Jack a Miller v. Minister of National Revenue, [1985] 1 CTC 2390, 85 DTC 318

Taylor, TCJ:—This is an appeal heard in Vancouver, British Columbia, on January 28, 1985, against an income tax assessment for the year 1982, in which the Minister of National Revenue disallowed as a deduction an amount of $5,262, out of a total of $5,500 claimed for Registered Retirement Savings Plan (RRSP) contribution, but the Minister did not alter correspondingly the calculations involved in the “forward averaging election” filed by the taxpayer with his tax return. The essence of the dispute is seen in the following paragraph from the notice of appeal:

The Minister’s correctness in reducing the amount of Registered Retirement Savings Plan contribution deduction from $5,500.00 to $238.00 is acknowledged. The error arose in this office from a failure on the part of the preparer to notice and apply the 20% of earned income limitation on such contributions; we view this as a strictly mechanical error. As a result of this error the taxpayer’s income was reported as $5,262.00 less than it should have been. The correction of this income also meant that the eligible averaging income for purposes of section 110.4 was increased by the same amount. When the return was prepared the election to apply forward averaging was made on the full amount that was then perceived to be eligible. The Minister has refused to allow amendment of the elective amount on the basis of the revised data, and it is this issue which is now in dispute. We maintain that the taxpayer should be permitted to elect averaging on the full eligible amount.

The respondent relied inter alia, upon section 110.4 of the Income Tax Act, c 63, SC 1970-71-72 as amended. Further the respondent submitted “that there is no provision in the Income Tax Act to allow for a revision to the Forward Averaging Election once such an Election has been made”. In addition counsel for the respondent made particular reference to subsections 110.4(6) and 110.4(7) of the Act. The agent for the appellant relied substantially on jurisprudence which permitted filing of an amended tax return under certain circumstances.

I see no relevance in subsection 110.4(6), to this appeal, and I find no value in pursuing the “amended tax return” route. I am not aware of jurisprudence which would mandate the acceptance of any such amended return by the Minister — no matter what may be general practice. It is clear that if the Minister were prepared to accept the filing of such an amended return, there would probably be no dispute between the parties. But that merely highlights the Minister’s position in this matter — effectively the Minister says that he (the Minister) is not empowered under any section of the Act to alter the filed “Forward Averaging Election” — and so the matter rests, the Minister’s counsel also noted that there was no compunction on the taxpayer to deduct the total amount involved in this appeal, since subsection 110.4(1) of the Act provided for any amount (up to the calculated limit) as long as it was more than $1,000. I fail to see that such a point has any bearing on this issue.

With regard to subsection 110.4(7) of the Act, the fact that it covers, in favour of the Minister, a situation which would be the reverse of that before the Court in this appeal, and that there is no converse similar section which could be favourable to the taxpayer, was really the only point put forward by counsel for the Minister as supporting, in fact validating, the Minister’s position.

I agree with counsel for the Minister that there is no specific section of the Act which provides explicitly for the relief sought by this taxpayer — that is for the taxpayer to alter the figures on the election form in accordance with adjusted amounts arising out of a reassessment. As noted above, counsel for the Minister interprets subsection 110.4(7) of the Act to provide similar but opposite relief for the Minister however. I do not read that section in that manner. Subsection 110.4(7) does not in my view initiate the calculations which would permit the Minister to diminish the deduction claimed by the taxpayer’s election under subsection 110.4(1) of the Act. Subsection 110.4(7) of the Act does eliminate any possible argument a taxpayer might have (faced with a situation opposite to that before the Court in this appeal), — “such excess shall be deemed not to be included in the amount deducted under subsection (1); (110.4(7)(a) — [emphasis mine]. It is therefore not open to a taxpayer (under the opposite circumstances) to suggest that the Minister cannot alter his (the taxpayer’s) election in reassessing. As I see it however, it is precisely in reassessing, not by the primary use of subsection 110.4(7) that the Minister would recalculate the newly available “amount deductible”, arising out of a change in the amounts relevant to the “Forward Averaging Election”. Those amounts are (see Form T540 — Revenue Canada) — line 7 — “Enter amount from line 61(a) on page 2 of T-l General Return” and line 8 — “Enter net income from line 41 of T-l General Return”. In this appeal, the amount originally entered on line 7 of Form T540 was $55,014, and that on line 8 was $59,674. These amounts now — by virtue of the Minister’s reassessment — must be line 7 — $60,276, and line 8 — $64,936, (since an amount of $5,262 would be added to each one). Whatever may be the mathematical result of the recalculation flowing therefrom, in my view, the Minister must complete the reassessment he has commenced, and not leave the matter in limbo. I see nothing which remains sacred and untouchable in the election form, merely because it is an option, available to and activated at the prerogative of the taxpayer, after the Minister has rejected the bases or basis upon which the election was made.

The appeal is allowed and the matter referred back to the Minister for reassessment and reconsideration. The appellant is entitled to party and party costs.

Appeal allowed.