Dib v. R., [1996] 1 CTC 2342 (Informal Procedure)

Bowman J.T.C.C. — The problem in this case is that Mrs. Dib withdrew funds from her Registered Retirement Savings Plan (“RRSP”) to use as a downpayment on a house she and her husband were buying, but she did not file a prescribed form T1036.

The 1992 budget announced the government’s policy of allowing home buyers to withdraw funds from their RRSPs to use in purchasing homes. It was a measure intended to stimulate the economy. The proposal was made in a budget release of February 25, 1992. The legislation implementing the proposal was contained in section 146.01. This provision was added to the Income Tax Act by SC 1993 c. 24, section 83, assented to June 10, 1993, and was made retroactive to amounts received after February 25, 1992.

At the risk of oversimplifying this complex provision of the Act, the general rule that withdrawals from RRSPs are to be included in income when received is relaxed in relation to “eligible amounts” which were defined as follows:

... eligible amount” in respect of an individual means an amount received at a particular time by the individual as a benefit out of or under a registered retirement savings plan where

(a) the amount is received after February 25, 1992 and before March 2, 1993 pursuant to the written request of the individual in prescribed form in which the individual sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence,

(b) the individual is resident in Canada at the particular time and entered into an agreement in writing before the particular time for the acquisition of the qualifying home or with respect to its construction,

(c) the individual acquires the qualifying home (or replacement property for the qualifying home) after February 25, 1992 and before October 1, 1993,

(d) neither the individual nor the individual’s spouse acquired the qualifying home more than 30 days before the particular time,

(e) unless the individual acquired the qualifying home before the particular time, the individual is resident in Canada throughout the period beginning immediately after the particular time and ending at the earliest of any time at which the individual acquired the qualifying home or any replacement property for the qualifying home, and

(f) the total of the amount and all eligible amounts received by the individual at or before the particular time does not exceed $20,000.

The essence of the plan was that a taxpayer could withdraw funds from an RRSP on a tax-free basis to use for the purchase of a home. The funds were to be repaid to the RRSP without deduction over 15 years and in any year in which the required repayment was not made the amount that ought to have been repaid in that year would be added to income.

Mrs. Dib was aware generally of the proposals in the February 25, 1992 budget, having read of them in the newspapers. She and her husband had agreed in December to buy a house, and the closing date was February 26. She had two RRSPs for $4,037.36 and $2,063.51 maturing on March 1, 1992 and March 3, 1992 respectively. The bank lent her the money to close the deal on February 26, 1992 and then, at her direction, paid the proceeds of the RRSPs to her bank account when they matured and they were applied against the loan.

The money from the RRSPs was used directly or indirectly to buy the house. The exact amount that was withdrawn from her two RRSPs in order to purchase the house was $6,481, according to the reply to the notice of appeal, net of 10 per cent which the bank withheld as tax.

Although Mrs. Dib filed with the bank a written request to pay her the money in her RRSPs, that request was not in prescribed form as contemplated by paragraph 146.01 (l)(a) of the definition of “eligible amount”. The form was not available at the time she requested the bank to pay the money out of her RRSPs.

The failure to do the impossible, i.e. to provide the bank with a nonexistent form T1036, is the sole basis for the Minister’s refusal to allow her the exemption. All of the other conditions of section 146.01 were met. Indeed she asked the bank manager about forms and was told that he knew of no forms and did not have any. The bank manager was well aware of the purpose of the withdrawal of the money from the RRSPs.

At the conclusion of argument I informed the parties that I would withhold judgment to allow them to explore a means of resolving the matter. It is obviously a case that ought not to have come to court. No resolution was reached and, from the subsequent correspondence between the court, the appellant and the respondent, it is apparent that no attempt was made to meet with Mrs. Dib to resolve the matter.

The substance of the budget proposal of February 25, 1992 was to permit individuals to withdraw funds from their RRSPs to buy a house. Mrs. Dib relied upon the announcement and did just that — she took money from her RRSPs and bought a house. The legislation was made retroactive to the budget date but prescribed forms were not available until later. At the time the request for withdrawal was made it was impossible for the appellant to file the prescribed form with the bank. This cannot be permitted to defeat the substantive provision of the law. To do so would be to make the substance of the law subordinate to form. As Marceau J. said in S want je v. R. (sub nom. Swantje v. Canada), [1994] 2 C.T.C. 382, 94 D.T.C. 6633, at page 384 (D.T.C. 6635), one must, in interpreting the Income Tax Act, avoid a “purely mechanical” approach, “focussed on the method, the means devised to achieve the goal” and adopt rather “‘a functional one, and the scheme must be considered as a whole, taking into account the intent of the legislation, its object and spirit and what it actually accomplishes”. The filing of a prescribed form is merely an aspect of the means devised to achieve the goal.

In Canada (Minister of Manpower and Immigration) v. Tsiafakis, [1977] 2 F.C. 216, Le Dain J. said at page 224:

Since such a right cannot be exercised unless the prescribed form can be obtained from the immigration authorities there is a correlative duty to provide the form.

That passage was quoted with approval by MacGuigan J. in Choi v. Canada (Minister of Employment and Immigration), [1992] 1 F.C. 763 (F.C.A.). At pages 769-70 he went on to say:

This does not imply that Canadian authorities must provide a detailed exegesis of Canadian immigration law and procedures, or legal advice to prospective immigrants as to the legal significance of the available options, but it does mean that the immigration authorities have an obligation in fairness to provide basic information on the methods of application, and to make available the appropriate forms.

In R. v. Forgeron, 42 M.P.R. 23, at page 32, the Nova Scotia Supreme Court held that the failure to enact rules relating to criminal appeals did not deprive the Crown of the substantive right of appeal.

Section 12 of the Interpretation Act provides:

Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.

An interpretation that treated Mrs. Dib’s failure to file a non-existent form as a fatal non-compliance with a substantive condition precedent to her right to avail herself of the remedial provision of section 146.01 of the Act ignores section 12 of the Interpretation Act. Moreover section 7 of the Interpretation Act provides:

Where an enactment is not in force and it contains provisions conferring power to make regulations or do any other thing, that power may, for the purpose of making the enactment effective on its commencement, be exercised at any time before its commencement, but a regulation so made or a thing so done has no effect until the commencement of the enactment, except in so far as may be necessary to make the enactment effective on its commencement.

Cf. also section 32 of the Interpretation Act.

Given the remedial nature of section 146.01, and the object that it obviously seeks to attain, I would regard Mrs. Dib’s failure to file the prescribed form as at most imperfect compliance as opposed to non- compliance with the Act. Indeed, as I have observed above, it was impossible for her to comply with the provision that her request to the bank be in prescribed form. See Elance Steel Fabricating v. Falk Bros. Industries Ltd., [1989] 2 S.C.R. 778 at pages 782-83. The distinction was also discussed at some length by Lederman J. in Thomas v. Hickey (1995), 22 O.R. (3d) 331 (Gen. Div.) at pages 339-41.

Mrs. Dib did what she could to comply with what she understood to be the law. She could not have given the bank her request in prescribed form because none existed. Mrs. Dib is unrepresented and her command of English is less than perfect. Simple fairness required the Department of National Revenue to treat her with something other than doctrinaire rigidity.

The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment to delete from her income for 1992 the sum of $6,481. The Minister of National Revenue must refund to her the money withheld by the bank when she was paid the amounts out of her RRSPs. She is entitled to her costs, if any. She must of course repay the amounts paid out of her RRSPs in accordance with section 146.01 of the Income Tax Act if she is to avoid paying tax on them in subsequent years.

Appeal allowed.