Ghislain M Gauthier v. Minister of National Revenue, [1978] CTC 2175, 78 DTC 1126

The Chairman [TRANSLATION]:—This is an appeal by Ghislain M Gauthier against an assessment for the 1974 taxation year. The source of the dispute in this case concerns contributions made by the tax- payer in 1973 to a registered retirement savings plan in excess of the amount allowed him by the Income Tax Act. No deduction was allowed for these contributions.

Facts

In 1973 the taxpayer was employed by a company which did not have a compulsory retirement or pension plan, and he therefore chose to create a pension fund for himself by contributing $4,000 to a Royal Trust registered retirement savings plan, as the Act permitted him to do in the circumstances. For this purpose he made an initial payment of $2,500, with the intention of making up the balance of the authorized amount later in 1973 by paying a further $1,500 into the registered retirement savings plan.

However, during 1973 the taxpayer left his former job and was hired by the Department of the Environment, where the retirement and pension plan is compulsory and automatic. In the circumstances, the taxpayer was authorized by the Income Tax Act to deduct only $2,500 from his income. Thus for the taxation year 1973, since the taxpayer had already paid $2,500 into the Royal Trust registered retirement Savings plan, he had paid an excess of $1,423.90 into the government pension fund, and the said sum was not deductible for the 1973 taxation year.

The taxpayer stated that the representatives of the Department of National Revenue had told him that he could deduct the overpayment of $1,423.90 in 1973 by spreading it over the three following years, adding a fraction of the amount of the overpayment to the Royal Trust registered retirement savings plan so as not to exceed the amount of $2,500 which he was allowed to deduct annually. The taxpayer did this.

For the taxation year 1974 the taxpayer added to the amount of his contributions to the government retirement fund ($1,875.09) part of the amount of $1,423.90 overpaid in 1973 to the Royal Trust registered retirement savings plan, namely $624.91, so that he would contribute a total of $2,500 to the two retirement savings plans. In 1975 and 1976 he applied the amounts of $480 and $318 respectively, in the same way and for the same reasons.

By notice of assessment dated August 5, 1975 the respondent, considering that the overpayment of contributions had been made during the calendar year 1973 in the amount of $1,423.90, refused to allow the sum of $624.91 as a deductible contribution to a retirement savings plan for the taxation year 1974.

The taxpayer stated that since the date of assessment for 1974, from August 5, 1975 to February 14, 1977, the efforts of both parties involved in the dispute had failed to resolve the problem.

Submissions

The taxpayer maintained that after paying the amount of $2,500 into the Royal Trust registered retirement savings plan he could not avoid contributing to the government retirement fund, since this was a condition of work. Knowing that in the circumstances he would only be able to deduct the amount of $2,500, the taxpayer admitted that in 1973 he had paid an excess of $1,423.90 into a retirement savings plan and that this amount was taxable in 1973. The taxpayer stated under oath that he had followed to the letter the instructions received from the Department of National Revenue in leaving the amount of $1,423.90 in the retirement savings plan, but spreading the surplus over a period of three subsequent years. The appellant alleged that even though he cannot be considered to be at fault at any stage of these transactions, the Minister’s assessment dated August 5, 1975 caused him significant and serious injury. The taxpayer maintained that according to the Act he was entitled to deduct from his income in 1974 a maximum amount of $2,500 for retirement savings contributions, and he planned to do this by applying to his Royal Trust registered retirement savings plan the amount of $624.91 (part of the amount overpaid in 1973) which the Department had told him was deductible. The taxpayer alleged that in subsequently disallowing this deduction, the Department of National Revenue not only changed its mind about whether the amount of $624.91 was deductible, but also prevented him from contributing to the retirement savings fund the full amount of $2,500 which would have allowed him to benefit from deducting this amount.

The taxpayer also maintained that he did not withdraw the amount of $1,423.90 overpaid in 1973 from the retirement savings plan, and since he could not deduct this amount from his income, the taxation of the benefits which he receives from the retirement savings plan will constitute double taxation to the amount of this overpayment. The taxpayer therefore asked for permission to withdraw from his retirement savings plan the overpayment of $1,423.90 made in 1973, without being required to pay tax a second time.

Even though the only taxation year in question here is 1974, the amount under dispute is only $624.91 and the Board’s decision cannot go beyond the appeal brought before it, there can be no doubt that the decision made on this case could affect the appellant’s assessment in subsequent years so far as this same transaction is concerned.

After examining. the facts in this case and analyzing the sections of the Income Tax Act dealing with registered retirement savings plans, and taking into account the legislator’s obvious intention to encourage taxpayers to build. up a retirement fund, I think it is impossible to conclude that he foresaw and intended under any circumstances that, in the application of these sections, a taxpayer should be taxed twice when he was actually trying to build up a retirement fund for himself.

It may be that the wording of the sections dealing with registered retirement savings plans is not clear enough, and that the application of these sections gives rise to real anomalies between the. literal application of the Act and the obvious aim of the legislation.

In my opinion, the Board should indicate in its reasons for judgment what appear to it to be contradictory and inequitable results of the application of these sections, results which were certainly not intended or foreseen by the legislator.

Along the same lines, the old maxim that ignorance of the law is no excuse for breaking it is doubtless still valid, but the law must be clearly established before this maxim can be applied if the fundamental principles of natural justice are to be respected. In administrative legislation the law often seems to be much more nebulous than where criminal or civil law is concerned, to the point where, at least in dealing with the Income Tax Act, even the officers in charge of administering the Act very often appear unable to give correct and authoritative advice to a taxpayer who is honestly trying to understand the Act and the procedure to follow in order to comply with it. In such circumstances can the taxpayer in all justice be accused of ignorance of the Act and made to bear the same responsibility as if he had deliberately broken a clear and precise law?

It is easy to understand why the Minister cannot be held responsible for his employees’ mistakes, and there can be no doubt that this principle is necessary and must continue to exist. The fact remains, however, that applying this principle in all circumstances without exception sometimes causes very significant injury to the taxpayer, or even serious injustice.

It seems to me under the circumstances that the legislator’s intent Should be clarified, thus enabling the Department’s employees to know the extent of the Act and to give accurate and confident advice to taxpayers seeking information about the Act and the procedures they must follow.

In the case before the Board it is not a question of sympathy or even of fairness. In my view, a serious question of law arises, namely whether it is legally possible to. hold a taxpayer responsible for not complying with the provisions of an Act which contains a contradiction, the application of which is unclear and concerning which the taxpayer received and meticulously followed the instructions of the very people who are supposed to apply it.

The facts of this appeal are exactly designed to reveal, even through an obiter dictum, what seems to me to be an uncertainty within the Department of National Revenue itself as to the wording and application of certain provisions of the Income Tax Act. This uncertainty can and should only be corrected at its source.

In his notice of appeal the taxpayer asks the Board to authorize him to withdraw from his retirement savings plan the amount overpaid in 1973 which he was not allowed to deduct,, and not to tax the amount a second time.

It is clear that the appellant has not yet withdrawn the amount from the retirement savings plan, and it follows that he has not yet incurred double taxation. In my opinion the jurisdiction of the Board, which here has before it an appeal against an assessment for the 1974 taxation year, in which the issue is whether an amount of $624.91 can be deducted as a contribution to a retirement savings plan, cannot authorize the taxpayer to withdraw an amount of $1,423.90 from the retirement savings plan without being taxed.

The respondent’s submission, to the effect that since the excess contribution of $1,423.90 had been paid into a retirement savings plan during the year 1973, a part of this amount ($624.91) cannot be allowed as a contribution to a retirement savings plan made during 1974, is without doubt correct in law.

However, this legal conclusion points up a significant anomaly. It is clear that the amount of $1,423.90 paid into a retirement savings plan in excess in 1973 was taxable in 1973. If the respondent had, in his assessment, taxed the full amount of $1,423.90 in 1973, then if the taxpayer withdrew the amount from the retirement savings plan in 1973 or later received payments from the retirement savings plan, he would have to pay tax a second time on the amount of $1,423.90. Even though the taxpayer has left the disallowed amount of $1,423.90 in his retirement savings plan, he will still have to pay tax on the same amount for the second time when the plan matures; not to mention the fact that by following the Department’s instructions. the taxpayer was deprived of the opportunity to contribute an additional sum to his retirement savings plan and take advantage of the $2, 500 maximum deduction to which he was entitled in 1974.

What are we to conclude? That the respondent is right in law but the appellant is still not wrong? Although such a conclusion would be a strong indication that there is a fundamental problem in the Act or in the way it is applied, it is legally impossible for the Board to make such a finding.

Decision

For these reasons, the Board has no alternative but to dismiss the appeal.

Appeal dismissed.