Over Contribution to RRSP

Levenson v Canada (Attorney General), 2016 FC 10

The Federal Court was asked to review a CRA decision not to waive amounts payable due to an RRSP over contribution giving rise to an over-contribution tax imposed (this is a separate tax).  The taxpayer relied on contribution room on the NOA, but this information was wrong because the taxpayer did not report contributions made in a timely manner.

The Court, in finding that the decision of the Minister was reasonable, stated that the information provided by the CRA is only as good as the information provided to the CRA by the taxpayer, and that in order for the taxpayer to be said to have acted reasonably in reliance on information provided by the CRA the taxpayer must have provided accurate, timely information to the CRA.

FACTS

A taxpayer regularly overpaid income tax through payroll deductions so as to be able to late-file without penalties or interest (ITA s 150(1.1)(b)(i)).  The taxpayer also made contributions to his RRSP and his spousal RRSP based on his Notice of Assessment but did not report such contributions to the CRA until much later.  As such, the contribution room on his NOA did not reflect his total contributions resulting in over contributions giving rise to a reassessment.

The taxpayer asked interest, penalties, and tax (the over-contribution tax) to be waived on the excess amounts, arguing he relied on misinformation by the CRA. This request was denied, as was a second level review of the CRA decision.  The CRA denied the request arguing that the taxpayer did not correctly complete his tax returns, that it is the taxpayer’s responsibility to ensure that the information provided is complete, accurate, and filed on time and that despite the contribution room on the NOA the legislation governs (paras 17-18).

The taxpayer filed for Judicial Review of the decision, arguing that the Minister’s delegate unreasonably exercised the discretion granted by ITA subsection 204.1(4) to grant relief against the over-contribution.

ANALYSIS

To grant relief under ITA s 204.1(4), the pre-conditions to the exercise of the discretion in two paragraphs have to be met:

• Did the over-contribution arise as a consequence of reasonable error (s 204.1(4)(a)); and
• Did the taxpayer take reasonable steps to eliminate the excess (s 204.1(4)(b)).

The court’s approach is set out in Dimovski v Canada Revenue Agency, 2011 FC 721. The onus rests with the taxpayer to convince the Minister that the two conditions are satisfied.  What constitutes “reasonable error” and “reasonable steps” is not defined.

The “reasonable error” requirement imposes the same requirement as a due diligence defence as defined in Corporation de l’École Polytechnique v. Canada, 2004 FCA 127 (Kerr v. Canada (Revenue Agency), 2008 FC 1073 at paragraphs 37 and 38; Gagné v Canada (Attorney General), 2010 FC 778, paras 13-14).  To establish a reasonable mistake of fact, the taxpayer must have been reasonably mistaken as to the factual circumstances (subjective-objective test) – the person relying on a fact must have been misled and the mistake lead to the act committed (subjective), and the reliance and being mislead must be reasonable in the circumstances (objective) (Gagné).  Neither innocence nor lack of intent to over-contribute is determinative of reasonableness.

It is up to each individual to ensure that their financial affairs are line with the Income Tax Act – R. v McKinlay Transport Ltd. [1990] 1 SCR 627. Lack of understanding of the law is not reasonable error.

The court must give deference to discretionary decisions of the Minister, and cannot order the Minister to waive taxes, penalties, and arrears interest – Kapil v Canada Revenue Agency, 2011 FC 1373 para 20).  If the decision is unreasonable, the court can order the Minister to substantively reconsider the decision, meaning a taxpayer succeeding on judicial review is not automatically entitled to the waiver (Kapil).

In assessing reasonableness the court looks at whether the decision exhibits “justification, transparency and intelligibility” within the decision-making process, AND that the decision falls “within a range of possible, acceptable outcomes which are defensible in respect of the facts and law” – Dunsmuir v New Brunswick, 2008 SCC 9 at para 47.

The Court held that the taxpayer’ position of not having any responsibility for the accuracy of the contribution room in his NOA is untenable. The information on the NOA is only as good as the information the taxpayer provides (para 25).

The court stated that generally taxpayers are entitled to rely on their NOA (Kerr v Canada (Attorney General), 2008 FC 1073), but also stated:

[27]           The RRSP regime is a voluntary system. The Applicant could and should have known what his contribution limits were. Had the Applicant kept track of these four contributions he could at any time have ascertained his true situation. Having failed to keep CRA up-to-date with his contributions, the Applicant could not expect CRA to provide accurate contribution room advice.

[28]           If the Applicant was indeed free to either report or not report his income and RRSP contributions at any time (a point to which I will return later), the case law is clear that he still had a duty to act with due diligence […]. In my view, the Applicant failed to act with due diligence in determining how much contribution room he had left. He had the relevant information. He knew or should have known what his limits were. […]

The Court briefly discussed the effect of s 152(1.1) which relieves an individual taxpayer from having to file a return for the year if no tax is payable under Part I for the year.  In this provision, “tax payable” is not the same as “balance owing” as the former refers to the exigible tax to be paid for the year and not the tax owing after source deductions were subtracted for the year (para 42) – Valdis v R, [2002] 1 CTC 2827, para 17; Ruffolo v R, [2000] 3 CTC 142 at paras 4-5; and Interior Savings Credit Union v R, 2007 FCA 151 at para 22).  A taxpayer may not have a balance owing, but the obligation to file a return within the

A taxpayer may not have a balance owing, but the obligation to file a return within the time limit only applies if no tax is payable under Part I for the year (whether or not the tax has been paid).

[the court discussed the “reasonable steps” requirement in paras 47-52]

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