Citation: 2008TCC25
Date: 20080116
Docket: 2007-3096(OAS)
BETWEEN:
ELLEN WARD,
Appellant,
and
THE MINISTER OF HUMAN RESOURCES
AND SOCIAL DEVELOPMENT CANADA,
Respondent.
REASONS FOR JUDGMENT
(Edited from Reasons for Judgment
delivered orally from the Bench
on January 11, 2008 at Winnipeg, Manitoba)
Hershfield J.
[1] This appeal made
under section 28 of the Old Age Security Act (the “Act”) concerns
a decision of the Minister of Human Resources and Social Development Canada
(the “Minister”) regarding the calculation of the Appellant’s entitlement to
the Guaranteed Income Supplement (the “GIS”).
[2] The facts are not
in dispute. The Appellant is the annuitant of a Registered Retirement Income
Fund (the “RRIF”) as defined and regulated under the Income Tax Act (the
“ITA”) from which she received an annual payment of $1,300 each January.
It is not in dispute that this is a once a year payment that is the “minimum
amount” required under the ITA to be paid out of the RRIF. Further
payments or withdrawals are allowed at the discretion of the annuitant. Indeed,
the Appellant in this case made such further withdrawals. The first of these additional
payments (or at least the first of these that impacts on this appeal) was made
in September 2005.
[3] The additional
payment out of the RRIF in 2005 was $7,460. Additional extra payments made to
her out of the RRIF were $3,611 in November 2006 and $1,065 in July 2007. The
latter withdrawal left a zero balance in her RRIF. It was acknowledged that the
extra withdrawals shortened the life of the fund. That is, each additional
payment reduced the number of future minimum payments she would receive or
reduced the amount of the last minimum payment.
[4] To put the issue in
this appeal in context an overview of the general scheme of the GIS will be
helpful. Firstly, the entitlement to the GIS for the 12 month period commencing
June 1 of any year and ending July 31 of the next year depends on the income of
the applicant in that applicant’s base calendar year which is the taxation year
preceding the particular 12 month period in respect of which an application for
GIS is being made. That particular 12 month period is referred to as the
“current payment period”. To
account for certain situations where one’s income is expected to go down during
the upcoming GIS payment period and hence leave an applicant in a worse income
position than projected by looking at the previous calendar year’s income,
applicants are permitted in limited circumstances to make estimates of reduced
income so that the Minister can make any necessary adjustments to the amount of
the GIS to be paid to that applicant.
[5] The additional
September 2005 payment out of the Appellant’s RRIF increased her 2005 income
which reduced her GIS entitlement for the next GIS payment period (June 1, 2006
– July 31, 2007). To avoid this reduction she applied in August 2006 not to
have her GIS amount reduced based on her estimated reduction in income for 2006.
This was done by filing a required statement wherein she indicated that her
RRIF income would go down to $1,300.
[6] This narrows in on
the problem or issue in this appeal. Simply put, the question to be answered is
whether the estimated reduction in additional payments out of her RRIF entitled
the Appellant to a GIS for the July 2006 – June 2007 period greater than that
payable based on her unadjusted income in the 2005 base calendar year. It is
not in dispute that the only provision that would assist the Appellant is
subsection 14(4) of the Act. The subsection provides as follows:
Additional statement where loss of
pension income in current payment period
(4) Where in a current payment period
a person who is an applicant, or who is an applicant’s spouse or common-law
partner who has filed a statement as described in paragraph 15(2)(a),
suffers a loss of income due to termination or reduction of pension income, the
person may, not later than the end of the payment period immediately after the
current payment period, in addition to making the statement of income required
by subsection (1) in the case of the applicant or in addition to filing a
statement as described in paragraph 15(2)(a) in the case of the
applicant’s spouse or common-law partner, file a statement of the person’s
estimated income for the calendar year in which the loss is suffered, other
than pension income received by that person in that part of that calendar year
that is before the month in which the loss is suffered, in which case the
person’s income for the base calendar year shall be calculated as the total of
(a) the person’s income for that calendar
year, calculated as though the person had no pension income for that calendar
year, and
(b) any pension income received by the person
in that part of that calendar year that is after the month immediately before
the month in which the loss is suffered, divided by the number of months in
that part of that calendar year and multiplied by 12.
[7] The statement of
the Appellant that showed the estimated reduction in her RRIF receipts was filed
in order to increase her payments for the July 2006 - June 2007 payment period.
Hence, when reading subsection 14(4), that is the “current payment period” we
must refer to. Reducing the subsection to a somewhat simpler form that
addresses the context of the present appeal, it says that where:
- the applicant suffers
a loss of income due to reduction of pension income;
and
- not
later than the end of the payment period July 2007 – June 2008 the applicant files
a statement of estimated income for the calendar year in which “the loss is
suffered”;
then
- the GIS will be adjusted by excluding
from income for that calendar year any pension income received prior to the loss
suffered and adding, on an annualized basis, the pension income received after
that time as if it were payable monthly.
[8] Looking at this
statutory framework, it appears clear that to assist the Appellant, a square
peg must be fit into a round hole. However, in the belief that this Court
should construe this cumbersome legislation in a manner that would assist the
Appellant if there was any way to do so, I challenged many of the Respondent’s
counsel’s arguments that supported the Minister’s decision to deny the
Appellant the adjustment requested. This is, after all, social welfare
legislation which must be construed liberally to favour those who might
reasonably be expected to benefit from it. It was after all essentially
conceded that this Appellant was economically distressed in terms of having the
where-with-all to cover basic living expenses in the current payment period – a
situation compounded by the GIS cutback suffered due to her extra RRIF
withdrawal in 2005.
[9] One possible
problem with focusing on this economic hardship as the Appellant asks me to do,
is that her GIS receipts for the prior payment period, based on her 2004 income,
may have been higher than Parliament may have wished to allot her considering
the extra income she received in 2005. Those higher GIS payments are in effect
being clawed back by the cut-back in the next payment period based on 2005
taxable income. Regardless, it is incumbent on me to see if there is any
reasonable way to construe the subject provision of the Act to assist
the Appellant.
[10] Turning to the first
of the three components of subsection 14(4) that I have set out above, the
Respondent’s counsel argues that the requirement in respect of the first
component, that the applicant suffers a loss of income due to reduction of
pension income, is not met. She argues that RRIFs are not pensions.
[11] Section 14 of the Old
Age Security Regulations defines pension income as follows:
14. For the purposes of section 14 of the Act, "pension income" means the aggregate of amounts received as
(a) annuity payments;
…
(f) superannuation or pension payments,
other than a benefit received pursuant to the Act or any similar payment
received pursuant to a law of a provincial legislature;
…
As well, given that section 2 of the Act defines "income"
of a person for a calendar year as the person’s income for the year computed in
accordance with the ITA, Respondent’s counsel referred me to the
definition of “annuity” in the ITA.
Under the ITA an “annuity” includes
an amount payable on a
periodic basis whether payable at intervals longer or shorter than a year and
whether payable under a contract, will or trust or otherwise. By
this definition a RRIF is an annuity. Further, responding to the argument that
payments from a RRIF may not be precluded from being pension income or pension
benefits just because they meet the requirements of being an annuity,
Respondent’s counsel argued that the ITA makes it clear that pension
benefits do not include RRIF payments. Sections 56 and 212 for example refer to
pension benefits as being distinct from payments from RRIFs. Drake v. Canada
(Minister of Human Resources Development) was also referred as authority for the principle that
registered plans were not pensions for the purposes of the Act.
[12] While these arguments have merit, they fall short of
being compelling in my view. The ITA treats pension plans and RRIFs as serving
a common purpose. Contributions that ultimately fund each of them are meant for
retirement and are cross-referenced in order to ensure no overpayments are
permitted. RRIFs are the pension substitute for self-employed persons or they
can compliment an employer’s pension plan where there is room to do so. As a
matter of common understanding, such persons who have established RRIFs would
regard their RRIFs as their pensions. In
any event, just because income under the Act is determined under
the ITA does not mean that the classification of “pension income” for
the purposes of subsection 14(4) is determined under the ITA. Such
classification is determined in accordance with the definition of “pension
income” in section 14 of the Act. Inferences drawn from the ITA
are not required or relevant.
[13] Assuming that a RRIF is a pension for the purposes of
the Act, a question was also raised as to whether the $7,462 paid in
September 2005 was pension income even assuming the $1,300 annual amount was
pension income. Respondent’s counsel essentially conceded that if a RRIF was a
pension, all payments from the RRIF could be taken to be pension income
including the extraordinary payments such as the $7,462 paid to the Appellant
in September 2005. In making this concession, she relied on Henriques v. Canada (Minister of Human Resources
Development) and Mattina v. Canada (Minister of Human Resources
Development).
[14] Having found that Respondent’s counsel’s arguments,
that RRIF withdrawals are not pension income under the Act, are not compelling
in themselves at least, it is necessary to further analyze subsection 14(4) and
to ultimately consider the provision as a whole. Accordingly, I turn to
consider the second of the three components of subsection 14(4) that I have set out above; namely, whether the Appellant filed
a statement of estimated income for the calendar year in which “the loss is
suffered” not
later than the end of the payment period July 2007 – June 2008. Meeting this
requirement in the present case requires some mental gymnastics but nonetheless,
it seems it can be met. The only certain loss here is of future payments of $1,300.
The lifetime of the “minimum payment” regime has been cut short but that loss
will not occur in the current payment period. Still a reduction in pension
income for the current payment period can be forecasted by the Appellant. By
virtue of her own resolve and understanding of her situation, she may know that
the extra payment of $7,462 taken in 2005 will not be necessary in the upcoming
GIS period. Nothing in the subject provision expressly says that she cannot
make that forecast at any time in 2005 and use it as the basis for determining
that she will have or will suffer a loss of pension income. Predicting this
loss for the July 2006 – June 2007 period (the current payment period) she has until
the end of the payment period July 2007 – June 2008 to request an adjustment.
She clearly complied with the time requirement then by filing her statement in
August 2006. Respondent’s counsel did not disagree.
[15] I turn now to consider the third and last of the three components of
subsection 14(4) that I have set out above; namely, the adjustment to be made in effect to the base calendar
year income. The formula used, anticipating a “reduction” in pension income in
a particular month, forecasts future pension income based on the reduced
payment in that particular month by including and annualizing the actual
receipt in that particular month and excluding receipts in previous months.
Such formula simply does not work where there is no month in the year where
there is no actual reduction in pension income. If pension income goes up in
a month, the projection formula assumes that the upward adjustment will
continue just as it assumes a reduction will continue. Allowing that the
forecasted “reduction” occurs in September 2005 when the change (increase)
occurs, the section requires annualizing the $7,462 in a manner that forecasts
annual pension income of over $22,000 a year.
If the loss is said to occur after September 2005, the formula will not only
wipe out the $7,462 amount that is the loss forecasted to be suffered but it
will wipe out the minimum required payment of $1,300 which is the only amount
that the Appellant annuitant will receive with certainty in the next year. The
only way it will not be excluded is if the loss is suffered in January 2005 but
prior to the January payment of $1,300. Even in that case the formula would
still not assist the Appellant as it then takes in both 2005 receipts and she
would end up with projected income equal to her actual income. Given the “loss”
recognition purpose of the subject provision, it would be nonsensical to think
that any of these results were intended by Parliament.
[16] Clearly then, the
subject provision contemplates something other than forecasted pension
reductions control over which is entirely in the discretion of the annuitant.
The annuitant is required to “suffer” a loss. The loss must be a “fait accompli”.
The forecast of a loss over which the annuitant has control to suffer, or not,
is not a loss suffered. At no point then in 2005 did the Appellant suffer a
loss. The reduction in income if there is one will only be known on the last
day of the 2006 year. Applying the formula in subsection 14(4) at that point
will again produce a nonsensical result. Accordingly, it is my view that the
adjustment in subsection 14(4) cannot apply to changes in payments made under a
RRIF where the changes arise from the exercise of the discretionary rights of
the annuitant.
[17] Lastly, I point out,
as did Respondent’s counsel, that allowing that discretionary reductions in
RRIF payments are reductions suffered for the purposes of subsection 14(4), would
allow for some annuitant abuse of the GIS regime. Taking more out of a RRIF in
year one, for example, could in that case artificially increase the GIS paid in
the payment period that commences in July of the next year. Whether that is
subsequently clawed back or not, the subject provision should not readily be
interpreted and applied so as to permit such abuse. No assertion has been made here
that any such abuse was intended. Indeed, to the contrary, I regret that I have
had to come to the conclusion that the appeal must fail. I have no doubt that
the economic hardship suffered by the reduction in her GIS was real. Unfortunately,
her relatively large withdrawal in 2005 put her in an income range that meant a
reduction in her GIS benefits.
[18] For all these
Reasons, the appeal is dismissed without costs. However, before concluding, an
additional comment needs to be made. As Justice Bowie suggested in Drake,
it may be necessary for the appropriate policy and legislative department of
government to revisit the subject provision with a view to ensuring that it
operates in a manner that reflects the policies of government in an
intelligible way and in a way that does not discriminate against one group of
retired persons or give another group an unjustifiable advantage depending on
the
nature of their pension or
registered retirement plan or the nature of the payout regimes contemplated or
permitted under those plans.
Signed at Ottawa, Canada, this
16th day of January, 2008.
"J.E. Hershfield"
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