Lebeault v. R., [1997] 2 CTC 2178

Garon T.C.J.:

This is an appeal from an income tax assessment for the 1993 taxation year. In that assessment, the Minister of National Revenue disallowed the deduction of an amount of $5,288.00, which amount was part of a sum of $46,288.00 that had been deducted by the appellant in computing his income in respect of a registered retirement savings plan premium.

The appellant was the only person who testified at the hearing of this appeal.

I consider that the following facts were established at the hearing:

(a) during the 1993 taxation year, sometime after leaving his employment, the appellant received a retiring allowance of $130,863.60;

(b) of that amount, $53,832.00 was eligible for a deduction under paragraph 60(j. 1) of the Income Tax Act in respect of the transfer of retiring allowances;

(c) during the 1993 taxation year, the appellant paid the sum of $40,000.00 out of his retiring allowance received in 1993 into an RRSP and, furthermore, in the first 60 days of 1994 paid an amount of $1,000.00 in respect of an annual contribution to an RRSP for 1993;

(d) before leaving his employment with the Government of Canada on April 1, 1993, the appellant was informed by the department’s service of which he was an employee that a maximum amount of $40,000.00 was eligible for a deduction under paragraph 60(j.1) of the Act;

(e) if the appellant had been correctly informed at the time he ceased his employment with the Government of Canada, he would have made the maximum contribution permitted by paragraph 60(j.1) of the Act, that is to say $53,832.00 rather than $40,000.00;

(f) it appears from the record issued by Revenue Canada which the appellant received in February 1994 that, of the $130,863.60 retiring allowance paid in 1993, an amount of $53,832.00 could have been paid into an RRSP in respect of a retiring allowance;

(g) in 1993, an amount of $5,288.00 represented an over-contribution to an RRSP for the preceding years.

The point at issue concerns the appellant’s right to deduct the amount of $5,288.00 in respect of a contribution to an RRSP in computing his income for the 1993 taxation year.

In the remarks he made at the hearing, counsel for the appellant, after mentioning that a taxpayer “was entitled to a reserve of $8,000.00” in respect of over-contributions to an RRSP at the relevant time, argued that the amount in issue of $5,288.00, the deduction of which was claimed by the appellant, had already been accumulated in the appellant’s RRSP in previous years and represented an over-contribution to the RRSP which he had not previously used. To use the agent’s expression, this amount of $5,288.00 “was pending contribution to an RRSP”. In his view, this amount “can be used as an allowance and the deduction for a tax exemption for Mr. Lebeault out of this amount of $5,288.00”.

Having regard to the facts of the case, it was not claimed on the appellant’s behalf that other provisions of the Income Tax Act apart from paragraph 60(j.1), subsection 146(5) and Part X.l of the Act could apply in respect of the right to deduct the amount in issue.

If I first consider the application of paragraph 60(j.1) and subsection 146(5) of the Act, it appears that the appellant was entitled to deduct the sum of $5,288.00 in two specific circumstances only:

(1) if that sum was part of a retiring allowance that was paid to the appellant by his employer during 1993 or in the first 60 days of 1994, or

(2) if that sum constituted an annual contribution for 1993 in respect of earned income for the year in question within the meaning of subsection 146(5) of the Act.

With respect to the first possibility, paragraph 60(j.1) permits a deduction in computing the income of a taxpayer who has received a retiring allowance during a given year and in the first 60 days of the following year if he pays the maximum deductible amount or a part thereof.

In the instant case, of the amount received in respect of a retiring allowance, the appellant paid only $40,000.00 during the period allowed. According to the testimony of the appellant, who seemed to me to be a wholly credible witness, he paid only $40,000.00 because, as I have already indicated, according to the information that was provided to him by an authorized official of the Government of Canada before he left the federal Public Service, he was permitted to deduct only the sum of $40,000.00. Contrary to what counsel for the respondent claimed, the taxpayer could have used two methods to receive this deduction. Under the first method, at the employee’s request, an employer may transfer the money directly to the RRSP designated by the employee. In this case, the latter is exempted from a deduction at source, the employee having received no part of the retiring allowance transferred to an RRSP. Under the second method, the taxpayer himself may receive the amount paid in respect of a retiring allowance and pay into an RRSP the portion deductible under paragraph 60(j. 1) during the year in issue or within 60 days after the end of the year. If a taxpayer avails himself of this second method, a deduction at source must be made by the employer in accordance with the Income Tax Regulations. In the instant case, the appellant used the first method in respect of the transfer of the amount of $40,000.00 out of the retiring allowance.

As the Government of Canada did not provide the appellant with the correct information respecting the maximum amount that he could deduct under paragraph 60(j. 1 ) until February 1994, the latter had only a few days to make an additional contribution of $13,832.00 to an RRSP and receive the deduction for the amount in question.

Apart from the deduction in respect of retiring allowances mentioned above - provided for by paragraph 60(j. 1) - subsection 146(5) of the Income Tax Act permits the deduction in computing income for a given year of an amount not exceeding the maximum provided for. In general, for those who belong to a registered pension plan or to a deferred profit sharing plan, the maximum amount deductible is the lesser of 18 per cent of earned income for the previous taxation year and the maximum RRSP contribution for the year in question (which corresponds to the maximum contribution determined for the previous calendar year) less the pension adjustment for the previous year. [1]

In the instant case, the appellant contributed only $1,000.00 to an RRSP under subsection 146(5). It appears from the evidence that he could not have contributed an additional amount. In any case, the appellant did not claim that he had made a contribution greater than $1,000.00 under subsection 146(5) during 1993 or in the 60 days following the end of the year in question.

Counsel for the appellant raised another argument at the hearing, relying on the provisions of Part X.l of the Income Tax Act. Part X.l of the Act is titled “Tax in Respect of Over-Contributions to Deferred Income Plans” and consists of three sections, that is sections 204.1 to 204.3.

Counsel for the appellant claimed in particular that the appellant’s cumulative excess amount in respect of RRSPs within the meaning of section 204.2 could be used somewhat as though that amount were a retiring allowance. In other words, according to that agent, it was not important that the money come from the RRSP over-contribution or from the appellant’s bank account, as would have been the case if the appellant had employed the second method of using the amount paid in respect of a retirement allowance that I described above. The agent’s claim, if I may state it in my own words, amounted to saying that, in establishing a tax in respect of overcontributions, for example, to an RRSP, Part X.l implicitly enabled the Minister of National Revenue to apply the over-contribution to the retiring allowance.

To my mind, this claim has no basis at all. One need only analyze the text of the provisions of this Part to realize that this is the case.

First, it may be noted that the title of Part X.l indicates that its purpose is to establish a tax in respect of over-contributions to deferred income plans. It would be utterly strange for this part of the Act, in so doing, to authorize a deduction, even implicitly, in computing a taxpayer’s income.

Subsection 204.1(1) provides that where, at the end of any month, an individual has an excess amount for a year, he shall pay a tax under this Part of the Act equal to one per cent of that portion of the total of all those excess amounts that has not been paid before the end of that month. Subsection 204.1(2) concerns a special situation: it provides that, where an amount in respect of a modified retirement savings plan has been included in computing an individual’s income pursuant to paragraph 146(12)(b), that amount shall be deemed to have been paid to the individual by the plan. Subsection (2.1) establishes a tax of one per cent in respect of an individual’s cumulative excess amount in respect of RRSPs for any month after December 1990. Subsection (3) concerns deferred profit sharing plans (DPSP). Subsection (4) concerns the circumstances in which the Minister of National Revenue may waive the tax established by Part X.l of the Act.

Section 204.2, which consists of eight subsections, contains a certain number of specific rules relating to the calculation of over-contributions. Subsection (1) of this section determines an individual’s excess amount for a year in respect of RRSPs. Subsection (1.1) states the components of an individual’s cumulative excess amounts in respect of RRSPs. Subsection

(1.2) indicates how undeducted RRSP premiums under subsection (1.1) are calculated. Subsection (1.3) defines an individual’s net past service pension adjustment for the purposes of subsection (1.1). Subsection (1.4) completes subsection (1.2) referred to above concerning undeducted RRSP premiums. Subsection 204.2(2) provides that an RRSP that has ceased to exist is, in certain circumstances deemed to continue to exist, whereas subsection (3) determines when an RRSP is deemed to be a registered plan. Subsection (4) does not concern RRSPs, but rather DPSPs.

Lastly, subsection 204.3(1) concerns the return that must be filed by taxpayers concerned by this Part and the payment of tax that must be made, and subsection (2) concerns certain provisions of Part I of the Act which somewhat complete Part X.l, with the necessary adjustments.

It appears from this analysis that the provisions of Part X.l of the Act do indeed concern the establishment of a tax in respect of over-contributions to certain deferred income plans such as RRSPs and DPSPs. This part provides no rule that would permit the deduction in a subsequent year of an amount paid to an RRSP a few years previously. For example, subsection 204.2(1.1), concerning an individual’s excess amounts in respect of RRSPs, which more closely affects the subject concerning us, merely establishes the basis on which the Part X.l tax must be calculated. It permits no deduction.

I therefore conclude that no provision of Part X.l permits a deduction in a given year in respect of contributions made to an RRSP in a previous year.

I had previously established that paragraph 60(j.l) and subsection 146(5) did not permit the amount of $5,288.00 to be deducted in computing the appellant’s income for the 1993 taxation year.

It follows from the foregoing that none of the provisions of the Income Tax Act invoked by the appellant authorizes the deduction in issue.

For these reasons, upon consideration of the relevant provisions of the Income Tax Act, I unfortunately find myself forced to dismiss the appeal.

Appeal dismissed.