Section 204.1

Subsection 204.1(2.1) - Tax payable by individuals -- contributions after 1990

Administrative Policy

18 November 2014 External T.I. 2012-0457981E5 - Restorative payment to registered plan

employer restorative payment to RRSP or RPP to compensate for tort

Employer accidentally missed contributing, to a group RRSP or defined contribution pension plan, the Employer's portion on behalf of an employee for a time period. CRA stated:

In regards to an employer payment made in respect of missed contributions to an employee's registered plan, an employee would generally be liable for Part X.1 tax under subsection 204.1 of the Act where the contributions cause the employee to have a cumulative excess amount in respect of the employee's RRSPs.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(q) employer restorative payment to RRSP or RPP to compensate for tort 159
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) employer restorative payment to RRSP or RPP to compensate for tort 115
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(i) employer restorative payment to RRSP or RPP to compensate for tort 159

11 July 2011 External T.I. 2010-0367021E5 F - Cotisations excédentaires au REER

s. 204.1(2.1) tax ceases when, at the end of the month, there is no cumulative excess amount in respect of RRSPs

Where an amount withdrawn from an RRSP when there is a cumulative excess amount in respect of RRSPs, when does the Part X.1 tax cease? CRA responded:

Since the income tax under subsection 204.1(2.1) is calculated monthly, at the end of the month … the time for calculating the cumulative excess amount in respect of RRSPs under subsection 204.2(1.1) and undeducted RRSP premiums under subsection 204.2(1.2) is at the end of each month. Consequently, when an individual has a cumulative excess amount in respect of registered retirement savings plans, the withdrawal of the excess reduces the amount of the undeducted RRSP premiums under subsection 204.2(1.2) and thereby the cumulative excess amount in respect of registered retirement savings plans for the months ending after the date of withdrawal.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204.2 - Subsection 204.2(1.2) a taxable RRSP withdrawal reduces undeducted RRSP premiums and, as a result, the cumulative excess amount in respect of RRSPs 323

Subsection 204.1(4)

Cases

Connolly v. Canada (National Revenue), 2019 FCA 161

CRA internal guidelines on waiving the RRSP over-contribution tax were inherently unreasonable

The taxpayer did not file income tax returns for the 1988 to 2003 taxation years on the basis that as he owed no tax, this was unnecessary. Thus, when he made RRSP contributions in 2003 and 2004, he had not received any recent Notices of Assessment and, thus, no details of his unused RRSP contribution room – which, in fact, had been reduced to near zero as a result of his and his employer’s contributions to a registered pension plan.

In 2007, the CRA sent the taxpayer a letter explaining that he might have over-contributed to his RRSPs from 2003 to 2005, thereby giving rise to an obligation to file over-contribution (T1-OVP) returns and pay penalty tax - but that if he withdrew the excess contributions within the statutorily prescribed timeframe, this could be done without withholding tax by filing a T3012A form. The taxpayer directed his accountant to prepare the forms. Although the accountant apparently sent the forms more than a year later (without any follow-up by the taxpayer), CRA had no record of having received them, and arbitrarily assessed the taxpayer on January 5, 2009 for tax on the over-contributions, penalties and interest. On January 21, 2009, his accountant filed T1-OVP returns for 2003 to 2007 and T3012A forms for 2003 and 2004. On February 26, 2010, the taxpayer withdrew the requisite RRSP funds, included the withdrawals in his income and claimed a corresponding deduction.

The Minister reassessed and denied the deduction. The Tax Court of Canada concluded that the taxpayer met the statutory requirements to claim the deduction for the 2004 over-contributions, but not the 2003 over-contributions. In obiter dicta, the Tax Court suggested that the taxpayer seek a ministerial waiver for the tax on the over-contributions, penalties and interest, which he did. In 2016, the Minister denied the taxpayer’s requests for relief from the tax on the over-contributions and for waiver of penalties and interest for the years still in issue. The delegate applied internal CRA guidelines that stated that “Reasonable error means that the taxpayer did not intend to over contribute to their RRSP/PRPP and that it happened because of extraordinary circumstances beyond their control,” and that “reasonable steps” allowed the taxpayer “two months from the date of the Agency’s letter to withdraw funds and submit proof.” The subsequent judicial review before the Federal Court was the subject of the taxpayer’s appeal.

In dismissing the taxpayer’s appeal from a Federal Court decision denying relief judicial review of this decision, and in finding that the delegate’s interpretation of s. 204.1(4) was unreasonable, Gleason JA stated (at paras 59, 61, 67, 68):

… [T]here is no way to equate the provision’s requirement of a reasonable error with a requirement that the error result from extraordinary circumstances. Nor is it reasonable to exclude from consideration all errors flowing from a mistake about the quantum of available contribution room or all errors caused by bad advice received from a third party. Similarly, it is unreasonable to interpret the taking of reasonable steps to withdraw an over-contribution from an RRSP to mean that a taxpayer must withdraw the over-contributions as soon as possible or within the two-month timeframe mentioned in CRA’s internal “Guidelines for waiving tax – 19(23)7.23”.

…[S]ubsection 204.1(4)… requires only that the error that led to the over-contribution and steps taken to remedy it be reasonable.

The delegate’s interpretation of subsection 204.1(4) of the ITA (as well as the interpretation set out in the internal CRA guideline, on which the delegate relied) thwarts the subsection’s remedial purpose as it virtually extinguishes the Minister’s discretion … . Nearly every error a taxpayer might make in over-contributing to his or her RRSP (other than a simple arithmetical error) will be caused by a misunderstanding of the applicable limits – an error of law. … Similarly, the fact that the error might have been made by a third party advisor or as a result of erroneous advice given by such advisor does not automatically mean that the error cannot be reasonable.

…[T]he requirements to take reasonable steps to withdraw an RRSP over-contribution cannot be equated with immediacy or with the two-month timeframe mentioned in CRA’s internal “Guidelines for waiving tax – 19(23)7.23”.

However, in going on to dismiss his appeal, she stated (at paras, 77-78):

… Mr. Connolly appears to have been aware that there was a limit on RRSP contributions and that one’s contribution room bore a relationship with one’s income. But… Mr. Connolly does not appear to have made any inquiries … to confirm his contribution room. His error therefore likely cannot be said to have been a reasonable one.

Even if Mr. Connolly could be said to have made a reasonable error in these circumstances, the steps Mr. Connolly took to correct the mistake cannot in any way be characterized as reasonable.

Words and Phrases
reasonable

See Also

Hall v. The Queen, 2016 TCC 221 (Informal Procedure)

waiver of tax of mentally ill taxyaer recommended

The taxpayer had $12,029 of excess contributions in his RRSP since the end of 2008. He failed to file a Return for RRSP Excess Contributions (“Return”) on form T1-OVP for his 2008 to 2013 years as required by s. 204.3(1). The Minister assessed the taxpayer in 2015 for the tax owing and arrears interest.

Based inter alia on the taxpayer’s mental illness during the years in litigation, D’Auray J advised him to apply for a cancellation of taxes under s. 204.1(4) and that, if the Minister were to refuse to waive the tax, he could also apply to the Minister under s. 220(3.1) for waiver of the related interest. Furthermore, she recommended “that the Minister exercise her discretion for the taxation years in issue” (para. 37).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) assessment of Part I tax returns does not engage the running of statute-barring for taxes under other Parts 145
Tax Topics - Income Tax Act - Section 204.3 - Subsection 204.3(2) assessment of Pt I returns did not start Pt X.1 statute-barring period running 71