Why clients must pay back RRSP withdrawals

In January 2011, I discussed the case of Marian Javor (Javor v The Queen (2010 TCC 578).

Read: Home Buyers’ Plan troubles

In 2009, CRA reassessed Javor for his 2003, 2004, and 2006 taxation years, because he didn’t include $536 in his income for each of these three years.

That inclusion was required under the terms of his previous participation in the Home Buyers’ Plan (HBP). CRA also assessed late-filing penalties for each of these three years, since Javor did not file tax returns.

The HBP allows first-time home buyers to withdraw up to $25,000 from their RRSPs to assist them with buying a home. The funds need to be paid back over a 15-year period. If payment is missed in a particular year, the amount not repaid must be included in the participant’s income for that year.

Multiple appearances in Tax Court of Canada

In 1997, Javor withdrew about $8,050 from his RRSP under the terms of the HBP and used the money to purchase a home.

He did not make the necessary annual repayments to his RRSP account in the 2003, 2004, and 2006 taxation years; nor did he file income tax returns for those years.

He argued no amount should be included in his income in respect of the HBP “since he did not realize any benefits in respect of the home in the relevant taxation years…all of the benefits were realized by his former spouse,” who presumably occupied the home after his separation.

The 2010 trial was Javor’s second time in Tax Court, having unsuccessfully argued the same position in a 2005 case. In that case, he testified, “Due to the matrimonial dispute, he ultimately did not get the benefit of the RRSP withdrawal—his wife did.”

Read: Helping first-time home buyers

In that trial, Javor tried to subpoena both his former spouse and the Treasurer of the Law Society to attend in Tax Court, but the Judge quashed both subpoenas, the former due to a restraining order against Javor and the latter “on the basis that (the Treasurer) could contribute no relevant evidence to the case.”

Not surprisingly, the Tax Court Judge upheld the CRA’s assessment and the penalties, finding the Income Tax Act simply brings amounts not repaid under the HBP into income based on a formula. Plus, the Act “does not make any mention of benefit […] The issue of benefit is not relevant.”

On to Federal Court of Appeal

Not one to give up, Javor found himself in the Federal Court of Appeal on May 3, 2012 appealing the 2010 Tax Court’s decision not to waive the penalties assessed by the CRA.

In his appeal, he raised a number of procedural issues, the main one referring to the two subpoenas the Tax Court judge quashed. Javor argued the Tax Court judge made an error in quashing the subpoenas.

The Court of Appeal did not agree, saying, “Mr. Javor’s belief that his former spouse and an official of the Law Society of Upper Canada could give relevant evidence is incorrect. It is based on his misunderstanding of the law relating to his obligation to repay the amounts he withdrew in 1997 from his registered retirement savings plan to buy a home, and his obligation to pay tax on any missed repayments.”

Read: Canadians bracing for higher home costs

The Court carefully reviewed the transcript of the lower court’s proceedings and concluded neither Javor’s former spouse nor a Law Society official could have testified “to anything that was legally relevant” to his tax liability.

While Javor continued to dispute his liability to pay a late filing penalty and interest, he had no valid basis for disputing the amount of tax assessed as a result of his HBP withdrawals.

Since he filed his returns late, the Court of Appeal found he was indeed liable for interest and late filing penalties.

Jamie Golombek

Tax & Estate

Managing Director, Tax and Estate Planning, CIBC Private Wealth Team Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC in Toronto. As a member of the CIBC Private Wealth team, Jamie works closely with advisors from across CIBC to support their clients and deliver integrated financial planning and strong advisory solutions. He joined the firm in 2008 after 12 years with a global investment company, where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie has also worked for Deloitte as a tax specialist in the Toronto office, where he specialized in both personal and corporate tax planning. Jamie is quoted frequently in the national media as an expert on taxation. He writes a weekly column called “Tax Expert,” in the National Post, has appeared as a guest on BNN, CTV News, and The National, and for several years was a regular personal finance guest on The Marilyn Denis Show. He received his B.Com. from McGill University, earned his CPA designation in Ontario and qualified as a US CPA in Illinois. He has also obtained his Certified Financial Planning (CFP) and Chartered Life Underwriting (CLU) designations. In 2023, Jamie was named a CPA Ontario Fellow. The FCPA is the highest distinction that can be bestowed upon a CPA who brings distinction to themselves and to their profession through leadership and achievement in their professional, community or personal lives. Jamie is a past chair of the Investment Funds Institute of Canada’s Tax Working Group. He is also a member of CPA Ontario, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. For nearly two decades, Jamie taught an MBA course in Personal Finance at the Schulich School of Business at York University in Toronto.