Robitaille v. The Queen, 2019 TCC 200 by Jason Lau
- During 2016, Mr. Robitaille received a $40,000 cheque from his wholly-owned corporation, and Mr. Robitaille intended this amount to be a management fee includable in his income.
- On July 21, 2016, Mr. Robitaille went to an automated teller machine to deposit the cheque. In his haste to get the matter over with, Mr. Robitaille inadvertently selected his TFSA as the recipient account.
- The error went unnoticed until June 14, 2017, when a CRA official notified Mr. Robitaille that his TFSA was in an over-contributed state by $39,500 and that a withdrawal of $29,000 would have to be made in order to bring the account into compliance.
- Robitaille immediately withdrew $29,000 from the TFSA the same day.
- The Minister issued an assessment in respect of Mr. Robitaille's 2016 taxation year for $2,370 on the over-contribution amount under Part XI.01 of the Act.
Was the Minister correct in issuing an assessment to Mr. Robitaille under Part XI.01 of the Act in respect of the TFSA over-contribution, even though it was inadvertent and the amount was withdrawn immediately after the error was discovered?
The court found in favour of the Minister, and Mr. Robitaille's claim was dismissed.
Mr. Robitaille's inadvertent deposit to his TFSA caused him to have an "excess TFSA amount" as defined under subsection 207.01(1) of the Act. Section 207.02 of the Act imposes a 1% tax on the highest excess amount of the month, per month, until the excess amounts are withdrawn from the account.
The Minister's assessment of Part XI.01 tax was purely mechanical in nature. As none of the facts of the case were in dispute, nor was the Minister's application of the Act called into question, the court had no choice but to dismiss Mr. Robitaille's claim.
As noted by the Minister's counsel, the Tax Court of Canada had no ability to provide relief in respect of the Part XI.01 assessment. Mr. Robitaille's correct avenue of recourse would have been to apply for a cancellation of tax under subsection 207.06(1) of the Act.
Subsection 207.06(1) of the Act allows for the Minister to provide administrative relief and waive or cancel taxes assessed under Part XI.01 if the taxpayer can demonstrate i) the tax liability arose "as a consequence of a reasonable error" and ii) the excess amounts were withdrawn from the TFSA without delay. Note that if a person applies for relief under subsection 207.06(1) of the Act and is denied by the Minister, they may then apply to the Federal Court of Canada for judicial review of the decision.
However, it is best to avoid this mess altogether by being careful not to over-contribute to registered plans from the start.
Muth Estate, 2019 ABQB 922 by Jeanne Posey
In this Alberta Court of Queen's Bench decision, the Court was asked to rule on whether an executor may seek indemnification from beneficiaries for the income tax liability of an estate.
- Morley Muth (the "Deceased") signed a will (the "Will") in 1970.
- The Deceased was married to Freda Muth, (the "Executor") who was named the Executor of the estate (the "Estate"). The Will left everything to the Executor if she survived him by 30 days.
- The Deceased and the Executor separated in 1978 but never divorced. The Executor signed a Release and Waiver of any claims in the Estate, but this was not sufficient to remove her from the Will, as confirmed in a trial with the nieces and nephews of the Deceased (the "Respondents").
- In 2011, in a mediated settlement, the Respondents and the Executor reached an agreement (the "2011 Settlement Agreement") whereby the Executor and the Respondents would receive 55 percent and 45 percent of the Estate respectively.
- in December 2011, the Executor retained an accountant to prepare a final income tax return for the Estate and to estimate the tax liability. The accountant advised the Executor that a $25,000 holdback was sufficient. Based on this advice, the Executor distributed the balance of the Estate in the proportions agreed upon in the 2011 Settlement Agreement.
- The first accountant failed to file the Deceased's final income tax return. A second accountant was retained in November 2012 at which time the second accountant determined that the $25,000 holdback was insufficient.
- The Executor claims she now out-of-pocket $35,772.19 in the aggregate for the Deceased's unknown tax liability and professional fees.
The Executor seeks repayment from the Respondents for their proportionate share of the re- calculated tax liability, which she calculates to be $16,097.19.
- Is this case suitable for summary judgement.
- If so, are the Respondents obligated to indemnify the Executor?
1. Is this case suitable for summary judgement?
A summary judgement is a motion brought by one party against another to have a case decided summarily, without having to go to trial. The motions judge may be asked to decide on specific issues of a case, or the merits of an entire case. Either way, the party bringing the application must persuade the judge that there is no genuine issue that requires a full trial. The leading case that sets out the test for summary judgement is Weir Jones Technical Services Incorporated v Purolator Courier Ltd. 2019 ABCA 49, and the test is summarized as follows:
- Is it possible to resolve the dispute on a summary basis, or do uncertainties in the facts, the record or law reveal a genuine issue requiring a trial?
- Has the moving party met the burden on it to show that there is either "no merit" or "no defense" and that there is no genuine issue requiring a trial?
- If the moving party has met its burden, the resisting party must put its best foot forward and demonstrate from the record that there is a genuine issue requiring trial. If there is a genuine issue requiring a trial, summary disposition is not available.
- In any event, the presiding judge must be left with sufficient confidence in the state of the record such that he or she is prepared to exercise the judicial discretion to summarily resolve the dispute.
Based on the evidence submitted, the Court concluded that summary judgment was available.
2. Are the Respondents obligated to indemnify the Executor?
The 2011 Settlement Agreement does not specifically deal with indemnity. It dealt with three costs:
- The Respondents would pay half of the cost of the mediation;
- Each of the Respondents and the Executor would pay their own legal costs to date; and
- The Respondents and the Executor would each split the cost of an Alternative Dispute Resolution chambers session.
The Respondents referred to section 159 of the Income Tax Act which requires that a personal representative obtain a clearance certificate before distribution and imposes personal liability for the tax liability of the estate on those who do not do so. The Respondents further referred to the Alberta Surrogate Rules (AR 130/1995, Schedule 1, Part 1, Section 9, Table No. 16) as requiring a personal representative as part of his or her duties to pay any tax owing and obtain clearance certificates before distributing estate property.
The Court considered whether there had been a "breach of trust" by the Executor and said "to the extent that the term "breach of trust" has connotations of intentional wrongdoing, there is no evidence of that here. However, the Court found that the Executor had a statutory obligation to obtain a clearance certificate and failed to do so."
The Court also referred to the Trustee Act, RSA 2000, c T-8, s.26, which specifically provides that a trustee may be entitled to indemnification by a beneficiary who instigates or requests a breach of trust. The natural corollary of this principle is that if a beneficiary does not instigate or request a breach, they cannot be obligated to indemnify the trustee.
The Court ultimately held that, as between the two parties, one had an obligation to perform a duty and failed, and one had neither an obligation nor the means to satisfy it. It was the former who the Court found should bear the consequences of the action or inaction.
An invariable practice of an executor should be to receive a clearance certificate prior to distributing any assets of an estate. In rare cases, where an estate must distribute assets prior to a clearance certificate being received, a very generous hold-back along with a tax indemnity should be requested by the executor in order to protect the executor from personal liability.
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