BETWEEN:
and
____________________________________________________________________
Appeals heard on July 24, 2006, at Hamilton, Ontario,
By: The Honourable Justice M.A. Mogan
Appearances:
____________________________________________________________________
JUDGMENT
The appeals from assessments of tax made under the Income Tax Act, for the 2000, 2001 and 2002 taxation years are dismissed.
Signed at Ottawa , Canada, this 11th day of August 2006.
BETWEEN:
PETER J. NEUBAUER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] The Appellant is engaged in franchise sales and has been self-employed or in business on his own account since 1993. He started a new registered retirement savings plan ("RRSP") in 1993. During the period from 1997 to 2002 inclusive, the Appellant made significant contributions to his RRSP. In May 2005, the Minister of National Revenue assessed tax under subsection 204.1(2.1) of the Income Tax Act (the "Act") in the following amounts having regard to the Appellant's "cumulative excess amount in respect of registered retirement savings plans":
|
2000 |
$4,363.96 |
|
2001 |
3,451.56 |
|
2002 |
2,858.72 |
[2] The Appellant has objected to and appealed from the above assessments claiming that he is not liable for the above amounts assessed under subsection 204.1(2.1).
[3] Exhibits R-2 to R-7, supplemented by the Appellant's oral testimony, prove that he made the following contributions to his RRSP with respect to the taxation years indicated:
|
1997 |
$30,000 |
|
1998 |
40,000 |
|
1999 & 2000 |
20,000 |
|
2001 |
500 |
|
2001 & 2002 |
20,000 |
|
2002 |
2,500 |
Although the contributions were made year-by-year as shown in the above table, the Appellant did not file his income tax returns year-by-year as required by the Act. I conclude from Exhibit R-1 that his income tax returns for the period 1995 to 2000 were filed in 2001. The Appellant stated in evidence that he had a stressful time in 1996-1997 with the deaths of his brother and sister-in-law.
[4] Because the Appellant was not filing his income tax returns in a timely manner, he was not deducting year-by-year the amounts actually contributed year-by-year to his RRSP. When his returns for the period 1995 to 2000 were filed in 2001, he then claimed as deductions in computing income the respective amounts contributed to his RRSP. It seems that the filing of five or six income tax returns in 2001 for the period 1995 to 2000 caused Revenue Canadato examine more closely the substantial amounts contributed to the Appellant's RRSP. He stated that he met with Revenue Canadaofficials more than once in connection with his possible excess contributions and, on their advice, withdrew $40,000 from his RRSP in 2002.
[5] In the Appellant's view, the $40,000 contribution to his RRSP in 1998 is the source of his problem with Revenue Canada. That may be so but I think he also failed to realize the cumulative effect of subsequent substantial contributions. Part X.1 of the Act imposes a special tax and, because it is so different from other taxes based on income, I will set out selected and abbreviated portions of the legislation:
204.1(2.1) 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) 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 that time
exceeds
(b) the amount determined by the formula
A + B + R + C + D + E
where
A ...
204.2(1.2) For the purposes of subsection 204.2(1.1) and the description of K in paragraph 204.2(1.3)(a), the amount of undeducted RRSP premiums of an individual at any time in a taxation year is the amount determined by the formula
H + I - J
where
H ...
[6] The tax under Part X.1 of the Act is truly distinctive, in an income tax context, because it is a tax of only 1% payable only by an individual in respect of each month after 1990 when the individual has a "cumulative excess amount in respect of RRSPs" at the end of the month. When attempting to determine liability for tax under Part X.1, it is necessary to ask if an individual has a "cumulative excess amount in respect of RRSPs" at the end of any month. As can be seen from subsection 204.2(1.1) above, that cumulative excess amount is the amount by which an individual's undeducted RRSP premiums at a particular time exceeds the total of six positive elements (A + B + R + C + D + E).
[7] The phrase "undeducted RRSP premiums" is described in subsection 204.2(1.2) as a formula being the sum of two positive elements (H + I) less one negative element (J). Because the formula may be applied "at any time in a taxation year", the positive element "H" is the amount of undeducted RRSP premiums for prior years back to 1992; and the positive element "I" is a premium paid within the year but before the particular time. The word "premium" is defined in subsection 146(1) to include an amount paid under a retirement savings plan "as a contribution or deposit".
[8] From the above, I conclude that the basic element in an individual's "cumulative excess amount in respect of registered retirement savings plans" (within the meaning of subsection 204.1(2.1) of the Act) is the aggregate of premiums which the individual has paid as a contribution or deposit under his/her plans. At the hearing of this appeal, the Appellant did not produce any evidence which would permit me to compare (i) the aggregate of amounts actually contributed to his RRSP in the period 1997 to 2002 as shown in paragraph 3 above; with (ii) the annual amounts of premiums which he was entitled to deduct in computing income year-by-year in the period 1997 to 2002. Accordingly, it is not possible to determine from the evidence whether the Appellant had a "cumulative excess amount in respect of registered retirement savings plans" for any month in the years 2000, 2001 and 2002.
[9] If the Appellant is arguing that his significant RRSP contributions should not be cumulative, then he is stopped by the statue because the definition of "undeducted RRSP premiums" in subsections 204.2(1.1) and (1.2) make it clear that all amounts contributed to an RRSP after 1991 are to be taken into account.
[10] Under subsection 204.1(4), the Minister of National Revenue has discretion to waive the tax in subsection 204.1(2.1) if the excess amount or cumulative excess amount arose as a consequence of reasonable error, and reasonable steps were taken to eliminate the excess. If the Appellant is seeking to have the tax waived on the basis of reasonable error, this Court cannot exercise Ministerial discretion, and does not have jurisdiction to review the exercise of Ministerial discretion. The Appellant would have to make an application to the Federal Court Trial Division.
[11] The appeals for the taxation years 2001, 2002 and 2003 are dismissed.
Signed at Ottawa , Canada, this 11th day of August 2006.
"M.A. Mogan"
Mogan D.J.
COURT FILE NO.: 2005-4398(IT)I
STYLE OF CAUSE: PETER J. NEUBAUER AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Hamilton, Ontario
DATE OF HEARING: July 24, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice M.A. Mogan
DATE OF JUDGMENT: August 11, 2006
APPEARANCES:
|
For the Appellant: |
The Appellant himself |
|
Counsel for the Respondent: |
Craig Maw |
COUNSEL OF RECORD:
Firm: N/A
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada