http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/127399/index.do
Levenson v. Canada (Attorney General) (January 7, 2016 – 2016 FC 10, Brown J.).
Précis: The applicant had formed the habit of filing his tax returns late since he always overpaid his tax. This led to a confusion on the part of CRA as to the amount of his unused RRSP room. The applicant made excess contributions to his spousal RRSP which led to the imposition of tax, penalties and interest. He applied for taxpayer relief which was denied. He brought a judicial review application in the Federal Court. Shortly before trial CRA consented to a judicial review of the interest and penalties. Thus the only point remaining was a judicial review of the over-contribution tax (“OCT”). The Federal Court denied the application on the basis that he applicant had not demonstrated that the action of CRA was unreasonable on the “reasonable error” test. There was no order as to costs.
Decision: The facts leading up to this judicial review are convoluted:
[14] The following is a chronological summary of key events in this case:
A. The Applicant purchased an RRSP contribution of $1,435 in 2007;
B. The Applicant filed his tax return for the 2006 taxation year on July 8, 2008. By Notice of Assessment dated July 31, 2008, CRA stated the Applicant had $20,234 in unused RRSP contribution room for 2008;
C. The Applicant applied for a pension buyback with his employer in 2008 which had the effect of reducing his RRSP contribution limit by a further $4,469. The Applicant did not report this contribution to CRA until he filed his 2007 tax return on July 30, 2009;
D. On February 20, 2009, the Applicant made a $20,000 contribution to his spousal RRSP. He made this purchase based on contribution room of $20, 234 dated July 31, 2008, referred to in B above. The Applicant did not report this $20,000 contribution to CRA until on or before November 4, 2011, when he filed a T1 adjustment form. The Applicant did not take into account the reduction in RRSP room created by the contributions made described in A and C;
E. On July 30, 2009, the Applicant filed his tax return for the 2007 taxation year. The Applicant declared the contributions referred to in A and C above. By Notice of Assessment dated August 27, 2009 for the 2007 taxation year, CRA reported that the Applicant had $15,226 in unused RRSP contribution room for 2009. CRA did not know the Applicant had made the $20,000 contribution referred to in D when it issued the 2007 tax year Notice of Assessment;
F. The Applicant made a $15,000 contribution to his spousal RRSP on February 23, 2010. He made this contribution mistakenly relying on the advice re: contribution room referred to in E above. The Applicant did not take into account the further reduction in his RRSP contribution room created by the $20,000 purchase referred to in D;
G. Sometime in 2010, the Applicant made an eligible retiring allowance or pension transfer to his RRSP of $33,500. This contribution had no impact on his RRSP contribution room;
H. The Applicant filed his 2008 tax return on June 15, 2011. The Applicant reported an RRSP contribution of $876. CRA sent several notices respecting his 2011 filings:
i a Notice of Reassessment dated July 14, 2011 in which CRA advised that the RRSP deduction limit for 2011 was $14,350, and that the Applicant had $0 of unused RRSP contributions, which stated that if the $0 amount is more than the $14,350 (which it was not), “you may have to pay a tax on the excess contributions”,
ii a Notice of Reassessment dated August 12, 2011 in which CRA advised that his RRSP deduction limit for 2011 was $14,350, and that the Applicant had $0 of unused RRSP contributions, noting that if the $0 amount is more than the $14,350 (which it was not), “you may have to pay a tax on the excess contributions”, and
iii a further Notice of Reassessment dated December 19, 2011, showing a RRSP deduction limit for 2011 of $14,350 and $19,124 unused RRSP contributions, noting that if the $19,124 amount is more than the $14,350 (which it was), “you may have to pay on the excess contributions”. This document took into account the $20,000 contribution referred to in D above, which it appears the Applicant reported by way of a T1 adjustment dated November 4, 2011;
I. The Applicant filed his 2009 return on November 22, 2011. No RRSP purchases were reported. The Applicant did not report the $15,000 contribution referred to in F above; he considered it could have been reported in respect of either his 2009 or 2010 taxation year tax returns;
J. The Applicant filed his 2010 return on January 3, 2012. On this return he reported a) his $15,000 contribution to his spousal RRSP (purchased in February 2010, see F above), and b) his eligible pension transfer of $33,500. The CRA issued him a Notice of Assessment dated July 19, 2012. CRA did not advise the Applicant of the additional over-contribution created by his $15,000 contribution in item F;
K. The Applicant filed his 2011 return on September 28, 2012. No RRSP contributions were reported. The CRA mailed a Notice of Assessment on October 16, 2012, which again made no reference to additional over-contribution caused by his $15,000 contribution in item F;
L. On or about October 19, 2012, the Applicant withdrew $34,971 from his spousal RRSP;
M. On July 8, 2013, the Applicant wrote the CRA to request that the $15,000 spousal RRSP purchased in February 2010 (as outlined in items F and J above) be transferred from the 2010 tax year to the 2009 tax year;
N. On October 1, 2013, the Applicant withdrew $15,000 from his RRSP;
O. On November 18, 2013, the CRA responded to the Applicant’s July 8, 2013 letter denying the request on the basis the RRSP limits for both 2009 and 2010 were $0;
P. On December 4, 2013, the CRA informed the Applicant he may have excess RRSP contributions and requested that the Applicant either file a T1-OVP form or provide additional records;
Q. The Applicant called CRA to inquire about the RRSP over-contributions, at which point the Applicant received confirmation that he had over-contributed;
R. On January 15, 2014, the Applicant sent a letter request to the CRA asking for tax, interest and penalties to be waived on the excess amounts, because the error was due to misinformation by the CRA. This was denied on May 23, 2014;
S. On June 16, 2014, the Applicant requested an independent second review of the CRA decision not to waive tax, penalties and interest. He submitted T1-OVP forms on which he calculated tax on excess contributions for 2010, 2011 and 2012, and he paid $5,050.55 to facilitate a refund. This review was denied by way of a letter dated October 27, 2014 but received by the Applicant on November 21, 2014;
T. On November 28, 2014, the Applicant received CRA Notices of Assessment for 2010, 2011 and 2012 with penalties and interest totaling $1,640.11. The Applicant paid this amount on December 17, 2014.
[15] Although the legislation and the parties use the terms penalties and interest to include the RRSP over-contribution tax, in law the excess or over-contribution tax is treated as a separate tax and will henceforth be referred to as “OCT”. The OCT accrues at a rate of 1% of the over-contribution amount for every month there is an over-contribution. In this case, the OCT totalled $5,050.65 according to the T1-OVP filed by the Applicant.
[16] It appears common ground that the over-contributions amounted to a maximum of $15,305.
The decision to refuse relief was based largely on the applicant’s repeated late filing of returns:
[18] The delegate’s reasons are supplemented by her notes which discuss the Applicant’s alleged lateness in filing. Her notes under the heading “Recommendation” state in part the following (taken directly from the notes):
I recommend to refuse the waiver. t/p never filed his t1 return on time. He was 1 year and more late on each t1 from 2003 to 2010. …
CRA cannot be responsible for giving wrong information when the t/p send wrong and late information. It’s t/p responsibility to filed t1-return accurately and in time.
The Federal Court concluded that the delegate’s decision that the applicant did not make a “reasonable error” was reasonable under the circumstances:
[46] In summary, the delegate’s decision to deny the Applicant’s claim for relief on the basis that he did not make a “reasonable error” was reasonable on the facts of this case. The reasoning is justified, transparent and intelligible. In my view, the decision under subparagraph 204.1(4)(a) of the ITA falls within the range of possible, acceptable outcomes which are defensible in respect of the facts and law.
However the Court also found that the delegate’s decision that the applicant did not take “reasonable steps” to rectify his error was not reasonable:
[52] In my view, CRA failed to consider whether and to what extent CRA itself contributed to the delay in repayment by not reassessing sooner after receipt of the Applicant’s January 2012 filing - the filing which brought CRA up-to-date with respect to the Applicant’s RRSP contributions. In my view, this failure put the delegate’s decision on “reasonable steps” per paragraph 204.1(1)(4)(b) outside the range of possible, acceptable outcomes which are defensible in respect of the facts and law in this case.
The Court concluded that it must dismiss the application because the applicant failed to succeed under both the “reasonable error” and “reasonable steps” tests:
[54] I have found the Applicant failed to establish unreasonableness respecting paragraph 204.1(4)(a) “reasonable error”. I have also found the Applicant succeeded in establishing the delegate’s “reasonable steps” decision per paragraph 204.1(4)(b) was unreasonable. However, given the jurisprudence and the wording of the statute, the Applicant’s application must be dismissed because to succeed, he must meet both parts of the subsection, not just one.
In light of the mixed success the Court made no order as to costs:
[55] I note the Respondent consented to judicial review respecting interest and penalties, but did so very late in the day shortly before the hearing. I also note the Applicant succeeded on one of the two parts discussed in these reasons. That said, the Respondent has overall success in this case. In my view, this is a case where both parties should bear their own costs.