Chiang v. R – TCC: Taxpayer not liable for penalties on over-contribution to RRSP

Chiang v. R – TCC:  Taxpayer not liable for penalties on over-contribution to RRSP

Chiang v. The Queen (August 31, 2017 – 2017 TCC 165, Sommerfeldt J.).

Précis:  This is an unusual case where the taxpayer innocently, but mistakenly, over-contributed to his RRSP for three years in the 90’s.  CRA assessed him under Part X.1 of the Income Tax Act (the “Act”) with tax and penalties in respect of that over-contribution.  Mr. Chiang appealed both the tax and the penalties.  The Court dismissed the appeal as to the tax payable but allowed the appeal on penalties.  The Court found that on the evidence Mr. Chiang had established a due diligence defence that precluded the application of penalties.

Decision:  Mr. Chiang’s problems appear to have stemmed from an honest confusion about the use of commercial software with which he prepared his tax returns in 1995 and 1999:

[9]             A closer review of Schedule 7 for 1995 shows on line 245 (also labelled elsewhere as line 2) that Mr. Chiang did contribute $4,269.62 to his RRSP. Line 1 on Schedule 7 shows that Mr. Chiang had unclaimed RRSP contributions from his 1994 Notice of Reassessment in the amount of $8,287.00, and line 5 on Schedule 7 shows that the amount of the RRSP contributions available to deduct for 1995 was $12,556.62 (i.e., $8,287.00 + $4,269.62). Schedule 7 also contains an entry described as “Contributions made to your own RRSP or your spouse’s RRSP based on your ’95 RRSP deduction limit (that you are claiming).” To the right of that entry, in a space identified as line 6, nothing has been entered. In other words, Schedule 7 indicates that Mr. Chiang did not claim a deduction in respect of the contribution that he made for 1995. Below the line for entry of the amount of the RRSP deduction that is being claimed is a further blank with the instruction “Enter this total on line 208 of your return.” To the right of that instruction, on line 8, nothing was entered by Mr. Chiang. In my view, this is the reason for which line 208 of his 1995 income tax return did not show a deduction for an RRSP contribution. It appears that, rather than there being a glitch in the software, the amount of the intended deduction was not entered on Schedule 7. Consequently, the last entry on Schedule 7 for 1995 shows the Unclaimed RRSP Contributions (line 5 minus line 8) as being $12,556.62.

[10]        Something similar happened in 1999. Schedule 7 to Mr. Chiang’s 1999 income tax return shows that Mr. Chiang contributed $4,300 to his RRSP in respect of 1999. That amount appears on line 245 (also labelled elsewhere as line 4) and on line 5 of Schedule 7. The same number, $4,300, appears on line 7, which is described as “RRSP contributions available to deduct.”Below that, the entry for line 8 is described as “1999 deduction for: Contributions that are based on (and do not exceed) your 1999 RRSP deduction limit shown on your 1998 Notice of Assessment or Notice of Reassessment.” Although Mr. Chiang’s RRSP deduction limit for 1999 was $4,393,[9] Mr. Chiang did not enter any amount on line 8 of Schedule 7. Consequently, his 1999 RRSP deduction, which was also described as the amount to be entered on line 208 of his return, was left blank. In other words, even though Mr. Chiang had made a contribution of $4,300, and even though he thought that he was deducting that amount, by reason of the manner in which Schedule 7 was completed, he did not actually deduct any RRSP contribution for 1999.

[11]        It is my impression that Mr. Chiang is a conscientious taxpayer who was, in the context of his RRSP, reasonably endeavouring to contribute and deduct the appropriate amount each year. When Mr. Chiang testified, he genuinely was of the impression that he had deducted the amounts that he had contributed to his RRSP for 1995 and 1999. I am of the view that his failure to deduct the contributed amounts, which was unbeknown to him, was due to innocent and reasonable inadvertence.

The Court was sympathetic to the position of the taxpayer who honestly believed that he had not over-contributed to his RRSP:

[27]        I concur with the statement made by counsel for the Crown, to the effect that the evidence may not support the imposition of penalties. As noted above, Mr. Chiang genuinely and reasonably believed that he had deducted the contributions that he had made to his RRSP for 1995 and 1999 and that he had unused RRSP deduction room in respect of 1997. Thus, it is my view that Mr. Chiang reasonably believed in, and was operating under, a mistaken set of facts that, if true, would have resulted in there not having been a cumulative excess amount. Therefore, his failure to file tax returns (Form T1-OVP) for 2004 to 2013 resulted from a reasonable error of fact, so as to be excused by the due diligence defence. Accordingly, I am of the view that the late-filing penalties should be cancelled.




[28]        To summarize, it is my view that the Part X.1 tax assessed by the CRA against Mr. Chiang for 2004 through 2013 is properly payable, but that the late-filing penalties assessed for those years should be cancelled. Accordingly, these Appeals are allowed and the assessments that are the subject of these Appeals are referred back to the Minister for reconsideration and reassessment in accordance with these Reasons. As success in these Appeals is divided, there is no award as to costs.


[29]        It is recommended that, if Mr. Chiang has not already done so, he should, possibly with the assistance of a professional tax adviser, take steps to eliminate the ongoing cumulative excess amount in respect of his RRSP, so as to avoid the further imposition of Part X.1 tax in the future.


As a result the appeal was allowed, without costs (this was an informal procedure appeal) and referred back to CRA only for the purposes of deleting the penalties for late-filed returns under part X.1 of the Act.