Graham v. R. – TCC: Prior Year’s RPP Contributions by Former Employer Reduced 2011 RRSP Contribution Limits

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Graham v. The Queen[1] (September 16, 2013) dealt with whether a prior year’s RPP contributions made by the taxpayer’s former employer reduced his eligible RRSP contributions in 2011:

[2]             Mr. Graham started working with AccertaClaim Servicorp Inc. (“Accerta”) in June 2001 and he participated in a contributory RPP sponsored by Accerta’s owner, the Ontario Dental Association. He was the President and CEO of Accerta.

[3]             Mr. Graham’s employment was terminated by Accerta in August 2009. The Termination Agreement arrived at between Mr. Graham and Accerta continued his base salary and all benefits except life insurance and long-term disability for a period of 12 months. This included the continuation of accrual of service in the pension plan.

[4]             In 2011, Mr. Graham started employment with a new employer, the Auto Sector Retiree Health Care Trust (“asrTrust”) under the terms of his employment contract with asrTrust, the trust made an RRSP contribution on his behalf equal to 10% of his base salary of $220,000. The RRSP limit for 2011 was $22,450; however the PA in respect of the 2010 contributions to Accerta’s RPP (if applicable) bring Mr. Graham’s limit significantly below $22,000.

[5]             The Income Tax Act (the “Act”) provides that a taxpayer’s RRSP limit is reduced by the amount of his PA. The amount of the PA is intended to reflect contributions made by an employer and an employee to an RPP in order to avoid any doubling up and exceeding of the RRSP limits. However, the PA is computed by reference to the prior year’s RPP contributions. In this case, the PA (determined in accordance with the provisions of the Act without regard to Mr. Graham’s principal argument below) gave rise to a pension adjustment that reduced Mr. Graham’s 2011 RRSP limit below the $22,000 contributed on his behalf to his RRSP by asrTrust. This resulted in taxes being assessed and gave rise to unused RRSP contributions that would be deductible in the future if within future years’ RRSP limits.

The appellant argued that two prior cases supported his position and, in the alternative, the reduction of his RRSP contributions was unfair.  The court was not impressed, particularly in light of the degree of knowledge and sophistication of the appellant:

[11]        It is abundantly clear to a bright, successful, literate, professional such as Mr. Graham that these two cases clearly and expressly, turned entirely upon the fact that the taxpayers in those two cases, unlike Mr. Graham, had withdrawn the prior year’s RPP contributions. It would therefore have been equally clear to him that these cases did not stand for the proposition he sought to advance. He suggested those clear causally connected phrases were obiter dicta. It is difficult to imagine that a person who knew what the term obiter dicta meant and when and how to use it, could think a judge’s stated reason for his or her conclusion was obiter dicta and that the ratio decidendi was really a different but unstated proposition. All the more so when the judges use words like “as” and “because”.

[12]        Mr. Graham’s alternate argument also clearly fails. It fails first in law because this Court has to apply the provisions of the Act as they are written by Parliament and can not overlook applicable provisions based on fairness arguments. His position that the rough justice structure of the PA provisions, which have regard to the preceding year’s RPP contributions as a proxy for the current year’s, results in an unfairness to him in 2011 when in fact no RPP contributions were made. It is the retrospective nature of the PA in the architecture of the Act which he claims works an unfairness in his particular circumstances in 2011. The unfairness he claims is that his excess 2011 contribution will only be deducted in a year he stops making the maximum RRSP contributions which will not happen until after he retires from arsTrust as they make these contributions for him as part of his employment package. This represents, according to him, a lengthy deferral of an RRSP contribution made in 2011 before it becomes deductible.

In the end the taxpayer not only lost his appeal but had costs (albeit modest) awarded against him:

[15]        I am satisfied that by proceeding with this informal appeal to Court, however politely and respectfully, but certainly knowing that both of his arguments were vacuous and devoid of merit, constituted an entirely unnecessary proceeding thus delaying the prompt and effective resolution of his tax appeal by way of dismissal. I am awarding costs payable by Mr. Graham to the Respondent in these circumstances in accordance with Rule 10. Costs are fixed in the amount of $375 which is the amount set by Rule 11(c) for the conduct of hearing of a half-day or less in length.

[1] 2013 TCC 294.