Gerol v. A.G. Canada, 85 DTC 5561, [1986] 1 CTC 75 (S.C.O.)

Rosenberg, J. [ORALLY]:—

Nature of Application

This is an application under section 52 of the Constitution Act, 1982, section 24 of the Charter of Rights and Freedoms, section 110 of the Courts of Justice Act and rule 14.05(3)(h) of the Rules of Civil Procedure for a declaration that sections 146(2), 56(1 )(h) and (t), and subsection 60(i) and (1) of the Income Tax Act (the Act) are contrary to sections 15, 7, and 2(a) of the Charter of Rights and Freedoms and therefore are null and void and of no force and effect.

The Facts

(a) The Legislative Scheme

Section 146 of the Act creates:

a Registered Retirement Savings Plan (R.R.S.P.);

a Retirement Savings Plan (R.S.P.) which meets the requirements of the Act will be accepted for registration by the Minister;

an R.R.S.P. is a contract between an individual and a company carrying on the annuity business to provide an annuitant or his or her spouse, a retirement income upon the maturity of the plan. An R.R.S.P. can also be an arrangement between the annuitant and a Canadian trust company, an investment company, a bank or credit union which is set up for the purpose of providing the annuitant with retirement income upon maturity of the plan. Retirement income is defined as:

(i) a life annuity with or without a guaranteed term; or

(ii) a fixed term annuity.

Maturity is defined as the date fixed under an R.R.S.P. for the commencement of the payment of retirement income. The R.R.S.P. cannot mature before the annuitant reaches the age of 60 and it must mature no later than the end of the year in which the annuitant reaches the age of 71.

In cases where the annuitant or the annuitant’s spouse receive a disability pension, or where the spouse of the annuitant has died, leaving the annuitant in receipt of a survivor's pension, the R.R.S.P. can mature before the minimum age of 60. The R.R.S.P. cannot provide for the payment of any benefit before the date of maturity, and any benefit paid after the date must be in the form of retirement income, i.e. an annuity. The payment of retirement income must be in equal periodic amounts.

The annuity which is payable under the R.R.S.P. is not capable of being surrendered, commuted or assigned either in whole or in part. The amount of premiums paid by an annuitant under an R.R.S.P. during the year, or within 60 days after the end of the year, can be deducted from the income of the annuitant to the extent of the lesser of $5,500 and 20 per cent of the annuitant's income for that year. If the annuitant is entitled to an employment pension fund, or deferred profit sharing plan, the deductible amount is limited to the lesser of $3,500 and 20 per cent of earned income. Premiums may be paid into the R.R.S.P. at any time, but they are not payable after the maturity date of the R.R.S.P. Upon the maturity date of the R.R.S.P., the annuitant has four choices:

(i) the money accumulated in the fund can be withdrawn and brought into the income of the annuitant;

(ii) a life annuity, with or without a guaranteed term can be purchased;

(iii) a term annuity to age 90 can be purchased; or

(iv) the funds can be transferred into a Registered Retirement Income Fund (R.R.I.F.).

I am satisfied on the evidence that at least for the purpose of this motion, the applicant, Alexander Gerol, is better able to invest his money and receive a better return from a Government of Canada bond than he will under the type of annuity which is available to him pursuant to these options. The rate of return on the R.R.I.F. or the annuity is lower and makes allowance for commissions, risk and administration that would not be present if the applicant were investing his own funds. He could, however, under the R.R.I.F. plan, purchase such a Government of Canada Bond and pay a slight commission for management fees to a company recognized under the Act to manage the self-administered fund. He would be spending money, in his view, for nothing and doing something that is more undesirable from his point of view.

An R.R.I.F. can only be purchased by way of a transfer from an R.R.S.P. The R.R.I.F. is an arrangement between an individual and a carrier, a com- pany carrying on an annuity business or life insurance company, a trust company, a bank or an investment company, whereby the carrier agrees to make payments to the individual under the R.R.I.F. The R.R.I.F. funds may be invested in any qualified investment and it is important to note that they can be managed either by the carrier or by the individual him or herself in a self-administered plan set up through a carrier. Payments made from the R.R.I.F. must begin in the first year after the creation of a fund and they are made on a calculation which is based on a fraction of the market value of the fund. The fraction in turn is based on the number of years remaining until the individual reaches 90. The payments increase in each year until the fund is exhausted. All capital and interest in the fund must be paid out to the individual no later than in the year in which the individual turns 90. The term of the annuity is 90 years less the annuitant's age at the beginning of the term in which the R.R.I.F. was purchased. The term can be longer if the annuitant elects to calculate the total on the basis of a younger spouses' age. The income generated by the fund is not taxable while in the R.R.I.F., only the payments made the individual are subject to tax.

The applicant, a senior citizen, will be 71 years of age on November 11, 1985. The applicant has the following five R.R.S.P.’s totalling as of the 30th day of January 1985, $96,388.14:

The Law

Section 2(a)

Section 2(a) of the Charter of Rights and Freedoms reads as follows:

Everyone has the following fundamental freedoms:

(a) Freedom of conscience and religion.

Sections 56(1)(h), 56(1 )(t), 60(i), 60(l) and 146(2) of the Income Tax Act do not deny the applicant freedom of conscience and religion and are not contrary to paragraph 2(a) of the Charter. R. v. Big M Drug Mart (1985), 18 C.C.C. (3d) 385 (S.C.C.) at 424 and 446 and R. v. Videoflicks (1984), 48 O.R.

(2d) 395, (C.A.) at 420 and 422.

Section 7

Section 7 of the Charter reads as follows:

Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

The sections of the Income Tax Act under review do not deny the applicant the right to life, liberty and security of the person contrary to the principles of fundamental justice. The right to life, liberty and security of the person is the single interrelated right which guarantees the individual freedom from interference with the person. It is meant to provide protection from physical threats or punishment and from arrest and detention. Security of the person refers to physical and personal integrity of an individual.

Even if the rights included certain economic freedoms, they do not include the right to unrestrained conduct in business affairs, nor complete economic freedom. The Queen v. Operation Dismantle Inc., et al. (1983), 3 D.L.R. (4th) 193 at 199, 200 and 217, Public Service Alliance of Canada v. The Queen in Right of Canada et al. (1984), 11 D.L.R. (4th) 337 (F.C.T.D.) affirmed (1984) 11 D.L.R. (4th) 387; Singh et al. v. Minister of Employment and Immigration (1985), 17 D.L.R. (4th) 422 at 458; R. v. Videoflicks (1984), 48 O.R. (2d) 395 (C.A.) at 433; Gersham Produce Co. Ltd. v. The Motor Transport Board (1985), 14 D.L.R. (4th) 722 (Man. Q.B.) at 730; Becker v. The Queen in Right of Alberta (1983), 7 C.R.R. 232 (Alta. Q.B.) at 237; P. Garant, in W. Tarnopolsky, G. Beaudoin, eds. The Canadian Charter of Rights and Freedoms, 1982, p. 263, 270.

There has been no violation of the principles of fundamental justice. The Queen et al. v. Operation Dismantle Inc. et al., [1983] 3 D.L.R. (4th) 193 at 211; Re Potma and The Queen (1983), 41 O.R. (2d) 43 (C.A.) at 52; Re Town of Milton and Ontario Waste Management Corp. (1983), 50 O.R. (2d) 715 (Div. Ct.) at 724.

Section 15 of the Charter

Section 15(1) reads as follows:

Every individual is equal before the law and under the law and has the right to equal protection and equal benefit of the law without discrimination and in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age, or mental or physical disability.

This section is more difficult to apply to the present circumstances. Age is often used at law to determine rights of individuals. No one would argue that a two-year-old has the same right to a driving licence as a 21-year-old or that an eight-year-old can purchase liquor wisely in all cases and should therefore be entitled to a liquor licence, although individuals of different ages may be shown to be more capable than those within the allowable age group. There must be some distinctions made on the basis of age. A 30- year-old cannot claim discrimination on the basis that a person of 65 or over is entitled to receive benefits under a Canada Pension Plan that he is not entitled to receive.

Discrimination can be defined as the use of distinction based on a prohibited ground which results in a nullification of rights and which has a detrimental effect on the complainant. Distinctions which do not create adverse results are not of themselves discriminatory. Canadian Human Rights Act, S.C. 1976-77, c. 33, s. 5; Quebec Charter of Human Rights and Freedoms, S.Q., s. 10; International Conventions on the Elimination of All Forms of Racial Discrimination (U.N. 1965); Post Office v. Union of Post Office Workers, [1974] 1 All E.R. 229 at 238 (H.L.); W. Tarnopolsky, Discrimination and the Law in Canada, 1982, p. 85.

The age distinction which determines the maturity date does not nullify any right or benefit but rather triggers the receipt of a benefit, i.e. retirement income.

The four alternatives may not be the best possible alternatives that could be conceived of. It is not for the courts to judge the merits of legislation, or whether better legislation is possible or whether one is happy with the provisions of legislation or the choices given to them. We must not demean the Charter by treating every provision of every statute that one does not like as an invasion of one's liberty. The proper approach is the one the applicant has apparently adopted which shows some signs of success, that is to lobby for a change.

Section 1 of the Charter

Section 1 of the Charter reads as follows:

The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it, subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

If section 15 of the Charter had been violated by the provisions of the Income Tax Act under review, can provisions such as these be demonstrably justified pursuant to section 1 of the Charter? In order to determine whether legislation which otherwise impinges on the Charter of Rights can be demonstrably justified, the courts must develop a test which takes into account the purpose of the legislation and the means being used to achieve that end.

In the present case, the determination which must be made is whether a criterion of age as the basis for maturation of an R.R.S.P. can be used to accomplish the legislative purpose of the R.R.S.P. provisions. This involves a two-stage inquiry by the Court.

(1) Is the legislative purpose valid?

(2) Are the means being used valid? This test was described by Chief Justice Dickson as a proportionality test R. v. Big M Drug Mart, supra, p. 430.

The purpose is either to create a retirement income for self-employed people and people not having other retirement plans or to allow them tax postponement which enables them to create this retirement income. In either event, the purpose is valid.

Are the means being used valid? In my view, they are. The requirement that the moneys be withdrawn at age 71 and taxes paid thereon would, if this were the only provision, be valid. This would limit the tax benefit to a postponement to age 71 both on the taxpayer's income and income in the R.R.S.P. However, the benefit does not stop there, for those people who do not wish to withdraw all of the funds they have three other options. I am satisfied, as I have said, that they are not the best possible options that could have been allowed by the Legislature. There are other options which the taxpayer would find more beneficial and which would not reduce taxes collected. This is not a ground in my view for setting aside legislation under the Charter. If it were, the courts would be asked to judge the wisdom of all legislation. That is not the function of the court.

There is a rational relationship between the goal of providing pension security to persons in their later years and the R.R.S.P. scheme contained in the Income Tax Act. The use of retirement as a criteria for triggering the beginning of the option period or the electing of one of the four alternatives is not practical in my view because it would be difficult to define when one is retired. If the test was based on the number of hours worked per week, there would be many arguments why such a test was undesirable. Even if this were a better method of triggering the election, that is for the Legislature to decide and not the court.

The scheme is clearly defined and is known to the taxpayer when the election is made to commence the R.R.S.P. Under the existing scheme the applicant can achieve everything that he complains he is being denied, except the flexibility of cashing the investment at such time as he sees fit. This is certainly an undesirable feature from his point of view, but does not justify the striking down of the legislation. The fee that he will have to pay for a self-administered R.R.I.F. does not make the legislation invalid. The R.R.S.P. is a rational taxation scheme which addresses a legitimate social concern, that of providing secure retirement income.

This application is dismissed with costs.

Application dismissed.