A taxpayer fighting an “RRSP stripping” case against the Canada Revenue Agency (CRA) has lost a motion to stop the CRA from adding additional elements to its case.
The December decision deals with a case that is part of the Concenta-Olympia group of appeals, which the court described as dealing with “purported Registered Retirement Savings Plan ‘RRSP stripping’ transactions”. David Gramiak is the lead appellant for the issue in the motion, which is likely to be appealed to the Federal Court of Appeal.
The taxpayer had opened a self-directed RRSP account, which had the Olympia Trust Company as the trustee. In 2002 and 2003, the taxpayer instructed Olympia to remove $130,500 and $8,500, respectively, from the RRSP. The CRA’s position was that the taxpayer instructed Olympia to use these amounts to purchase debenture units in PI Ventures Inc. in 2002 and 2003. The taxpayer told the CRA that “he believed at all material times that the RRSP funds were used to acquire debenture units in PI Ventures.” However, in the appeal notice, the taxpayer asserted that the units were never acquired.
It remains unclear whether the units were ever purchased, or ended up in the trust account of a law firm. The CRA argues that the amounts removed from the RRSP were used to invest in off-shore companies, with the proceeds being credited to a non-registered account belonging to the taxpayer.
The parties do not agree as to whether the debenture units were “qualified investments” under the Income Tax Act, (and thus not subject to income inclusion) or whether they were ever acquired. The CRA subsequently audited the taxpayer and included these amounts in his income.
The taxpayer appealed, arguing for the first time that the debentures in question were never acquired. The CRA then sought to revise its response to the appeal by adding two paragraphs to its reply, asking for a finding that the amounts were “constructively received” by the taxpayer when he requested Olympia Trust to transfer the funds to the law firm.
The taxpayer asked that these new sections be struck from the CRA’s reply, on the basis of certain reasons; in general, those reasons dealt with arguments that the new portions were not sufficiently related to the history of the dispute between the taxpayer and the CRA over these amounts.
The court disagreed. In ruling against the taxpayer’s motion to strike the CRA additions, it concluded: “It seems clear that the transactions underlying the reassessment and the alternative argument [made by the CRA] are the alleged transactions undertaken by the Appellant [taxpayer] to circumvent tax on his RRSP funds … It is the transactions relating to the ‘RRSP stripping,’ and more particularly the diversion of funds from the RRSP account to the law firm’s trust account, that underpin both the assessment and the alternative argument.”
At the same time, the CRA was successful on its motion to add more paragraphs to its reply. These dealt with amounts received by the taxpayer from a foreign source, on statements issued by Syndicated Gold Depository, provided by the taxpayer to the CRA. The CRA alleges in the new sections that these amounts [$135,297.60] “represent a return of capital” from the taxpayer’s investment in PI ventures Inc.
With respect to this new section, the court concluded: “I cannot imagine how the Appellant [taxpayer] would be prejudiced in any way by the addition of these facts given that it was made clear to the Appellant since the very beginning of the audit that the CRA was investigating what they believed to be an RRSP stripping scheme.”