T-1119-76
The Queen (Plaintiff)
v.
Cecil M. Langille (Defendant)
Trial Division, Grant D.J.—Toronto, February 8
and 22, 1977.
Income tax — Calculation of income — Defendant not
deducting premiums paid for registered retirement savings
plan from taxable income — Whether tax payable on whole
annuity — Income Tax Act, R.S.C. 1952, c. 148, s. 79B(2) as
amended by S.C. 1970-71-72, c. 63, ss. 4(4), 56(1)(h),
146(1),(5) and (8).
Defendant purchased a Canadian Government annuity which
was registered as a retirement savings plan under the Income
Tax Act. He was told by the Crown employee who sold it to
him that he could either deduct the premiums in computing his
annual income or pay tax only on the interest element of the
amounts received under the annuity and he chose the latter
method. The plaintiff claims that the total amount received by
the defendant as an annuity is taxable.
Held, the appeal is dismissed. The premiums were paid for in
taxed dollars and to tax more than the interest earned would
amount to double taxation contrary to the provisions of section
4(4) of the Act and to the principles established in common
law. The Crown is in any event estopped from denying the
statement of facts made by its servant to the defendant at the
time of selling the annuity.
Inland Revenue Commissioners v. F. S. Securities Ltd.
[1964] 1 W.L.R. 742; Hatch v. M.N.R. [1938] Ex.C.R.
208; Oriental Bank Corporation v. Wright (1880) 5 A.C.
842; Stickel v. M.N.R. [1972] F.C. 672 and Robertson v.
Minister of Pensions [1949] 1 K.B. 227, applied. Speer-
stra v. M.N.R. [1973] F.C. 231, distinguished.
APPEAL from Tax Review Board.
COUNSEL:
J. S. Gill and I. MacGregor for plaintiff.
W. J. Bies for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
W. J. Bies, Toronto, for defendant.
The following are the reasons for judgment
rendered in English by
GRANT D.J.: 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,
R.S.C. 1952, chapter 148 as amended by Statutes
of Canada, 1970-71-72, chapter 63. The decision is
reported in 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 Govern
ment 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 Canadi-
an 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, Retire
ment, Annuity & 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" includes any amount received out of or under a
retirement savings plan otherwise than as a premium and
without restricting the generality of the foregoing includes
any amount paid to an annuitant under the plan
(i) in accordance with the terms of the plan,
(ii) resulting from an amendment to or modification of the
plan, or
(iii) resulting from the termination of the plan;
(d) "maturity" means the date fixed under a retirement
savings plan for the commencement of any annuity the
pay1ent of which is provided for by the plan;
(/) "premium" means any periodic or other amount paid or
payable under a retirement savings plan,
(i) as consideration for any agreement referred to in sub-
paragraph (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 out of or under a registered retirement savings
plan.
I agree with the reasons given by The Honour
able Lucien Cardin, Q.C., (now 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 seventy-one.
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 of income tax
thereon until such time as he should receive annui
ty payments thereunder. Relying upon the state
ments made by Mrs. McLaren, none of the premi
ums 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 privi
lege of so reducing the amount of his taxable
income under the provisions of section 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
represented 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 ed., 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 would not be adopted unless the words
were very clear and precise to that effect. In a case of reason
able doubt the construction most beneficial to the subject is to
be adopted.
Inland Revenue Commissioners v. F. S. Securi
ties Ltd. [ 1964] 1 W.L.R. 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 constructing its
tax scheme. It is rather that, given that a situation really
involve double taxation (See Canadian Eagle Oil Co. Ltd. v.
The King [1946] A.C. 119) it is so unlikely that there would
have been an intention to penalise 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 section 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 section 146(8)
(supra) to the effect that "all amounts received by
him in the year as a benefit out of or under a
registered retirement savings plan" shall be includ
ed in computing his income for that year is ambig
uous. 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 "premium" is defined by section
146(1)(f) as follows:
146. (1) ...
(/) "premium" means any periodic or other amount paid or
payable under a retirement savings plan,
(i) as consideration for any agreement referred to in sub-
paragraph (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 section 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:
2. A kind deed; a favour, gift. 3. Advantage, profit...
pecuniary profit ... the pecuniary assistance etc., 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. M.N.R. [1973] F.C. 231. In that case
the annuity was not one issued by the Government.
It contained an installment 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 appel
lant, until the total payments received equalled the
purchase price. The Minister had assessed the
appellant's income by deducting as capital a por
tion of the payments expected during the lifetime
of the mother in accordance with the regulation
passed under the authority of the Act. The appel-
lant sought a deduction of the entire amount of the
annuity payments he received. The case stands for
the principle that the installment 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 plain
tiff relies upon the cases which hold that when an
ordinary annuity is purchased the monies paid
therefor cease to be capital and the annuity pay
ments received thereunder are of a distinct and
separate nature. This approach does not, however,
take into consideration the sections of the Income
Tax Act above referred to. Section 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 payments
to purchase a registered retirement savings plan
are exempted from this section is that it is taken
for granted that in all such forms of annuity the
annual premium would have already been deduct
ed in the year of purchase.
If there is any ambiguity in the meaning of the
word "benefit" as used in the above-quoted subsec
tion, its construction should be resolved in the
favour of the taxpayer. Authorities for this are
Hatch v. M.N.R. [1938] Ex.C.R. 208 at page 217
and Oriental Bank Corporation v. Wright
(1880) 5 A.C. 842.
Mrs. McLaren, who sold the annuity contract to
Langille, was an employee in the Federal Depart
ment 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 state
ment had been an opinion or interpretation of
section 146 of the Act, estoppel would not lie
against the Minister. (See Stickel v. M.N.R.
[1972] F.C. 672 at page 681.)
The purchaser relied upon and acted upon such
statements throughout. There is no suggestion that
such saleslady did not herself believe such descrip-
tion to be true. If I am right in my interpretation
of the contract it was true. The principle of estop-
pel 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. Minis
ter of Pensions [1949] 1 K.B. 227, [1948] 2 All
E.R. 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 section
79B(2) of the Act as it then was. (Now section
146(2).)
It reads as follows:
146. (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 maturi
ty, except by way of a refund of premiums.....
Terms and conditions contained in such a con
tract 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 defendant contends that because
of the last two paragraphs quoted, 7(1)(d) and
8(1)(d) that the annuity contract thereby provides
for payment of the benefit before maturity. This
precept offends section 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 con
tract 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
M.N.R. v. Inland Industries Limited [1974]
S.C.R. 514 to support this submission.
Counsel for the Deputy Attorney General of
Canada submits that such sections are merely
provisions for advancing the date of maturity and
do not provide for payment of any benefit before
maturity and are not therefore within the scope or
provision of section 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.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.