Koo - This is very rough but not designed to be nice rather a deterrent to intentional tax evasion. When applied, they feel they have found someone gaming the system and aren't charging them through the legal system. They are trying to send a message to others as well as being punative to the person in that case. 

This isn't totally my view, rather just trying to point out possibilities I see when reading their document. I do really feel they might look at the lower purchase price as a benefit. That is the reason the person would have done it and they did it intentionally against the rules. That would seem to make it totally plausible to apply this up to the sale of the shares. This is taxed differently than normal capital gains with that June 30th filing to report what was done and it explains that each rise in FMV constitutes another tax event accumulating. It might be an ongoing thing as long as they deem a benefit. It states that the tax would have to be paid at least annually. It is hard to guess when they would decide enough is enough. Bottom line is that this is not normal capital gains taxes rather a punitive measure.

In one of the court cases that I referrenced, the error was actually made by the person's brokerage. I think that might be why the judge considered the penalty too harsh. I think the CRA's view might be that since it was a large amount of money for a long time, that the person knew of their mistake and made no effort to correct it so it became intentional on his part also. There was a $10,000 over-contribution for 5 months due to a double transfer and then another making it $20,000 over for another year. He appealed the ruling unsuccessfully to the CRA before it went to court where the judge ruled it too harsh but stated that he had no power to change it, only ask them to review it one more time. They have a lot of power and much rides with the agent reviewing the issue.