Docket: T-1197-10
Citation: 2011 FC 1373
Ottawa, Ontario,
November 29, 2011
PRESENT: The Honourable Mr. Justice Rennie
BETWEEN:
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SANDEEP KAPIL
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Applicant
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and
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CANADA REVENUE AGENCY AND
ATTORNEY GENERAL OF CANADA
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Respondents
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REASONS
FOR JUDGMENT AND JUDGMENT
Introduction
[1]
Under
subsection 204.1 (1) of the Income Tax Act, (RSC, 1985, c 1 (5th
Supp.)) (ITA) a special tax is owed in respect of contributions made to
registered retirement savings plans (RRSP) or accounts in excess of limits permitted
by the Act. For each month that excess amounts remain in an RRSP (up to a
maximum of 60 months) a tax of 1% is levied on the excess amount. A taxpayer
is also required to file annual returns in respect of excess contributions (T1-OVP)
and is liable for interest and penalties for failing to do so or for late
filing.
[2]
The
ITA also provides for relief from the tax. Section 204.1(4) provides
that where the excess amount arose “as a consequence of a reasonable error” and
“reasonable steps are being taken to eliminate the excess, the Minister may
waive the tax.” It is in the context of this statutory scheme that this
decision arises.
[3]
The
applicant seeks judicial review of a June 21, 2010 decision by an official of
the Canada Revenue Agency (CRA) exercising an authority delegated by the respondent
Minister. By that decision, the official refused to waive applicable taxes on
the applicant’s cumulative excess contributions to his RRSP for taxation years
2008 and 2009. Review is also sought of a June 11, 2010 decision refusing to
waive penalties and arrears interest on excess contributions for the 2008
taxation year. For the reasons that follow, the application is dismissed.
Facts
[4]
In
2008, the applicant moved to Montreal, Canada from the
United States (U.S.) to join the employ of SAP Labs Canada.
[5]
Prior
to making the contributions that give rise to this application, the applicant
sought the advice of both the CRA and the financial advisors responsible for
managing his firm’s employee retirement investments. In his affidavit evidence
he states that he was given inconsistent advice by both entities. When the
applicant first spoke with a CRA representative he was told that he was
ineligible to make an RRSP contribution for taxation year 2008, but that on the
occasion of a second call to a specialist within the CRA, he was told that he
was eligible to make an RRSP contribution for his first Canadian taxation year
2008. Similarly, he claims that a financial advisor/representative from the
company that manages his employer’s employee retirement plans confirmed the
advice he initially received from CRA to the effect that he was ineligible to
make an RRSP contribution. He further states that in a further communication
he was advised by another financial advisor/representative that he was eligible
to make an RRSP contribution for taxation year 2008.
[6]
Under
the ITA, he was not entitled to make RRSP contributions during his first
year of employment in Canada.
[7]
Notwithstanding
the conflicting advice, the applicant proceeded, in March of 2008, to make a
contribution of $18,000.00 to his RRSP through Fidelity Investment Services,
the administrator of his employer’s RRSP plan. In January 2009, the applicant
contributed a further $4,500.00 to his RRSP.
[8]
On
July 30, 2009, the applicant signed a T30121-A form (Tax Deduction Waiver on
the Refund of Unused RRSP Contributions) requesting permission to withdraw
excess contributions from his 2008 RRSP. He specified that that he wished to
withdraw the sum of $2,425.00 from his account in respect of the 2008 taxation
year.
[9]
By
letter dated September 29, 2009, the CRA informed the applicant that he could
withdraw $4,425.00 from this RRSP; however, the applicant was actually only
entitled to withdraw $2,425.00 from the RRSP, which he did.
[10]
In
that same letter, the applicant was advised by the CRA that he had to file a
T1-OVP tax return for 2008 and that failure to file this document within 90
days of 2008 year end would result in late-filing penalties as well as arrears
interest. The applicant was also advised in that letter that a tax on excess
RRSP contributions would be levied for each month that the excess contributions
remained in the RRSP.
[11]
On
November 5, 2009 the CRA received a T3012-A form from the applicant requesting
the withdrawal of excess contributions from his 2009 RRSP. Three weeks later,
on November 24, 2009 the CRA received a T1-OVP tax return for the 2009 taxation
year.
[12]
In
a December 31, 2009 letter, the CRA informed the applicant that he could
withdraw $7,875.00 from his 2008 RRSP. In that letter, the applicant was once
again informed that he was required to file a T1-OVP income tax return within
90 days of the year end and that failure to do so would mean that he would be
subject to late-filing penalties and arrears interest. He was also further
advised that a tax continued to be levied on the excess contributions.
[13]
On
January 19, 2010, the applicant filed a T1-OVP tax return for taxation year
2008.
[14]
On
February 9, 2010, a 2009 Notice of Assessment (NOA) was issued. In that NOA,
the applicant was assessed $831.00, pursuant to Part 10.1 of the ITA, in
respect of the special tax on excess contributions. No penalties or arrears
interest were imposed at that time. The applicant responded by requesting that
the $831.00 tax (in respect of 2009 excess contributions) levied against him be
waived.
[15]
On
March 24, 2010, a NOA in respect of the 2008 tax year was issued by the CRA. In
that NOA the applicant was assessed $1,600.00, pursuant to Part 10.1 of the ITA,
a late-filing penalty of $224.00 the T1-OVP and arrears interest at $91.68
[16]
On
April 7, 2010, the CRA responded to the applicant’s February request for a
waiver of the tax. It informed the applicant that his waiver of tax request
for both 2008 and 2009 had been refused because the excess contributions were
not the product of a reasonable error.
[17]
On
April 21, 2010, the applicant appealed both the decision not to waive the
special tax nor the penalties and taxes with respect to the excessive
contributions.
[18]
His
appeal failed. On June 11, 2010 the applicant was informed by CRA that his
request for a waiver of tax on the 2008 and 2009 excessive contributions had
been refused. In a June 21, 2010 letter, the applicant was informed that his
request for a waiver of penalties and arrears interest with respect to his
T1-OVP tax returns and ITA Part 10.1 tax for taxation years 2008 and
2009 had also been refused. It was CRA’s view that the excess contribution was
not the consequence of reasonable error, delay or some other factors beyond his
control and as a result, he was not entitled to relief.
Issue
[19]
The
issue in this case is whether the decisions refusing to issue waivers of taxes,
and penalties and arrears interest, respectively, are reasonable per Dunsmuir
v New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190. These are discretionary
decisions and as such, are to be accorded deference: Gagné v Canada
(Attorney General), 2010 FC 778 and Lepiarczyk v Canada (Revenue
Agency),
2008 FC 1022.
Analysis
[20]
As
a matter of law, this Court does not have the jurisdiction to order the
Minister to waive taxes, penalties, and arrears interest. The jurisdiction of
the Court is limited to ordering the Minister to substantively reconsider his
decisions not to waive the taxes and related interest and penalties. The
applicant must understand, therefore, that even if this Court had found in his
favour, he would not automatically be entitled to a waiver and refund of his
money. This Court’s review is confined to an analysis of whether the
Minister’s exercise of discretion in refusing the waiver requests was lawful,
not to substitute its decision for that of the Minister: Canada (Citizenship
and Immigration) v Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339.
[21]
In
order succeed in this application for judicial review it is necessary for the
applicant to demonstrate that the Minister, when exercising his discretion,
committed a reviewable error when he refused the applicant’s application for a
waiver of (a) tax; and (b) late-filing penalties and arrears interest. The
applicant advances three arguments in support of setting aside the decisions;
first, that he made reasonable errors; second, he acted with due diligence and
took steps to remove the excess contributions; and third, that he relied on CRA
advice.
First Ground
[22]
The
applicant contends that he was not aware that he was precluded as a temporary
worker from making RRSP contributions in his first year of Canadian
employment. This does not advance the applicant’s case, however. In Dimovski
v Canada Revenue Agency, 2011 FC 721 at para 17, this Court observed:
The Canadian tax system is based on self
assessment, which means that it is up to each individual to ensure that they
conduct their financial affairs in accordance with the Income Tax Act: R.
v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627 (S.C.C.). It was up to the
applicant to ensure that she did not make excessive contributions to her RRSP
and her lack of understanding of the law is not a reasonable error. The tax
system is admittedly complex and when taxpayers are faced with complexity they
are expected to seek advice.
[23]
Moreover,
Justice Luc Martineau, in Gagné, accepted as guidance as to the scope
and content of the concept of reasonable error the Taxation Operations
Manual 19(23)0 ‘‘Processing, validation and compliance of registered retirement
saving plans and of registered education saving plans’’ 8-2008 (the
Manual), prepared by CRA and noted that:
…the following facts do not ordinarily
constitute a ‘reasonable error:’ (a) Ignorance of the law and, specifically,
ignorance of the fact that an individual cannot contribute more to his or her
RRSP than the deduction limit [and] (b) An error by the taxpayer’s
representative (for example, an accountant) in preparing his or her tax return.
[24]
Dimovski
and
Gagné are but two applications of a long standing principle found in
many decisions of this Court that the onus is on the taxpayer to know the law.
As a result, the applicant’s argument that he was ignorant of Canadian law
fails.
[25]
The
evidence offers no explanation as to why the applicant made significant RRSP contributions
in the face of inconsistent answers given by CRA and Fidelity. There was
advice suggesting that he was not entitled to make these contributions. There
was advice suggesting that he was entitled to make these contributions. Put
otherwise, there is no reasonable explanation on the record as to why he chose
to follow the advice that was favourable to his tax position as opposed to the
advice that was unfavourable. Inconsistent advice is not the same as incorrect
advice or misleading advice. Accepting all of the applicant’s evidence as
true, it is, when assessed objectively, an indicia of a potential problem, not
a window or lacunae of which a reasonable person would hope to exploit to their
advantage.
[26]
A
reasonable error has two characteristics: the applicant must establish that he
was mistaken as to the factual situation (subjective characteristic) and that
the mistake was reasonable in the circumstances (objective characteristic). Again,
accepting the applicant’s affidavit evidence, while the applicant here has met
the subjective portion of the test, he has not met the second portion of the
test. As Justice James O’Keefe held in Lepiarczyk at para. 19:
I note that the applicant in his
submissions was adamant that the error was an honest mistake and that he did
not knowingly intend to over contribute to his RRSP. Although this may be so,
the test to be met under subsection 204.1(4) of the Act is not the innocence of
the applicant, but yet reasonability of the error made. While innocence may be
a factor to consider, it is not determinative in the present case. While the
applicant urges the Court to reconsider his position and render a different
decision, this is not the role of this Court on judicial review.
Reasonable Steps to
Remove Excess
[27]
With
respect to the tax assessed to the applicant, and his request for relief,
section 204.1(4) of the ITA provides as follows:
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(4) Where an individual
would, but for this subsection, be required to pay a tax under subsection
204.1(1) or 204.1(2.1) in respect of a month and the individual establishes
to the satisfaction of the Minister that
(a) the excess amount or
cumulative excess amount on which the tax is based arose as a consequence of
reasonable error, and
(b) reasonable steps are
being taken to eliminate the excess,
the Minister may waive the
tax.
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(4) Le ministre peut
renoncer à l’impôt dont un particulier serait, compte non tenu du présent
paragraphe, redevable pour un mois selon le paragraphe (1) ou (2.1), si
celui-ci établit à la satisfaction du ministre que l’excédent ou l’excédent
cumulatif qui est frappé de l’impôt fait suite à une erreur acceptable et que
les mesures indiquées pour éliminer l’excédent ont été prises.
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[28]
The
test in section 204.1(4) is conjunctive, meaning both prongs must be
established to the satisfaction of the Minister before a taxpayer will be
considered for relief. Even if both prongs are met, the discretion to waive remains
with the Minister. In other words, meeting the two prongs does not make a
waiver a fait accompli. The question is whether the Minister’s finding
that the applicant had taken reasonable steps to eliminate the excess
contributions was reasonable or unreasonable. The applicant contends that he
acted in good faith and took reasonable steps to eliminate the excess
contributions. The Minister felt he did not, and again, that conclusion falls
squarely within the frame of a reasonable decision.
[29]
On
September 29, 2009 and again, on December 31, 2009, the applicant was informed
that he had to file a T1-OVP return for the 2008 tax year and that the failure
to do so within 90 days of the end of the tax year (i.e. March 31, 2009) would
result in a penalty and interest arrears. It was not until January 19, 2010,
that the applicant filed a T1-OVP tax return for the 2008 year. This is some
nine months beyond the 90 day period prescribed.
[30]
I
see no reason to disturb the Minister’s findings in respect of the applicant’s
contention that he took reasonable steps to eliminate the excess contributions.
Penalty and Interest
[31]
With
respect to the late-filing penalties and arrears interest assessed to the
applicant, and his request for relief, section 220 (3.1) of the ITA
provides as follows:
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(3.1) The Minister may, on or before
the day that is ten calendar years after the end of a taxation year of a
taxpayer (or in the case of a partnership, a fiscal period of the
partnership) or on application by the taxpayer or partnership on or before
that day, waive or cancel all or any portion of any penalty or interest
otherwise payable under this Act by the taxpayer or partnership in respect of
that taxation year or fiscal period, and notwithstanding subsections 152(4)
to (5), any assessment of the interest and penalties payable by the taxpayer
or partnership shall be made that is necessary to take into account the
cancellation of the penalty or interest.
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(3.1) Le ministre peut, au plus tard le
jour qui suit de dix années civiles la fin de l’année d’imposition d’un
contribuable ou de l’exercice d’une société de personnes ou sur demande du
contribuable ou de la société de personnes faite au plus tard ce jour-là,
renoncer à tout ou partie d’un montant de pénalité ou d’intérêts payable par
ailleurs par le contribuable ou la société de personnes en application de la
présente loi pour cette année d’imposition ou cet exercice, ou l’annuler en
tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit les
cotisations voulues concernant les intérêts et pénalités payables par le
contribuable ou la société de personnes pour tenir compte de pareille
annulation.
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[32]
The
scope of the discretion accorded the Minister was considered in Jenkins v
Canada (Revenue), 2007 FC 295, Justice Pierre Blais held at para 13:
…it is important to keep in mind that the
power of the Minister, as set out in subsection 220(3.1) of the Act, is a
discretionary power and as such, there is no obligation on the part of the
Minister to reach any given conclusion. Furthermore, the liability of a
taxpayer to pay penalties and interests for the late filing of income tax
returns results from the application of the Act itself, not from any
discretionary decision of the Minister to impose such penalties and interests.
Therefore, the discretionary power of the Minister is limited to providing
exceptional relief from the operation of the Act, where the Minister believes
such relief to be warranted.
[33]
The
penalty and arrears interest were imposed as a matter of law, by operation of
the ITA. Moreover, the nature of the relief itself is limited to
exceptional situations in which the Minister believes is warranted.” Thus,
even though the Manual states that a reasonable error may be the product of
incorrect information provided to the taxpayer; Gagné, the Minister is
not obligated to make such a finding. In any event, I have not found a
reasonable error to have been made.
[34]
Furthermore,
Information Circular IC07-1 Taxpayer Relief Provisions (the Circular)
section 23 provides guidance as to how the Minister will exercise the
discretion granted to him by Parliament under section 220 (3.1):
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23. The Minister may grant
relief from the application of penalty and interest where the following types
of situations exist and justify a taxpayer's inability to satisfy a tax
obligation or requirement at issue:
(a) extraordinary
circumstances
(b) actions of the CRA
(c) inability to pay or
financial hardship
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23. Le ministre peut accorder
un allègement de l'application des pénalités et des intérêts lorsque les
situations suivantes sont présentes et qu'elles justifient l'incapacité du
contribuable à s'acquitter de l'obligation ou de l'exigence fiscale en
cause :
- circonstances
exceptionnelles;
- actions de l'ARC;
- incapacité de payer ou
difficultés financières.
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[35]
Section
25 of the Circular defines what “extraordinary circumstances” are:
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25. Penalties and interest
may be waived or cancelled in whole or in part where they result from
circumstances beyond a taxpayer's control. Extraordinary circumstances that
may have prevented a taxpayer from making a payment when due, filing a return
on time, or otherwise complying with an obligation under the Act include, but
are not limited to, the following examples:
(a) natural or man-made disasters
such as, flood or fire;
(b) civil disturbances or
disruptions in services, such as a postal strike;
(c) a serious illness or
accident; or
serious emotional or mental
distress, such as death in the immediate family.
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25. Les pénalités et les
intérêts peuvent faire l'objet d'une renonciation ou d'une annulation, en
tout ou en partie, lorsqu'ils découlent de circonstances indépendantes de la
volonté du contribuable. Les circonstances exceptionnelles qui peuvent avoir
empêché un contribuable d'effectuer un paiement lorsqu'il était dû, de
produire une déclaration à temps ou de s'acquitter de toute autre obligation
que lui impose la Loi sont les suivantes, sans être exhaustives :
- une catastrophe naturelle
ou causée par l'homme, telle qu'une inondation ou un incendie;
- des troubles publics ou
l'interruption de services, tels qu'une grève des postes;
- une maladie grave ou un
accident grave;
- des troubles émotifs
sévères ou une souffrance morale grave, tels qu'un décès dans la famille
immédiate.
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[36]
None
of these circumstances apply to the applicant and no others have been pleaded, thus
section 25 of the Circular is inapplicable and irrelevant in the present case.
No explanation was offered as to why the applicant was prevented from filing his
T1-OVP as soon as he received notice from CRA, in September of 2009, that he
must do so within 90 days of the tax year end.
[37]
In
sum, the applicant was aware, as of July 30, 2009, the date he signed the
request to withdraw his excess contributions, that he had a problem. He did not
produce a T1-OVP return for the 2008 year as requested in two letters sent to
him in 2009. The T1-OVP was in fact, not filed until January 2010. The
applicant has failed to demonstrate as unreasonable the Minister’s finding that
his excessive RRSP contributions were not the product of a reasonable error and
that he took reasonable steps to eliminate the excess amount.
[38]
The
application for judicial review is dismissed.
[39]
There
is no order as to costs.
JUDGMENT
THIS COURT’S
JUDGMENT is that the application for judicial review be and is hereby
dismissed. There is no order as to costs.
"Donald
J. Rennie"
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