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FROM: MAY-JUN 2008 ISSUE | BY DON GOODISON
Section 146.02 of the Income Tax Act permits taxpayers to withdraw funds from their RRSPs to finance certain education programs for themselves or their spouse. Known as the Lifelong Learning Plan, withdrawals are limited to $10,000 per year, with a total limitation of $20,000. While the program is quite popular, it is not without its pitfalls and the taxman is very quick to jump on any withdrawal that doesn’t appear to meet the criteria.
Taxpayer Heather Wood discovered this when the minister disallowed her claim. She asked the Tax Court of Canada to rule on the matter in Heather M. Wood v. Her Majesty the Queen; Tax Court of Canada; 2007-1964(IT)I. In 2004, Wood withdrew funds from her RRSP to fund an education program for her husband. The minister disallowed the tax-free withdrawal on the assumption that the college where the program was offered was not a designated education institution.
Shortly before the trial, the minister attempted to amend the Reply to Notice of Appeal. The minister conceded that the college was a designated institution, but that the program was not a full-time program. The court denied the request.
At trial, the minister did not provide any witnesses. A letter from the auditor was deemed to be inadmissible on the grounds that it was not the best evidence, and would not allow the appellant an opportunity for cross-examination. With the denial of the request to amend the Reply, the burden of proof shifted to the minister.
In order to have certain documents admitted as evidence, the minister attempted to call Wood’s husband as a witness. The court denied the request on the basis that the husband, who was acting as agent for his wife in the court, was not compellable. He had not been served with a subpoena or notice of intention to be called as a witness. The court held that witnesses should be afforded time to prepare themselves and be paid a witness fee.
While Heather Wood could be called to testify, the court decided that she would not be able to provide evidence concerning the minister’s documents about the program. These documents would have to be admitted through a witness who could attest to them. The persons who should have been called were either the auditor or a representative of the college where the program was offered. The court allowed the appeal.
Although the subject matter of the case was the RRSP withdrawal, the heart of the case was the court’s refusal to allow the minister to take advantage of an appellant that was not represented by legal counsel. In the reasons for judgment, the judge stated: “This presents an issue that frequently confronts the Court. To what extent does the trial Judge assist an Appellant who is not represented by legal counsel?”
The court’s concern for the appellant’s rights is illustrated by paragraph 11 of the reasons for judgment:
To compel the Appellant to take the witness stand in these circumstances without counsel would be to invite an abuse of the evidentiary requirements of the entire proceeding. There must, in my view, be an element of discretion in the application of the Rule to secure the attendance of a person to testify, particularly in an Informal Procedure case where procedural fairness and the interests of justice are not advanced by applying it. It is incumbent on the party with the onus of proof to consider and meet reasonable evidentiary requirements, particularly where that party is the Crown, acting with counsel, and the other party is not so represented.
A few years ago, I attended a roundtable discussion at the B.C. Conference of the Canadian Tax Foundation. Chief Justice Bowman of the Tax Court of Canada was one of the panelists. One of the questions addressed to him was “does the Tax Court allow for some leeway in situations where the taxpayer is not represented by legal counsel?” His reply was something like “you bet we do!” After reading this case, I believe him.
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