Date: 19990819
Docket: 98-1809-IT-I
BETWEEN:
RAOUL DUBORD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
P.R. Dussault, J.T.C.C.
[1] This is an appeal from an assessment for the appellant's 1996 taxation year whereby the Minister of National Revenue (the "Minister") included in the appellant's income an amount of $54,590.00 as income from a registered retirement savings plan ("RRSP").
[2] For the purposes of this assessment, the Minister assumed the facts stated in subparagraphs 4(a) to (f) of the Reply to the Notice of Appeal, which read as follows:
[TRANSLATION]
(a) on August 23, 1996, the appellant borrowed $98,000 from the Caisse Populaire Desjardins Domaine Saint-Sulpice (hereinafter the "Caisse");
(b) the appellant gave the Caisse savings of $85,380.25 as security for the loan;
(c) the security given was a personal property mortgage on amounts accumulated in an RRSP and consisted of a certificate of deposit of $85,380.25 bearing number 0016793;
(d) at one point in the taxation year in issue, the trust governed by the RRSP permitted trust property to be used as security;
(e) as a result, the Minister considered that the fair market value—that is to say, $85,380.25—that the property used as security had at the time it commenced to be so used had to be included in computing the appellant's income for the year;
(f) as the appellant had reported an amount of $30,769.23, the Minister added to the appellant's income for the taxation year in issue an amount of $54,590 as income from an RRSP.
[3] The appellant does not dispute the facts stated in subparagraphs (a) to (d) but contends that the Minister incorrectly included the additional amount of $54,590 in his income since a new loan was taken out on December 4, 1996 in order to repay that of August 23, 1996 and that new loan was granted without security.
[4] Until August 1996, the appellant had a $50,000 line of credit at the Caisse Populaire Desjardins Domaine St-Sulpice (the "Caisse"). In order to repay an amount of $38,462.07 owed on this line of credit and repay or pay certain amounts owed to the federal and provincial governments, the appellant borrowed $98,000 under a loan agreement on August 23, 1996 at an annual interest rate of 9% (Exhibit A-1, document 1). As the appellant had borrowed an additional amount of $48,000 on his previous line of credit, the Caisse required that a term deposit of $85,380.25 accumulated in the appellant's RRSP be used as security. The appellant also granted a personal property mortgage on these amounts (Exhibits I-1 and I-2). The appellant's RRSP was administered by the Fiducie Desjardins inc. (the "Fiducie").
[5] On December 4, 1996, the outstanding balance on the loan was $91,429.83. That same day, the appellant signed a variable-rate loan agreement for an amount corresponding to the outstanding balance on the loan of August 23, 1996. This agreement was treated by the Caisse as an amendment to the previous loan (Exhibit A-1, document 3). For December 4, 1996, the loan statement did not show the repayment of the previous loan, but simply the balance owing after payment of an amount of $20,000 (Exhibit A-1, document 4). This amount in fact came from the appellant's withdrawal of $30,769.23 from his RRSP that same day. As the provincial tax withheld was $6,153.84 and the federal tax withheld was $4,615.38, the balance of $20,000 00 was used to reduce the loan balance.
[6] The appellant contends that the agreement he had with the Caisse was that this payment of $20,000 out of the amount accumulated in his RRSP meant that the Caisse would not require any security for the new loan.
[7] In addition, the appellant claims that the loan of December 4, 1996 was a new loan and that the security given for the loan of August 23, 1996, consisting of the deposit of $85,380.25 in his RRSP, was not given for the new loan. Consequently, only the amount of $30,769.23 representing the withdrawal from his RRSP on December 4, 1996 should be included in his income.
[8] I disagree with the appellant and find that he did not show on a balance of probabilities that the balance of the accumulated amounts in his RRSP after the withdrawal of December 4, 1996 was not given as security for the loan taken out that same day. In my opinion, the documents which he himself filed in evidence contradict his claims.
[9] In a letter dated May 1, 1997 to Guy Lussier, the Caisse's general manager, the appellant described his agreement with the Caisse as follows:
[TRANSLATION]
In addition, it was agreed with the Caisse Populaire du Domaine St-Sulpice that, at the start of December 1996, I would withdraw $20,000.00 plus the amounts owed to the two levels of government from my registered retirement savings plan in order to apply that amount to repay the loan, which was in fact done, and all for the purpose of withdrawing the security so as not to lose the registration of the RRSP.
My RRSP is now no longer registered as a result of an error by one of your assistants. Consequently, I ask you to reinstate by registered retirement savings plan so that it is still registered. Should you fail to grant my request, I will hold the Caisse Populaire du Domaine St-Sulpice fully liable for any inconvenience this may cause me.[1]
[10] In the reply he sent to the appellant on May 21, 1997, Guy Lussier stated in particular the following:
[TRANSLATION]
The fact remains that, in early December, I personally reminded you that the additional loan of $48,000 had to be completely repaid in order to release your RRSP, which the $20,000 from your RRSPs only partly accomplished.[2]
[11] Furthermore, paragraph 7 of the variable-rate loan agreement of December 4, 1996 (Exhibit A-1, document 3) states:
[TRANSLATION]
The borrower gives the Caisse, in acknowledgement of or as security for his liability, the following item or document:
TD folio #21483
[12] It is hard to conclude that the term deposit indicated in the folio corresponding to that of the appellant was not given as security. The appellant's RRSP statements of account issued by the Fiducie on October 31, 1997 and October 31, 1998 confirm that the amount was indeed that of the term deposit accumulated in the appellant's account with the same folio number (Exhibit A-1, documents 13 and 14).
[13] I also note that the document giving savings as security, which refers to the certificate of deposit provided as security at the time of the loan of August 23, 1996 (Exhibit I-1), states the following in paragraph 1 in fine:
[TRANSLATION]
The Caisse may withhold the aforementioned amounts and, if necessary, interest from the certificates of deposit until such time as the total amounts owed under the finance contract or contracts have been fully reimbursed and . . . .
[14] Lastly, the T4RSP slips issued by the Fiducie for 1996 also suggest that the balance of the amounts accumulated by the appellant in his RRSP after the withdrawal of December 4, 1996 was still being used as security for the loan granted by the Caisse under the agreement of August 23, 1996 as amended by that of December 4, 1996 (Exhibit A-1, document 5).
[15] On the whole of the evidence, I find that the Minister was correct in including the amount of $54,590.00 in the appellant's income for the 1996 taxation year in accordance with subsection 146(10) of the Income Tax Act (the "Act"). I would simply add that, to the extent the loan was repaid in subsequent years, the appellant may claim for those years the deduction provided for in subsection 146(7) of the Act.
[16] The appeal is accordingly dismissed.
Signed at Ottawa, Canada, this 19th day of August 1999.
"P.R. Dussault"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 20th day of July 2000.
Erich Klein, Revisor