Section 207.06

In 2009, the taxpayer made an overcontribution to her TFSA as a Canadian resident, and was assessed tax of $33.81, which she promptly paid. In 2010, the taxpayer left Canada, but continued to make contributions to her TFSA from 2010 to 2018, as she was unaware that non-residents could not do so. The contributions were small, except for 2014 when she contributed just over $30,000, after her Canadian bank representative advised her that she was eligible to do so. In July 2018, when she learned that that advice was incorrect, she promptly emptied and closed her TFSA account.

CRA denied her request for waiver of tax under s. 207.06(1) on the basis that she had continued to make excess TFSA contributions along with contributions as a nonresident from 2010 through 2017, after having been notified of her excess contributions made in 2009. Before concluding (at para. 32) that judicial review should be allowed on the basis that “the Delegate’s decision to deny relief from tax liability arising from Ms. Ifi’s excess and non-resident TFSA contributions was unreasonable, as it lacked the requisite transparency, intelligibility and justification,” Pallotta J stated (at para. 29) “the sole basis supporting the Second Decision was that Ms. Ifi repeated a previous mistake after being warned by the CRA,” and also stated (at para. 24):

The Delegate failed to recognize that Ms. Ifi’s excess contribution in 2009 and her subsequent excess contributions resulted from different errors. Ms. Ifi did not repeat a previous mistake—the one the CRA warned her about—when she made an excess contribution in 2014. The excess contribution in 2014 arose due to the fact that Ms. Ifi had not accrued any TFSA contribution room as a non-resident, and as such, the 2014 excess contribution error was tied to Ms. Ifi’s status as a non-resident.

Mr. Sangha entered the 2017 taxation year having made excess contributions to his TFSA, which he added to in March 2017. He withdrew all funds from his TFSA in April 2017. Mr. Sangha then received a CRA letter (the “June 2017 Letter”) informing him of his excess 2016 TFSA contributions and that any excess contributions should be withdrawn immediately. The letter indicated that if he continued to make excess contributions “in the future”, he could be subject to a 1% tax for each month the excess remained in the TFSA. Despite the warning, Mr. Sangha contributed $35,000 to his TFSA in September 2017 (allegedly reflecting a misunderstanding that he was not required to wait until January 2018 to make this contribution), resulting in an excess contribution amount of $35,000. He maintained the excess contribution in his TFSA until August 2018.

CRA then issued TFSA tax assessments for the 2017 and 2018 taxation years, which imposed penalty tax on a month-by-month basis, including on the excess monthly balances in 2017 prior to the June 2017 Letter.

In response to the second request of Mr. Sangha for a penalty waiver pursuant to s. 207.06(1), which emphasized the imposition of penalties on the months prior to the June 2017 Letter notwithstanding its reference to “future” excess contributions, as well as his state of ill health, the delegate’s decision in relevant part stated:

[Y]ou continued to make excess contributions to your TFSA in 2017, after you were notified by the [CRA] about TFSA excess contributions made in 2016. …

We have to confirm that … there are no circumstances that would support the cancellation of the tax on excess TFSA contributions.

Before allowing the application and returning the matter for reconsideration by another delegate, Walker J stated (at paras. 27, 34):

The Minister’s delegate failed to address three material issues, the first of which is a determinative error. Specifically, the delegate did not consider Mr. Sangha’s submission regarding the impact of the June 2017 Letter and his prior withdrawal of all amounts from his TFSA. Second, the Minister’s delegate failed to explain why Mr. Sangha’s submission regarding reasonable taxpayer error was not persuasive. Finally, the delegate did not refer to the subsection 207.06(1) conditions or their application to Mr. Sangha’s circumstances. …

[T]he Decision was not reasonable. I find that the Decision does not reflect a coherent assessment of the relevant law and significant facts and submissions from the record and that the Minister’s refusal to exercise their discretion was not intelligible or justified. The reader is left to formulate its own chain of analysis to explain the refusal. The guidance in Vavilov makes clear the importance of looking to the reasons given by an administrative decision maker and warns the reviewing court against providing supplemental reasons to buttress the result in the decision in question … .

The taxpayer applied for judicial review of a decision of the Minister pursuant to s. 207.06(1) not to waive tax payable on excess contributions to his tax-free savings account. In 2016, the taxpayer had a TFSA contribution limit of $10,045.18, and on January 8, 2016 he contributed $10,000 to his TFSA. When he called 10 days later to ask if the contribution had been processed, the clerk erroneously proceeded to redo the contribution, resulting in an over-contribution of $10,000. In June 2016, the taxpayer requested his financial institution to split his deposits between two separate entities owned by the financial institution to enhancer deposit insurance, but this direction was mistaken for an order to contribute $10,000 to his TFSA, resulting in total contributions in 2016 of $30,000.

The taxpayer did not become aware of these over-contributions until July 2017 when he was assessed, following which he promptly withdrew the excess $20,000. The taxpayer’s requested relief included waiver of the Part XI.01tax of $1,784.60. The Delegate declined the request on the basis that he was a repeat over-contributor (respecting what in fact, in 2014, was his transfer of his TFSA contribution from one financial institution to another for which CRA waived the penalty tax).

Boswell J stated (at paras 30 and 31):

The over-contributions arose due to miscommunications between the Applicant and his financial institution and were outside of his control. … The Delegate’s characterization of the Applicant as “a repeat over-contributor to his TFSA account” is unjustified, especially when one considers that the CRA granted his request for a waiver of the tax imposed on the 2014 excess contribution.

… [T]he Delegate’s decision is unreasonable because it did not fully assess the extent to which the excess contributions resulted from the mistakes of persons other than the Applicant. The decision will therefore be set aside and the matter returned to the Minister for redetermination by a different delegate.

The taxpayer, who had been assessed TFSA advantage tax under s. 207.05, and was unhappy with the amount of the tax that the Minister had ultimately offered to waive under s. 207.06, brought a Rule 58(1) application to the Tax Court, which asked whether s. 207.05 offends s. 53 of the Constitution Act, 1867 – with counsel arguing that in light of the potential waiver under s. 207.06 “the Minister sets the rate of tax, not Parliament, and this offends section 53” (para. 4).

Stratas JA effectively noted that the question, as posed, was defective, because it only referred to s. 207.05 itself, which clearly imposed a tax and delegated nothing to the Minister.

He considered, as did the Tax Court below, that the Court could exercise its discretion to go beyond the question posed and review the combined effect of ss. 207.05 and 207.06. However, he found that the Court should not so exercise this discretion given a “lack [of] adequate submissions[,] and fully developed reasons from the Tax Court.” In describing where assistance was needed, he stated (at paras. 13-15):

[A]fter a full examination of the text in light of its context and purpose, the Court might conclude that Parliament’s provision, in its authentic meaning, satisfactorily constrains the Minister’s discretion and defines what she can do and how she should do it. …

But in other cases, the Court might conclude that Parliament’s provision, in its authentic meaning, gives the Minister an unconstrained, undefined discretion without criteria. The Minister, not Parliament, would be creating and imposing the tax or coming up with the tax rate on her own. She would be a law unto herself.

Under that scenario, any measure adopted by the Canada Revenue Agency to guide the improperly wide discretion Parliament has given the Minister, such as policies, practices or interpretation bulletins, would be irrelevant. They would not fix the fatal problem: Parliament’s over-delegation of taxation power in the first place contrary to section 53 … .

From May 15 to October 17, 2009, the taxpayer directed 71 “swaps” under which TSX-listed shares were transferred between her self-directed TFSA and her taxable trading account at a discount brokerage (“TDW”), or between her TFSA and her self-directed registered retirement savings plan (also with TDW). The transfers were made near the close of trading for the day, and at the high trading price for the day if she was transferring out of her TFSA, and at the low price where she was transferring in. She ceased directing the swaps on the introduction of specific “swap transaction” rules effective October 17, 2009. However, she was assessed under s. 207.01(2) in amounts equalling 100% of the increase in the fair market value of her TFSA in 2009, 2010 and 2012 of $200,795, $70,841 and $29,217, respectively (her TFSA having decreased in value in 2011), on the basis that those FMV increases were “advantages” described in s. (b)(i) of the s. 207.01(1) definition.

Before dismissing the taxpayer’s appeal of 2009, Dawson JA stated (at para. 50):

… [T]he use of the phrase “directly or indirectly” evidences Parliament’s intent “to capture any and all methods through which a transaction could increase” the fair market value of a TFSA.

In allowing the Crown’s appeal of 2010 and 2012, she stated (at paras. 75, 82):

[T]he Tax Court’s concern about “when or how far into the future an advantage … will be considered as attributable to” abusive transactions did not justify a restrictive interpretation of the definition of advantage. Such concern is intended to be addressed by other legislative provisions, including the Minister’s ability to waive or cancel advantage taxes (subsection 207.06(2) of the Act) and to determine the unused TFSA contribution room (subsection 207.01(1) of the Act and more particularly the definition of “unused TFSA contribution room” as enacted in S.C., 2010, c. 25, subsections 57(5) and 57(8). … The ability to waive an advantage tax and reset an individual’s unused TFSA contribution room are the mechanisms intended to address the future impact of abusive transactions.

… [W]hile the increase in value in the TFSA in 2010 and 2012 was directly attributable to the performance of the shares held in the TFSA each year, it was indirectly attributable to the swap transactions which increased the number of shares held in the TFSA and their value.