Garon T.C.J.:
1 This is an appeal from an income tax assessment for the 1992 taxation year. By his assessment the Minister of National Revenue included in the appellant's income inter alia the principal portion, amounting to $10,056.63, of funds from an RRSP paid to the appellant during 1992 totalling $19,219.30.
2 At the start of the hearing counsel for the respondent informed the Court that she admitted that in computing his income for 1992 the appellant was entitled to a further deduction of $250.00 pursuant to subsection 146(8.2) of the Income Tax Act.
3 The appellant's agent admitted the allegations of fact on which the Minister of National Revenue relied in making the subject assessment. These allegations are set out in paragraph 7 of the Reply to the Notice of Appeal. Paragraph 7 reads as follows:
[TRANSLATION]- 7. On June 2, 1994, amending the assessment of June 4, 1993, the Minister assumed inter alia the following facts:
a. in the years prior to 1992 the appellant invested money in a Plan;
b. the appellant never claimed any deductions for the money invested in the Plan;
c. the trustee of the Plan was Industrial Alliance (the “company”);
d. when the Plan was deregistered in 1992 the appellant was deemed to have received the sum of $19,219.30 as indicated by the T4RSP form issued by the company;
e. the appellant's representative subsequently indicated to the Minister that interest in the amount of $1,834.22 in respect of the Plan in question had been included in computing income for the 1991 taxation year;
f. the Minister reduced the appellant's income by this amount, arriving at a taxable amount of $17,385.08 in respect of the Plan in question for the 1992 taxation year.
4 The appellant became brain-injured as the result of a car accident in which he was involved when he was living in Ontario. The appellant, who is now 46 years old, is unable to manage his affairs and according to the evidence will remain in this condition as long as he lives. From 1974 to her death on January 19, 1989, the appellant's mother, Bernadette Audette St-Hilaire, was his curator. By a judgment dated February 7, 1989, Paul St-Hilaire became the appellant's curator. It was he who acted for him in filing this appeal and at his hearing in this Court.
5 The sources of the appellant's income have been the same since 1974. These sources include a disability pension, a life annuity from the Government of Ontario (or one of its agencies) paid as a result of the accident referred to above, dividends and interest. The appellant has had no “earned income” within the meaning of paragraph 146(1)(c) of the Income Tax Act during the years following the year of his accident.
6 In response to an application to join the “Plan Éco” of “Industrial”, a life insurance company, made by the appellant through his curator on August 29, 1978, an insurance policy on the appellant's life was issued by the insurance company in question. The photocopy of the application form does not indicate whether the curator asked that the insurance policy in question be registered as a retirement savings plan. As we know, a life insurance policy can be a qualified investment under an RRSP if the specified conditions are met.
7 On August 16, 1984, the appellant's curator asked that the funds amounting to $3,456.63 from the redemption of this insurance policy be invested in an RRSP for which Industrial was the trustee.
8 Subsequently certain other amounts were added to this RRSP, as appears from the [TRANSLATION] “Écoflex-plus Statement of Account - Industrial Alliance”. Accordingly, on October 18, 1984, the curator paid an additional $600. In 1985 the curator deposited $4,000 in this RRSP account. In 1989 $1,000 was invested in the same RRSP. The amounts paid into the RRSP for 1986, 1987, 1988 and 1990 were $250 respectively. These minimal contributions enabled the curatorship to avoid paying administration fees.
9 On October 21, 1986, the curator was informed by the Service de la surveillance de l'administration des curateurs et tuteurs of the office of the Public Curator of Québec that [TRANSLATION] “a registered retirement savings plan is not a permissible investment consistent with those set out in arts. 981o et seq. of the Civil Code”. In the same letter it was recommended inter alia that the curator [TRANSLATION] “recover the amount loaned” to one Pierre St-Hilaire on the security of a hypothec. It should be noted that among other powers conferred by his enabling Actthe Public Curator has the power to supervise the administration of tutorships and curatorships for minors and adults.
10 On the evidence, there is no question that the curator Audette St-Hilaire had limited knowledge of investments, and of RRSPs in particular.
11 The curator Paul St-Hilaire realized shortly after his appointment that the female curator had made impermissible investments. He also concluded that the hypothecary investments by the curatorship were not worthwhile, in view of the amount of work required. He then undertook to vary the composition of the property in the appellant's curatorship so as to provide the appellant with income on a regular basis. It also seemed advisable to him for the curatorship to make investments in preferred and common shares of companies and so, as he put it, take advantage [TRANSLATION] “of tax credits on dividends”. Changes were then made in the curatorship portfolio. On this point, it is interesting to note the balance sheets of the curatorship at January 16, 1989, a few days before the death of the female curator, and at January 16, 1991, nearly two years after the curator Louis St-Hilaire took over. The second balance sheet indicates, in particular, that a significant component of the curatorship assets, in terms of value, consists of common and preferred company shares. Further, the curator took steps to ensure that the last two hypothecary debts owing to the curatorship were settled in 1992.
12 The curator included interest from the assets invested in the RRSP in the appellant's income for 1991.
13 As part of an operation to rationalize the various components of the assets of the curatorship, the curator decided to liquidate the appellant's RRSP investments and on July 21, 1992, to withdraw the money invested in this RRSP.
14 On the basis of these facts, the Court must consider the question of taxation of the “principal” portion of the RRSP funds withdrawn in 1992, from the standpoint of the Income Tax Act.
15 The basic provisions regarding the taxation of money from an RRSP are paragraph 56(1)(h) and subsection 146(8) of the Income Tax Act. Those provisions read as follows:
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 required by section 146 in respect of a registered retirement savings plan or a registered income fund to be included in computing the taxpayer's income for the year, ...
146. (8)There shall be included in computing the income of a taxpayer for a taxation year the total of all amounts received by the taxpayer in the year as benefits out of or under registered retirement savings plans, other than excluded withdrawals in respect of the taxpayer (within the meaning assigned by subsection 146.01(1)) and amounts that are included under paragraph (12)(b) in computing the taxpayer's income.
16 The word “benefits” used in subsection 146(8) is defined in paragraph 146(1)(b) of the Act as follows:
(1) In this section,- (b) “benefit” includes any amount received out of or under a retirement savings plan other than
(i) the portion thereof received by a person other than the annuitant that can reasonably be regarded as part of the amount included in computing the income of an annuitant by virtue of subsections (8.8) and (8.9),
(ii) an amount received by the person with whom the annuitant has the contract or arrangement described in paragraph (j) as a premium under the plan, and
(iii) an amount, or part thereof, received in respect of the income of the trust under the plan for a taxation year for which the trust was not exempt from tax by virtue of paragraph (4)(c)
(iv) in accordance with the terms of the plan,
(v) resulting from an amendment to or modification of the plan, or
(vi) resulting from the termination of the plan;...
17 It follows from the provisions of paragraph 56(1)(h), subsection 146(8) and paragraph 146(1)(b) that the $10,056.63, representing the portion of the appellant's RRSP funds made up of the appellant's contributions to the plan, is a benefit received from the plan, having regard to the very broad definition of this word in paragraph 146(1)(b). It was not argued that any of the exceptions set out in subsection 146(8) or in the definition of the word “benefit” in paragraph 146(1)(b) could apply.
18 Subsection 146(8.2) somewhat alleviates the tax burden on the taxpayer in respect of a premium paid during a taxation year if the taxpayer received a payment from an RRSP in any of the three years referred to in paragraph 146(8.2)(c) and if the taxpayer is not covered by the anti-avoidance provisions of paragraphs 146(8.2)(e) and (f). However, subsection 146(8.2) does not apply to the withdrawals referred to in subsection 8307(6) of the Income Tax Regulations. As the Court indicated at the start of these reasons, counsel for the respondent relied on subsection 146(8.2) when she admitted at the hearing that the appellant was entitled to a further deduction of $250 from the $10,056.63 in issue. At the relevant time, subsection 146(8.2) read as follows:
Where(a) all or any portion of the premiums paid in a taxation year by a taxpayer to one or more registered retirement savings plans under which the taxpayer or the taxpayer's spouse was the annuitant was not deducted in computing the taxpayer's income for any taxation year,
- (b) the taxpayer or the taxpayer's spouse can reasonably be regarded as having received a payment from a registered retirement savings plan or a registered retirement income fund in respect of such portion of the undeducted premiums as
(i) was not paid by way of a transfer of an amount from a registered pension plan to a registered retirement savings plan, and
(ii) was not paid by way of a transfer of an amount from a deferred profit sharing plan to a registered retirement savings plan in accordance with subsection 147(19),
- (c) the payment is received by the taxpayer or the taxpayer's spouse in a particular taxation year that is
(i) the year in which the premiums were paid by the taxpayer,
(ii) the year in which a notice of assessment for the taxation year referred to in subparagraph (i) was sent to the taxpayer, or
(iii) the year immediately following the year referred to in subparagraph (i) or (ii), and
(d) the payment is included in computing the taxpayer's income for the particular year,
(e) the taxpayer did not reasonably expect that the full amount of the premiums would be deductible in the taxation year in which the premiums were paid or in the immediately preceding taxation year, and
(f) the taxpayer paid all or any portion of the premiums with the intent of receiving a payment that, but for this paragraph and paragraph (e), would be deductible under this subsection.
19 The appellant did not dispute the application of subsection 146(8), paragraph 146(1)(f) and subsection 146(8.2), but argued that the taxation of the amount in issue is contrary to the provisions of subsection 4(4) of the Income Tax Act. In this connection, it seems worth reproducing the following passage from the submissions of the appellant's agent accompanying his letter of April 26, 1996:
[TRANSLATION]
The fundamental question is whether a taxpayer should be penalized on account of a lack of knowledge of the tax rules by the person representing him and because of a delay in acting to take advantage of the provisions of the Act regarding RRSPs. Further, what should the new curator have done, in view of the fact that this financial product was of no use to the taxpayer and gave him no benefit, and that this financial product was ruled impermissible under the provisions of the Civil Code on the composition of portfolios of private family trusts, tutorships and/or curatorships?
How should the Ecoflex Plus plan be treated in light of the intention of the curator at the time to diversify the portfolio rather than the need to build a retirement annuity for age 65?
The purchase of this Ecoflex Plus plan was an error by the female curator which conferred no benefit on the taxpayer and did not meet his needs, as it had the effect of freezing over $19,000 for a period of 22 years, the taxpayer being 43 years old in 1992.
20 Although the Court sympathizes with the appellant's situation, it has to reach its decision in accordance with the Act. The Act must be applied uniformly to all Canadian taxpayers, regardless of the knowledge level of the taxpayer or of the person representing him or her. The fact that a taxpayer makes an investment which does not prove to be as worthwhile as expected is not a reason for adopting a broader interpretation of the Act.
21 To begin with, it is not clear that all the money used to purchase the property that made up the RRSP was part of the money which had already been included in income. The source of the money used to purchase the life insurance policy and the other property covered by the RRSP was not established. For example, it is possible that the life annuity paid as an indemnity was not included in income in view of the provisions of paragraph 81(1)(q) of the Income Tax Act, providing for non-inclusion of certain provincial indemnities in a taxpayer's income, and of paragraph 6501(h)(ii) of the Income Tax Regulations which provides for what that provision means by indemnities in the case of Ontario. However, these provisions only apply to amounts received after January 1, 1978.
22 In any case, the Court concurs in the viewpoint of the respondent that the clear intent of Parliament is indicated in subsections 146(8) and (8.2). Under subsection 146(8), an amount withdrawn from an RRSP must generally be included in income and the taxpayer can only claim a deduction in the specific situation provided for in subsection 146(8.2). The consequences of the general rule of taxation stated in subsection 146(8) of the Act can be explained at least in part in the instant case by the fact that the income from the RRSP in question was not taxed throughout these years (except for 1991) precisely because this was an RRSP. For example, if this had not been an RRSP, the “interest” portion of the income from the property in question would have had to be included in the appellant's income under paragraph 12(1)(c) and subsection 12(4) of the Act or the earlier provisions, which were applicable at various times for each of the years in which the fund existed. The appellant thus benefited from the postponing of tax on this interest for a great many years. It should be borne in mind that the accumulation of income from an RRSP without having to include these amounts in income for purposes of the Income Tax Act is one of the two benefits resulting from the existence of an RRSP, the other being the deduction of amounts paid as RRSP premiums in computing income. It would not be fair to other taxpayers if such interest was only included in income at the time the RRSP funds were withdrawn.
23 Additionally, the decided cases have reviewed the application of subsection 4(4) to contributions made to RRSPs for which no deduction was claimed and which are subsequently withdrawn from the plan. I refer in particular to Carroll v. Minister of National Revenue,in which Judge Cardin made an analysis of earlier decisions and concluded as follows:
For these reasons, I must conclude that the legislators did intend that any and all amounts received or withdrawn from a superannuation or pension plan, including Registered Retirement Savings Plans, are taxable whether or not premiums paid into the plan or fund has been previously deducted from the appellant's income. The amendment to Section 146(1)(b) in 1978 deleting the words “otherwise than as a premium” clarifies and confirms, in my view, that the general principle set out by Mr. Justice Walsh in Herman (supra) applies equally to income received from RRSPs.
24 The Court therefore considers that subsection 4(4) of the Act does not apply in the instant case as Parliament obviously intended to include amounts withdrawn from an RRSP in a taxpayer's income.
25 Before concluding, the Court would like to add certain observations on the comments made by the appellant in his submissions to the Court. These comments question the existence of the RRSP at issue in this appeal. I refer to the following passages from the appellant's submissions:
[TRANSLATION]
Applying sections 148(8), 56(1)(h) and 146(1)(b) to this case would mean failing to take the reality and substance of the transaction carried out by the taxpayer into account, since the plan which was taken out was never regarded as an RRSP by the taxpayer's representatives.
Section 4(4) applies here in any case since refusing to apply it would mean penalizing a taxpayer unnecessarily and would leave him no way of obtaining compensation for the withdrawal of amounts which he considers, and has always considered, a contribution of “principal” to an account which is an RRSP in name only.
26 First, the Court would note that the appellant's agent seems to have forgotten that at the hearing he admitted the existence of the RRSP at issue here when he admitted the allegations made in paragraph 7 of the Reply to the Notice of Appeal, and in particular the allegation set out in subparagraph 7(a) above.
27 Second, except for 1991, the appellant did not include the income from this RRSP in his income for earlier years. Through his curators, he himself treated the money as an RRSP.
28 For these reasons, the appeal is allowed only to authorize the deduction of $250 in computing the appellant's income for 1992. In all other respects the appeal is dismissed.
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