Her Majesty the Queen v. Cecil M Langille, [1977] CTC 144, 77 DTC 5086

Grant, DJ:—This is an appeal from a decision of the Tax Review Board dated October 16, 1975, whereby it allowed the appeal of the defendant Langille from an assessment which had been made pursuant to the provisions of the Income Tax Act, RSC 1952, c 148 as amended by Statutes of Canada 1970-71-72, c 63. Such decision is reported in [1975] CTC 2367 (75 DTC 280).

The parties by agreement filed a statement of admitted facts and documents which with the admissions contained in the pleadings, formed the evidence herein. Those facts were as follows:

1. The Defendant purchased a Canadian Government Annuity #216,864 in March 1961, a copy of which is annexed as Schedule A hereto. A copy of the Defendant’s application for the purchase of a deferred annuity is annexed as Schedule B hereto.

2. At all material times the Canadian Government Annuity #216,864 was registered as a retirement savings plan under the Income Tax Act. An Annuity of $1,200.00 was to be payable in instalments of $100.00 per month commencing March 1, 1971, for 15 years or the lifetime of the annuitant, whichever was longer. A premium of $1,279.10 was to be paid yearly by the Defendant from March 1, 1961 to March 1, 1970.

3. The Defendant purchased Canadian Government Annuity #216,864 from a Mrs McLaren' of the Federal Department of Labour. Mrs McLaren represented to the Defendant that if he did not deduct the premium paid into the annuity from his taxable income he would not have to pay tax on the refund of the capital so invested, but would only have to pay tax on the interest element of each year’s annuity. The Defendant was entitled to deduct the premiums paid in computing his taxable income. However, the Defendant believed that he had a choice either a) to deduct premiums in computing his taxable income in the years the premiums were paid and then pay tax on the annual amount out of or under the Canadian Government Annuity #216,864 when received or b) not to deduct premiums in computing his taxable income in the years the premiums were paid and then pay tax only on the interest element of the annual amount received out of or under the Canadian Government Annuity #216,864. Acting on this belief he made the latter choice and did not deduct premiums in computing his taxable income in the years the premiums were paid.

4. On November 30, 1965, the Defendant, on the advice of Mrs McLaren decided to discontinue his premiums to Canadian Government Annuity #216,864 and purchased a straight Canadian Government Annuity #236,110, a copy of which is annexed as schedule C hereto because it offered higher interest rates. In the transaction, the Defendant agreed to be paid an annuity of $522.24 instead of $1,200 on annuity #216,864 and the premium in respect thereof was agreed to have been fully paid by the Defendant. Under Annuity #236,110 an annuity in the amount of $677.76 was payable for a period of 15 years payable in instalments of $56.48 on the first day of each month commencing on November 1, 1970. The annual premium of $1,477.29 was payable from November 1, 1965 to November 1, 1969.

5. The Defendant received during the 1972 taxation year the sum of $677.76 out of or under Annuity #236,110.

6. The Defendant received during the 1972 taxation year the sum of $522.24 out of or under the Canadian Government Annuity #216,864. (See Statement of Pension, Retirement, Annuity & Other Income, T4A-1972, attached as Schedule D hereto).

7. In the income tax return filed for the 1972 taxation year the Defendant computed his income by including only $69.00 as income from annuities. (See Statement of Pension, Retirement, Annity & Other income, T4A-1972 attached as Schedule E hereto).

The most relevant sections of the Act are:

56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(h) amounts in respect of a registered retirement savings plan required by section 146 to be included in computing the taxpayer’s income for the year;

Section 146 deals with registered retirement savings plans and retirement savings plans:

146. (1) In this section,

(b) “benefit” means any amount paid or payable under a retirement savings plan, otherwise than as a premium;

(d) “maturity” means the date fixed under a retirement savings plan for the commencement of any annuity the payment of which is provided for by the plan;

(f) “premium” means any periodic or other amount paid or payable under a retirement savings plan,

(i) as consideration for any agreement referred to in subparagraph (j)(i) to pay an annuity, or

(ii) as a contribution referred to in subparagraph (j)(ii) for the purpose stated in that subparagraph;

(5) There may be deducted in computing the income for a taxation year of a taxpayer who is an annuitant under a registered retirement savings plan or becomes, within 60 days after the end of the taxation year, an annuitant thereunder, the amount of any premium paid by the taxpayer under the plan during the taxation year or within 60 days after the end of the taxation year (to the extent that it was not deductible in computing his income for a previous taxation year), . . .

(The balance of this subsection deals only with the amount which the taxpayer may deduct from his taxable income.)

(8) There shall be included in computing the income of a taxpayer for a taxation year all amounts received by him in the year as a benefit under a registered retirement savings plan.* [1]

I agree with the reasons given by the Honourable Lucien Cardin, QC, Chairman of the Tax Review Board herein, but wish to add some further comments in support thereof.

The purpose of establishing such a registered retirement savings plan by the government was to encourage taxpayers, while they were in receipt of a regular income, to set aside a portion thereof in each year to provide a fixed income by way of an annuity for themselves on their retirement or when they reached the age of 71.

The main incentive to purchase such a Canadian government annuity contract was the privilege of deducting the premium paid therefor from the taxpayer’s taxable income in the year of payment thereby postponing the payment on income tax thereon until such time as he should receive annuity payments thereunder. Relying upon the statements made by Mrs McLaren, none of the premiums paid by the taxpayer in any of the years for annuity #216,864 were deducted from the taxable income in any of the years in which such payments were made. He did not avail himself of the privilege of so reducing the amount of his taxable income under the provisions of subsection 146(5) of the Income Tax Act. He therefore purchased such annuity with what may be described as tax-paid dollars for each of such years. The annuity received by him in 1972 under the contract in question, as well as in any other year, therefore repre- sented a return to him of his purchase price therefor together with some earned interest. To include that portion thereof that did not represent interest in calculating his taxable income for that year would amount to double taxation thereof. There is a presumption against double taxation.

Maxwell on the Interpretation of Statutes, 10th edition, page 288, where it is stated:

A construction, for example, which would have the effect of making a person liable to pay the same tax twice in respect of the same subject matter must not be adopted unless the words were very clear and precise to that effect. In a case of reasonable doubt the construction most acceptable to the subject is to be adopetd.

Inland Revenue Commissioners v F S Securities Ltd, [1964] 1 WLR 742, where Viscount Radcliffe stated at page 756:

But double taxation in itself is not something which it is beyond the power of the legislature to provide for when construing its tax scheme. It is rather that, given that a situation really involved double taxation (see Canadian Eagle Oil Company Limited v The King, [1946] AC 119) it is so unlikely that there would have been an intention to penalize particular forms of income in this way that the law approaches the interpretation of the complicated structure of the code with a strong bias against achieving such a result.

This same principle is set out in subsection 4(4) of the Act which reads as follows:

4. (4) Unless a contrary intention is evident, no provision of this Part shall be read or construed to require the inclusion or to permit the deduction, in computing the income of a taxpayer for a taxation year or his income or loss for a taxation year from a particular source or from sources in a particular place, of any amount to the extent that that amount has been included or deducted, as the case may be, in computing such income or loss under, in accordance with or by virtue of any other provision of this Part.

The direction contained in subsection 146(8) (supra) to the effect that all amounts received by him in the year as a benefit under a registered retirement savings plan shall be included in computing his income for that year is ambiguous. Why is the amount to be treated as income confined to that portion “received by him as a benefit’’? If the wording were that the whole of the annuity fee in any year must be treated as income, words to that effect would be clear and leave no doubt. The word “benefit” is defined in paragraph 146(1)(b) as “any amount paid or payable under a retirement savings plan, otherwise than as a premium” [sic].

The word “premium” is defined by paragraph 146(1)(f) as follows:

(f) “premium” means any periodic or other amount paid or payable under a retirement savings plan,

(i) as consideration for any agreement referred to in subparagraph (j)(i) to pay an annuity, or

(ii) as a contribution referred to in subparagraph (j)(ii) for the purpose Stated in that subparagraph;

Such definition would indicate that in arriving at the portion to be treated as income in the case of a retirement savings plan, the premium paid by the taxpayer is to be deducted from the full amount of the annuity paid to him in that year. Such definition does not mention a registered retirement savings plan but paragraph 56(1)(h) does. The most logical reason for such language is the fact that the taxpayer has the privilege of either deducting the premium or not doing so and to cover both cases the statute directs that it is the amount by which the taxpayer benefits which must be included as income.

There can be no benefit to him if he does not so reduce his taxable income if he is obliged to pay tax on the full amount of the annuity received back after maturity. The word “benefit” is defined in The Shorter Oxford English Dictionary in the following terms:

A kind deed; a favour, gift, advantage, profit, pecuniary profit, a pecuniary assistance to which an insured person is entitled.

The word connotes something in addition to what a recipient already has. The return of that portion of the annuity in any year which is equal to premium paid is not an advantage to the annuitant for he will be no better off than he was before he paid the premium. Consequently, the return of the premium is not a benefit.

Counsel for the plaintiff relies upon the case of Speerstra v MNR, [1973] CTC 179; 73 DTC 5162. In this case the annuity was not one issued by the government. It contained an instalment refund guarantee clause whereby, in the event of the death of the annuitant before the annuity payments to her equalled the purchase price of the contract, the payments were to be made to her son, the appellant, until the total payments received equalled the purchase price. The Minister had assessed the appellant’s income by deducting as capital a portion of the payments expected during the lifetime of the mother in accordance with the regulation passed under the authority of the Act. The appellant sought a deduction of the entire amount of the annuity payments he received. The case stands for the principle that the instalment refund clause of the annuity did not make the annuity payments after the mother’s death capital and does not affect the problem to be decided herein. The appellant relies upon the cases which hold that when an ordinary annuity is purchased the moneys paid therefor cease to be capital and the annuity payments received thereunder are of a distinct and separate nature. This approach does not, however, take into consideration the section of the Income Tax Act above referred to. Paragraph 60(a) of the Act provides for deduction of the capital element of an annuity, other than one under the registered retirement savings plan and other forms of annuity herein mentioned, from a taxpayer’s taxable income. The most probable reason that payment to purchase a registered retirement savings plan is exempted from this paragraph is that it is taken for granted that in all such forms of annuity the annual premium would have already been deducted in the year of purchase.

If there is any ambiguity in the meaning of the word “benefit” as used in the above-quoted subsection, its construction should be resolved in favour of the taxpayer. Authorities for this: Hatch v MNR, [1938] Ex CR 208; [1938-39] CTC 85; 1 DTC 447, and Oriental Bank Corporation v Wright (1880), 5 App Cas 842.

Mrs McLaren who sold the annuity contract to Langille was an employee in the Federal Department of Labour. She was acting within the scope of her employment. In describing the terms of the contract to such a purchaser, she described it as one in which if he did not deduct the premium paid from his taxable income he would not have to pay tax on the refund of capital but would only have to pay tax on the interest element of each year’s annuity. Such statement was not an opinion of law but a statement of fact descriptive of the type of contract being offered to him. If the statement had been an opinion or interpretation of section 146 of the Act, estoppel would not lie against the Minister. (See Stickel v MNR, [1972] CTC 210 at 219; 72 DTC 6178 at 6185.)

The purchaser relied upon and acted upon such statements throughout. There is no suggestion that such saleslady did not herself believe such description to be true. If I am right in my interpretation of the contract it was true. The principle of estoppel is binding on the Crown. The fact that the Crown’s servant who sold the contract worked in a different department of the government does not affect this responsibility. (See Robertson v Minister of Pensions, [1949] 1 KB 227; [1948] 2 All ER 767.)

Counsel for Langille submits that the annuity in question, although registered, was never actually a registered retirement savings plan within the meaning of the Income Tax Act as it did not comply with the conditions set out in subsection 79B(2) of the Act as it then was (now subsection 146(2)).

It reads as follows:

(2) The Minister shall not accept for registration for the purposes of this Act any retirement savings plan unless, in his opinion, it complies with the following conditions:

(a) the plan does not

(i) provide for the payment of any benefit before maturity, except by way of refund of premiums, . . .

Terms and conditions contained in such a contract are as follows:

7. (1) At any time before the due day of the first instalment of annuity, if the current premium for a corresponding annuity is the same or less than the premium payable under this. contract at the time it was entered into, the Purchaser may

(d) by notice in writing require the Minister of Labour to pay the first instalment of annuity on a future day one or more full years before the due day when the first instalment of annuity is then payable under this contract, and the annuity shall thereupon be recalculated to take into account the alteration of the due day of the first instalment of annuity;

8. (1) At any time before the due day of the first instalment of annuity, if the current premium for a corresponding annuity is greater than the premium payable under this contract at the time it was entered into, the Purchaser may

(d) by notice in writing require the Minister of Labour to pay the first instalment of annuity on a future day one or more full years before the due day when the first instalment of annuity is then payable under the contract, and the annuity or the premium shall be recalculated as provided in subclause two;

Counsel for the respondent [sic] contends that because of the last two paragraphs quoted, 7(1)(d) and 8(1)(d) the annuity contract thereby provides for payment of the benefit before maturity. This precept offends subsection 79B(2) in that the Minister has no authority for accepting the annuity contract for registration as a retirement savings plan. It is contended that the result of this is that the contract amounts only to a registered savings plan in which the taxpayer was not entitled to deduct the premium paid therefor from his taxable income in the year in which he paid it. He cites the case of MNR v Inland Industries Limited, [1972] CTC 27; 72 DTC 6013, to support this submission.

Counsel for the Deputy Attorney General submits that such sections are merely provisions for advancing the date of maturity and do not provide for payment of any benefit before maturity that are not therefore within the scope or provision of subsection 146(2) of the Act.

A decision on this point would affect the status of many of the annuity contracts issued by the government and in view of the fact that the other reasons given by me justify a dismissal of this appeal, I refrain from expressing an opinion thereon.

As a result, the appeal will be dismissed, with costs.