Zhang – Federal Court sets aside a CRA rejection of s. 204.1(4) relief that did not consider whether indeed there had been an excess contribution

In 2013, the taxpayer’s spouse made a $13,142 contribution that was (the taxpayer claimed) intended to pay off her home buyers’ plan (HBP) balance. However, the RBC branch treated that amount as a contribution by her to the RRSP of the taxpayer which, if correct, meant that he had over-contributed for 2013. In June 2021, CRA assessed the taxpayer for excess contribution tax under s. 204.1(1), and in July 2021 (rather than objecting), the taxpayer requested a waiver of the tax under s. 204.1(4).

Southcott J noted that the CRA position in reaching an adverse decision - that the taxpayer had not made a reasonable error given that he was notified of his contribution on a sufficiently timely basis that he could have gone back to RBC to correct its reporting of the contribution while it still had sufficient records of the transaction – was not supported by the record, which did not establish that CRA had notified the taxpayer of his alleged over-contribution in 2013 before December 2020.

Regarding the second element of s. 204.1(4), namely, the requirement for the taxpayer to have taken reasonable steps to eliminate his excess contribution, Southcott J stated (at para. 43):

[T]he Applicant submits that he should not be expected to make an RRSP withdrawal to correct an over-contribution situation that would not exist if the Minister accepted his position that the $13,142 contribution made in 2013 should not be attributed to him. This argument raises what I consider to be a valid point that what constitutes reasonable steps, under the second element of the s 204.1(4) test, may in some circumstances be influenced by the particular facts surrounding the excess contribution for which a tax waiver is sought. In the case at hand, the Delegate’s unreasonable analysis under the first element of the test precluded the possibility of the Delegate accepting the Applicant’s characterization of the 2013 contribution and considering what, if anything, would be required as reasonable remedial steps in the context of that characterization.

As can be seen from the above passage, Southcott J was unwilling to get caught up in the scoping question as to whether s. 204.1(4) can apply to the cancellation of tax that was never owing (and whose assessment was not objected to) because in fact there was no over-contribution. The adverse decision of the CRA review officer was remitted for decision by another officer.

Neal Armstrong. Summary of Zhang v. Canada (Attorney General), 2023 FC 356 under s. 204.1(4).