Tremblay-Lamer
J.:
—
This
is
an
appeal
from
the
Tax
Court
of
Canada
allowing
the
appeal
of
all
three
defendants
from
the
assessments
under
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
“Act”)
for
their
1986
and
1987
taxation
years.
1.
The
Facts
Parties
have
agreed
on
the
following
statements
of
facts
for
the
three
defendants.
The
case
of
John
M.
Chambers
On
November
19,
1986,
the
Defendant
borrowed
$30,000
from
his
selfdirected
Registered
Retirement
Savings
Plan
(“RRSP”)
No.
21-0050-1
and
delivered
to
Yorkshire
Trust
Company,
the
trustee
of
that
Plan,
a
demand
promissory
note
in
the
amount
of
$30,000
for
that
loan.
The
promissory
note
was
secured
by
a
letter
of
guarantee
in
favour
of
Yorkshire
Trust
Company
from
Lloyds
Bank
Canada,
a
qualified
financial
institution.
On
December
22,
1986,
the
Defendant
borrowed
$30,000
from
Lloyds
Bank
Canada
and
using
these
funds
on
December
24,
1986
repaid
the
$30,000
promissory
note
outstanding
to
his
RRSP
No.
21-0050-1.
On
repayment
of
the
$30,000
loan
to
RRSP
No.
21-0050-1
on
December
24,
1986,
Yorkshire
Trust
Company
cancelled
and
returned
the
promissory
note
for
this
loan
to
the
Defendant
and
cancelled
and
returned
the
letter
of
guarantee
for
the
loan
to
Lloyds
Bank
Canada.
On
January
12,
1987,
the
Defendant
borrowed
$30,000
from
his
RRSP
No.
21-0050-1
and
used
these
funds
to
repay
the
$30,000
he
borrowed
from
Lloyds
Bank
Canada
on
December
22,
1986.
The
Defendant
gave
Yorkshire
Trust
Company
a
demand
promissory
note
in
the
amount
of
$30,000
for
this
loan
from
his
RRSP
No.
21-0050-1
and
a
letter
of
guarantee
from
Lloyds
Bank
Canada
to
secure
the
promissory
note.
On
May
1,
1987,
the
Defendant
borrowed
a
further
$70,000
from
his
RRSP
No.
21-0050-1
and
delivered
to
Yorkshire
Trust
Company
a
demand
promissory
note
for
$70,000.
The
Defendant
also
delivered
a
letter
of
guarantee
in
the
amount
of
$100,000
in
favour
of
Yorkshire
Trust
Company
from
Lloyds
Bank
Canada
in
substitution
for
the
$30,000
letter
of
guarantee
which
had
been
given
to
Yorkshire
Trust
Company
in
January
1987.
On
December
29,
1987,
the
Defendant
borrowed
$100,000
from
Lloyds
Bank
Canada
and
using
those
funds
on
December
29,
1987,
repaid
the
$30,000
promissory
note
and
the
$70,000
promissory
note
outstanding
to
his
RRSP
No.
21-0050-1.
The
loans
from
the
Defendant’s
RRSP
No.
21-0050-1
made
to
him
by
Yorkshire
Trust
Company
were
non-qualified
investments
within
the
meaning
of
paragraph
146(1
)(e)
of
the
Income
Tax
Act.
In
calculating
and
reporting
his
1986
and
1987
income
for
tax
purposes
under
the
Income
Tax
Act,
the
Defendant
included
in
income
the
amounts
of
all
loans
from
RRSP
No.
21-0050-1
as
non-qualified
investments
and
deducted
the
repayments
of
the
promissory
notes
as
disposition
of
non-qualified
investments
pursuant
to
subsections
146(1)
and
(6)
of
the
Income
Tax
Act.
The
case
of
Kenneth
J.
Wilson
On
August
21,
1986,
the
Defendant
borrowed
$55,000
from
his
selfdirected
Registered
Retirement
Savings
Plan
(“RRSP”)
No.
21-0025-3
and
$104,000
from
his
self-directed
RRSP
No.
21-0018-8.
The
Defendant
delivered
to
Yorkshire
Trust
Company,
the
trustee
of
both
the
RRSPs,
two
demand
promissory
notes
in
the
amounts
of
$55,000
and
$104,0000,
respectively,
for
those
loans,
together
with
letters
of
guarantee
securing
those
promissory
notes
in
favour
of
Yorkshire
Trust
Company
from
Continental
Bank
of
Canada,
a
qualified
financial
institution.
On
December
22,
1986,
the
Defendant
borrowed
$159,000
from
Lloyds
Bank
Canada,
and
using
those
funds
on
December
24,
1986:
(a)
repaid
the
$55,000
promissory
note
outstanding
to
his
RRSP
No.
21-0025-3;
and
(b)
repaid
the
$104,000
promissory
note
outstanding
to
his
RRSP
No.
21-0018-8.
On
repayment
of
the
$55,000
promissory
note
to
RRSP
No.
21-0025-3
and
the
$104,000
promissory
note
to
RRSP
No.
21-0018-8,
Yorkshire
Trust
Company
cancelled
and
returned
the
letters
of
guarantee
for
those
loans
to
Lloyds
Bank
Canada
and
showed
those
promissory
notes
as
having
been
repaid.
The
actual
promissory
notes
were
inadvertently
not
returned
to
the
Defendant
by
Yorkshire
Trust
Company,
notwithstanding
that
the
promissory
notes
had
been
repaid.
On
January
12,
1987,
the
Defendant
borrowed
$55,000
from
this
RRSP
No.
21-0025-3
and
$104,000
from
his
RRSP
No.
21-0018-8
and
used
those
funds
to
repay
the
$159,000
he
borrowed
from
Lloyds
Bank
Canada
in
December
1986.
The
Defendant
gave
Yorkshire
Trust
Company
letters
of
guarantee
from
Lloyds
Bank
Canada
and
authorized
Yorkshire
Trust
Company
to
retain
the
promissory
notes
dated
August
21,
1986
which
had
inadvertently
not
been
returned
to
the
Defendant,
all
as
security
for
the
loans.
On
December
24,
1987,
the
Defendant
borrowed
$109,000
from
Lloyds
Bank
Canada
and
using
those
funds:
(a)
repaid
the
$55,000
promissory
note
outstanding
to
his
RRSP
No.
21-0025-3;
and
(b)
repaid
$54,000
of
the
$104,000
promissory
note
outstanding
to
his
RRSP
No.
21-0018-8.
On
repayment
of
the
$55,000
loan
to
his
RRSP
No.
21-0025-3
in
December
1987,
Yorkshire
Trust
Company
cancelled
and
return
the
promissory
note
in
that
amount
to
the
Defendant
and
cancelled
and
returned
the
letters
of
guarantee
to
the
Lloyds
Bank
Canada.
The
loans
from
the
Defendant’s
RRSP
No.
21-0025-3
and
RRSP
No.
21-0018-8
made
to
him
by
Yorkshire
Trust
Company
were
non-
qualified
investments
within
the
meaning
of
paragraph
146(1
)(e)
of
the
Income
Tax
Act.
In
calculating
and
reporting
his
1986
and
1987
income
for
tax
purposes
under
the
Income
Tax
Act,
the
Defendant
included
in
income
the
amounts
of
all
loans
from
his
RRSP
No.
21-0025-3
and
RRSP
No.
21-0018-8
as
non-qualified
investments
and
deducted
the
repayments
on
those
loans
as
dispositions
of
nonqualified
investments
pursuant
to
subsections
146(10)
and
(6)
of
the
Income
Tax
Act.
The
case
of
Peter
Foreman
In
September
1986,
the
Defendant
transferred
$146,497.95
to
his
selfdirected
Registered
Retirement
Savings
Plan
(“RRSP”)
No.
21-0027-9.
In
September
1986,
the
Defendant
borrowed
$130,000
from
his
selfdirected
RRSP
No.
21-0027-9
and
delivered
to
Yorkshire
Trust
Company,
the
trustee
of
that
Plan,
two
demand
promissory
notes
in
the
amounts
of
$60,000
and
$70,000
respectively,
for
those
loans.
The
promissory
notes
were
secured
by
letters
of
guarantee
in
favour
of
Yorkshire
Trust
Company
from
Continental
Bank
of
Canada,
a
qualified
financial
institution.
On
September
30,
1986
the
Defendant
transferred
$16,497.35
from
his
RRSP
No.
21-0027-9
to
his
self
directed
RRSP
No.
21-0028-7.
In
October
1986,
the
Defendant
borrowed
$16,000
from
his
self-directed
RRSP
No.
21-0028-7
and
delivered
to
Yorkshire
Trust
Company,
the
trustee
of
that
Plan,
a
demand
promissory
note
for
that
loan.
the
promissory
note
was
secured
by
a
letter
of
guarantee
in
favour
of
Yorkshire
Trust
Company
from
Continental
Bank
of
Canada.
From
October
to
December
1986,
the
Defendant
made
4
payments
each
in
the
amount
of
$2,167
on
the
promissory
notes
owing
to
his
RRSP
No.
21-0027-9
which
payments
totalled
$8,668.
In
December
1986,
the
Defendant
borrowed
$76,000
from
Continental
Bank
of
Canada,
and
using
these
funds:
(a)
repaid
the
$60,000
promissory
note
outstanding
to
his
RRSP
No.
21-0027-9;
and
(b)
repaid
the
$16,000
promissory
note
to
RRSP
No.
21-0028-7.
On
repayment
of
the
$16,000
loan
to
RRSP
No.
21-0028-7
and
the
$60,000
loan
to
RRSP
No.
21-0027-9
in
December
1986,
Yorkshire
Trust
Company
cancelled
and
returned
the
promissory
notes
for
these
loans
to
the
Defendant
and
cancelled
and
returned
the
letters
of
guarantee
for
these
loans
to
Continental
Bank
of
Canada.
In
January
1987
the
Defendant
borrowed
$60,000
from
his
RRSP
No.
21-0027-9
and
$16,000
from
his
RRSP
No.
21-0028-7
and
used
these
funds
to
repay
the
$76,000
he
borrowed
from
Continental
Bank
of
Canada
in
December
1986.
The
Defendant
gave
Yorkshire
Trust
Company
demand
promissory
notes
in
those
amounts
for
these
loans
from
RRSP
No.
21-0027-9
and
RRSP
No.
21-0028-7
and
letters
of
guarantee
from
Continental
Bank
of
Canada
in
the
amount
of
these
loans.
In
December
1987,
the
Defendant
repaid
the
$16,000
promissory
note
owing
to
RRSP
No.
21-0028-7.
During
1987,
the
Defendant
repaid
$28,572
to
RRSP
No.
21-0027-9
on
the
$60,000
promissory
notes
by
way
of
direct
loan
payments
of
$26,004
and
by
transferring
shares
to
the
plan
with
a
fair
market
value
of
$2,568.
On
repayment
of
the
$16,000
loan
in
December
1987,
Yorkshire
Trust
Company
cancelled
and
returned
the
$16,000
promissory
notes
to
the
Defendant
and
cancelled
and
returned
the
letter
of
guarantee
to
the
Continental
Bank
of
Canada.
The
Defendant
reported
a
net
income
inclusion
of
$61,332
in
respect
of
his
RRSP
No.
21-0027-9
in
his
1986
T1
return
of
income
calculated
as
follows:
Acquisition
of
non-qualified
investments
$130,000
Cash
Repayment
(8,668)
(60,000)
Net
Income
Inclusion:
$61,332
The
Defendant
reported
a
net
income
inclusion
of
$31,428
in
respect
of
his
RRSP
No.
21-0027-9
in
his
1987
T1
return
of
income
as
follows:
Acquisition
of
non-qualified
investments:
$60,000
Cash
Repayment
(26,004)
(2,568)
$31,428
The
loans
from
the
Defendant’s
RRSP
No.
21-0027-9
and
RRSP
No.
21-0028-7
made
to
him
by
Yorkshire
Trust
Company
were
all
non-qualified
investments
within
the
meaning
of
paragraph
146(1
)(e)
of
the
Income
Tax
Act.
In
calculating
and
reporting
his
1986
and
1987
income
for
tax
purposes
under
the
Income
Tax
Act,
the
Defendant
included
in
income
the
amounts
of
all
loans
from
his
RRSP
No.
21-0027-9
and
RRSP
No.
21-0028-7
as
non
qualified
investments
and
deducted
the
repayments
on
the
promissory
notes
as
dispositions
of
non-qualified
investments
pursuant
to
subsections
146(10)
and
146(6)
of
the
Income
Tax
Act.
After
hearing
the
evidence,
the
Plaintiff
withdrew
his
argument
that
there
was
no
disposition
of
a
non-qualified
investment
as
prescribed
in
subsection
146(6)
of
the
Act.
There
was
no
evidence
to
support
the
contention
that
there
was
an
oral
or
written
arrangement
whereby
the
Defendant
would
repay
the
loans
at
the
end
of
one
taxation
year
and
re-
borrow
the
money
at
the
beginning
of
the
following
year.
Therefore,
the
only
issue
in
the
case
at
bar
is
whether
these
disbursements
unduly
or
artificially
reduce
the
Defendant’s
income
under
s.245(l)
of
the
Act.
2.
Decision
of
the
Tax
Court
In
the
Tax
Court,
the
learned
Judge
was
of
the
opinion
that
Parliament
had
provided
for
the
situation
where
an
RRSP
trust
acquires
a
nonqualified
investment
and
subsequently
disposes
of
it.
The
legislature
chose
not
to
concern
itself
with
a
series
of
transactions
involving
acquisitions
and
dispositions
of
non-qualified
investments
made
by
an
RRSP
trust.
Since
the
consequences
flowing
from
the
acquisition
and
subsequent
disposition
of
non-qualified
investments
were
permitted,
the
judge
saw
no
justification
for
the
application
of
subsection
245(1).
Furthermore,
for
subsection
245(1)
to
be
applicable,
the
Tax
Court
reiterated
that
the
taxpayer
must
have
incurred
an
expense
or
disbursement
that
would
unduly
or
artificially
reduce
his
or
her
income.
The
Court
considered
the
decision
in
Irving
Oil
Ltd.
v.
R.
(sub
nom.
Canada
v.
Irving
Oil
Ltd.),
[1991]
1
C.T.C.
350,
(sub
nom.
R.
v.
Irving
Oil
Ltd.),
91
D.T.C.
5106
at
360
(D.T.C.
5114)
(F.C.A.),
leave
to
appeal
to
S.C.C.
refused
(sub
nom.
Irving
Oil
Ltd.
v.
M.N.R.
(1991),
136
N.R.
320
(S.C.C.)
in
which
Mahoney
J.
affirmed
the
Court
of
Appeal’s
earlier
conclusions
in
Spur
Oil
Ltd.
v.
R.
(sub
nom.
Spur
Oil
Ltd.
v.
The
Queen),
[1981]
C.T.C.
336,
81
D.T.C.
5168
at
343
(D.T.C.
5173
(F.C.A.)
in
which
it
defined
“undue”
as
meaning
excessive
and
“artificial”
as
being
“simulated”
or
“fictitious”.
In
this
case,
the
Court
was
of
the
opinion
that
the
disbursement
to
the
RRSP
was
neither
excessive
nor
fictitious
as
the
Appellants
gave
value
for
value.
The
Tax
Court
concluded
as
follows:
The
overriding
considerations,
in
my
view,
are
that
a)
Parliament
has
specifically
provided
for
particular
income
tax
consequences
in
the
event
of
an
acquisition
and
disposition
by
an
RRSP
trust
of
a
non-qualified
investment
and
b)
the
disbursements
made
here
by
the
Appellants
on
the
dispositions
of
non-qualified
investments
by
the
RRSP
trusts
do
not
result
in
an
artificial
or
undue
reduction
of
income
within
the
purview
of
subsection
245(1)
of
the
Act,
but
reflects
a
concrete
situation
and
a
business
reality.
3.
Analysis
Subsection
245(1)
provides:
245(1)
Artificial
transactions
—
In
computing
income
for
the
purpose
of
this
Act,
no
deduction
may
be
made
in
respect
of
a
disbursement
or
expense
made
or
incurred
in
respect
of
a
transaction
or
operation
that,
if
allowed,
would
unduly
or
artificially
reduce
the
income.
In
order
for
subsection
245(1)
to
apply,
the
disposition
of
the
nonqualified
investment
has
to
be
a
disbursement
or
expense.
Black’s
Law
Dictionary^
defines
disbursements
as
follows:
To
pay
out,
commonly
from
a
fund.
To
make
payment
in
settlement
of
a
debt
or
account
payable.
It
is
clear,
in
my
view,
that
the
Appellants
made
a
disbursement
when
they
paid
out
money
to
the
RRSP
trusts
in
settlement
of
their
debt.
The
question
remains,
however,
whether
the
disbursements
unduly
or
artificially
reduced
the
income?
In
a
recent
decision
of
the
Court
of
Appeal,
Fording
Coal
Ltd.
v.
R.,
[1996]
1
C.T.C.
230,
95
D.T.C.
5672,
Strayer
J.
elaborates
upon
the
principles
to
apply
in
order
to
make
this
determination.
In
that
case,
there
was
a
question
as
to
whether
or
not
a
seeding
transaction
to
obtain
“tax
pools”
for
deductions
against
income
was
contrary
to
the
object
and
spirit
of
the
Act
and
whether
deductions
made
by
Fording
Coal,
as
a
“successor
corporation”,
were
part
of
a
tax
avoidance
scheme
falling
within
the
ambit
of
section
245
of
the
Act.
Strayer
J.
recognized
that
subsection
245(1)
applies
even
in
cases
where
the
deductions
are
otherwise
permitted
by
the
Act.
Otherwise,
there
would
be
no
purpose
for
this
section.
This
view
was
also
expressed
by
the
Federal
Court
of
Appeal
in
R.
v.
Alberta
and
Southern
Gas
Co.,
[1977]
C.T.C.
388,
77
D.T.C.
5244
at
page
396
(D.T.C.
5248)
(F.C.A.),
affirmed
[1979]
1
S.C.R.
36,
[1978]
C.T.C.
780,
78
D.T.C.
6566:
In
my
view,
considering
it
in
its
context
in
the
scheme
of
the
Act,
section
245(1)
is
applicable
to
every
class
of
deductible
expenses.
Even
if,
reading
the
Act
as
a
whole,
I
came
to
a
different
conclusion,
I
should
feel
constrained
to
hold
that
section
245(1)
does
apply
to
deductions
such
as
those
otherwise
permitted
by
section
66
by
my
reading
of
Harris
v.
Minister
of
National
Revenue,
[1966]
S.C.R.
489
per
Cartwright,
J.,
as
he
then
was,
delivering
the
judgment
of
the
Supreme
Court
of
Canada,
at
page
505.
In
the
present
case,
as
in
Fording
Coal,
it
is
clear
that
the
deductions
are
permitted
by
the
Act.
However,
in
order
for
subsection
245(1)
to
apply,
the
jurisprudence
indicates
that
first,
it
has
to
be
outside
the
spirit
or
scope
of
the
section
permitting
the
scheme
and,
second,
it
has
to
reduce
the
income
unduly
or
artificially.
The
scope
and
spirit
of
the
scheme
RRSP
provisions
were
designed
to
afford
taxpayers
the
opportunity
to
plan
for
the
future
by
allowing
a
deduction
from
income
to
provide
for
a
retirement
income.
Certain
situations
are
permitted
in
the
management
of
a
RRSP,
one
being
the
acquisition
of
a
non-qualified
investment.
The
consequences
of
acquiring
a
non-qualified
investment
are
specifically
addressed
in
subsection
146(10).
146(10)
Where
acquisition
of
non-qualified
investment
by
trust.
-
Where
at
any
time
in
a
taxation
year
a
trust
governed
by
a
registered
retirement
savings
plan
(a)
acquires
a
non-qualified
investment,
or
(b)
uses
or
permits
to
be
used
any
property
of
the
trust
as
security
for
a
loan,
the
fair
market
value
of
(c)
the
non-qualified
investment
at
the
time
it
was
acquired
by
the
trust,
or
(d)
the
property
used
as
security
at
the
time
it
commenced
to
be
so
used,
as
the
case
may
be,
shall
be
included
in
computing
the
income
for
the
year
of
the
taxpayer
who
is
the
annuitant
under
the
plan
at
that
time.
The
learned
Tax
Court
Judge
canvassed
the
scheme
as
follows:
A
number
of
possible
situations
are
considered
in
the
management
of
a
registered
retirement
savings
plan.
One
of
these
events
has
to
do
with
the
acquisition
by
an
RRSP
trust
of
a
non-qualified
investment
or
with
the
use
of
the
property
of
a
trust
as
security
for
a
loan.
The
consequences
of
an
RRSP
trust
acquiring
a
non-qualified
investment
are
spelled
out
in
subsection
146(10)
of
the
Act.
It
is
set
out
in
this
subsection
that
the
fair
market
value
of
the
non-qualified
investment
at
the
time
it
was
acquired
by
the
trust
shall
be
included
in
computing
the
income
for
the
year
of
the
taxpayer
who
is
the
annuitant
under
the
plan
at
that
time.
If
the
trust
makes
an
investment
that
is
a
non-qualified
one,
it
constitutes
income
to
the
annuitant.
It
is
a
kind
of
penalty
since
under
the
ordinary
principles
of
the
Income
Tax
Act,
the
making
of
such
a
non-qualified
investment
will
not
in
itself
be
income.
An
express
statutory
enactment
was
required
to
achieve
this
result.
Also,
part
of
the
scheme,
Parliament
provided
in
subsection
146(6)
that
when
an
RRSP
trust
disposes
of
what
was
a
non-qualified
investment
at
the
time
of
its
acquisition,
the
annuitant
under
the
plan
is
entitled
to
deduct
in
computing
his
income
the
lesser
of
a)
the
amount
originally
included
by
virtue
of
subsection
146(10)
in
respect
of
the
acquisition
of
such
investment
and
b)
the
proceeds
of
disposition
of
such
property.
As
a
result
of
the
combined
operation
of
subsection
146(10)
and
146(6)
it
follows
that
if
both
the
acquisition
and
disposition
of
the
same
property
take
place
in
the
same
taxation
year,
the
net
result
might
be
in
many
instances,
but
no
necessarily
in
all,
a
nil
addition
to
income
or,
so
to
speak
an
in/out
situation.
There
is
one
other
consequence
(under
Part
I
of
the
Income
Tax
Act)
affecting
the
annuitant
with
respect
to
the
taxation
year
during
which
an
RRSP
trust
disposes
of
a
non-qualified
investment.
This
consequence
is
set
out
in
subsection
146(5)
of
the
Act.
In
effect,
it
is
laid
down
that
the
maximum
amount
deductible
by
an
annuitant
as
a
premium
is
reduced
by
the
amount
deductible
under
subsection
146(6)
in
respect
of
the
disposition
of
a
nonqualified
investment.
This
reduction
in
the
maximum
amount
of
premiums
provided
in
the
concluding
portion
of
subsection
146(5)
is
in
the
nature
of
a
penalty
imposed
on
the
annuitant
in
respect
of
the
year
in
which
an
RRSP
trust
disposes
of
a
non-qualified
investment.
Of
course,
this
consequence
adversely
affects
the
annuitant
only
if
in
the
particular
year
in
which
the
disposition
of
a
non-eligible
investment
takes
place,
the
annuitant
would
have
otherwise
made,
and
been
allowed
to
make,
a
contribution
to
an
RRSP
that
is
in
part
or
totally
wiped
out
by
the
amount
deductible
in
respect
of
the
disposition
of
a
non-
eligible
investment.
It
is
evident
that
Parliament
wanted
to
discourage
taxpayers
from
acquiring
non-qualified
investments
by
specifically
providing
for
an
adverse
income
tax
consequence
for
such
an
acquisition.
In
doing
so,
it
wanted
to
discourage
an
annuitant
from
holding
insecure
investments.
In
the
case
at
bar,
Mr.
Brigg
testified
that
the
trust
company
would
not
have
accepted
to
make
these
investments
without
the
letter
of
guarantee
given
by
the
Bank.
Therefore,
I
find
it
difficult
to
conclude
that
it
was
an
insecure
investment.
The
scheme
under
section
146
also
provides
clearly
that,
if
one
disposes
of
the
non-qualified
investment
in
the
same
taxation
year,
there
is
a
deduction
equal
to
the
amount
of
the
income
included.
Because
a
taxpayer
avails
himself
of
that
deduction
knowingly
within
the
same
year
or
in
the
following
years
does
not
bring
it,
in
my
view,
outside
the
scope
of
the
statutory
scheme.
When
Parliament
intended
to
disallow
a
transaction
to
happen
in
series,
it
included
a
provision
to
that
effect.
For
example,
the
superficial
loss
provision
under
section
40(2)(g)(i)
of
the
Act
which
specifically
provides
that
a
taxpayer’s
loss
from
the
disposition
of
the
property,
if
it
is
a
superficial
loss,
is
nil.
A
superficial
loss
is
defined
at
section
54
as
a
series
type
transaction:
“superficial
loss”
of
a
taxpayer
means
the
taxpayer’s
loss
from
the
disposition
of
a
property
in
any
case
where
(a)
the
same
or
identical
property...was
acquired,
during
the
period
beginning
30
days
before
the
disposition
and
ending
30
days
after
the
disposition,
by
the
taxpayer....
In
the
case
at
bar,
Parliament
had
considered
the
acquisition
and
disposition
of
non-qualified
investments.
The
Act
specifically
and
in
detail
provides
for
a
penalty
for
the
disposition.
The
federal
legislature
did
not
see
fit
to
include
anything
concerning
a
series
type
transaction.
Therefore,
I
fail
to
see
how
it
can
be
said
to
be
outside
the
scope
of
subsection
245(1).
As
pointed
out
by
McDonald
J.,
dissenting
in
Fording
Coal,
supra,
at
page
5681:
Judges
must
be
careful
when
engaging
in
an
object
and
spirit
analysis.
It
must
not
become
a
means
by
which
every
loophole
or
omission
in
the
Act
is
rectified
to
the
detriment
of
the
taxpayer
by
a
judiciary
agreeable
to
the
Minister’s
frequent
argument
that
such
an
interpretation
of
the
section
could
not
have
been
what
Parliament
intended.
The
judiciary
is
not
to
do
the
job
of
Parliament.
The
deductions
being
within
the
object
of
the
section,
it
cannot
be
said
to
reduce
the
income
artificially,
supra,
at
p.
5249.
However,
even
if
the
disbursement
would
be
found
to
be
outside
the
scope
and
spirit
of
the
statutory
scheme,
that
would
not
in
itself
be
enough
to
decide
that
subsection
245(1)
automatically
applies.
The
disbursement
must
also
reduce
the
income
unduly
or
artificially.
Artificiality
of
the
reduction
The
disbursement
in
question
must
reduce
the
income
unduly
or
artificially.
As
expressed
by
Estey
J.
in
Stubart
Investments
Ltd.
v.
R.,
[1984]
1
S.C.R.
536,
(sub
nom.
Stubart
Investments
Ltd.
v.
The
Queen),
[1984]
C.T.C.
294,
84
D.T.C.
6305
at
page
580
(C.T.C.
317,
D.T.C.
6324):
(c)
“the
object
and
spirit”
of
the
allowance
or
benefit
provision
is
defeated
by
the
procedures
blatantly
adopted
by
the
taxpayer
to
synthesize
a
loss,
delay
or
other
tax
saving
device,
although
these
actions
may
not
attain
the
heights
of
“artificiality”
in
section
137
[now
subsection
245(1)].
[Emphasis
added.]
From
this
wording,
I
believe
that
the
standard
required
in
Stubart
is
an
onerous
one.
The
Federal
Court
of
Appeal
in
Spur
Oil
Ltd.
v.
R.,
supra,
refers
to
the
definition
in
the
dictionary
to
find
the
meaning
of
the
word
“artificial”
and
stated
that
“when
used
in
this
context”
it
signifies
“simulated”
or
“fictitious”.
Counsel
for
the
Plaintiff
argues
that
“artificial”
means
something
different
than
fictitious.
However,
the
french
version
of
the
text
uses
precisely
the
words
“de
fa*on
factice”.
Therefore,
I
find
it
difficult
to
suggest
that
the
word
artificial
means
something
else
than
fictitious.
In
the
present
case,
the
Appellants
gave
value
for
value.
There
is
nothing
fictitious
to
pay
off
indebtedness
to
their
RRSP
trusts.
Furthermore,
if
the
deductions
permitted
under
146(6)
are
denied
under
245(1)
this
would
bring
an
absurd
result
that
could
not
have
been
intended
by
Parliament.
An
annuitant
could
instruct
the
RRSP
to
advance
the
same
as
a
loan,
generating
year
after
year
a
series
of
acquisitions
of
nonqualified
investments
without
benefiting
of
the
reduction
in
respect
of
the
disposition
of
those
non-qualified
investments.
As
an
example,
with
the
use
of
one
million
by
way
of
a
loan
and
repayment
before
the
end
of
the
year,
if
an
annuitant
does
the
same
thing,
three
years
in
a
row,
he
would
have
an
inclusion
in
its
income
of
three
million
but
with
no
deduction.
As
stated
by
Pigeon
J.
in
Commerce
&
Industry
Insurance
Co.
v.
West
End
Investment
Co.,
[1977]
2
S.C.R.
1036
at
page
1045:
For
such
an
interpretation
of
the
Act
to
prevail,
the
legislator’s
intention
of
imposing
this
inequitable
result
would
have
to
be
abundantly
clear.
The
mere
fact
that
no
interest
were
paid
to
the
RRSP
is
not
sufficient
in
my
opinion
to
conclude
that
the
disbursement
is
artificial
or
fictitious.
Parliament
has
specifically
contemplated
the
disposition
of
a
non-
qualified
investment.
It
did
not
specify
a
minimum
rate
of
return.
The
annuitant
is
getting
rid
of
a
bad
investment.
It
is
directly
proportionate
to
the
amount
of
the
income
inclusion.
I
fail
to
see
how
these
actions
could
obtain
the
heights
of
artificiality
suggested
by
Estey
J.
in
Stubart,
supra.
Consequently,
the
Appellants
are
entitled
to
the
deduction
provided
by
subsection
146(6)
of
the
Act
for
the
disposition
during
the
1986
and
1987
taxation
years
of
non-qualified
investments
in
the
amounts
included
under
subsection
146(10).
The
appeals
are
dismissed
with
costs.
Appeals
dismissed.