As a matter of clarity and efficiency, the implementation of new legislation is often layered upon existing law. Otherwise, there could be unnecessary duplication of definitions, parallel procedures and potentially inconsistent results.
With respect to the relatively new registered disability savings plan (RDSP), a recent court decision illustrates how such a logical approach may nonetheless lead to unexpected outcomes, and leave a court handcuffed in its desire to fashion a remedy.
Qualification for the RDSP
The disability tax credit (DTC) is a longstanding component of the Income Tax Act. Obviously, the introduction of the RDSP is directed at the same constituency of individuals and families eligible for the DTC.
In fact, in order to be entitled to open an RDSP, a person must qualify for the DTC.
Specifically, a person must be a “DTC-eligible individual,” which is defined within the RDSP provisions under the Income Tax Act as “… an individual in respect of whom an amount is deductible … under section 118.3 in computing a taxpayer’s tax payable . . . ”
The implications of not falling under this definition are stated explicitly in later provisions prohibiting contributions being made to a RDSP “if the beneficiary is not a DTC-eligible individual in respect of the taxation year”.
Effect of a nil assessment
In an October 26, 2010 case from the Tax Court of Canada (TCC), the interaction between DTC entitlement and RDSP eligibility came under scrutiny.
In February 2009, taxpayer GT had a medical doctor complete a Disability Tax Credit Certificate, which was then forwarded to the Canada Revenue Agency (CRA). But the CRA denied the disability tax credit.
In an effort to seek redress, GT sought to use the Informal Procedure in the TCC to appeal his nil tax assessment for 2008.
To be clear, however, GT was not contesting any assessment of tax, but rather seeking a route to contest the CRA’s refusal to allow him disability tax credit qualification upon which he could establish his RDSP eligibility.
Jurisdiction of the TCC
Where a taxpayer is dissatisfied with a tax assessment, an appeal may be made to the TCC. The disposition of that appeal is set forth in the Income Tax Act, allowing the court to dismiss or allow the appeal, vacate or vary the assessment, or refer the matter back for reconsideration and reassessment.
That said, the point of law before this court was not the appeal itself, but rather a motion by the Crown to dismiss GT’s appeal as being from a nil assessment.
Recent case law indeed holds that there can be no appeal from a nil assessment, so the judge was compelled to allow the Crown application and dismiss GT’s appeal.
What now for the disentitled?
The required disposition clearly doesn’t sit well with the Judge, who stated, “It is simply not right for the Crown to act behind a nil assessment to prevent [GT] from applying for a disability savings plan.”
Although there is likely a procedure under the Federal Courts Act for GT to have CRA administrative actions reviewed, this again is not entirely satisfactory to the judge. He opines that, “[i]deally this Court should be a ‘one stop’ Court for persons who have claims under the [Income Tax Act],” expressing particular concern for low-income taxpayers.
The Judge went on to raise the question of whether Parliament and the legislative draftsmen may simply not have anticipated GT’s situation.
Given the spirit and purpose of the RDSP initiative, it will be interesting now to see what legislative response may come out of this case, and how soon.
ED NOTE: Shortly after this case was reported, Finance Minister Jim Flaherty announced that appropriate legislative amendments would be introduced to address this problem.