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