Date: 19991206
Docket: 1999-9-IT-I
BETWEEN:
BHASKAR PATEL,
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 1995 taxation year.
[2] In 1995, The North West Life Assurance Company of Canada ("North West") issued three T5 forms in the appellant's name for a total amount of $11,180.65 as interest from Canadian sources.
[3] In 1980, the appellant had purchased three life insurance policies from North West. According to the appellant, although the premiums were required to be paid up front, there was a provision allowing him to pay only a portion up front and to pay off the balance as a loan on which interest was to be paid.
[4] Between January 1981 and January 1985, the appellant paid a total of $7,611.68 in interest. The appellant states that the interest was never claimed as an expense in his income tax returns "since the policies were not taxable".
[5] In 1995, the three life insurance policies were surrendered and North West issued the three above-mentioned T5 forms for a total of $11,180.65. The appellant has been assessed on that amount for his 1995 taxation year. His claim for the deduction in 1995 of the total amount paid as interest between January 1981 and January 1985 has been refused.
[6] Although the appellant says that he has never received a copy of the T5 forms issued by North West, he does not deny having received the amount of $11,180.65. Rather, he complains of having to pay tax on what he describes as "interest earned" and yet not being able to deduct the interest paid to earn that income.
[7] Paragraph 56(1)(j) of the Income Tax Act (the "Act") provides that there shall be included in computing the income of a taxpayer for a taxation year any amount required to be so included by subsection 148(1) or (1.1) of the Act.
[8] Basically, and subject to certain exceptions, subsection 148(1) of the Act provides for the inclusion in income of the amount by which the proceeds of the disposition of a policyholder's interest in a life insurance policy exceeds the adjusted cost basis of that interest immediately before the disposition.
[9] Section 217 of the Income Tax Regulations provides that when an amount is required to be included in computing the income of a taxpayer pursuant to paragraph 56(1)(j) of the Act, the insurer shall make an information return in prescribed form in respect of that amount. The prescribed form is a T5 form. That is precisely what was done by North West after the appellant disposed of the three life insurance policies in 1995. There is simply no evidence that the amounts indicated on the three T5 forms issued by North West were wrongly computed. Hence, the Minister of National Revenue was right in adding the total amount of $11,180.65 to the appellant's income for 1995.
[10] As to the amount of $7,611.68 paid by the appellant between January 1981 and January 1995, as counsel for the respondent pointed out in her written submissions:[1]
[W]e do not know the terms and conditions of the appellant's policies since he no longer has the contracts.
[11] However, information provided by the appellant both at the hearing and afterwards[2] is to the effect that the loans were not policy loans as they were granted the same day the policies were issued.
[12] Generally speaking, subparagraphs 20(1)(c)(i) and (ii) specifically provide that interest paid on money borrowed to acquire a life insurance policy or on an amount payable to acquire property that is an interest in a life insurance policy is not deductible in computing a taxpayer's income from business or property. Subsection 20(2.2) of the Act, which excludes certain policies from the definition of a life insurance policy for the purposes of paragraphs 20(1)(c) and (d), has no application in the present case.
[13] Moreover, as the loans were not policy loans the proceeds of which were used for the purpose of earning income from a business or property (other than property that was a life insurance policy), the exception provided for in subsection 20(2.1) of the Act would not be applicable. I might add that, in any event, when the deduction of interest on a policy loan is permitted upon satisfying the conditions set forth in that subsection, such a deduction could only be claimed in the year in which it has accrued or in the year in which it was paid.[3]
[14] Unfortunately, there is no relief that can be granted to the appellant in the present case.
[15] On the basis of the foregoing, the assessment is thus confirmed and the appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of December 1999.
"P.R. Dussault"
J.T.C.C.