15 July 1988 Income Tax Severed Letter 5-5952 - [Request Not Administrative Relief]

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

JUL 15 1988

J.A. Szeszycki 957-2130 XXXX Request Not Administrative Relief

The purpose of this memorandum is to apprise you of a case which involves a request for reassessment of non-statute-barred years, remission of taxes in respect of statute-barred years and administrative relief with respect to consequential over-contributions to registered retirement savings plans.

XXXX

Mr. XXXX was, throughout this period, a member of the Public Service Management Insurance Plan ("PSMIP") and his coverage included long term disability ("LTD"). He applied for and was considered entitled to LTD benefits under the plan. He began receiving the benefits that year and has continued to receive them to the present day. At the time of the initial payment of benefits by the insurer, XXXX there was no consideration given to whether the amounts would be exempt from tax under the provisions of ITAR 19 as it was presumed that the disabling "event" took place around the time of his retirement after 1973.

XXXX was unaware at the time, of any provisions which might exempt all or a portion of the LTD benefits received.

We have reviewed the PSMIP in order to determine whether the plan had been amended since June 19, 1971 in such a way as to render any portion of the LTD benefits taxable. The LTD coverage was added to the plan in 1970 and has not been amended since. Mr. XXXX has obtained a letter (enclosed) from XXXX which attests to the fact that the "event" which led to the disabling condition for which he is receiving benefits occurred before 1974. Consequently, it appears that XXXX LTD benefits fall under the provisions of ITAR 19 and should have been excluded from income since their initial payment in 1978. It is our view therefore, that adjustments to returns for the years still open to reassessment XXXX are warranted.

XXXX in view of the mitigating circumstances of this case and the financial setback suffered over the past decade (see schedule A) that there is a reasonable case for relief, i.e., remission of taxes, for years that are statute-barred XXXX The mitigating circumstances include the nature of the disability itself and the scarcity of information available at the time to alert him to the fact that his LTD benefits may not be taxable.

As an added complication, Mr. XXXX has been contributing to registered retirement savings plans to the maximum allowable in each year. These contributions included rollovers of superannuation benefits and 20% of earned income. Earned income, however, included his reported LTD benefits. Consequently, removal of the tax exempt, income will reduce that earned income for RRSP purposes and place Mr. XXXX in a potential over-contribution state. We have analysed the taxpayer's RRSP contributions and re-computed his maximum allowable contributions in each year. His tendency to contribute primarily in the first 60 days of the year provided the flexibility in applying those contributions to a particular year and, as a result, his over-contributions were limited XXXX For the same reasons as are applicable to his request to for remission of taxes Mr. XXXX requests consideration of administrative relief by allowing him to remove the over-contributions without tax consequences. In years that are not statute-barred these over-contributions are consequential to the adjustments reducing his income. We would add that, in our view, the extent of over-contributions in statute-barred years should not depend upon the success of his case for remission but rather on the recognition that exempt income was contributed to an RRSP.

As discussed with Francine Ouellette of your staff, had the case involved solely a request for remission we would have normally forwarded the request directly to the Remission Committee; however, since the case also involves reassessments and administrative relief considerations, it is felt that the total relief package should be coordinated through your Division in order to limit the duplication of effort.

We enclose copies of all our contacts with the taxpayer as well as our analysis of the tax effects of removing exempt income (up to but not including the recent XXXX In addition, we enclose the taxpayer's copies of his returns which contain complete schedules of RRSP contributions. If there are questions concerning any aspect of this case please contact Jack Szeszycki (957-2130).

ORIGINAL SIGNED BY B. W. DATH Bryan Dath Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch