The idea of withdrawing funds from an RRSP or RRIF is good, but apparently you need to be careful. Somehow this case does not reflect the spirit of fairness in the law.

Dan White

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Bradley v. The Queen (General Procedure). Tax Court of Canada, June 26, 2009.

Neutral Citation: 2009 TCC 341. Court File No. 2006-2923(IT)G. Hershfield, J. Deductions - Legal fees and returns to RRSPs of excess withdrawals -

The taxpayer spent more than a decade disputing the refusal of the Veterans Review and Appeal Board (the “Board”) to acknowledge his entitlement to a disability pension.

As a result he incurred legal fees of $21,095 during 2005, and financed these by withdrawing $44,000 from his RRSP, but later returned $24,000 of this to the RRSP.

In reassessing the taxpayer for 2005, the Minister disallowed the deduction of the $21,095 in legal fees, and of $23,000 claimed in respect of the return to the taxpayer’ RRSP of the $24,000 -

Appeal dismissed - The TCC concluded that: (a) by 2005, the taxpayer had never received any disability pension;

(b) as a result the legal expenses deductible by him for 2005 relating to his dealings with the Board were zero under s. 60(o.1)(ii)(A)(III);

(c) there is, however, a 7-year carryover rule in s. 60(o.1) which might enable the taxpayer to deduct the $21,095 in legal fees at some future time; and

(d) there was no provision in the Act that would justify the $23,000 deduction claimed by the taxpayer relating to his re-contribution to his RRSP of what turned out to be an excess withdrawal.

The Minister’s reassessment was affirmed accordingly - I.T.A., ss. 8(1)(b), 60(o.1), 146(1), 146(6.1), 204.1 - Income Tax Regulations, C.R.C. c. 945, s. 8307(7).