The taxpayer made contributions to his RRSP for the years 1995 to 2005 (except 1998). In preparing his 1995 and 1999 returns, he reported his contributions, but failed to deduct them – but thought that he had. Furthermore, in 1997, he overcontributed based on an incorrect impression that he had unused RRSP deduction room. As a result of these errors, he had a cumulative excess amount as calculated under s. 204.2(1.1). CRA assessed him Part X.1 tax under s. 204.1(2.1) and assessed penalties under s. 162(1) for his failure to file returns as required under s. 204.3(1) reporting his Part X.1 tax liabilities.
After confirming the taxpayer’s Part X.1 tax liability and after quoting (at para. 26) a statement in Corporation de l’École Polytechnique v The Queen, 2004 FCA 127 that a due diligence defence is established if “the person believed on reasonable grounds in a non-existent state of facts which, if it had existed, would have made his or her act or omission innocent,” Sommerfeldt J went on to find that the s. 162(1) penalties should be cancelled, stating (at paras 11, and 27):
… I am of the view that his failure to deduct the contributed amounts, which was unbeknown to him, was due to innocent and reasonable inadvertence.
Mr. Chiang genuinely and reasonably believed that he had deducted the contributions that he had made to his RRSP for 1995 and 1999 and that he had unused RRSP deduction room in respect of 1997. Thus, it is my view that Mr. Chiang reasonably believed in, and was operating under, a mistaken set of facts that, if true, would have resulted in there not having been a cumulative excess amount. Therefore, his failure to file tax returns (Form T1-OVP) for 2004 to 2013 resulted from a reasonable error of fact, so as to be excused by the due diligence defence.