2015-0599851I7 TFSA arbitrary assessment

Principal Issues: Does the Income Tax Act allow the Minister to assess a taxpayer under s.152(7) on its excess TFSA contributions without first sending a demand to file?

Position: Yes.

Reasons: Subsection 207.07(3) states that section 152 applies to Part XI.01. Subsection 152(7) allows the Minister to assess a taxpayer notwithstanding that a return has not been filed.

Author: Agarwal, Lata
Section: 150, 152(7), 207.07

                                                                                       September 11, 2015

Sheila Barnard                                                               HEADQUARTERS
Manager,                                                                        Income Tax Rulings
Legislation Section                                                           Directorate
Individual Returns Directorate                                       Lata Agarwal, CPA,
Assessment, Benefit, and Service Branch                    CMA, MBA

                                                                                      2015-059985

Subject: Assessments under subsection 152(7) of the Income Tax Act

We are writing in response to your email of July 21, 2015, in which you have requested us to confirm whether the Tax-Free Savings Account (TFSA) provisions in Part XI.01 of the Income Tax Act (the “Act”) allow the Minister to raise an assessment using subsection 152(7) of the Act without first contacting the taxpayer, e.g., without first sending the taxpayer a “Demand to file”.

In brief, you are considering some changes to the current TFSA assessing system. Under the proposed changes, starting in 2016, any taxpayers who exceed their TFSA contribution limit for the first time, will be sent a warning letter. If they still fail to remove the excess amount from their TFSA, they will be subject to an automatic assessment of tax on the excess contributions. Those taxpayers who have been assessed for the excess contributions in their TFSAs in prior years, but continue to be non-compliant in this matter, will also be assessed automatically.  

In your view, subsection 152(7) authorizes the Minister to issue an assessment under any circumstances, at any time. Such an assessment would be valid and binding by virtue of subsection 152(8), unless varied or vacated on an objection or appeal. In your opinion, pursuant to a combined reading of subsection 150(2) and subsection 152(7), the Minister is not required to send the taxpayer a “Demand to file” before it can make or issue an assessment under subsection 152(7). 

Our comments

Section 207.02 in Part XI.01 of the Act makes an individual liable for tax in respect of an excess amount in any month in the individual’s TFSA. Under subsection 207.07(1), this individual is also required to file with the Minister a return for the year in prescribed form containing prescribed information, and pay any net tax owing, before July of the following calendar year. By virtue of subsection 207.07(3), subsections 150(2) and (3), section 152, sections 158 to 167 and Division J of Part I apply to these provisions with such modifications as the circumstances require.

Subsection 152(7) clearly provides that the Minister is not bound by the return or the information supplied by the taxpayer, and in making an assessment may, notwithstanding the return or the information provided, or if no return has been filed, assess the tax payable. Therefore, notwithstanding that the taxpayer is required to file a return, we agree with your view that subsection 152(7) permits the Minister to make an assessment of tax under Part XI.01 without first contacting the taxpayer.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust that these comments will be of assistance. If you would like to discuss the matter further, please contact Lata Agarwal or me.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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