$35K tax bill for widowed dad from Scotiabank's mistakes

A widower with five children was slapped with a $35,000 unnecessary tax bill after Scotiabank made several mistakes on a routine registered retirement savings plan transaction.

"Mistakes are made all the time, but there were numerous mistakes made in this case," said Patrick MacDonald, 54. "I would like Scotiabank to fix this, so that it won't cost me a dime."

MacDonald's wife Arlene died in 2008 after a three-year battle with breast cancer. (CBC)

MacDonald's wife Arlene died in December 2008 after a long battle with breast cancer. Their oldest girl was 16 and the youngest boy was five when their mother passed away.

The following spring, her grieving husband, who was also executor of her will, went into their Scotiabank branch in Antigonish, N.S., and asked them to transfer her then $80,000-plus RRSP into his, a routine transaction when a spouse dies.

Left bank to do its job

MacDonald is a land surveyor by trade and said he knew nothing about spousal RRSP rollovers. Besides, he said, he had much more important worries at the time.

"I was overwhelmed with worry, and the priorities were always the kids. I was reading up on what happens with kids after they lose their mom," said MacDonald.

"Oh, God. There were too many emotions and too many other things happening with the kids."

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MacDonald gave Scotiabank his wife's will and death certificate and signed all the papers. He said he was assured the transfer, from her Scotia iTrade account to his, would be looked after.

"It was such a standard thing," said MacDonald. "They knew what I needed, so I felt confident that I was looked after. I left and carried on with life."

The bank, however, failed to facilitate the transfer before a one-year deadline, after which his wife's money could no longer be rolled over and was fully taxable.

"I slipped through the cracks somehow," said MacDonald.

Lost paperwork, missed deadline

A chronology recently sent to him by Scotia iTrade shows that in 2009 the branch lost the initial paperwork in internal mail, including his wife's legal documents. MacDonald said he went in twice that year to give them the required paperwork.

The Scotiabank branch in Antigonish, N.S., made several mistakes handling MacDonald's transaction. (CBC)

It indicates branch staff then let the file sit for a year until late in 2010. Staff also failed to return a call from Scotia iTrade, asking why the paperwork for the transfer hadn't been sent.

The bank should have completed the rollover by Dec. 31, 2009, because government rules say RRSPs have to be transferred to a beneficiary's account no later than the end of the year, following the year of death.

In the meantime, MacDonald was getting mildly annoyed, because he kept getting statements in his wife's name.

"I didn't know that there were tax implications [at the time]," said MacDonald.

In protest over the delay, he transferred his own RRSP account to BMO Nesbitt Burns. He also asked BMO to deal with Scotiabank to get his wife's money, which he said it did with no success.

"It was too late. The grace period [to avoid taxes] was past."

MacDonald eventually received a tax bill that now stands at more than $35,000.

"It's $30,000 that we can't use that's going to go to the government that shouldn't be going to the government," said MacDonald.

Family savings depleted

"This was supposed to be all rolled over into my RSP … and if I needed it before retirement it's $30,000 that could have gone to the kids' education."

The chronology suggests Scotiabank was in no hurry, partly because it had his wife's date of death wrong.

After the deadline had passed, the Scotia iTrade said it discovered that "Arlene MacDonald died in December 2008, and not in 2009 as initially thought."

When MacDonald was broadsided with the tax bill, he said the bank branch manager told him he was sorry. Until very recently, however, he was told he wouldn't be compensated.

"We regret we are not in a position to provide compensation with respect to any penalties you have incurred from Canada Revenue Agency," read an email from Scotia iTrade on Oct. 3.

Scotiabank sudden reversal

As a result of our inquiries, however, Scotiabank has now offered MacDonald $37,000 to cover his tax bill. He received the offer four business days after Go Public contacted Scotiabank in Toronto.

As a result of going public, Patrick MacDonald has now been offered $37,000 by Scotiabank. (CBC)

A bank spokesperson told Go Public, "As a result of lost paperwork, key dates were missed, and this led to other difficulties in resolving this account. This is a rare and regrettable occurrence, and we apologize."

Scotiabank still hasn't released his wife's funds, though, because to this day it says it is missing required paperwork.

The fund has grown to $111,000. MacDonald is still infuriated he isn't able to keep it growing — tax free in his RRSP —  until retirement.

"I was only 49 when she died, so I had another 21 years for that to grow in a tax free haven," said MacDonald, who added that he expects additional taxes will apply to the money the fund has earned since his wife's death.

Independent investment planner Don Taylor said the bank is to blame for MacDonald's unnecessary tax bill, and that personal service is slipping at big banks. (CBC)

Don Taylor, an Ottawa-based investment adviser with the Investment Planning Counsel, believes this case highlights a bigger problem — banks giving customers less and less personal service.

"I believe the larger institutions, as they are getting larger and larger, are not necessarily focusing in on the individual. You become a number in a banking system in their computer system. You are no longer a person," he said.

Taylor points out that the bank must have had the paperwork it needed from MacDonald, because otherwise it would not have been able to inform the Canada Revenue Agency that the RRSP money was subject to taxes.

"Someone dropped the ball here. And that's your large institution."

Submit your story ideas to Kathy Tomlinson at Go Public

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