Date: 20100115
Docket: A-406-08
Citation: 2010 FCA 14
CORAM: LÉTOURNEAU
J.A.
NOËL
J.A.
TRUDEL
J.A.
BETWEEN:
1398874 ONTARIO INC. ON BEHALF OF THE
PENSION PLAN FOR PRESIDENTS OF 1398874
ONTARIO INC.
Appellant
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
TRUDEL J.A.
[1]
This is yet another case where
our Court is asked to rescind a Notice of Intent to Revoke an Individual
Pension Plan (IPP or Plan) previously registered under section 147.1(3) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) (See 1346687 Ontario Inc. v. Canada (Minister of
National Revenue - M.N.R.), 2007 FCA 262, leave to appeal to S.C.C. refused, 32270 (September 28,
2007); Jordan Financial Ltd. v. Canada (Minister of National Revenue –
M.N.R.), 2007 FCA 263, leave to appeal to S.C.C. refused, 32271 (September 28,
2007); Loba Ltd. v. Canada (Minister of National Revenue – M.N.R.), 2004
FCA 342, leave to appeal to S.C.C. refused, 30664 (December 10, 2004) [Loba]. This notice was issued by
the Registered Plans Directorate of the Canadian Revenue Agency (RPD or CRA),
on behalf of the Minister of National Revenue (the Minister).
[2]
Mr. Richard Adderson (or the
member) worked for many years as a police officer for the City of Toronto, entitling him to a pension
from the Ontario Municipal Employees Retirement System (OMERS). Upon
retirement, Mr. Adderson intended to have the commuted value of his pension
transferred into an IPP.
[3]
To achieve this goal, he saw
first to the incorporation of 1398874 Ontario Inc. (Ontario Inc.), a corporate
entity of which he is the President and sole employee. Then, Ontario Inc.
passed a resolution establishing an IPP (The Pension Plan for Presidents of
1398874 Ontario Inc.), Mr. Adderson being the sole member of this Plan.
[4]
Upon initial review of the
documentation regarding the IPP, the Plan was registered with an effective date
of February 1, 2000. The RPD later accepted an amendment to the IPP to credit
Mr. Adderson with past service benefits. This allowed for the transfer of
$622,657.02 from Mr. Adderson’s previous OMERS pension to the IPP on April 30,
2001.
[5]
Between the initial review,
which led to the registration (letter of July 11, 2000, appeal book, volume 1
at page 240), and the Notice of Intent to Revoke of April 15, 2008 (letter of
April 15, 2008, appeal book, volume 1 at page 27), there were many
communications between the CRA and Mr. Adderson, as President of the appellant,
or the actuary from ActuBen Consulting Inc. who was instrumental in the
formation of the IPP and its registration. The gist of these communications,
and at times warnings from the RPD, was the concern of the CRA that the IPP did
not satisfy the requirements of the Act and relevant Income Tax
Regulations, C.R.C., c. 945 (the Regulations). The most pressing
issue was whether the IPP’s primary purpose was “to provide periodic payments
to individuals after retirement and until death in respect of their employment
service”, as prescribed by paragraph 8502 (a) of the Regulations.
[6]
The appellant, as well as Mr.
Adderson, had represented that the company had been created to provide internet
web design services and that its President would be in charge of obtaining
contracts, supervising and doing some of the hands-on work, therefore
establishing a bona fide employer-employee relationship. Moreover, it was
advanced that the member would receive earnings of a level comparable to those
gained with the previous employer (see letter of Mr. Adderson of June 13, 2000,
appeal book, volume 1 at page 242).
[7]
Following an audit and a
thorough review of the Plan, the CRA concluded that the IPP had been registered
“merely to effect a transfer of the member’s total entitlement from the
previous employer’s pension plan and furthermore, to allow the member access to
the surplus funds” (Audit Summary, appeal book, volume 2 at page 391). The impugned
notice of revocation and the present appeal ensued.
[8]
The appellant submits that the
Minister misinterpreted the expression “primary purpose” leading to an
incorrect application of the Regulations. For the appellant, the term
“purpose” involves a planning element, as well as a subjective element, both
clearly defined in Mr. Adderson’s statements, but ignored by the CRA
(appellant’s memorandum of fact and law at paragraphs 48, 54-56). The appellant
also argues that the Minister misread the Regulations when considering
the periodic payments of surplus amounts to Mr. Adderson (ibidem at
paragraph 63).
[9]
I disagree. Whether or not an
IPP meets the “primary purpose” requirement has been determined to be a
question of fact (Loba, supra, at paragraph 2). The factual
findings, which lead to the notice, should therefore be reviewed on a standard
of reasonableness (Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R.
190).
[10]
The record before the Minister
related a story quite different from the one told by the appellant and Mr.
Adderson. It showed that the appellant was incorporated on January 28, 2000,
soon followed by the establishment of the Plan by resolution of the Board of
Directors. Neither the appellant nor Mr. Adderson ever made contributions to
the Plan. In 2001, the Plan’s activities were limited to accepting the transfer
from OMERS and issuing, the very next day, a surplus payment of $70,000 to the
member.
[11]
Starting
January 2002, the member received a combination of monthly pension and surplus
payments of $2,941. By December 31, 2002, the member had received total surplus
payments of $105,300. Meanwhile, Mr. Adderson had only worked for Ontario Inc.
for a period of three months in 2001 earning revenues of $15,000, with respect
to which Mr. Adderson was unable to provide documentation showing that the
amount was earned as a salary (see Audit Summary, appeal book, volume 2 at page
384). As a matter of fact, this income was first reported as business income (Ibidem
at page 382). Then, for the rest of the year, Mr. Adderson was on leave of
absence. In 2002, a T-4 showed income of $7,068 received from Ontario Inc.
which was reported after the commencement of the audit (Ibidem at page
382). Other reported revenues at the relevant time were received from other
sources unrelated to the appellant.
[12]
There was
also evidence provided by Ontario Inc., by way of affidavit sworn by Mr.
Adderson, as Director and Officer of the corporation, which could not
reasonably support the appellant’s representations to RPD. Paragraphs 11 to 14
of this affidavit are worth reproducing:
11.
This
Company was initially set up to do web design, labels, graphics and
distribution for small businesses. A considerable amount of intensive work was
done for their first client, a small company that dealt with specialty coffees,
teas, soaps and branded clothing accessories. Much of this work was done at a
very low margin to provide a showcase of the Company’s work to attract future
business. At the completion, the client company took the finished products of
the Company and refused the payments due on completion and refused to pay the
on going fees agreed upon. Our time and costs were lost.
12.
The
Company sought additional work in the field but given the economic downturn at
the time, and without an initial success to build a reputation, it did not
manage to attract any new contracts of substance.
13.
We
sought contracts for the Company beyond the scope of the Company – including
counselling and private detective work – but did not manage to secure any reasonable
contracts. The initial shareholder was losing interest. The company paid the
initial 3 months of salary out of capital and had then run out of funds with
little sight of a source of new funds.
14.
The
stress aggravated my back problems to the point I was unable to work standing
or sitting. Due to two previous unsuccessful back surgeries, a growing
dependence on pain medications, and poor prospects for income from the business
in 2002 I decided to retire and to commence collecting my pension.
(letter
of May 6, 2008, appeal book, volume 1, page 11 at paragraph 14)
[13]
Ontario
Inc.’s business plan, if a plan at all, is devoid of any seriousness. The “small
company”, for which work would have been done, is unidentified; there is no
evidence showing that Ontario Inc. sought additional contracts from anyone;
there is no evidence, either, of the total disability of the member.
[14]
I
see no merits in this appeal as I conclude that this whole scheme constituted,
as stated by the respondent, mere window dressing designed to create the
appearance that the real purpose was something other than to shelter the
member’s commuted value of his OMERS pension (respondent’s memorandum of fact
and law at paragraph 53).
[15]
The
burden was on the appellant to provide credible and verifiable evidence which,
in the Minister’s view, it failed to do. It was not unreasonable for the
Minister, bearing in mind all the other circumstances surrounding and
characterizing the transfer of funds, to give little or no weight to that
self-serving evidence.
[16]
Therefore, I can detect no error of law
in the decision of the Minister to issue to the appellant a Notice of Intent to
Revoke the registration of its pension plan; nor any other error justifying the
intervention of this Court.
[17]
On the
basis of the record, as a whole, it was reasonable for the Minister to conclude
that the conditions in paragraph 8502 (a) of the Regulations were not
met as of the date of intended revocation.
[18]
For these reasons, I would
dismiss this appeal with costs.
"Johanne Trudel"
"I agree
Gilles
Létourneau J.A."
"I agree
Marc
Noël J.A."
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