P.W. Osborn v. Her Majesty the Queen (Informal Procedure), [1995] 2 CTC 2215

Taylor J.T.C.C.:-This is an appeal heard in Toronto, Ontario, on February 23, 1995, against an assessment of income tax for the year 1993, in which the respondent reduced the claim for a contribution to a Registered Retirement Savings Plan (RRSP) from $4,100 to $4,030. It was the contention of the appellant that the respondent erred in including an amount called the pension adjustment (PA) in calculating the RRSP contribution limit, since his pension benefits were not vested in him.

As a first point, the respondent asserted that this Court did not have the jurisdiction to grant the relief sought by the appellant. I was not persuaded that this position was sound, and concluded that the appeal should be heard.

The appellant put forward his view in the following terms:

Facts

The change in the RRSP deduction arose because Revenue Canada has consistently erred in the amount of my RRSP contribution limit.

In calculating the RRSP contribution limit the Department regularly includes an amount called the pension adjustment.

The pension adjustment reduces the amount that can be contributed to an RRSP.

I am a member of the Public Service Superannuation Plan, a multiemployer defined benefit pension plan.

Reg. 8301(1) defines the pension adjustment as an individual’s pension credit.

Reg. 8301(6) (subject to Reg. 8301(7)) calculates the pension credit for a member of a multi-employer defined benefit pension plan.

This subsection is based on the provisions of Reg. 8302(1) which requires that a benefit accrual and hence, the pension adjustment, be calculated only if all benefits to which the individual is entitled is fully vested (Reg. 8302(3)(c)).

Reg. 8300(7) states that benefits will be deemed to vest with an individual where he has only a contingent right to such benefits.

Vesting of benefits under my pension plan does not occur until an individual has ten years of service and is 45 years old (R.S.C. c. P-36, subsections 13(1) and 13(4)).

Prior to this point in time no part of any employer contributions or other benefits accrue to me.

I have no contingent (conditional or dependent) right to any employer contributions until vesting occurs.

The conditions for vesting have not yet occurred in my case.

The respondent’s position was:

The benefits were fully vested in the appellant for the purpose of paragraph 8302(3)(c) of the Income Tax Regulations (the "Regulations”).

Further, the respondent provided a calculation which determined the amount of $4,030.

Analysis

An individual’s ’’pension adjustment" reduces his RRSP contribution limit and consequently the amount that may be deducted for such contributions; subsections 146(1) and 146(5). The meaning of "pension adjustment" is found in the Regulations.

Reg. 8301(1) states that the "pension adjustment" of an individual is the individual’s "pension credit". The "pension credit" under a defined benefit provision, such as the Public Service Superannuation Plan, is calculated pursuant to Reg. 8301(6). This calculation includes nine times the individual’s "benefit entitlement". The "benefit entitlement" is a portion of the individual’s "benefit accrual" which in turn depends on the individual’s "normalized pension"; Reg. 8302.

The dispute boils down to determining the amount of the appellant’s "normalized pension" as set out in Reg. 8302(3).

Reg. 8302(3)(c) defines normalized pension for the purposes of the "benefit accrual" calculation in 8302(2)(a) as follows:

8302(2) normalized pension of an individual under a defined benefit provision of a registered pension plan...is the amount of lifetime retirement benefits that would be payable under the provision to the individual...if

(c) all benefits to which the individual is entitled under the provision were fully vested;

The appellant states that since he has not yet met the vesting requirements under the Public Service Superannuation Plan there is no amount that can be attributed to his "normalized pension".

The respondent is of the view that Reg. 8302(3) sets out a series of hypothetical events that are assumed to be true in determining the appellant’s "normalized pension." It does not matter if the taxpayer has a vested interest or not.

Upon a closer inspection of the provision the respondent’s argument has more merit. The words "that would be payable" and "if" are indicative of a hypothetical, 1.e., this is a deeming provision for the purpose of calculating the benefit accrual for the year under Reg. 8302(2)(a). There is no ambiguity. In a simplified version this provision says: For the purposes of Reg. 8302(2)(a) "normalized pension" means the amount that would be payable if all benefits were fully vested.

The respondent further argued that the definition in Reg. 8300(7) buttresses his position. This subsection states that for the purpose of, among other provisions, Reg. 8302(3)(c):

8302(7) benefits to which an individual is entitled at any time...include benefits to which the individual has only a contingent right because the conditions for vesting of the benefits have not yet been satisfied.

A technical note in the Income Tax Regulations dated July 31, 1991 comments that this definition "ensures that non-vested benefits under a defined benefit provision of an RPP are taken into account in calculating pension credits". That is exactly the appellant’s situation; he has non-vested benefits that are deemed-by Reg. 8302(3)(c) or 8300(7)-to be vested for the purpose of arriving ultimately at the amount of his "pension adjustment" and RRSP deduction limit.

The appellant is a member of his employer’s plan so his benefits are either vested or contingent. Both parties agree that his benefits have not yet vested; therefore, they are contingent in the ordinary sense of the word. [1]

The French version of Reg. 8302(3) supports the above analysis. It is worded differently but is more obvious: [2] it asks the reader to accept a series of hypothetical facts including one that the benefits are fully vested. The French wording states that normalized pension is the amount that would be payable "si les hypothèses suivantes étaient admises" (= if the following hypotheses are "admitted").

The Minister’s assessment was correct as the pension adjustment was calculated properly.

The appeal is dismissed.

Appeal dismissed.