Date: 20080911
Docket: T-1613-07
Citation: 2008 FC 1022
Ottawa, Ontario, September
11, 2008
PRESENT: The Honourable Mr. Justice O'Keefe
BETWEEN:
ANDRZEJ
JANUSZ LEPIARCZYK
Applicant
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
O’KEEFE J.
[1]
This
is an application pursuant to section 18.1 of the Federal Courts Act,
R.S.C. 1985, c. F-7, for judicial review of the decision of the Minister of the
Canada Revenue Agency (the Minister or CRA) dated August 10, 2007 wherein the
Minister refused the applicant’s request that the Minister waive taxes imposed
on the applicant for excess RRSP contributions made from 2003 to 2005 under the
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act).
[2]
The
applicant requested the following relief be granted:
a) an order
setting aside CRA’s conclusion;
b) an order that
the excess RRSP contributions were a result of a reasonable error;
c) an order that
the applicant made reasonable efforts to correct the situation;
d) an order that
CRA will clarify to the applicant the issue of retiring allowance, particularly
grounds for classification of legal costs as retiring allowances; and
e) an order that
the penalty is waived or refer the matter back to CRA with directions to grant
a waiver of the penalty tax.
Background
[3]
Under
subsection 204.1(1) of the Act, a taxpayer who contributes more to his or her
RRSP than they are entitled to deduct in a given taxation year must pay tax on
the excess amount. Andrzej Janusz Lepiarczyk (the applicant) contributed more
to his RRSP than he was entitled to deduct from 1994 to 2005, with the
exception of 1995. In a letter dated February 6, 2007, the Minister informed
the applicant of the RRSP tax under subsection 204.1(1) and requested that he
pay the RRSP tax in relation to the excess contributions made from 2003 to
2005. As a result, in a letter dated March 4, 2007, the applicant then made a
request to the Minister that he waive the RRSP tax pursuant to his discretion
under subsection 204.1(4) of the Act. In a letter dated May 18, 2007, the
Minister refused the applicant’s request. The applicant then wrote the Minister
on June 4, 2007 urging reconsideration of the decision. The Minister’s initial
decision was confirmed in a letter dated August 10, 2007. This is the judicial
review of the Minister’s initial decision dated May 18, 2007 and the
confirmation of that decision dated August 10, 2007.
Minister’s
Decision and Subsequent Confirmation
[4]
In
a letter dated May 18, 2007, the Minister noted that in order to exercise his
discretion under subsection 204.1(4) of the Act, he had to be satisfied that
the excess contributions resulted from reasonable error and that reasonable
steps were taken to eliminate the excess. The Minister provided the following
reasons for choosing not to exercise his discretion:
Our records show you have had excess
unused RRSP contributions since at least 2000 and you continued to have unused
contributions that exceeded your deduction limits up to and including 2005. At
the beginning of 2003 your unused contributions were $12656 and, based on the
receipts in your 2003 tax return, you contributed an additional $17558 for a
total of $30214. As your 2003 allowable deduction limit was only $14500, at the
end of your 2003 unused contributions were $15714.
You state CRA’s NoA’s use the term
“unused RRSP deductions” and you understood this to mean that you had not used
your limit and could contribute more to your RRSP. However, in actual fact, the
NoA states “unused RRSP contributions” and the NoA also advises you to contact CRA
if you are unsure of the meaning of the term or if you are unsure of any tax
consequences on unused contributions.
You also say, the problem continued in
2004, when you received $50000 in a wrongful dismissal dispute and as it was
taxable income you assumed it would be taken into consideration for RRSP
purposes, therefore, you contributed accordingly. However, even if the $50000
was qualified income for RRSP purposes, it would have been taken into
consideration for tax year 2005, not 2004 and prior, which are the years you
contributed more to your RRSP than your allowable RRSP deduction limits.
Also, for your information, as the $50000
was paid to you as a Retiring Allowance (R/A), the $2000 contribution made in
2004 was a transfer of the eligible portion of the R/A and it was not taken
into consideration when determining your unused amounts.
Therefore, based on the facts presented,
it cannot be concluded that the requirements of subsection 204.1(4) have been
met and administrative relief will not be granted.
[5]
The
Minister affirmed the above decision in a second letter dated August 10, 2007.
This letter was issued in response to the applicant’s request for
reconsideration. The August 10, 2007 letter also provided further reasons for
denying the request:
Under subsection 204.1(4) of the Income
Tax Act, the penalty tax may be waived if it arose as a result of a
reasonable error and if reasonable steps are taken to correct the situation.
The fact that you misunderstood the term “unused” is not considered a reasonable
error. The documents in your 2003 to 2005 income tax returns clearly show your
RRSP contributions carried forward from the prior year and these are referred
to as “unused” and “undeducted”. There is no mistaking what these terms
represent, given the presentation of the amounts.
Documents prepared by your accountant and
filed with your tax returns show the calculation of your current year RRSPs,
your subsequent year RRSP deduction limit, the earned income used for RRSP
purposes and the Schedule 7. Therefore, your accountant provided you with the
information needed regarding your subsequent year RRSP contribution before you
received our Notice of Assessment. Your settlement of a wrongful dismissal
dispute has no relevance to the excess RRSP contributions made between the tax
years 2000 and 2003, given the information provided to you.
As mentioned in our previous letter, each
individual is responsible for ensuring that all contributions are made within
the guidelines as set out in the legislation that govern RRSPs. The Notice of
Assessment sent to you alerts you to the fact that excess RRSP contributions
may be subject to tax. It is your responsibility to determine whether your
contributions are subject to tax and if so, to decide whether you want to
correct the situation. You are responsible for calculating the tax using the
T1-OVP Return, filing that return and for paying the tax. Information on RRSPs
is readily available through the Agency.
Issues
[6]
The
applicant has submitted the following issues for consideration:
1. Did
the applicant knowingly and deliberately contribute to his RRSP over the limit
or did a reasonable error occur in understanding CRA’s terminology?
2. Did
the applicant misunderstand CRA’s terminology or in fact, was CRA’s terminology
backwards?
3. Is
a statement, which requires a comparison of numbers to determine the meaning of
the words in that statement clear or misleading?
4. Does
“unused RRSP contributions and available to carry forward” indicate an excess
of RRSP contributions or the opposite?
5. If
the statement “unused RRSP contributions available to carry forward” was not
misleading why then in 2004 did CRA add the clarifier: “If this amount is more
than amount (A) above, you may be subject to a penalty tax”?
6. If
there was no doubt what “unused RRSP contributions available to carry forward”
means, why did CRA staff in current correspondence rather use the words
“excess” or “over-contributions” to describe those unused and available to
carry forward contributions?
7. Were
there any other circumstances that the applicant would believe that his
understanding was correct and he was not doing anything wrong?
8. Prior
to February 2007, did CRA ever inform the applicant about the excess of his
RRSP contributions?
9. When
and how did the applicant learn about his excessive contributions?
10. Did
the applicant take reasonable steps to correct the error? Is not the
elimination of the error considered as a reasonable step to correct that error?
11. Did
CRA, during the review, consider all facts, circumstances and the applicant’s
clarifications thoughtfully?
12. Did
CRA properly apply their discretion to waive the penalty tax?
[7]
I
would rephrase the issues as follows:
1. What
is the appropriate standard of review?
2. Did
the Minister commit a reviewable error in refusing to waive the tax penalty?
Applicant’s
Submissions
[8]
The
applicant submitted that he considers himself a reasonably intelligent person,
with reasonably good English skills. He submitted that his understanding of the
statement “your unused RRSP contributions available to carry forward to … the
next taxation year” meant that in previous years he had not contributed the
limit, and therefore in the following year his limit was extended by the
specified amount. It was submitted that to remedy the believed deficit in
contributions, the applicant made a $15,000 RRSP contribution on January 8,
2004 towards his 2003 contributions. The applicant submitted that if he had
known that he would be taxed, this action would have made no sense as it would
only have exacerbated the situation. The applicant made this rather large
contribution because he knew he would be leaving Canada in April
2004 and would likely not make contributions to his RRSP for 2004.
[9]
Upon
the applicant’s return to Canada in November 2005, he was advised by his
accountant not to make another RRSP contribution. It was submitted that the
accountant then explained to the applicant that “unused and available” meant
“excess”. The applicant submitted that he then froze his RRSP contributions and
on January 1, 2006 they were below the allowed limit.
[10]
The
applicant submitted that the following circumstances prevented him from
detecting the error earlier:
- Since
his immigration to Canada in 1982, the
applicant has almost always received tax refunds;
- Since
1995, the applicant’s RRSP contributions comprised of bi-weekly payroll
deductions which were matched by his then employer and topped up by a lump
sum; and
- In
April 2004, the applicant left for overseas for 13 months and did not see
CRA’s revised Notice of Assessment until November 2005.
[11]
The
applicant further argued that if numbers must be compared to determine the
meaning of words then such a statement is misleading. Moreover, the
deceptiveness of the use of the word “unused” is supported by the fact that
prior to 2004, there was no clarifier on Notices of Assessment that such a comparison
had to be conducted.
[12]
The
applicant also argued that the Minister erred in finding that the applicant’s
$50,000 wrongful dismissal settlement from his employer (the settlement) was
not relevant in determining whether to exercise discretion to waive the RRSP
tax. He submitted that the settlement received in 2004 is relevant to the
decision because it occurred during the relevant time period before 2005, it
included a $2000 RRSP contribution, part of the settlement was reimbursement of
legal expenses, as part of the settlement was taxable it was logical for the
applicant to assume that it was income and as income, this amount eliminates
the excess RRSP contributions as of January 1, 2005. The applicant argues that
the amount received for legal expenses are not Retiring Allowances as found by
the Minister.
Respondent’s
Submissions
[13]
The
respondent provided an overview of the legislative scheme highlighting the
imposition of a 1% tax on a taxpayer’s cumulative excess amount in respect of
an RRSP as per subsection 204.1(2.1) of the Act. The respondent also noted that
under subsection 204.1(4) of the Act, the Minister has the discretion to waive
the RRSP tax if he or she is satisfied that both (a) the cumulative excess
amount in question arose as a result of reasonable error, and (b) reasonable
steps were taken to eliminate the excess. It was submitted that there are no
written policy guidelines in place to provide guidance on the exercise of the
discretion under subsection 204.1(4) of the Act, nor does the Act provide
insight into what constitutes a reasonable error or reasonable steps. The
Minister may choose the criteria so long as it is consistent with a general
duty of fairness (Estate of the Late Henry H. Floyd v. M.N.R.,
[1993] F.C.J. No. 986; Kaiser v. The Minister of National Revenue,
[1995] F.C.J. No. 926).
[14]
The
respondent submitted that given the discretionary nature of the decision, the
appropriate standard of review is one of reasonableness. The respondent
reviewed the ground of review set out in subsection 18.1(4) of the Federal
Courts Act above, and submitted that none of the grounds are met. A
reviewing court is not called upon during judicial review to exercise the
discretion conferred on the Minister (Her Majesty the Queen v. Barron,
[1997] F.C.J. No. 175) or to substitute its own decision for that of the
Minister (Maple Lodge Farms Ltd. v. Government of Canada, [1982]
2 S.C.R. 2).
[15]
The
respondent submitted that the Minister’s decision not to exercise his
discretion was reasonable given that with the exception of 1995, from 1994 to
2005, the applicant had consistently over contributed to his RRSP. Moreover,
the Notices of Assessment for 2002, 2003, 2004, and 2005 each identified the
unused RRSP contribution available for the following taxation year, and with
the exception of the Notice of Assessment for 2002, the remaining Notices of
Assessment also warned the applicant that if the amount of unused RRSP
contributions was more than his RRSP deduction limit for the following year, he
may be subject to tax on the excess contributions. Therefore, it was reasonable
for the Minister to find that the applicant should have understood these
warnings. The respondent also submitted that the Notices of Assessment for 2003
to 2005 assigned the letter “B” to the amount of unused RRSP contributions and
the letter “A” to the applicant’s RRSP deduction limit for the following
taxation year. The notices then stated that if “B” was greater than “A”, then
the applicant may be subject to tax and therefore, there was no need for the
applicant to actually understand what the term “unused” meant. The Minister properly
exercised his jurisdiction and rendered a reasonable discretionary decision.
Analysis and
Decision
[16]
Issue
1
What is
the appropriate standard of review?
Very
recently in Dunsmuir v. New Brunswick, 2008 SCC 9,
the Supreme Court of Canada reviewed the standard of review analysis in Canada and
eliminated the standard of patent unreasonableness. In doing so, the Supreme
Court stated the following about the reformed standard of review analysis at
paragraph 62:
In summary, the process of judicial
review involves two steps. First, courts ascertain whether the jurisprudence
has already determined in a satisfactory manner the degree of defence to be
accorded with regard to a particular category of question. Second, where the
first inquiry proves unfruitful, courts must proceed to an analysis of the
factors making it possible to identify the proper standard of review.
[17]
Having
canvassed the jurisprudence, I am of the opinion that it is necessary to engage
in our own standard of review analysis. Applying the relevant factors listed in
Dunsmuir above at paragraph 64, I find that the appropriate standard of
review for the Minister’s decision is reasonableness. I note that of particular
importance in this case is the fact that the decision is discretionary, and
involves a question of mixed fact and law; therefore, some deference is owed to
the Minister’s decision.
[18]
Issue
2
Did the Minister commit a
reviewable error in refusing to waive the tax penalty?
The applicant submitted that
the Minister rendered an unreasonable decision in choosing not to exercise his
discretion to waive the RRSP tax under subsection 204.1(4) of the Act. The
respondent disagrees. In Dunsmuir above at paragraph 47, the Supreme
Court of Canada made the following statements in relation to the standard of
reasonableness:
Reasonableness
is a deferential standard animated by the principle that underlies the
development of the two previous standards of reasonableness: certain questions
that come before administrative tribunals do not lend themselves to one
specific, particular result. Instead, they may give rise to a number of
possible, reasonable conclusions. Tribunals have a margin of appreciation
within the range of acceptable and rational solutions. A court conducting a
review for reasonableness inquires into the qualities that make a decision
reasonable, referring both to the process of articulating the reasons and to
outcomes. In judicial review, reasonableness is concerned mostly with the
existence of justification, transparency and intelligibility within the
decision-making process. But it is also concerned with whether the decision
falls within a range of possible, acceptable outcomes which are defensible in
respect of the facts and law.
[19]
Having
reviewed the Minister’s decision and the confirmation of that decision, I am of
the opinion, that the Minister’s decision was reasonable. The decision not to
exercise discretion was a plausible and acceptable decision in light of the
evidence before him. The Minister provided reasons as to why the error made by
the applicant was not reasonable. 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. The Minister reasonably
addressed the issue of “unused RRSP deductions” and “unused RRSP contributions”.
[20]
I
am of the view that the application for judicial review must be dismissed.
JUDGMENT
[21]
IT
IS ORDERED that the application for judicial review is dismissed.
“John
A. O’Keefe”
ANNEX
Relevant Statutory Provisions
The relevant statutory provisions are set
out in this section.
The Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp.):
|
204.1(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.
(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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204.1(1)
Le particulier qui, à la fin d’un mois donné postérieur au mois de mai 1976,
a un excédent pour une année relativement à des régimes enregistrés
d’épargne-retraite doit, pour ce mois, payer un impôt en vertu de la présente
partie égal à 1 % de la partie du total de ces excédents qui n’a pas été
restituée par les régimes au particulier avant la fin du mois en question.
(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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