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Citation: 2005TCC141
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Date: 20050217
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Docket: 2003-3302(IT)I
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BETWEEN:
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ROBERT B. KENNEDY,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Lamarre, J.
[1] These are appeals from assessments
made by the Minister of National Revenue ("Minister")
under the Income Tax Act ("Act") for the
appellant's 1996, 1997 and 1998 taxation years.
[2] In assessing the appellant for the
1998 taxation year, the Minister included an amount of $1,333 in
the appellant's income pursuant to subsection 146.01(4) of
the Act. This was done on the basis that the
appellant did not repay that amount to his Registered Retirement
Savings Plan ("RRSP") within 60 days following the end
of the year, as required under the Home Buyers' Plan
("HBP"). The Minister also added to the appellant's
income for that year an amount of $7,041 but at the same time
allowed an offsetting deduction of the same amount. In the
Amended Reply to the Notice of Appeal ("Reply"), this
inclusion/deduction process is discussed under the heading
"Excess R.R.S.P. Contributions" at subparagraphs 18(n)
and following. It appears from a reading of subparagraphs 18(r)
and 21(c) of the Reply, combined with Exhibit R-2, that the
amount of $7,041 in question was withdrawn in March 1998 by means
of Form T3012A from a spousal RRSP set up by the appellant and
that it was considered as a refund of undeducted RRSP
contributions. It is my understanding that the Minister relied on
subsections 146(8.2) and 146(8.3) of the Act in including
this amount of $7,041 and allowing an offsetting deduction in the
computation of the appellant's income for 1998.
[3] With respect to the 1997 taxation
year, the appellant was credited with an amount of $1,333 as a
repayment under the HBP. The Minister however included in the
appellant's income for that year, pursuant to subsection
146(8.3), an amount of $10,083 for contributions that he made to
spousal RRSPs and that were considered to have been withdrawn in
that year. An offsetting deduction of $5,583 was allowed,
pursuant to subsection 146(8.2), on the basis that this amount of
$5,583 was a refund of undeducted RRSP contributions.
[4] Furthermore, as the appellant had
over-contributed to RRSPs in the 1996, 1997 and 1998 taxation
years, he was assessed under Part X.1 of the Act tax in
the amounts of $396, $414.53 and $25.41 for each of those
taxation years respectively.
Statutory Provisions
[5] The relevant provisions of the
Act are reproduced below.
Registered Retirement Savings Plans
SECTION 146:
4146(8)3
(8) Benefits taxable. There shall be included in computing
the income of a taxpayer for a taxation year the total of all
amounts received by the taxpayer in the year as benefits out of
or under registered retirement savings plans, other than excluded
withdrawals (within the meaning assigned by subsection 146.01(1))
in respect of the taxpayer and amounts that are included under
paragraph (12)(b) in computing the taxpayer's
income.
4146(8.2)3
(8.2) Amount deductible. Where
(a) all or any portion of the premiums paid in a
taxation year by a taxpayer to one or more registered retirement
savings plans under which the taxpayer or the taxpayer's
spouse was the annuitant was not deducted in computing the
taxpayer's income for any taxation year,
(b) the taxpayer or the taxpayer's spouse can
reasonably be regarded as having received a payment from a
registered retirement savings plan or a registered retirement
income fund in respect of such portion of the undeducted premiums
as
(i) was not paid by way of a transfer of an amount from a
registered pension plan to a registered retirement savings
plan,
(ii) was not paid by way of a transfer of an amount from a
deferred profit sharing plan to a registered retirement savings
plan in accordance with subsection 147(19), and
(iii) was not paid by way of a transfer of an amount from a
provincial pension plan prescribed for the purpose of paragraph
60(v) to a registered retirement savings plan in
circumstances to which subsection (21) applied,
(c) the payment is received by the taxpayer or the
taxpayer's spouse in a particular taxation year that is
(i) the year in which the premiums were paid by the
taxpayer,
(ii) the year in which a notice of assessment for the taxation
year referred to in subparagraph (i) was sent to the taxpayer,
or
(iii) the year immediately following the year referred to in
subparagraph (i) or (ii), and
(d) the payment is included in computing the
taxpayer's income for the particular year,
the payment (except to the extent that it is a prescribed
withdrawal) may be deducted in computing the taxpayer's
income for the particular year unless it is reasonable to
consider that
(e) the taxpayer did not reasonably expect that the
full amount of the premiums would be deductible in the taxation
year in which the premiums were paid or in the immediately
preceding taxation year, and
(f) the taxpayer paid all or any portion of the
premiums with the intent of receiving a payment that, but for
this paragraph and paragraph (e), would be deductible
under this subsection.
4146(8.3)3
(8.3) Spousal RRSP payments. Where at any time in a
taxation year a particular amount in respect of a registered
retirement savings plan that is a spousal plan in relation to a
taxpayer is required by reason of subsection (8) or paragraph
(12)(b) to be included in computing the income of the
taxpayer's spouse before the plan matures or as a payment in
full or partial commutation of a retirement income under the plan
and the taxpayer is not living separate and apart from the
taxpayer's spouse at that time by reason of the breakdown of
their marriage, there shall be included at that time in computing
the taxpayer's income for the year an amount equal to the
lesser of
(a) the total of all amounts each of which is a premium
paid by the taxpayer in the year or in one of the two immediately
preceding taxation years to a registered retirement savings plan
under which the taxpayer's spouse was the annuitant at the
time the premium was paid, and
(b) the particular amount.
Home Buyers' Plan
SECTION 146.01:
4146.01(3)3
(3) Repayment of eligible amount. An individual may
designate a single amount for a taxation year in prescribed form
filed with the individual's return of income required to be
filed for the year or, if a return of income for the year is not
required to be filed, filed with the Minister on or before the
individual's filing-due date for the year, where the amount
does not exceed the lesser of
(a) the total of all amounts (other than
excluded premiums, repayments to which paragraph (b) of
the definition "excluded withdrawal" in subsection (1)
applies and amounts paid by the individual in the first 60 days
of the year that can reasonably be considered to have been
deducted in computing the individual's income, or designated
under this subsection, for the preceding taxation year) paid
by the individual in the year or within 60 days after the end of
the year under a retirement savings plan that is at the end of
the year or the following taxation year a registered retirement
savings plan under which the individual is the annuitant,
and
(b) the amount, if any, by which
(i) the total of all eligible amounts received by the
individual before the end of the year
exceeds the total of
(ii) all amounts designated by the individual under this
subsection for preceding taxation years, and
(iii) all amounts each of which is an amount included in
computing the income of the individual under subsection (4) or
(5) for a preceding taxation year.
[Emphasis added.]
4146.01(4)3
(4) Where portion of eligible amount not repaid. There
shall be included in computing the income of an individual for a
particular taxation year ending after 1994 the amount determined
by the formula
(A - B - C)
- E
(15 - D)
where
A is
(a) where
(i) the individual died or ceased to be resident in Canada in
the particular year, or
(ii) the completion date in respect of an eligible amount
received by the individual was in the particular year
nil, and
(b) in any other case, the total of all eligible
amounts received by the individual in preceding taxation
years;
B is
(a) where the particular year is the 1995 taxation
year, nil, and
(b) in any other case, the total of all amounts
designated by the individual under subsection (3) for preceding
taxation years;
C is the total of all
amounts each of which is an amount included under this subsection
or subsection (5) in computing the income of the individual for a
preceding taxation year,
D is the lesser of 14 and
the number of taxation years of the individual ending in the
period beginning
(a) where the completion date in respect of an eligible
amount received by the individual was before 1995, January 1,
1995, and
(b) in any other case, January 1 of the first calendar
year beginning after the completion date in respect of an
eligible amount received by the individual
and ending at the beginning of the particular year, and
E is
(a) where the particular year is the 1995 taxation
year, the total of all amounts each of which is an amount
designated under subsection (3) by the individual for the
particular year or a preceding taxation year,
(b) where the particular year begins after 1995 and the
completion date in respect of an eligible amount received by the
individual was in the preceding taxation year, the total of all
amounts each of which is designated under subsection (3) by the
individual for the particular year or a preceding taxation year,
and
(c) in any other case, the total of all amounts
designated under subsection (3) by the individual for the
particular year.
Part X.1
Tax in Respect of Over-Contributions to Deferred
Income Plans
SECTION 204.1:Tax payable by
individuals.
(1) Where, at the end of any month after May, 1976, an
individual has an excess amount for a year in respect of
registered retirement savings plans, the individual shall, in
respect of that month, pay a tax under this Part equal to 1% of
that portion of the total of all those excess amounts that has
not been paid by those plans to the individual before the end of
that month.
Facts and Analysis
[6] For a better understanding of the
figures referred to in the reassessments under appeal, I will now
provide a summary of the facts together with the applicable
law.
[7] The respondent alleges in
paragraph 18 of her Reply that, on or about March 24, 1994, the
appellant withdrew a total of $20,000 from his RRSP for the
purpose of buying or building a qualifying home under the HBP.
Under this plan, the appellant was required to repay annually a
minimum of 1/15 of that amount of $20,000, or $1,333, to his
RRSP, and the first payment was due by no later than
March 1, 1997.
[8] Subsections 146.01(3) and (4) of
the Act provide the scheme by which eligible amounts
borrowed from an RRSP under the HBP must be repaid into an RRSP
over a 15-year period. Failure to repay into an RRSP and to
designate the required repayment as being for a particular year
results in the inclusion in income for that year of the amount
that should have been repaid and designated for the year but was
not. According to subsection 146.01(3) of the Act, the
repayment must be made to an RRSP under which the taxpayer who
withdrew the funds under the HBP is the annuitant.
[9] In the present case, it seems from
the allegations found in subparagraphs 18(a) to (i) of the
Reply, that the appellant withdrew the amount of $20,000 from his
personal RRSP (under which he was the annuitant). The repayment
should thus have been made to his RRSP. But that is not what the
appellant did. Between March 1994 and March 1, 1997, the
appellant made contributions to RRSPs under which his spouse,
Jewal Kennedy, was the annuitant. According to the Minister, none
of the above-mentioned RRSP contributions qualified as a
repayment under the HBP as the appellant was not the annuitant
with respect to the RRSPs to which he made the said
contributions. However, on or about March 2, 1998, the appellant
made a contribution of $1,333 to an RRSP under which he was the
annuitant and it is this amount that was credited as a repayment
under the HBP for the 1997 taxation year. (Indeed, subsection
146.01(3) authorizes a taxpayer to make a repayment to his RRSP
in a year or within 60 days after the end of the year. So that is
why the $1,333 reimbursed on March 2, 1998, qualified for
the 1997 taxation year.) The appellant did not make another
repayment to his RRSP under the HBP for the 1998 taxation year.
Therefore the Minister included an amount of $1,333 in his income
for 1998 as required by subsection 146.01(4) of the
Act.
[10] As mentioned above, the appellant made
contributions to his spouse's RRSPs from March 1994 to March
1997. The appellant stated that when he made these contributions,
he thought that they could be applied as repayments under the
HBP. It is unclear from his submissions whether the funds used
for the HBP were borrowed from his RRSP or his wife's RRSPs.
As I said before, the Minister alleged that the HBP funds were
borrowed from the appellant's own RRSP. There is no
documentation in evidence to contradict the Minister's
allegation on this point. I will therefore accept that the HBP
funds were withdrawn from the appellant's RRSP and not from
his spouse's RRSPs and, accordingly, the contributions to the
spousal RRSPs did not qualify as designated payments under
subsection 146.01(3).
[11] As a result, the appellant exceeded the
RRSP deduction limit as follows:[1]
Excess Contributions
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Taxation year
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1994
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1995
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1997
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Contributions made during the calendar year
(first 60 days):
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$1,200
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$1,200
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$5,583
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Contributions made during the remainder of
the year:
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$6,300
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$3,300
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-
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Amount of the contributions deducted:
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$4,959
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-
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Excess contribution eligible for
withdrawal:
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$2,541
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$4,500
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$5,583
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[12] Therefore, the appellant had excess
RRSP contributions totalling $12,624 for the 1994, 1995 and 1997
taxation years (which represents the sum of the excess RRSP
contributions of $2,541, $4,500 and $5,583 for each of those
years respectively).
[13] According to the appellant, it was only
in June 1997, when he received his 1996 assessment disallowing
his RRSP deduction, that he was made aware that he had exceeded
the RRSP deduction limit. It should be said here that there was
another reason for the over-contributions. In his 1995 tax
return, the appellant had mistakenly indicated that his 1995
pension adjustment amount was $1,284 although it was in reality
$12,884. As a result of the appellant's error, the Minister
reassessed the appellant's 1995 taxation year to increase the
pension adjustment amount from $1,284 to $12,884. Consequently,
the appellant's RRSP deduction limit for the 1996 taxation
year was reduced from $5,583 to nil, hence the excess
contributions referred to above (see subparagraphs 18(n) to (q)
of the Reply and paragraphs 5 to 7 of the respondent's
Written Submissions).
[14] Thereafter, the Minister sent various
letters to the appellant advising him of the tax consequences of
the excess contributions. The first letter was sent on February
20, 1998. In it, the Minister approved a "Tax Deduction
Waiver on the Refund of [the appellant's] Undeducted RRSP
Contributions" (Form T3012A) for the 1994, 1995 and 1997
taxation years. In fact, the amount of undeducted RRSP
contributions that was approved for refund without income tax
withholding was the total amount of excess contributions, namely,
$12,624 (see paragraphs 11 and 12 above). The Minister advised
the appellant at the time to withdraw this total amount from
identified spousal RRSPs that were held by two different issuers,
Scotia Securities and Royal Trust. The appellant was also advised
to include the amount refunded in his income for the year in
which it was received. He was advised as well that he could claim
a deduction for the same amount. It was further stated in the
letter that the appellant's contributions were in excess of
the deduction limit by more than $2,000 in 1996 and 1997 and
would remain in excess in 1998 until the excess amount was
withdrawn from the RRSPs. As a result, the appellant was subject
to a tax of one per cent per month for each month that the
contributions remained in excess. (This is the Part X.1 tax that
was assessed for 1996, 1997 and 1998.)
[15] Further to that letter, the appellant
and his spouse filled in three T3012A forms from Revenue Canada
and requested from Scotia Securities a refund in the amount of
$5,583, and from Royal Trust, an initial refund of $2,541 and a
second of $4,500 (see Exhibits R-2 and A-1). All three forms were
approved by Revenue Canada on February 19, 1998. The forms sent
to Royal Trust were signed by the appellant and his wife on March
1, 1998. Royal Trust certified on March 3, 1998, that it had
refunded the sums of $2,541 and $4,500 (for a total of $7,041) to
the appellant. It issued T4RSP slips for these amounts for 1998
but had indicated that the refunds "must be backdated by
Rev. Canada" (see Exhibit R-2). With respect to the
$5,583 refund made by Scotia Securities, the completed Form
T3012A was not filed in evidence so we do not know when this form
was signed by the appellant and his wife, nor at what date, or
for which year Scotia Securities certified the refund (see
Exhibit A-1).
[16] On September 28, 1998, the Minister
wrote to the appellant advising him that an amount of $10,083
would be included in his income for 1997. According to this
letter (see Exhibit R-1, Tab 5), in 1997 the appellant's
spouse had withdrawn a total amount of $17,012 from spousal RRSPs
to which the appellant had contributed a total of $10,083 over
the years 1995, 1996 and 1997. (If we look at the Excess
Contributions chart reproduced at paragraph 11 above, the
appellant over-contributed $4,500 in 1995 and $5,583 in 1997,
which totals $10,083. This amount was presumably included in
income pursuant to subsection 146(8.3) of the Act.)
However, the Minister only allowed an offsetting deduction of
$5,583 (presumably pursuant to subsection 146(8.2)). The
relevant portion of the letter reads as follows:
We can only allow an offsetting deduction of $5,583.00 on this
amount as you completed two T3012As, "Tax Deduction Waiver
on the Refund of Your Undeducted Contributions", in 1998 and
will be claiming an offsetting deduction for the $7,041.00
[$2,541 + $4,500] withdrawn in 1998. You do not have any other
undeducted contributions.
[17] On October 5, 1998, the Minister
reassessed the appellant for the 1997 taxation year, including in
his income for that year an amount of $10,083 and allowing an
offsetting deduction of $5,583 against that income.
[18] The difference between the $17,012
withdrawn by the appellant's spouse and the $10,083 that was
included in the appellant's income, that is, $6,929, was
included in the spouse's income pursuant to subsection 146(8)
of the Act.
[19] On June 25, 1999, the Minister wrote
again to the appellant reminding him to file his tax return for
1998 and saying, among other things, the following (Exhibit R-1,
Tab 7):
Our records indicate that you have not yet filed your 1998
income tax return. Please ensure that you include the T4RSP
excess amounts of $12035.00 ($4995.00, $4500.00, $1855.00 and
$685.00) on line 129 of your return, as these amounts were
withdrawn using the T3012A forms we approved in February, 1998.
You can also claim an offsetting deduction of $7041.00 on line
232 of this return. The remaining offsetting deduction of
$5583.00 was already allowed on your 1997 return. Please refer to
our letters dated February 20, 1998 and September 28, 1998, for
more information.
[20] On October 25, 1999, the appellant was
reassessed for his 1998 taxation year. His RRSP income was
increased to $28,374 and no deduction was allowed.
[21] On March 14, 2002, the appellant was
reassessed again for his 1998 taxation year. His RRSP income was
decreased to $8,374 (comprising the sum of $1,333 that was not
repaid under the HBP and the amount of $7,041, which is the sum
of the amounts referred to above ($2,541 + $4,500)) withdrawn
from the RRSP account with Royal Trust. The appellant was allowed
an offsetting deduction of $7,041.
[22] On August 29, 2002, the appellant was
sent another letter from the Minister, which reads as follows
(Exhibit R-1, Tab 10):
Dear Sir:
Re: Your 1997 Income Tax Return
We are writing in response to your enquiry regarding our
reassessment of October 5, 1998 to include RRSP income of $10,083
and allow an offsetting deduction of $5,583.
In 1997 your spouse withdrew $19,961 [sic] from
RRSP's where she was the annuitant and you were the
contributor to the plan. She would report the income provided the
contributor did not make any spousal RRSP contributions in the
year of the withdrawal or in the prior two years. As you made
spousal contributions of $10,083 in that period, you are required
to report that amount in your income from those withdrawals and
she would report the remaining amount.
Since you over contributed to your RRSP's (by $12,624) and
had to withdraw funds to take you out of an excess situation, we
approved forms to withdraw 1994 and 1995 contributions totaling
$7,041 and you were allowed the offsetting deduction for this
amount on your 1998 return. The remaining $5,583 ($12,624 -
$7,041) was allowable as a deduction on your 1997 return as
undeducted contributions.
In a separate enquiry, you have requested a copy of the
adjustment request that prompted your over contribution situation
and also copies of the Form T3012A's that were approved. The
original adjustment request was to allow contributions as a Home
Buyers' Plan repayment. This request could not be actioned as
your contributions were to a spousal plan. This left you in a
situation that you overcontributed to your RRSP's and you had
to withdraw from your plan. Therefore, the enclosed copies of the
Form T3012A's were approved by our department.
[23] In summary, the appellant was
reassessed as follows. An amount of $10,083 was included in his
income for 1997. This amount of $10,083 is the sum of the amount
of $4,500 contributed by the appellant to the Royal Trust spousal
RRSP in 1995 and refunded by Royal Trust on March 3, 1998, and
the amount of $5,583 contributed by him to the Scotia Securities
spousal RRSP in 1997 and refunded by Scotia Securities presumably
in the first days of March 1998. An offsetting deduction of
$5,583 was allowed for that year.
[24] For 1998, the Minister added $8,374 to
the appellant's income, which amount represents the sum of
the $1,333 not repaid for that year under the HBP and of the
$7,041 ($2,541 + $4,500) that was contributed by the appellant to
the Royal Trust spousal RRSP in 1994 and 1995 and refunded by
Royal Trust on March 3, 1998. An offsetting deduction of $7,041
was allowed against that income for that year.
[25] As I will explain further on, it is my
understanding that the Minister, in so reassessing the appellant,
relied on subsections 146(8.2) and 146(8.3).
[26] The appellant's wife had to include
in her income for 1997 an amount of $6,929 (being the difference
between the amount withdrawn, $17,012, and the portion thereof,
$10,083, included in the appellant's income) pursuant to
subsection 146(8) of the Act.
[27] Under subsection 146(8.3), the amount
included in the taxpayer's income rather than the
spouse's income is the lesser of (a) the amount that would
otherwise be included in the spouse's income under subsection
146(8) and (b) the total of all premiums (or contributions) paid
by the taxpayer into the spousal plan for that year and the two
preceding years.
[28] Here, the Minister's assumption is
that the appellant's wife withdrew an amount of $17,012 from
her RRSPs in 1997. With regard to that year and the two preceding
years (1995 and 1996), the Minister's assumption is that the
appellant contributed in total $10,083 ($4,500 in 1995 and $5,583
in 1997) to the spousal RRSPs.
[29] If the year of the withdrawal of the
funds is 1997, as assumed by the Minister, then it would appear
that the amount of $10,083 - being the lesser of $17,012 (the
amount that should normally have been included in the
spouse's income) and $10,083 (the amount of the premiums paid
by the taxpayer into the spousal RRSPs in the two preceding
years) - was included in the appellant's income for 1997 in
accordance with subsection 146(8.3) of the Act.
[30] It seems quite clear here that the
appellant and his wife requested a refund of the premiums paid
when the appellant was told that he had exceeded the limit in
contributing to the spousal RRSPs (and was liable to
Part X.1 tax on that over-payment) and that he could
not designate the excess contributions as a repayment into his
own RRSP under the HBP. Amounts so refunded are normally included
in computing the recipient's income in the year of receipt
under subsection 146(8) (or included in the taxpayer's income
if he contributed to the spousal plan in the year of or in the
two years preceding the refund, pursuant to subsection 146(8.3)),
even if the contribution itself did not produce any deduction.
The purpose of subsection 146(8.2) is to permit amounts refunded
in these circumstances to be deducted by the recipient or the
taxpayer in computing income. Form T3012A, issued by Revenue
Canada, is to be filed for the purposes of subsection 146(8.2).
The deduction under subsection 146(8.2) is available only if
the refund of the excess amount is received (a) in the year the
excessive premiums were paid, (b) in the year in which the notice
of assessment for the taxation year in which the premiums were
paid is sent, or (c) in the year following either of those
years.
[31] In the present case, it can be inferred
from the evidence (Exhibits R-2 and A-1) that the amounts
refunded by Royal Trust ($2,541 + $4,500) and by Scotia
Securities ($5,583) were remitted at the same time, that is, on
or about March 2, 1998. At least, it seems that the Minister
accepted that the refunds made at the beginning of March 1998 by
both institutions should be considered as having been made within
the time limit for the 1997 taxation year. Indeed, the Minister
included the refund of excess contributions made since 1995 in
the appellant's income for his 1997 taxation year. The amount
so included was $10,083 (which is the sum of the $5,583 refund by
Scotia Securities and the $4,500 refund by Royal Trust).
[32] It is unclear why the Minister did not
consider an offsetting deduction for the whole amount. The only
explanation is that Scotia Securities issued a T4RSP slip
indicating that the refund applied to 1997, while Royal Trust
indicated the year 1998 on the slip, with a note, however, on
Form T3012A that Revenue Canada would have to backdate the refund
(see Exhibit A-2, Attachment 3).
[33] In my view, if the Minister is to
consider that the refund of $4,500 must be included in income in
1997 (as being part of the $10,083), he must then apply the
offsetting deduction for the same year (1997), if applicable.
Pursuant to subsection 146(8.2), an offsetting deduction will be
allowed for 1997 if (a) the premiums were paid in the same year
(which is not the case here as the amount of $4,500 was paid in
1995) or (b) if the assessment for the year in which the premiums
were paid (1995) was sent in 1997. It appears from Exhibit R-1,
Tab 2, that the 1995 taxation year was assessed in 1996 (so
the assessment was not sent in 1997). However, under subparagraph
146(8.2)(c)(iii), if the refund was received in the year
immediately following either of the years referred to above,
which in this case would be the year following either 1995 or
1996 and would thus include 1997, the appellant would be entitled
to the offsetting deduction of $4,500 in that year.
[34] In my view, the Minister erred in not
allowing an offsetting deduction for the entire amount of $10,083
in 1997. As I said earlier, since the Minister considered that
the full refund of $10,083 should be included in income for 1997,
then the same reasoning should apply to the offsetting deduction,
as the conditions therefor enumerated in subsection 146(8.2),
referred to above, have been met.
[35] Furthermore, having included the amount
of $4,500 (which is comprised in the $10,083) in income for 1997,
the Minister could not include it a second time in 1998. It is
obvious from the evidence that the amount of $7,041 comprises the
sum of $4,500 already included in 1997 and the amount of $2,541,
both amounts having been refunded by Royal Trust in March 1998.
Evidence of this is the correspondence of the Minister referred
to above, which gives the appellant an equivalent offsetting
deduction for 1998.
[36] The amount of $2,541 was not included
in the appellant's income in 1997 because it was contributed
to the spousal RRSP in 1994 and did not have to be included in
his income pursuant to subsection 146(8.3). Indeed, that
contribution was not made in the two years preceding 1997. The
same can be said for 1998. The amount of $2,541 should therefore
not have been included in the appellant's income for that
year either. However, because the amount of $7,041 [$4,500 +
$2,541], was offset by an equivalent deduction, there is no tax
impact for the appellant for 1998.
[37] With respect to the Part X.1 tax, the
calculation thereof was done in accordance with the Act
and is shown in Exhibit R-1, Tabs 12 to 14. The appellant did not
dispute the figures at the hearing. His main concern is that he
was not well informed of the prevailing situation. In fact, he
only learnt in the summer of 1997 that he had over-contributed to
his RRSPs. It should be remembered here that it was he who first
made a mistake, entering in his 1995 tax return an incorrect
figure as his pension adjustment amount. Although this was not a
voluntary error, the Minister cannot now be blamed for this error
that gave the impression that the appellant was entitled to a
higher deduction limit for his RRSP contributions.
[38] I therefore conclude that the Part X.1
tax was properly calculated and should not be modified.
[39] With respect to the penalties
challenged by the appellant, they are only applicable in relation
to the Part X.1 tax (see the notices of assessment issued
pursuant to Part X.1 in Exhibit R-1, Tabs 12 to 14) and I do not
have any reason to cancel them.
Conclusion
[40] The appeal for the 1996 taxation year
is dismissed.
[41] The appeal for the 1997 taxation year
is allowed, with costs, if any, and the assessment is referred
back to the Minister for reconsideration and reassessment on the
basis that the appellant is entitled to a further deduction of
$4,500 pursuant to subsection 146(8.2) of the Act, which
will in effect reduce the additional RRSP income to nil.
[42] The appeal for the 1998 taxation year
is also allowed and the assessment is varied and referred back to
the Minister for reconsideration and reassessment on the basis
that the amount of $7,041 should not have been included in income
for that year and no offsetting deduction should have been given
either. However, the amount of $1,333 was correctly included in
income pursuant to subsection 146.01(4) of the
Act.
Signed at Ottawa, Canada, this 17th day of February 2005.
Lamarre, J.
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