As we close out the year and head into RRSP season (I know that term makes some bristle, but it’s a practical reality for many others), here’s an exasperating decade-long battle to mull over.
Where it all began
Back in September 1997, Lindsay Kerr received her Notice of Assessment for her 1996 tax year. The NOA showed her 1997 RRSP contribution limit to be about four times what it had been in recent years, even though nothing had happened in her employment, income sources or other circumstances that would have explained the jump.
While she suspected a possible error, Lindsay proceeded to contribute $8,121 into her RRSP in February 2008. As it turned out, this was far in excess of the $794 she was actually entitled to, though it would be years before this came to full light. Complicating the arithmetic, and potentially compounding the problem, Lindsay had earlier exercised her prerogative to make a one-time over-contribution of $2,000 so that in total she had made excess contributions of $9,327.
Then Lindsay took a break. Having no taxes owing in the following years, she did not file tax returns from 1997 to 2002.
The early correspondence
A couple of years on, Lindsay was solicited by CRA to file returns for those missing years. The letter, received in February 1999, advised her that all taxpayers are required to file an annual tax return in specific situations, none of which applied to her. Specifically, she did not owe any taxes for those years.
Lindsay spoke to CRA on a number of occasions by phone to obtain filing extensions, but eventually she was served with arbitrary tax assessments for 1999 and 2000. Faced with the prospect of paying taxes she knew she did not owe, in November 2003 Lindsay filed returns for 1997-2002. As it turned out, indeed there were no taxes owing; in fact, refunds were paid for all the years.
Error discovered, penalty tax assessed
On filing the 1997 return in 2003, Lindsay properly recorded the $794 contribution limit, though there was no paper trail to explain how she came upon this information.
Still, as a result of this disclosure, Lindsay was assessed the 1% monthly penalty tax for the duration of the over-contribution. By the time the matter was heard in court in the fall of 2008, she had paid $11,270 in taxes, penalties and interest.
The odyssey: Requesting a waiver
While it would be difficult to say that Lindsay was completely innocent of knowledge of the error, the fact is that she relied on the official documents as she was entitled to do. On that basis, she applied for a waiver of the penalty tax in September, 2004.
The first CRA response explicitly stated that each individual may make RRSP contributions within the limit “provided on the Notice of Assessment each year.” A later internal report in 2007 found that CRA “had originally provided an incorrect amount and (it appears) we had never advised the taxpayer, in writing, that her revised 1997 RRSP deduction limit was $794.”
On her second request in September 2005, an administrative review, the content of the denial letter included a comment that “you should have been aware that the amount in Box 52 of your T4 slip is required to be reported on your return.” Again, the 2007 report found fault: “This statement is of concern because, according to the copy of the 1996 return provided to us by the taxpayer, she did report the correct amount in box 206.” Box 52 is the pension adjustment to be reported in Line 206: Lindsay entered it correctly; CRA transcribed it incorrectly and then apparently still blamed her for its error.
On her third request in June 2006, Lindsay specifically asked for a different tax office to handle the review – No doubt there had been some acrimony over the years of wrangling. That earlier mentioned 2007 internal report was the basis for the ultimate decision in July 2007, at which time Lindsay was again denied, this time on the basis she had not made “reasonable errors” in failing to report the appropriate amounts. This was despite that the only official record was acknowledged by CRA to be that original erroneous NOA.
Oh, that independent 2007 report? Despite Lindsay’s request (and CRA’s assurance) for an independent review, it was first approved by an official at the original office before being given to the senior official who wrote to Lindsay. And to boot, a memorandum obtained from a Privacy Act request revealed that that final writer had some critical misapprehensions of the facts, and appeared to show a bias against Lindsay for not having filed returns in those interevening years … years she was not obligated to file returns.
Judgment for the Applicant
Incredibly, there were even more twists and turns in this case, but in the end the court was convinced that Lindsay was entitled to the relief she sought. An order was issued in September ’08 stating that her errors were reasonable, as were her corrective steps, and as a result she was entitled to the return of her $11,270.
Your own resolutions? Pay close attention to your Notice of Assessment (checkin’ it twice?), keep good written records of your communications with CRA, and maybe hug a judge this new year’s.