[OFFICIAL ENGLISH TRANSLATION]
Date: 19991112
Docket: 98-260(IT)I
BETWEEN:
FRANCINE BLOUIN WILKINSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Somers, D.J.T.C.C.
[1] This appeal was heard at Ottawa,
Canada, on October 4, 1999, under the Informal Procedure.
[2] It is an appeal from an income tax
assessment for the 1994 taxation year. By notice of reassessment
dated October 2, 1995, the Minister of National Revenue
("the Minister") reassessed the appellant's income
tax return for the 1994 taxation year: he disallowed the $2,970
reported as capital gains and therefore reduced the
appellant's total income by $2,228, the amount that had been
reported as taxable capital gains; and disallowed the $2,228
deducted as net capital losses of other years.
[3] In assessing the appellant's
tax return for the 1994 taxation year, the Minister assumed,
inter alia, the following facts set out in
paragraph 9 of the Reply to the Notice of Appeal, which the
appellant either admitted or denied:
[TRANSLATION]
(a) on March 22,
1989, the appellant acquired a total of $9,600 in shares of
BCE MOBILE COMMUNICATIONS, INDUSTRIAL HORIZON FUND, 1000THS
INDUSTRIAL HORIZON and LE GROUPE VIDÉOTRON
LTÉE ("the shares"); (admitted)
(b) on March 1,
1993, the appellant transferred the shares, which were worth
$10,009 at the time, into a self-directed RRSP at the Bank
of Nova Scotia ("the issuer"), plan number
494-20730-18 ("the self-directed
RRSP"); (admitted)
(c) on December 29,
1993, the appellant sold the shares, and the value of the
self-directed RRSP that date was $13,046; (admitted)
(d) on March 1,
1994, the Minister approved Form T3012A, Tax Deduction
Waiver on a Refund of Your Undeducted RRSP Contributions Made in
1993, so that the issuer could refund the amount of $10,009,
designated by the appellant, without withholding tax;
(denied)
(e) by letter dated
March 5, 1994, the appellant told the issuer that she intended to
withdraw the $10,009 in excess contributions by means of
Form T3012A authorized by the Minister and also requested
that the balance of the self-directed RRSP be returned to
her and the said account be closed; (admitted)
(f) during the
1994 taxation year, the appellant withdrew and received all of
the funds from the self-directed RRSP, that is, the initial
contribution of $10,009 and the accrued appreciation at the date
of withdrawal of $3,037, for a total of $13,046; (admitted)
(g) the appellant
paid $67 in commission and/or management fees on and out of the
self-directed RRSP; (admitted)
(h) the net
appreciation the appellant received during the 1994 taxation year
from the self-directed RRSP was $2,970 ($13,046 - $10,009 -
$67); (denied)
(i) the issuer
issued the appellant a T4RSP in the amount of $2,970 for the 1994
taxation year; (admitted)
(j) the $2,970
that the appellant received from the issuer during the 1994
taxation year was not a capital gain; (denied)
(k) the $2,970 that
the appellant received from the issuer during the 1994 taxation
year was not an excluded withdrawal under
subsection 146.01(1) of the Act; (denied)
(l) the $2,970
that the appellant received from the issuer during the 1994
taxation year was a benefit under an RRSP; (denied) and
(m) the appellant must
include the $2,970 in computing her income for the 1994 taxation
year. (denied)
[4] In addition to testifying when
this appeal was heard, the appellant explained the sequence of
her transactions in a letter she wrote to Revenue Canada and
attached to her tax return. The said letter reads in part as
follows:
[TRANSLATION]
The second point concerns a profit I made on shares I had
owned since 1989. In 1989, I sold ounces of silver that I had
bought in 1982 and 1983, and I incurred a capital loss of about
$12,000. I then purchased shares of BCE Mobile Communications,
Le Groupe Vidéotron Ltée and the Horizon
Industrial Fund. In March 1993, I opened a
self-directed RRSP account at ScotiaMcLeod and transferred
the shares into it.
My contribution to that self-directed RRSP account was
cancelled in March 1994 for the reasons given below. I sold
my shares, withdrew the money (which was the only money in the
account) and closed my self-directed RRSP account at
ScotiaMcLeod. I then repaid the tax savings of $2,800 I had
obtained for the 1992 taxation year. The reason I took such
action was that I had used the Home Buyers' Plan in 1993 (my
RRSP at CS COOP) and could therefore not contribute to an
RRSP.
In fact, I hoped to be able to use the Home Buyers' Plan
in 1994 rather than in 1993 and to use the RRSP contributions I
made in March 1993. However, the Home Buyers' Plan was
not available to me in 1994 because the government limited the
program to first-time buyers when it extended it in
February 1994. That is why my March 1993 RRSP
contribution was cancelled.
This preamble is necessary to explain the fact that, between
the time I transferred my shares into a self-directed RRSP
in March 1993 and the time that contribution and that
self-directed RRSP were cancelled, the shares generated a
profit (finally) of $2,970.81. Since the shares were in an RRSP
at the time, I was issued a T4RSP.
However, it is my view that, in the circumstances, what was
involved was not a withdrawal from an RRSP but rather a mere
capital gain because of the fact that the entire transaction was
cancelled and is henceforth deemed not to have occurred. This is
important to me, since I can then use the capital loss I incurred
in 1989 (loss incurred on the same sums of
money) . . .
[5] The issue is whether the $2,970
that the appellant received from the issuer during the 1994
taxation year must be included in her income for that year as
income from an RRSP.
[6] The respondent is relying,
inter alia, on section 3, subsections 146(1), 146(8),
146(8.2), 146.01(1), 146.01(10) and 248(1) and
paragraph 56(1)(h) of the Income Tax Act as
amended and as it applied for the 1994 taxation year.
[7] The situation in this appeal is
analogous to the one explained by Judge Garon of this Court
in St-Hilaire v. Canada [1996] T.C.J. No. 884.
He stated the following at paragraph 22:
In any case, the Court concurs in the viewpoint of the
respondent that the clear intent of Parliament is indicated in
subsections 146(8) and (8.2). Under subsection 146(8),
an amount withdrawn from an RRSP must generally be included in
income and the taxpayer can only claim a deduction in the
specific situation provided for in subsection 146(8.2). The
consequences of the general rule of taxation stated in subsection
146(8) of the Act can be explained at least in part in the
instant case by the fact that the income from the RRSP in
question was not taxed throughout these years (except for 1991)
precisely because this was an RRSP. For example, if
this had not been an RRSP, the "interest" portion of
the income from the property in question would have had to be
included in the appellant's income under paragraph 12(1)(c)
and subsection 12(4) of the Act or the earlier provisions, which
were applicable at various times for each of the years in which
the fund existed. The appellant thus benefited from
the postponing of tax on this interest for a great many years. It
should be borne in mind that the accumulation of income from an
RRSP without having to include these amounts in income for
purposes of the Income Tax Act is one of the two benefits
resulting from the existence of an RRSP, the other being the
deduction of amounts paid as RRSP premiums in computing
income. It would not be fair to other taxpayers if
such interest was only included in income at the time the RRSP
funds were withdrawn.
[8] A taxpayer makes a tax election by
investing in an RRSP, and that investment gives rise to two
benefits: the possibility of claiming a deduction and the fact
that accrued interest is free of tax until withdrawn. However, it
is not possible to obtain a capital gain and have the
75 percent inclusion rate apply.
[9] In the circumstances, the appeal
is dismissed and the Court confirms the Minister's assessment
for the 1994 taxation year.
Signed at Ottawa, Canada, this 12th day of November 1999.
D.J.T.C.C.
Case law consulted:
Marion R. Buller Bennett and Her Majesty the Queen
(1999 CarswellNat 712)
Bell v. M.N.R., 88 DTC 1702
Kennedy v. M.N.R., 81 DTC 187
Campbell v. M.N.R., 79 DTC 231
Translation certified true
on this 16th day of July 2003.
Sophie Debbané, Revisor
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