McGILL LAW JOURNAL
(Vol. 21
Some Problems with RHOSPs
The provisions of the 1974 fall budget creating Registered Home
Ownership Savings Plans (RHOSPs) have generated a great deal of
interest among taxpayers and financial institutions alike. Yet a close
scrutiny of the provisions of s.146.2 of the Income Tax Act (as
now enacted)’ reveals a number of disconcerting technical flaws in
the requirements for the RHOSPs.
1. Can RHOSPs be used to purchase furnishings?
First, the Government quite clearly has given taxpayers the
impression that contributions to RHOSPs may be used for the
either for the contributor’s or his spouse’s
purchase of furnishings –
receipts by a contributor
home. Indeed, s.146.2(6) provides that
in a
taxation year from the RHOSP will not be included in the
contributor’s income to the extent that the sums received were used
by the taxpayer:
(i )
(ii)
(iii)
to purchase his owner-occupied home;
to purchase home furnishings for his owner-occupied home;
or
to purchase home furnishings for his spouse’s owner-
occupied home.
Clearly, s.146.2(6) seems to permit a contributor to collapse his
RHOSP in order exclusively to purchase home furnishings for his
spouse’s home.
Yet, equally clearly, s.146.2(2) (a) (i) directs the Minister not to
register an RHOSP which provides for any payment from the Plan
other than a single payment to the beneficiary to be used by him
for the purchase of his owner-occupied home. Therefore, it would
appear that a registrable plan cannot permit the funds to be used
by the contributor to buy home furnishings either for his or his
spouse’s home. If the RHOSP cannot be registered, then no con-
tributions to it may be deducted by the beneficiary in computing
his taxable income: s.146.2(4).
‘Income Tax Act, R.S.C. 1952, c.148, amended by S.C. 1970-71-72, c.63. The
provisions dealing with RHOSPs were enacted by S.C. 1974-75, c.26.
19751
COMMENTS – COMMENTAIRES
2. Can more than one withdrawal be made from an RHOSP?
Nor does the confusion stop there. Section 146.2(6) excludes
from income all amounts used for the purposes mentioned above.
This use of the plural would seem to contemplate that the con-
tributor may make more than one withdrawal from his RHOSP.
Suppose a husband and wife both establish RHOSPs. Later (when
each has contributed $7,000 to their respective RHOSPs) the husband
buys an owner-occupied home. Suppose the wife at that moment
only wishes to buy $1,500 worth of home furnishings. Can she with-
draw the $1,500 from her RHOSP, leaving $5,500 for future purchases
of home furnishings or for the purchase of her owner-occupied
home? Common sense would indicate “yes” – provided the aggre-
gate lifetime contributions to her RHOSP did not exceed the
$10,000 limit established by s.146.2(4). But the single payment re-
quirement for registration of the RHOSP under s.146.2(2) con-
tradicts common sense.
What, then, is to be made of this illogical juxtaposition of sub-
sections
(2) and (6)? Is one to conclude that the trust deed
governing the RHOSP must indeed provide for only one single
payment, and that only for the purchase of the contributor’s own
“owner-occupied home”? If so, how –
short of a breach of trust
by the trustee –
is the contributor ever to lay his hands on all or
part of the RHOSP funds to buy furnishings for his or his spouse’s
home? Is he to Saunders v. Vautier the trust?2 If so, this brings
the entire trust to an end, he receives back all the funds in the
RHOSP, and clearly must use it all (and not just part of it) for
the purposes prescribed by subsection (6), within 60 days from the
end of the taxation year, in order to avoid paying tax on this re-
ceipt. Further, the civil law of Quebec does not appear to contain
the rule in Saunders v. Vautier, and the law of Alberta has been
amended to abolish it,3 so that contributors to RHOSPs governed by
Quebec or Alberta law may not be able to demand the return of
their contributions for the purpose of purchasing home furnishings.
This is true even though subsection (6) would exempt these re-
ceipts from being income taxable in their hands!
2 (1841) 4 Beav. 115; aff’d [1841] Cr. and Ph. 240, 41 E.R. 482. Briefly, the
equitable doctrine at common law deriving from Saunders v. Vautier permits
a sole beneficiary (or all the beneficiaries, if they agree) to wind up the
trust even in face of the trustees’ opposition and contrary to the terms of
the trust.
3 See The Attorney General Statutes Amendment Act, S.A. 1973, c.13, s.12,
amending The Trustee Act, R.S.A. 1970, c.373.
McGILL LAW JOURNAL
[Vol. 21
3. Who can contribute?
Still another problem appears when one considers who is entitled
to contribute to an RHOSP. Section 146.2(5) prohibits the deduction
of any. contribution by a taxpayer in a taxation year if the taxpayer
“had” an owner-occupied home at any time during the taxation
year. What constitutes “having” an owner-occupied home? Is an
accepted offer to purchase sufficient to disqualify the contributor?
Or must there be a formal conveyance? What if possession predates
the conveyance? What if a person contributes to an RHOSP, but
later in the same year acquires a house?
On the other hand, assuming that it is possible to use an
RHOSP to purchase furnishings, such purchases in the year do not
preclude the beneficiary from making further contributions to the
RHOSP in the same taxation year.
Finally, it should be noted that no one may contribute to an
RHOSP in a year during any part of which he owned (whether jointly
with another person or otherwise) real property, any portion of
which was used as a dwelling place by an individual. Clearly, the
intent of the Act is to exclude from the benefits of RHOSPs anyone
who owns rental residential property. Yet an RHOSP itself cannot
be used to purchase such rental property –
only owner-occupied
homes. One might have expected closer symmetry between the
property which disqualifies a taxpayer from contributing to an
RHOSP, and the property towards which a qualified contributor
can apply the proceeds of his RHOSP.
The scramble by taxpayers last spring to contribute to RHOSPs
before the deadline of 31 March 1975 underscored the attractiveness
of this new provision in the Income Tax Act. Unfortunately, the sub-
sequent budget presented by Mr Turner on June 23, 1975 did nothing
to unravel these technical problems.
David Phillip Jones*
* Of the Bars of Alberta and the Northwest Territories; and of the Faculty
of Law, McGill University.
