) or (iii) of paragraph 8(1)(m), it affected the deduction pursuant to subsections 146(5) and 146(5.1). However, prior to the amendment, it was only a deduction pursuant to subparagraph 8(1)(m)(i) which affected the deduction pursuant to subsections 146(5) and 146(5.1).

The result is that the $2,500 claimed as a deduction by the appellant relating to a prior year’s contribution is deductible in the current year pursuant to subparagraph 8(1)(m)(iii) of the Act and, because of the limitation, there is no further amount deductible pursuant to subsections 146(5) and 146(5.1). The result is judgment will go dismissing the appeal.

Appeal dismissed.