Citation: 2012 TCC 163
Date: 20120512
Docket: 2011-1907(IT)I
BETWEEN:
JACOB FRIEDLANDER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris J.
[1]
Mr. Friedlander is appealing from assessments
of tax, penalties and interest in relation to excess contributions made to an
RRSP between 2002 and 2006.
[2]
Mr. Friedlander
immigrated to Canada in 2000. His first language is Spanish.
In 2002, he wished to set up an investment account at TD Canada Trust. He said
that at the time he was not working and not earning any income. He was a stay
at home father with two infant children and was also studying. The TD Canada
Trust employee he consulted set up an RRSP account for Mr. Friedlander although
Mr. Friedlander had not requested an RRSP account. Obviously, an RRSP account
was inappropriate for Mr. Friedlander's situation. He told the bank employee
that he was looking for an investment, like a U.S.
certificate of deposit which is the American equivalent of a term deposit.
Instead, the bank employee started an RRSP Mutual Fund account for him.
[3]
Mr. Friedlander
deposited a total of $11,450 in the account between 2002 and 2006. He did not
claim any deductions for RRSP contributions for those years. Indeed, he had no
income in any of those years. The difficulty for Mr. Friedlander, though,
was that he had no RRSP contribution room for the 2002 to 2006 taxation years.
His deposits to the account were therefore greater than the permissible limit
and he had a cumulative excess amount in respect of an RRSP for each of those
years. This made him liable to pay a tax under subsection 204.1(2.1), and
therefore a person to whom Part X.1 of the Act applied in each of those
years. A taxpayer who finds himself in this situation may apply to the Minister
of National Revenue under subsection 204.1(4) to waive this tax. This can be
accomplished by filing form T3012A whereby he may obtain the Minister’s consent
for the financial institution to refund the excess contribution amounts to him
without withholding tax. However, as a person to whom Part X.1 of the Act
applies, he must file a return under subsection 204.3(1) on form T1-OVP, and
pay the tax, within 90 days after the year end, unless the tax has been waived
before the end of that 90-day period (see Bowie J. in Pereira-Jennings v.
The Queen, 2009 T.C.J. No. 239, at paragraph 1).
[4]
In this case, Mr. Friedlander did not file
T1-OVP returns with the Minister until he was notified of the overcontributions
in January 2009, when he received a letter from the Canada Revenue Agency
(CRA) setting out the problem. The CRA letter referred to an earlier letter
supposedly sent to Mr. Friedlander but he said he did not receive it. Since the
respondent's counsel stated that the respondent accepted Mr. Friedlander's
version of events given in his testimony and respondent's counsel did not cross-examine
him on this point, I believe that Mr. Friedlander did not receive the
earlier letter. I would also add that I found Mr. Friedlander to be a
credible witness.
[5]
Once he became aware of
the excess contributions, Mr. Friedlander filed T1‑OVPs for all the
taxation years and removed excess contributions from the RRSP account. However,
it is undisputed that the T1-OVP forms were not filed nor was the tax paid or
waived within 90 days of the end of each taxation year. The Minister therefore
assessed Mr. Friedlander for tax under subsection 204.1(2.1) at the rate
of one percent of the cumulative excess amount per month plus a penalty under
subsection 162(1) of the Act and interest.
[6]
In total, it appears
that Mr. Friedlander has been assessed tax, interest, and penalties of
approximately $4,350 on the $11,450 of deposits to the account. If Mr. Friedlander
has not paid the assessed amounts, interest will continue to accumulate.
[7]
Mr. Friedlander has
appealed to this Court seeking relief from the assessments.
[8]
The respondent's
position is that this Court has no jurisdiction to waive any of the tax,
penalties or interest. As noted earlier in these reasons, subsection 204.1(4)
gives the Minister power to waive tax due under 204.1(2.1). Mr. Friedlander
did apply to the Minister to waive tax but the Minister refused the
application.
[9]
For the purposes of
this appeal, it is clear that I do not have the power to vary the Minister's
decision to waive tax. However, I do have the power to deal with the penalties
assessed under subsection 162(1) for failure to file the T1-OVP returns. Those
penalties may be cancelled where a taxpayer has exercised due diligence in
relation to the filing requirements.
[10]
In the Pereira-Jennings case, Justice
Bowie said at paragraph 7:
To succeed in a defense of due diligence requires more than passive
good faith and good intentions. It requires the taxpayer to present cogent
evidence of positive steps taken by the taxpayer to comply with the
requirements of the statute.
[11]
However, in the case of Les Residences Majeau v.
The Queen, 2010 FCA 28, the Federal Court of Appeal made the following
observations concerning circumstances in which a defence of due diligence is
available - in particular, referring to a second possibility of proving due
diligence not mentioned by Justice Bowie in the Pereira-Jennings
decision. I refer to paragraphs 8, 9 and 10 of Les Residences Majeau in
which the Federal Court of Appeal said:
According to Corporation de l’école polytechnique v. Canada, 2004 FCA 127, a defendant may
rely on a defence of due diligence if either of the following can be
established: That the defendant made a reasonable mistake of fact, or that the
defendant took reasonable precautions to avoid the event leading to imposition
of the penalty.
A reasonable mistake of fact requires a two-fold test: subjective
and objective. The subjective test is met if the defendant establishes that he
or she was mistaken as to a factual situation which, if it had existed, would
have made his or her act or omission innocent. In addition, for this aspect of
the defence to be effective, the mistake must be reasonable, i.e. a mistake a
reasonable person in the same circumstances would have made. This is the
objective test.
As already stated, the second aspect of the defence requires that
all reasonable precautions or measures be taken to avoid the event leading to
imposition of the penalty.
[12]
In this case, I find that Mr. Friedlander's
failure to file the T1-OVP returns was due to a reasonable mistake of fact. It
is not disputed by the respondent that Mr. Friedlander was mistaken as to the
nature of the account he opened at TD Canada Trust. If he had known the type of
account it was, I believe he would have closed it. If the account had been an
ordinary investment account, there would have been no requirement to file
T1-OVP returns.
[13]
The second aspect of
the defence, set out in Les Residence Majeau, is that the mistake must
be reasonable. I find that it was. I accept Mr. Friedlander's evidence that the
RRSP issue was never discussed or explained by the bank employee, that is Mr.
Friedlander never asked for an RRSP account and that if the nature of the
account had been explained to him, he would not have chosen to open an RRSP
account. It is clear that such an account did not suit his needs at that time.
[14]
I also believe that Mr.
Friedlander would likely have relied heavily on the bank employee to choose an
appropriate type of account for him given that English was not his first
language and that he was new to Canada and unfamiliar with Canadian investment
products. I find that the mistake was one a reasonable person in the same
circumstances as Mr. Friedlander would have made.
[15]
For these reasons, I
find that a due diligence defence has been made out and the penalties should be
vacated.
[16]
I would also like to
comment on Mr. Friedlander's application to the Minister to waive the tax
pursuant to subsection 220(3.1) of the Act. The Minister refused this
application on the basis that Mr. Friedlander had not shown that the RRSP
excess contributions arose due to a reasonable error. The Minister also took
the position that the notations on Mr. Friedlander's notices of assessment for
his 2002 to 2006 taxation years, to the effect that he had RRSP unused
contributions, should have made him aware that he had made excess contributions.
[17]
I have some
observations with respect to the notations on the notices of assessment.
Firstly, English is not Mr. Friedlander's first language. It is easy to see how
he would not appreciate the significance of the notations regarding unused
contributions especially when it was one of many notations, all quite cryptic,
on the notices of assessment. Secondly and perhaps more importantly, the
reference to unused contributions is not a reference to excess contributions.
Even if Mr. Friedlander had been aware of the significance of a reference
to excess contributions, there was no reference in this case to excess
contributions.
[18]
I would strongly
encourage Mr. Friedlander to request a second impartial review of the decision
contained in the letter of April 18, 2011 from N. Polychronis which
was filed at the hearing and I would strongly urge the person reviewing that
decision to take into account my comments in these reasons.
[19]
As a result, the appeal
is allowed in part and the penalties are cancelled. I would recommend to Mr.
Friedlander that he attach a copy of these reasons to his request for a second
review.
Signed at Ottawa,
Canada, this 11th day of May 2012.
"B. Paris"
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