REASONS FOR JUDGMENT
Favreau
J.
[1]
I allowed the appeal orally from the bench on
June 30, 2017, and I notified the parties that the reasons would accompany
my written judgment.
[2]
The appeal at issue here involves reassessments
dated May 29, 2015, issued under the Income Tax Act, R.S.C. (1985), c. 1 (5th Supp.), as amended, (the “Act”),
by the Minister of National Revenue (the “Minister”) for the appellant’s 2012,
2013, and 2014 taxation years.
[3]
Under these reassessments, the Minister made the
following adjustments to Part X.1 of the Act with respect to excess
contributions by the appellant into his Registered Retirement Savings Plan
(“RRSP”) and to his spouse’s RRSP, and to the penalty for the late filing of
his T1-OVP and interest:
|
Year
|
Tax
$
|
Penalty
$
|
Interest
$
|
|
2012
2013
2014
|
1,927.56
10,404.00
8,670.00
|
327.69
1,768.68
433.50
|
263.74
727.91
73.87
|
[4]
To issue and uphold the reassessments, the
Minister made the following assumptions:
a)
During November 2012 and January 2013, the
appellant contributed the following amounts to his RRSPs and his wife’s RRSPs:
|
Contribution
|
Month of Contribution
|
Annuitant
|
Plan Sponsor
|
|
$130,000
$100,000
$50,000
$40,000
$5,000
|
November 2012
November
2012
November
2012
November
2012
January
2013
|
Daniel Turcotte
Daniel
Turcotte
Martine
Michel
Martine
Michel
Daniel
Turcotte
|
Tangerine Bank
The
Empire Life Insurance Company
The
Empire Life Insurance Company
Manulife
Bank of Canada
Fonds
de solidarité des travailleurs du Québec (F.T.Q.)
|
b)
During November 2014, the appellant withdrew the
following amounts from his RRSPs and his spouse’s RRSPs:
|
Amount Withdrawn
|
Month of Withdrawal
|
Annuitant
|
Plan Sponsor
|
|
$59,549
$41,261
|
November 2014
November
2014
|
Martine Michel
Martine
Michel
|
The Empire Life
Insurance Company
Manulife
Bank of Canada
|
c) For the taxation years at issue, the applicant’s RRSP deduction
limits were as follows:
|
Taxation
Year
|
2012
|
2013
|
2014
|
|
Deduction limit
|
$221,622
|
$14,678
|
$1,300
|
d) Since the unused contributions at the end of each month between
November 2012 and October 2014 for the taxation years in issue exceed the
RRSP deduction limit by over $2,000, the appellant is subject to tax on the
excess RRSP contributions of 1% for each month in which the amounts remained in
his RRSP (refer to the documents in the Appendix for a comprehensive version of
this Response).
[5]
Daniel Turcotte, an insurance broker, testified
at the hearing and explained that in 2012 he sold his insurance office, which
generated significant taxable income that he attempted to reduce by making the
maximum contribution into his RRSPs as well as his spouse’s RRSPs. He claimed
that he acted in good faith and was convinced that he was complying with the Act.
Approximately twenty months later, he learned that he was not allowed to
contribute to his spouse’s RRSPs after he had reached the limit for his own
RRSPs.
[6]
Mr. Turcotte also explained that in November
2014 he withdrew the excess contributions made to his spouse’s RRSPs and that
he had to pay the additional taxes resulting from these withdrawals.
[7]
Mr. Turcotte does not dispute the fact that he
made excess contributions to his RRSPs and his spouse’s RRSPs, but he believes
that resulting the taxes and penalties are unreasonable in light of the
circumstances because it was a reasonable mistake that was not made in bad
faith.
Statutory
Provisions
[8]
The statutory provisions applicable to this case
are subsection 204.1(2.1), 204.2(1.1), and 204.3(1) of the Act, which read
as follows:
204.1(2.1) Tax payable by individuals – Where, at the end of any month
after December, 1990, an individual has a cumulative excess amount 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 cumulative excess
amount.
204.2(1.1) Cumulative
excess amount in respect of RRSPs. The cumulative
excess amount of an individual in respect of registered retirement savings
plans at any time in a taxation year is the amount, if any, by which:
a) the amount of the individual’s
undeducted RRSP premiums at the time exceeds
b) the amount determined by the formula:
A + B
+ R + C + D + E
where:
A is the individual’s unused RRSP deduction room at the end
of the preceding taxation year,
B is the amount, if any, by which:
(i) the lesser of the RRSP dollar limit for the year and 18%
of the individual’s earned income (as defined in subsection 146(1)) for the
preceding taxation year,
exceeds the total of all amounts each of which is
(ii) a prescribed amount in respect of the individual for the
year,
C is, where the individual attained 18 years of age in a
preceding taxation year, $2,000, and in any other case, nil,
D is the group plan amount in respect of the individual at
that time,
E is, where the individual attained 18 years of age before
1995, the individual’s transitional amount at that time, and in any other case,
nil, and;
R is the
individual’s total pension adjustment reversal for the year.
204.3(1) Return
and payment of tax. Within 90 days after the end of
each year after 1975, a taxpayer to whom this Part applies shall:
a) file with the Minister a return
for the year under this Part in prescribed form and containing prescribed
information, without notice or demand therefor;
b) estimate in the return the amount
of tax, if any, payable by the taxpayer under this Part in respect of each
month in the year; and;
c) pay to the
Receiver General the amount of tax, if any, payable by the taxpayer under this
Part in respect of each month in the year.
[9]
Under these provisions, an individual who, at
the end of a given month, has a cumulative excess amount in respect his or her
RRSPs, as stipulated in subsection 204.2(1.1) of the Act, shall, for
that month, pay tax equal to 1% of this excess. The taxpayer must also file,
within 90 days after the end of the taxation year during which the taxpayer had
an excess, file a return for the year in prescribed form, i.e. the T1-OVP form,
estimate the tax that he or she owes for each month of the year, and pay this
tax to the Receiver General.
[10]
An individual who does not file a return for the
year under Part X.1 of the Act may be subject to a late-filing penalty
of a tax return pursuant to subsection 162(1) of the Act.
[11]
In this case, the appellant misinterpreted the
provisions of the Act regarding the amounts that he could contribute to
his RRSPs and his spouse’s RRSPs. He made a mistake by contributing to his
spouse’s RRSPs after he contributed the maximum to his own RRSPs. The applicant
did not act in bad faith and sincerely believed that he was complying with the Act.
[12]
The appellant made withdrawals of amounts
accrued in his spouse’s RRSP as soon as he learned that he had made excess
contributions to these plans. The appellant was required to pay the taxes
payable on these withdrawals (principal and interest).
[13]
Unaware that he had made excess contributions to
his RRSP and his spouse’s RRSPs, the appellant did not know that he had to file
income tax returns (T1-OVP forms) for the 2012, 2013, and 2014 taxation years.
[14]
This is a reasonable mistake in light of the
circumstances.
[15]
At the hearing, after being informed of the
decision made on October 5, 2016, by my colleague Justice Johanne
D’Auray of this Court in Murray E. Hall v. The Queen, [2016] T.C.J. No. 181,
the respondent agreed to set aside the late-filing penalties for the T1-OVP
income tax returns for the 2012–2014 taxation years inclusive.
[16]
Therefore, the appeal is allowed in respect of the penalty only and, in all other respects,
the reassessments are upheld, and the appellant is not entitled to any other
relief.
Signed at Ottawa, this 7th day of December 2017.
“Réal Favreau”
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