Bizarre tax case of jurisdiction

National Post

2010-11-27


The ability, or more accurately, the inability for Montreal resident Giovanni Tozzi to open up a Registered Disability Savings Plans (RDSP) was the subject of bizarre tax court decision last month.

The RDSP is tax-deferred savings plan that allows up to $200,000 of contributions, along with potentially generous income-tested government assistance in the form of Canada Disability Savings Grants and Bonds, to be invested on behalf of a disabled person who qualifies for the disability tax credit (DTC).

The DTC is available to those with a severe and prolonged physical or mental disability. To qualify, a medical doctor or other medical specialist must certify a Disability Tax Credit Certificate, which must then be approved by the Canada Revenue Agency.

In February 2009, Mr. Tozzi submitted a DTC certificate to the CRA but the CRA denied his claim.

Mr. Tozzi appealed to the tax court to challenge the denial. What's interesting about the case is that he didn't need the DTC in 2008 to reduce his tax owing because he had no tax payable. He needed the DTC to establish his eligibility to open an RDSP.

The problem is the Income Tax Act doesn't grant the tax court jurisdiction to change a "nil assessment" where there is no tax owing and accordingly, could not order the CRA to recognize Mr. Tozzi's disability.

Instead, this would have to be done by going to federal court. Unlike tax court, where you can represent yourself, or be represented by a friend or family member, in federal court, you must either represent yourself or hire a lawyer, which is generally recommended due to the complex procedures of that court.

As Mr. Tozzi's agent stated, "This is not practical because of [Mr. Tozzi's] fear of substantial legal costs in the federal court."

As Chief Justice Gerald Rip sympathized, "This court should be a one-stop court for persons who have claims under the act ... It may well be that Parliament ... did not recognize the problem Mr. Tozzi has suffered and potentially other low-income taxpayers may experience in the future because of the limited jurisdiction of the tax court."

It appears the government is listening. On Tuesday, Liberal MP Massimo Pacetti, who represents Mr. Tozzi's Montreal riding and is vice-chair of the House of Commons standing committee on finance, raised the issue with Minister Jim Flaherty in the committee's meeting.

Mr. Flaherty acknowledged he was aware of the case saying, "This is not right and needs to be fixed. I have instructed my officials to fix it and we will correct that situation so that it doesn't happen again."

Hopefully, the required amendment will be retroactive to the introduction of the RDSP so that Mr. Tozzi can have his day in tax court.