Subsection 204.2(1.1)
See Also
Wyrstiuk v. The Queen, 2022 TCC 10 (Informal Procedure)
A lump sum of $165,000 received by the taxpayer in 2014 as a negotiated payment for the termination of his employment was found to constitute a retiring allowance rather than income from employment in light of Atkins, so that such sum was not added to his earned income for 2014. Consequently, a contribution of $24.270 made in February 2015 to his RRSP constituted an over-contribution.
However, Jorré DJ found that the tax computed by the Minister under s. 204.1(2.1) was excessive. The correct approach was to apply the 1% tax to the amount of the over-contribution for each of 11 months in 2015 (February onwards) with each such amount (of $6,203) computed by subtracting the following three amounts from the $24,270 contribution: (i) the allowable 2014 RRSP contribution of $3,726, (ii) the allowable 2015 RRSP contribution of $12,341 and (iii) the $2,000 deduction pursuant to C of the formula in 204.2(1.1)(b).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Earned Income - Paragraph (a) - Subparagraph (a)(i) | termination payment was not earned income | 74 |
Grenon v. The Queen, 2021 TCC 30
In order that the taxpayer’s RRSP could indirectly invest in operating businesses in which he had a management role, he instigated the formation of various unit trusts (the “Income Funds”) which were intended to be mutual fund trusts on the basis that 171 individuals (the “Investors”) - immediate and extended family members, friends, employees, business associates and others - each subscribed approximately $750 for units of each Income Fund. The taxpayer’s RRSP then invested $315 million over time in the Income Funds by subscribing for additional units. The Income Funds invested in underlying LPs carrying on businesses through an intermediate sub trust and master limited partnership.
Smith J sustained assessments of the RRSP under s. 146(10.1) on the basis that the Income Funds did not qualify as mutual fund trusts and, even if they had, their use as “alter egos” for the taxpayer would have been an abuse under GAAR. However, CRA also assessed the taxpayer personally under s. 204.2(1) on the basis that distributions received by the RRSP from the underlying investments represented over-contributions to the RRSP by the taxpayer. In rejecting this assessment, Smith J found that part of the sums at issue were proceeds of disposition realized by the RRSP from the disposition by the RRSP of units of a publicly trade income fund ("FMO"), whic was acknowleged to be a qualified investment, and whose proceeds were used to fund investments in the businesses, i.e., the alleged overcontribution was not derived from the latter. Furthermore, the balance of the distributions were not to be characterized as contributions by him to this RRSP given that "there was no sham or window dressing" (para. 454).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 4801 - Paragraph 4801(a) - Subparagraph 4801(a)(i) - Clause 4801(a)(i)(A) | distribution of units that included significant purchases by minors and by adults who did not pay for their own units, was unlawful | 755 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | purported establishment of “alter ego” MFTs through which an RRSP could invest in operating businesses was an abuse engaging GAAR | 605 |
| Tax Topics - General Concepts - Window Dressing | window-dressing is a deception about intention | 312 |
| Tax Topics - Income Tax Act - Section 207.1 - Subsection 207.1(1) | non-qualified investments not “included” in annuitant’s income because it was never assessed | 346 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) | CRA’s assessing listed taxable RRSPs in a T3GR global return was not of the taxpayer’s (also listed) RRSP /inappropriate reliance in legal opinion on certificate of fact was carelessness | 441 |
| Tax Topics - Income Tax Act - Section 207.2 - Subsection 207.2(3) | CRA’s assessment of Pt. XI.1 shown on the T3GR for all RRSPs of one type did not start the normal reassessment period for the taxpayer’s RRSP since no tax shown for it | 370 |
| Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(d.2) | distribution was not lawful because the issuer had not complied with the OM exemption, which was the exemption that it had chosen to rely on | 291 |
Subsection 204.2(1.2) - Undeducted RRSP premiums
See Also
Roy v. The Queen, 2019 TCC 50 (Informal Procedure)
The taxpayer began the 2006 taxation year with unused RRSP contributions of $1,856. He contributed an additional $43,000 during 2006, resulting in total unused contributions of $44,856. The taxpayer claimed RRSP deductions within the RRSP deduction limits for the 2006 to 2012 years for a total of $21,495. The RRSP excess contributions were invested in securities that quickly became worthless, so that except for the sum of $1,090 withdrawn in 2008, he was unable to withdraw the excess contributions and the RRSP account was eventually closed in March 2012. The taxpayer had not reported his excess contributions by filing a T1‑OVP return. The taxpayer submitted a relief application, which was accepted by the Minister in a letter in 2015 stating that she was satisfied that the “excessive contribution arose due to reasonable error” and that “your excessive contribution has been eliminated”. On that basis, the Minister confirmed the waiver of the tax under Part X.1 of 1% per month, penalties and interest (in the amount of $39,193.08.)
However, the Minister assessed the taxpayer’s 2013, 2014 and 2015 taxation years on the basis that he was not entitled to deduct unused RRSP contributions from prior years in those years (other than $2,000 allowed for 2013). Before finding that the taxpayer was entitled to the claimed deductions, Smith J stated (at paras 18, 20, 21-23):
While paragraph 204.1(1.1)(b) does allow cumulative excess contributions to an RRSP of up to $2,000, the Respondent has not pointed to any statutory provision which allows her to essentially set-off or eliminate unused RRSP contributions on the basis that they represent excess contributions that cannot be withdrawn. The Minister’s remedy appears to be limited to the 1% tax and penalty for failure to file the T1‑OVP form within 90 days from the end of the taxation year.
…[T]here appears to be no basis for the Respondent’s argument in this instance that, having consented to the Appellant’s relief application, the Minister may arbitrarily eliminate unused RRSP contributions.
The Respondent concludes … that it “would be unfair for this Court to allow him to reduce his taxable income in future years while never having paid taxes on the excess contribution as taxable income.” (My Emphasis).
…[T]he Respondent has failed to point to any legislative provision that would allow the Minister to eliminate unused RRSP contributions on the basis that they represent excess contributions.
Moreover … the Court does not make decisions on the basis of fairness (Barel v The Queen, 2009 TCC 156 and Lapierre v The Queen, 2019 TCC 18) … .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Unused RRSP Deduction Room | CRA had no authority to eliminate unused RRSP contributions as being excess contributions | 156 |
Administrative Policy
11 July 2011 External T.I. 2010-0367021E5 F - Cotisations excédentaires au REER
What is the impact of an amount withdrawn from an RRSP on element J of the algebraic formula in s. 204.2(1.2)? CRA responded:
The term "undeducted RRSP premiums" used in the calculation of the cumulative excess amount in respect of RRSPs … represents the undeducted premiums, at a particular time in a taxation year, that the individual has paid into RRSPs. That amount is calculated according to the following formula: H + I - J. Element J … represents the amount by which the total of the following amounts exceeds any amount deducted under paragraph 60(l) in computing the individual’s income.
- Any amount the individual received in the year and before that time out of the RRSP and included in computing income for the year.
- Any amount the individual received in the year and before that time from a registered retirement income fund and that is included in computing the individual’s income for the year.
… Generally, a taxpayer's unused RRSP deduction room at the end of a taxation year is equal to the unused RRSP deduction room at the end of the preceding year plus the contribution room the taxpayer generated during the year minus, among other things, the premiums paid by the taxpayer that were deducted pursuant to subsection 146(5) or (5.1) for the year.
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 204.1 - Subsection 204.1(2.1) | s. 204.1(2.1) tax ceases when, at the end of the month, there is no cumulative excess amount in respect of RRSPs | 128 |
7 July 1995 External T.I. 9512035 - RRSP EXCESS CONTRIBUTIONS
"A contribution to an RRSP will generally not be considered to have been made until the financial institution to which an amount is sent accepts the amount as a contribution ... [T]he designation of an amount as a contribution can be revoked by the contributor at any time before it is so accepted by the institution."
4 July 1994 External T.I. 9414445 - INVESTMENT COUNSEL FEES
The taxpayer claiming investment counsel fees must be the legal owner, i.e., the RRSP trustee, rather than the annuitant. If the annuitant pays the fees on behalf of the RRSP trust, the payment will be a gift made to the RRSP within the meaning of s. 204.2(1.2)I(b).
J
Administrative Policy
7 October 2021 APFF Financial Strategies and Instruments Roundtable Q. 9, 2021-0903501C6 F - RRSP overcontribution and RRIF withdrawal
The 1% monthly tax under s. 204.2(2.1) is imposed on the “cumulative excess amount in respect of RRSPs” (the “cumulative excess”). A component of the cumulative excess is the individual’s “undeducted RRSP premiums,” which is reduced by the amount, if any, by which the total of all amounts received by the individual in the year and before the time out of or under, inter alia, an RRSP or RRIF and included in computing the individual’s income for the year exceeds the amount deducted under s. 60(l) in computing the individual’s income for the year.
CRA confirmed that this reduction occurs on a monthly basis, consistently with the monthly calculation of the tax. For example, if the annuitant made a withdrawal from the individual’s RRSP (or RRIF) in May (that was not recontributed so as to generate a s. 60(l) deduction), thereby eliminating the cumulative excess, no tax would be payable for May or thereafter, but the tax would still be payable for the prior months/.
CRA noted that the above comments also applied to withdrawals from a life income fund ("LIF") or a locked-in retirement account ("LIRA"), stating that “for purposes of the Income Tax Act, a LIRA is simply an RRSP and a LIF is a RRIF.”