Citation: 2010 TCC 144
Date: 20100310
Docket: 2006-3803(IT)I
BETWEEN:
ALDO ASTORINO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1]
Mr. Astorino needed a
loan in 2001. Unfortunately, to get the loan he got caught up in an arrangement
that required the transfer of his RRSP. The issue in this informal procedure
appeal is whether the transfer of his RRSP resulted, pursuant to either subsections
146(8) or 56(2) of the Income Tax Act (the "Act"), in
income taxable in Mr. Astorino’s hands.
[2]
Not having had any luck
in approaching a bank for a loan, Mr. Astorino responded to an advertisement in
the local paper. Upon visiting what he believed to be the offices of an
organization called National Business Investment ("NBI"), he was advised
that if he transferred his locked-in RRSP with SunLife to them, he could borrow
the $7,000 he required. Mr. Astorino proceeded to sign a number of documents on
April 20, 2001:
a) a Revenue Canada form (T2033) entitled Direct Transfer under paragraph
146(16)(a) or 146.3(2)(e). He left blank Parts A, B and C, which
required, respectively, the identity of the RRSP transferor, the amount to be
transferred and the identity of the RRSP transferee.
b) a cash loan
agreement in which NBI in Trust inc. agreed to lend him $8,165, with the
following provision:
The borrower agrees to reimburse the principal and interest
pertaining to the above-mentioned amount according to one of the following
options:
B (checked by Mr. Astorino) Through a
proxy and designation of a representative (attach original form)
c) a Power of Attorney
in which Mr. Astorino appoints NBI in Trust inc.:
…
to be my legally authorized representative until end of life
inclusive; to collect on my behalf any monies owing and payable to me, as well
as any interest due on these monies, based on the amounts invested in trust and
managed according to the directions given below to NBI in Trust inc.:
Sum under management: $11,500
…
I hereby approve and agree to approve and
confirm any actions undertaken under the power of attorney issued by me to the
above-mentioned legal representative or agent; this shall include his having
access to, and rights for the issuance or the request for issuance of any
necessary document, and in total to perform all functions herein expressed or
implied to ensure all decisions and acts required to efficiently manage the
sums covered by this Power of Attorney to the betterment of the identified
parties herein defined.
…
[3]
Someone from NBI or
Canadian Corporation Creations Centre ("CCCC") filled in the Revenue
Canada direct transfer form naming Spectrum (SunLife) as the transferor RRSP,
designating all of Mr. Astorino’s RRSP for transfer and naming CCCC as the
registered pension plan to which the property should be transferred. It was
clear that Mr. Astorino did not pay a great deal of attention to the form,
nor appreciate the risk he ran in signing blank documents and providing the
broad power of attorney. He simply wanted what he believed to be a loan, and
indeed, three weeks after signing these documents, he did receive $7,466 from
NBI. Spectrum (SunLife) did transfer Mr. Astorino’s RRSP in the amount of
$12,751 to CCCC on May 11, 2001.
[4]
Mr. Lalonde, a Canada
Revenue Agency ("CRA") manager of registered plan compliance provided
a useful timeline of the events surrounding the purported CCCC registered
pension plan and its activities, from the Federal Government’s perspective.
CCCC was incorporated by Letters Patent in February 2000 with the objective to
help establish and promote the interests of small businesses. In minutes of
CCCC dated June 15, 2000, it was resolved to take all steps necessary to
establish a pension plan for employees and members of CCCC. On June 21, 2000, a
trust was established for the purpose of administering a trust account for the
CCCC pension. In December 2000, the Government of Canada notified CCCC that its
pension plan was registered effective July 24, 2000. In June 2001, CRA advised
CCCC that it wished to review its affairs. In July 2001, CCCC advised the CRA
that it never had any members in the pension plan, nor had there been any transfers
in or out of the plan, so they were not opposed to the cancellation of the
registration of the plan. In December 2001, CRA notified CCCC of its intention
to revoke the registration of the pension plan and also advised Financial
Services Commission of Ontario ("FSCO") that it intended to do so,
effective July 24, 2000. In the December 11, 2001 correspondence to the FSCO,
CRA stated:
…
The Minister intends to revoke the Plan’s registration because the
Plan does not comply with the prescribed conditions for registration set out in
subsection 8501(1) of the Income Tax regulations (ITR). Specifically, it
is a condition of registration that the Plan comply with paragraphs 8502(a) of
the ITR. Paragraph 8502(a) requires that the primary purpose of a registered
pension plan be to provide periodic payments to individuals after retirement
and until death in respect of their service as employees. As the information
and documentation requested in this regard have not been provided, we have
concluded that the Plan has failed to comply with this requirement.
…
[5]
It was clear by further
correspondence from CRA to FSCO in the summer of 2002 that the CRA did revoke
the Plan’s registration under subsection 147.1(11) of the Act, effective
July 24, 2000.
[6]
From the Province of
Ontario’s perspective, the FSCO revoked the registration of CCCC’s pension
plan, stating in part that the plan accepted transfers of funds from locked-in
retirement accounts from individuals "who do not receive remuneration from
an employer that belongs to the plan. Therefore such persons are not employees,
within the meaning of section 1 of the Act, of an employer that belongs
to the plan. The plan’s acceptance of such transfers contravenes the terms of
the plan."
[7]
Further, the FSCO
indicated in its reasons for its order of revocation:
In transferring or allowing the transfer of funds from the pension
fund to NBI in Trust, NBI Canada or CCCC bank accounts, the pension trust fund
as the named administrator has permitted the use or diversion of funds for
purposes other than the purpose of the plan in contravention of the trust
agreement and subsection 22(1) of the Act.
The FSCO provided many other reasons for the
revocation.
[8]
Mr. Astorino was
notified of the revocation and that he could contact the Provincial Government
for a form, which, upon completion, would allow him to receive some
compensation. He completed the form, submitted it and received $1,000 of
compensation.
[9]
Although the RRSP funds
transferred from Spectrum (SunLife) to CCCC were in excess of $12,000, at the
time of assessment, CRA was only aware that Mr. Astorino received a cheque
of $7,466 and assumed this represented 70% of the total of his RRSP (based on
CCCC’s modus operandi) and therefore assessed Mr. Astorino for
$7,466 x 100 divided by 70 or $10,665.
[10]
So where does all this
leave Mr. Astorino from a tax perspective?
Issues:
a) Does
subsection 146(16) of the Act apply to Mr. Astorino’s transfer of his
RRSP to CCCC, resulting in no inclusion in income?
b) If not,
does subsection 146(8) of the Act apply to bring some or all of the
amount assessed into Mr. Astorino’s income?
c) Does
subsection 56(2) of the Act apply to bring some or all of the amount
assessed into Mr. Astorino’s income?
[11]
Bear in mind that the
Government is limited to the $10,665 assessed and cannot, through this appeal
process, seek the greater amount of $12,751, which was the full amount of Mr.
Astorino’s RRSP.
Analysis
[12]
The following are
relevant subsections of the Act for consideration:
a) subsection 146(8):
146(8) There shall be included in computing a taxpayer's income for
a taxation year the
total of all amounts received by the taxpayer in the year
as benefits out of or under registered retirement savings plans, other than
excluded withdrawals (as defined in subsection 146.01(1)
or 146.02(1))
of the taxpayer and amounts
that are included under paragraph (12)(b) in computing
the taxpayer's income.
b) subsection 146(16):
146(16) Notwithstanding
any other provision in this section, a registered retirement savings plan
may at any time be revised or amended to provide for the payment or transfer
before the maturity of the plan,
on behalf of the annuitant under the
plan (in this subsection referred to as the "transferor"), of any property thereunder by
the issuer thereof
(a)
to a registered pension plan
for the benefit of the
transferor or to a registered retirement savings plan
or registered retirement income fund
under which the transferor is the annuitant, or
(b) to a registered retirement savings plan
or registered retirement income fund
under which the spouse or common-law partner or
former spouse or common-law partner of
the transferor is the annuitant, where the
transferor and the transferor's spouse or common-law partner or
former spouse or common-law partner are
living separate and apart and the payment or transfer is made under a decree,
order or judgment of a competent tribunal, or under a written separation agreement,
relating to a division of property between the
transferor and the transferor's spouse or common-law partner or
former spouse or common-law partner in
settlement of rights arising out of, or on the breakdown of, their marriage or common-law partnership,
and, where there has been such a
payment or transfer of such property on behalf of
the transferor before the maturity of the plan,
(c) the amount of the payment
or transfer shall not, solely because of the payment or transfer, be included
in computing the income of the transferor or the transferor's spouse or common-law partner or
former spouse or common-law partner,
(d)
no deduction may be made under
subsection (5), (5.1) or (8.2) or section 8 or
60 in respect of the payment or transfer in computing the income of any taxpayer, and
(e) where the payment or transfer was made to
a registered retirement savings plan,
for the purposes of subsection (8.2), the amount of the payment
or transfer shall be deemed not to be a premium paid to that
plan by the taxpayer.
c) subsection 56(2):
56(2) A payment or transfer of property made pursuant
to the direction of, or with the concurrence of, a taxpayer to some other
person for the benefit
of the taxpayer or as a
benefit that the taxpayer desired to
have conferred on the other person (other than by
an assignment of any portion of a retirement pension pursuant to section 65.1
of the Canada Pension Plan or a comparable provision of a provincial
pension plan as defined in section 3
of that Act or of a prescribed provincial
pension plan) shall be included in computing the taxpayer's income to
the extent that it would be if the payment or transfer had been made to the taxpayer.
[13]
Subsection 146(8) of the Act requires
that Mr. Astorino bring into income amounts received by him as benefits out of
or under his RRSP. Subsection 146(16) of the Act, however, specifically
provides an exception, allowing for a transfer of funds from an RRSP to a
Registered Pension Plan without triggering an inclusion in income. I must first
then address the application of subsection 146(16) of the Act to Mr.
Astorino’s circumstances, and, if subsection 146(16) of the Act does not
apply, I shall then return to subsection 146(8) of the Act. The
Respondent argues further that if subsection 146(8) of the Act does not
capture the funds transferred, then subsection 56(2) of the Act does.
Application
of 146(16)
[14]
Subsection 146(16) of the Act
effectively provides for a rollover from an RRSP to a Registered Pension Plan.
An interesting question here is what is the effect of a retroactive
cancellation of a Registered Pension Plan’s registration? In a case dealing
with very similar circumstances involving CCCC and NBI, the case of Bonavia
v. Her Majesty the Queen
(currently under appeal) Justice Favreau had little difficulty concluding:
[15] … The vehicle offered by the promoters of the scheme was a
pension plan that was registered at the time the capital of the appellant’s
RRIF was transferred.
[16] Unfortunately for the appellant, the registered pension plan
was not a pension plan that met the prescribed conditions for registration so
that it has been retroactively deregistered by the Minister. Consequently, the
two transfers of the capital of the Fund to a bank account held by CCCC
constituted a withdrawal of the capital of the appellant’s RRIF which had to be
included in the appellant’s income for the 2001 taxation year pursuant to
subsection 146.3(5) of the Act.
…
[15]
The authority for the revocation
of Registered Pension Plan is found in subsection 147.1(11):
147.1(11) Where, at any time after
a pension plan has been registered by the Minister,
(a) the plan does not comply with the prescribed conditions
for registration,
(b) the plan is not administered in
accordance with the terms of the plan as registered,
(c) the plan becomes a revocable plan,
(d) a condition imposed by the Minister in writing and applicable
with respect to the plan (including a condition applicable generally to
registered pension plans or a class of such plans and a condition first imposed
before 1989) is not complied with,
(e) a requirement under subsection (6) or (7) is not complied
with,
(f) a benefit is paid by the plan, or
a contribution is made to the plan, contrary to subsection (10),
(g) the administrator of the
plan fails to file an information return or actuarial report relating to the
plan or to a member of the plan as
and when required by regulation,
(h) a participating employer
fails to file an information return relating to the plan or to a member of the plan as
and when required by regulation, or
(i) registration of the plan under
the Pension Benefits Standards Act, 1985 or a similar law of a province is refused or
revoked,
the Minister may give
notice (in this subsection and subsection (12) referred to as a
"notice of intent") by registered mail to the plan administrator that the
Minister proposes to
revoke the registration of the plan as of a date specified in the notice of
intent, which date shall not be earlier than the date as of which,
(j) where paragraph (a) applies, the plan
failed to so comply,
(k) where paragraph (b) applies,
the plan was not administered in accordance with its terms as registered,
(l) where paragraph (c) applies,
the plan became a revocable plan,
(m) where paragraph (d) or (e) applies,
the condition or requirement was not complied with,
(n) where paragraph (f) applies,
the benefit was paid or the contribution was made,
(o) where paragraph (g) or (h) applies,
the information return or actuarial report was required to be filed, and
(p) where paragraph (i) applies,
the registration referred to in that paragraph was refused or revoked.
It
is clear that the Government does have legislative authority to revoke a
registration retroactively, provided such date of revocation is not earlier
than the happening of certain events. I am satisfied that the plan was
deregistered effective the moment of its purported registration. It never
qualified as a Registered Pension Plan, notwithstanding what Mr. Astorino might
have thought. In that regard, a diligent review of CCCC’s documents might have
caused the reasonable prospective customer to, at the very least, inquire how
can I be part of a pension plan set up for employees and members of an
organization to which I have absolutely no connection. Red lights should have
been flashing, though, to be fair to Mr. Astorino, had he inquired with the CRA
at that time whether the CCCC Pension Plan was registered, he would have been
advised that, yes it was. I must however give effect to the retroactive
nature of the revocation order – to do otherwise would ignore the clear
legislative authority of the Government to do so, and also could open the door
to further nefarious schemes. Subsection 146(16) of the Act does not
apply to Mr. Astorino’s transfer of his RRSP, as the transferee plan was not a
Registered Pension Plan.
Application
of subsection 146(8) of the Act
[16]
The Crown contends that if
subsection 146(16) of the Act does not apply, then Mr. Astorino’s withdrawal
of funds from his RRSP and into CCCC is caught by subsection 146(8) of the Act as an amount received by Mr. Astorino
as a benefit out of or under the RRSP. Again, referring to Justice Favreau’s
reasons in Bonavia, after considering the extended meaning of
"receive" and the concept of constructive receipt, he concluded that
the amounts transferred out of Mr. Bonavia’s Registered Retirement Income Fund
("RRIF") to CCCC were caught by subsection 146.3(5) of the Act.
Subsection 146.3(5) of the Act is the equivalent RRIF provision to the subsection
146(8) of the Act RRSP provision, with the difference that
subsection 146.3(5) of the Act does not refer to amounts received
"as benefits", as does subsection 146(8) of the Act.
[17]
It is those additional words
"as benefits", in subsection 146(8) of the Act that gives me
pause. For subsection 146(8) of the Act to apply, Mr. Astorino must have
received amounts as benefits out of or under his RRSP. What did he receive? By
directing the transfer of funds into the CCCC Pension Plan, Mr. Astorino did
constructively receive the funds transferred. This conclusion is supported by
reference to the case law set forth in Justice Favreau’s reasons in Bonavia
(see particularly Justice McArthur’s comments in Toth v. R and Justice
Bowman’s comments in Belusic v. R,
both referred to by Justice Favreau). The question becomes whether, in the
circumstances facing Mr. Astorino, he "received" such amounts
"as benefits" under the RRSP. He transferred the funds so he could
get a loan of approximately $7,500 – there was certainly some benefit, but was
it the full amount that was received as a benefit? CCCC’s modus operandi
appears to have been to lend up to 70% of the value they received from the
duped customer and keep the rest. Mr. Astorino was unlikely to ever have seen
the balance of his funds. While this may at first blush suggest the benefit was
less than the full amount, unfortunately for Mr. Astorino, that approach does
not hold water. Once Mr. Astorino signed over the full amount of his RRSP
to CCCC he had, at that moment, the benefit of the full amount, and indeed used
the full amount to secure the "loan" for a lesser amount. It was his
decision to give CCCC the power to deal with the funds – all of the funds. By
giving up control over the full amount, he has not limited his benefit from the
RRSP to just the amount he ultimately received. No, he had the benefit of the
full amount and thus falls squarely within the purview of subsection 146(8) of
the Act.
Application
of subsection 56(2) of the Act
[18]
While it is unnecessary to have to
turn to subsection 56(2) of the Act, I do so for completeness’ sake. I
again agree with Justice Favreau that, even if not caught by subsection 146(8)
of the Act (or in his case 146.3(5) of the Act), the amounts
would nevertheless be included in the Appellant’s income by the application of
subsection 56(2) of the Act, as the four conditions for the application
of that provision have been met:
a) the
payment was to a third party, CCCC;
b) it was made at the
direction of the Appellant by signing the documents he signed in April 2000;
c) it was for the
benefit of the Appellant as he directed the transfer so he could access the
funds;
d) the payment would
have been included in his income if it had come directly out of his RRSP to
him.
[19]
As indicated to Mr. Astorino at
the trial, it was a dangerous practice to sign documents in blank and to so
readily grant authority to an unknown entity through a power of attorney. Mr.
Astorino did get what he wanted, the $7,500 cash, but he also got more than he
bargained for, the loss of the balance of his RRSP and a tax bill on some
amounts that never made their way into his pockets. A harsh lesson learned.
[20]
The appeal is dismissed. Mr.
Astorino was made aware that the Bonavia case is under appeal. If he
wishes to preserve his right to benefit from the possibility of a decision from
the Federal Court of Appeal that reverses Justice Favreau’s decision, his
option would be to appeal this decision.
Signed at Toronto, Ontario, this 10th day of March 2010.
"Campbell J. Miller"
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