2015 FCA 279
HER MAJESTY THE
This is an appeal from a decision of Justice
Randall Bocock of the Tax Court of Canada (the “Judge”), dated December 19,
2014, cited as 2014 TCC 372.
The Judge was presented with an application for
the determination of a question of mixed fact and law, pursuant to Rule 58 of
the Tax Court of Canada Rules (General Procedure) S.O.R./90-688a
(the “Rule 58 Question”). The Rule 58 Question reads as follows:
Whether, on the accepted facts in this
matter, as outlined in Exhibit “A” to the Amended Notice of Motion, or such
other facts as the Court may accept or direct in the circumstances, Olympia
Trust Company (“Olympia Trust”) is the purchaser [as defined in subsection
116(3) of the Income Tax Act (ITA)] under subsection 116(5) of the ITA.
The Rule 58 Question arose out of a number of
assessments (the “Assessments”) made by the Minister of National Revenue (the
“Minister”) against Olympia Trust Company (“Olympia” or the “Appellant”),
pursuant to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the
“Act”), for its 2001, 2002, 2003 and 2004 taxation years (the “Years in
Dispute”). All statutory references shall be to the corresponding provisions of
the Act that were in force in the Years in Dispute.
The Judge answered the Rule 58 Question in the
affirmative. For the reasons that follow, it is my view that he made no
reviewable error in doing so.
Facts and Assumptions
The parties agreed upon certain facts and
assumptions and provided documentation to the Judge to enable him to decide the
Rule 58 Question. The record contains documentation with respect to ten
individuals (each, an “Annuitant”). While the documentation pertaining to each
Annuitant is not identical, neither party asserted that any differences in the
documentation in the record should lead to a different answer to the Rule 58
Question. For the purpose of these reasons, the relevant facts and assumptions
that apply to the Years in Dispute are summarized below.
The Annuitants set up registered retirement
savings plans as defined in subsection 146(1) (“RRSPs”), and transferred funds
to Olympia as trustee under those RRSPs, thereby constituting trusts (each an
“RRSP Trust”) in each instance.
Each RRSP was “self-directed”.
In this regard, the agreed facts stipulate that:
a) Olympia was responsible for implementing the directions of the
Annuitants with respect to the treatment of the properties held by their RRSPs;
b) each Annuitant directed the management of the property in his or her
c) each Annuitant directed what property was to be purchased with the
funds initially brought into his or her RRSP.
The Annuitants requested cash transfers from
their existing RRSPs to their newly created RRSPs. Olympia confirmed to each
transferring institution that it would credit the received funds from that
institution to the RRSP of each requesting Annuitant. Otherwise, the
transferring institution would not have made the transfer of funds without
withholding tax, pursuant to paragraph 153(1)(j).
In accordance with documents (the “Letters of
Indemnity”) such as that located at page 162 of the Appeal Book, each
a) expressed a wish that his or her self-directed RRSP invest a
stipulated amount to purchase a stipulated number of shares (the "Private
Company Shares") of a private company (in each case, a "Canadian
b) acknowledged that he or she had sought all necessary or desirable
independent advice with respect to the making of the investment in the Private
Company Shares for his or her RRSP;
c) acknowledged that Olympia, by accepting the Private Company Shares
into his or her RRSP, had no responsibility for determining either the
eligibility of the Private Company Shares for investment under the RRSP
provisions of the Act or the fair market value of such shares; and
d) agreed to indemnify Olympia for any taxes, penalties, fines, levies,
costs, expenses or any other actions or claims resulting from his or her
instructions to make the investment in the Private Company Shares and hold them
in his or her RRSP.
In each instance, the vendor (each a
"Non-Resident Vendor") of the Private Company Shares was a
non-resident of Canada, for the purposes of the Act.
In accordance with correspondence (the
"Directions") such as that located at page 195 of the Appeal Book,
a) provided to Olympia the documents required to complete the purchase
of the Private Company Shares by his or her RRSP;
b) authorized Olympia to transfer the purchase price of the Private
Company Shares to the vendor of such shares from the funds in his or her RRSP
c) urged Olympia to transfer the funds and close on the applicable
purchase agreement with all reasonable haste.
The Directions refer to documents being provided
by the Annuitants to Olympia in relation to the purchase of the Private Company
Shares. These included agreements (the "Share Purchase Agreements")
such as that located at pages 230 to 232 of the Appeal Book, under which:
a) each Annuitant was described as the purchaser of the Private Company
b) there was no stipulation as to how payment of the purchase price of
the Private Company Shares was to be made to the Non-Resident Vendor;
c) each Annuitant directed that the Private Company Shares were to be
registered in the name of Olympia in trust for his or her RRSP account;
d) each Annuitant represented to the Non-Resident Vendor that he or she
was purchasing the Private Company Shares as principal, and not as agent for
any other person; and
e) pending the registration of the Private Company Shares in the name
of Olympia in trust for each Annuitant's RRSP account, the Non-Resident Vendor
agreed to hold the Private Company Shares in trust for each Annuitant.
Closings under the Share Purchase Agreements
a) in accordance with the Direction from each Annuitant, Olympia
transferred the purchase price of the Private Company Shares out of the account
of his or her RRSP to the Non-Resident Vendor of those shares;
b) registration of the Private Company Shares on the securities
register of the applicable Canadian Private Company was made in the name of
Olympia in trust for the RRSP of each Annuitant; and
c) the Private Company Shares referred to in each Direction were
recorded by Olympia as property of the RRSP of the Annuitant who gave that
In relation to these sales of Private Company
Shares, the Non-Resident Vendors failed to give the notices to the Minister
that were required by subsection 116(3), no "clearance
certificates" were issued by the Minister pursuant to either of
subsections 116(2) or (4) and no income tax was remitted to the Minister in
accordance with subsection 116(5) by any person falling within the definition
of purchaser in subsection 116(3) (a "Section 116 Purchaser").
The Assessments are premised upon the Minister's
conclusion that Olympia is the Section 116 Purchaser of taxable Canadian
property ("TCP") from a non-resident person (a "Disposing
Non-Resident") in accordance with subsection 116(5). However, it is noted
that in the Reply to Olympia's Notice of Appeal, the Minister also asserted
that Olympia's liability under the Assessments could be justified under
subsection 159(1), if it were to be the case that the RRSP Trusts were the
Section 116 Purchasers.
The validity of the Assessments is not in issue
in this appeal. Rather, the issue is whether the Judge erred when he concluded
that Olympia was the Section 116 Purchaser of the Private Company Shares for
the purposes of subsection 116(5).
Relevant Statutory Provisions
The relevant statutory provisions are
subsections 116(3) and (5) which read as follows:
116(3) Every non-resident person who in a taxation year disposes of
any taxable Canadian property of that person … shall, not later than 10 days
after the disposition, send to the Minister, by registered mail, a notice
116(3) La personne non-résidente qui dispose
de son bien canadien imposable, … au cours d’une année d’imposition est tenue
d’envoyer au ministre, dans les dix jours suivant la disposition, sous pli
recommandé, un avis contenant les renseignements suivants :
the name and address of the person to whom the non-resident person disposed
of the property (in this section referred to as the “purchaser”),
a) les nom et adresse de la personne en
faveur de qui elle a disposé du bien (appelée l’ « acheteur » au présent
116(5) Where in a taxation year a purchaser has acquired from a
non-resident person any taxable Canadian property… of the non-resident
person, the purchasers, unless
116(5) L’acheteur qui, au cours d’une année
d’imposition, acquiert auprès d’une personne non-résidente un bien canadien
imposable … d’une telle personne est redevable, pour le compte de cette
personne, d’un impôt en vertu de la présente partie pour l’année, sauf si,
selon le cas :
after reasonable inquiry the purchaser had no reason to believe that the
non-resident person was not resident in Canada
a) après enquête sérieuse, l’acheteur
n’avait aucune raison de croire que la personne ne résidait pas au Canada;
subsection (5.01) applies to the acquisition, or
a.1) le paragraphe (5.01) s’applique à
a certificate under subsection 116(4) has been issued to the purchaser by the
Minister in respect of the property,
b) le ministre a délivré à l’acheteur, en
application du paragraphe (4), un certificat concernant le bien.
is liable to
pay, and shall remit to the Receiver General within 30 days after the end of
the month in which the purchaser acquired the property, as tax under this
Part for the year on behalf of the non-resident person, 25% of the amount, if
any, by which
— à remettre au receveur général dans les 30 jours suivant la fin du mois au
cours duquel l’acheteur a acquis le bien — est égal à 25 % de l’excédent
éventuel du coût visé à l’alinéa c) sur la limite visée à l’alinéa d):
the cost to the purchaser of the property so acquired
c) le coût pour l’acheteur du bien ainsi
the certificate limit fixed by the certificate, if any, issued under
subsection 116(2) in respect of the disposition of the property by the non-resident
person to the purchaser,
d) la limite prévue par le certificat
délivré en application du paragraphe (2) concernant la disposition du bien
par la personne non-résidente en faveur de l’acheteur.
entitled to deduct or withhold from any amount paid or credited by the
purchaser to the non-resident person or otherwise recover from the
non-resident person any amount paid by the purchaser as such a tax.
a le droit de déduire d’un montant qu’il a versé à la personne non-résidente,
ou porté à son crédit, ou de retenir sur un tel montant, ou de recouvrer
autrement d’une telle personne, tout montant qu’il a payé au titre de cet
The Judge’s Decision
The Judge considered the steps that were taken
to effectuate the purchases of the Private Company Shares, including the
relevant documentation, in the context of the statutory regime with respect to
Against this backdrop, the Judge concluded that
the Annuitants and Olympia could not have intended that the Annuitants would
acquire the Private Company Shares because such acquisitions would have
required taxable withdrawals by the Annuitants from their RRSPs, which could
not have been contemplated. Instead, the Judge concluded that the Annuitants
and Olympia intended that Olympia would acquire and hold the Private Company
Shares as trust property under the RRSPs. He concluded that the fact that the
Annuitants directed this to occur, pursuant to their "self-direction
rights", was not inconsistent with this conclusion.
The Judge went on to find that Olympia was the
Section 116 Purchaser of the Private Company Shares. He found that the purchase
price in respect of each such purchase of shares was paid out of the funds held
by Olympia as trustee of each of the applicable RRSPs and that title to such
shares was registered in Olympia's name in that capacity. He determined that
none of the Annuitants or Olympia intended that the purchase price of the
Private Company Shares would be paid by the Annuitants or that title to those
shares would be registered in any of their names. Specifically, he found that
the documentation made it clear to all parties ‒ including the
Non-Resident Vendors and/or their lawyers ‒ that Olympia would tender the
purchase price of, and receive delivery of the share certificates for, the
Private Company Shares.
Finally, the Judge concluded that the Private
Company Shares were legally acquired by Olympia and were part of the trust
corpus of each RRSP, notwithstanding that "the
enjoyment and wealth of the RRSP" belonged to each Annuitant. He
went on to conclude that if a trustee or any other person is a Section 116
Purchaser who "non-compliantly acquires"
TCP from a Disposing Non-Resident, then the Disposing Non-Resident's liability
becomes the liability of whomever is the Section 116 Purchaser. Accordingly, he
concluded that the answer to the Rule 58 Question was affirmative and that
Olympia was the Section 116 Purchaser of the Private Company Shares pursuant to
The issue in this appeal is whether the Judge
erred in concluding that the answer to the Rule 58 Question is that Olympia was
the Section 116 Purchaser of the Private Company Shares under subsection
Standard of Review
The standard of review for questions of law is
correctness. Questions of fact and mixed fact and law in respect of which there
is no extricable question of law are reviewed on the standard of palpable and
overriding error (see Housen v. Nikolaisen, 2002 SCC 33 at paras. 7-37,
 2 S.C.R. 235).
While the Rule 58 Question is framed as a
discrete question of mixed fact and law, it is important to situate the facts
and assumptions presented to the Judge in the context of the scheme that is
described in the Minister's Reply to Olympia's Notice of Appeal to the Tax
Court of Canada (the "Scheme").
Without commenting upon the efficacy of the
Scheme, I note that, at a minimum, a tax avoidance motivation on the part of
the participants in the Scheme becomes apparent from the way in which the
transactions were put together. Suffice it to say that the structure of the
transactions and the drafting of the documents used to implement them
demonstrate a noticeable departure from ordinary commercial practices.
In Coast Capital Savings Credit Union v.
Canada, 2015 TCC 195,  T.C.J. No. 161 (QL), the taxpayer, a trustee
that found itself in circumstances that are quite similar to those of Olympia
in this appeal, requested an order permitting it to amend its pleadings to
allege that the persons analogous to the Annuitants and the Non-Resident
Vendors in this appeal had "deliberately
mispresented" the true nature of the transactions in which it
became involved and that those transactions were a "sham".
While no such allegations appear in the record
that was before the Judge, the fact that such allegations arose in other
litigation dealing with quite similar circumstances places the instant
circumstances into their context.
The Rule 58 Question calls for an interpretation
of subsections 116(3) and (5). Those provisions are part of Division D of the
Act, entitled "Taxable Income Earned in Canada by
Non-Residents", which consists of four sections - 115, 115.1, 115.2
A good overview of the scope and application of
section 116 was provided by Justice Valerie Miller at paragraph 10 of her
decision in Coast Capital Savings Credit Union. That paragraph reads as
 Section 116 of the Act provides
a mechanism to facilitate the collection of Part I tax from non-residents who
dispose of taxable Canadian property (“TCP”). Subsections 116(1), (2) and (3)
provide that the non-resident vendor must give notice to the Minister prior to
the disposition of TCP or within ten days after the disposition and pay an
amount on account of the tax or furnish security in respect of the disposition.
Where the non-resident has complied, the Minister will issue a certificate to
the non-resident and the purchaser. However, if the non-resident has not
complied, the purchaser becomes vicariously liable for the tax. Subsection
116(5) provides that the purchaser of TCP may be liable for tax owed by the
non-resident vendor. It is a collection tool and it allows the Minister to
collect the non-resident vendor’s tax from the purchaser of TCP.
Subsection 116(3) defines a Section 116
Purchaser as the person to whom the Disposing Non-Resident disposes of TCP. It
is apparent that a Section 116 Purchaser is not necessarily a purchaser under
commercial law. Rather, the meaning ascribed to the term purchaser in
subsection 116(3) must be discerned in accordance with the well known textual,
contextual and purposive approach stipulated in Canada Trustco Mortgage Co.
v. Canada, 2005 SCC 54,  2 S.C.R. 601.
The text of subsection 116(3) makes it clear
that the identity of the Section 116 Purchaser is determined by reference to
the Disposing Non-Resident. Thus, the Section 116 Purchaser is the person to
whom the Disposing Non-Resident disposes of the TCP.
The statutory context of subsection 116(3) is
Division D, which is concerned with the taxability of non-residents such as a
Disposing Non-Resident under Part I of the Act. Subsection 116(3) is also
contextually proximate to subsection 116(5). That provision imposes a tax on a
Section 116 Purchaser of an amount that is determined by reference to the
amount paid by the Section 116 Purchaser to the Disposing Non-Resident to
acquire the TCP in question.
This is evident from the reference in paragraph
116(5)(c) to the "cost to the
purchaser" of the TCP. Additionally, the post-amble to subsection
116(5) makes reference to a deduction or withholding by the Section 116
Purchaser from "any amount paid or credited"
by the Section 116 Purchaser to the Disposing Non-Resident.
These references indicate that the Section 116
Purchaser is not only the person who receives the transfer of the TCP from the
Disposing Non-Resident but also the person by whom the purchase price of the
TCP is paid to the Disposing Non-Resident.
The purpose of subsection 116(3), in defining
the Section 116 Purchaser, is then evident ‒ it identifies the person who
is liable to pay the tax provided for in subsection 116(5). That person is well
situated to facilitate the payment of tax by the Disposing Non-Resident
inasmuch as that person is the one who is obligated to pay to the Disposing
Non-Resident the amount of the purchase price of the TCP, the disposition of
which has the potential to subject the Disposing Non-Resident to tax under
I say "potential"
because the amount paid by a Section 116 Purchaser pursuant to subsection
116(5) is essentially an income tax instalment payment on behalf of the
Disposing Non-Resident. Upon filing a Canadian income tax return, the Disposing
Non-Resident will stipulate the amount, if any, of its liability for tax under
section 115, and will be entitled to a refund of the excess, if any, of the
amount of the subsection 116(5) payment over the amount of the Disposing
Non-Resident's actual liability for tax as calculated in its income tax return
(assuming that the Minister agrees with that calculation).
This interpretation is readily applicable to a
typical purchase and sale transaction involving only two parties. The Section
116 Purchaser is easily identified as the person to whom the Disposing
Non-Resident transfers the TCP and from whom the Disposing Non-Resident
receives the amount of the purchase price.
In this construct, the application of subsection
116(5) is relatively straightforward. If no "clearance
certificate" has been issued by the Minister, the Section 116
Purchaser will be liable to pay a tax of essentially 25% of the purchase price
payable for the TCP. The Section 116 Purchaser is free to pay this tax out of
its own resources and then seek to recover it from the Disposing Non-Resident,
or it can deduct or withhold the requisite amount from the amount payable to
the Disposing Non-Resident as the purchase price of the TCP.
While not germane to the issue in the appeal, I
note that a Section 116 Purchaser is under no obligation to withhold any amount
of the purchase price of the TCP. It follows that the imposition of the tax
under subsection 116(5) is not the result of the Section 116 Purchaser's "failure to comply" with a withholding
This interpretation of subsection 116(3) is
consistent with what I believe to be the purpose of subsection 116(5), which is
to provide a mechanism by which the Minister can obtain what amounts to an
instalment payment on account of the Part I tax that may be payable by a
Disposing Non-Resident under section 115. As stated by Justice Miller in Coast
Capital Savings Credit Union, subsection 116(5) is a collection tool that
allows the Minister to collect an amount on account of a Disposing
Non-Resident's tax from the person to whom TCP is transferred and from whom its
purchase price is received. The collection facilitation purpose of section 116
has also been affirmed by this Court in Canada (National Revenue) v. Morris,
2009 FCA 373, 403 N.R. 106.
Viewed in light of this purpose, the importance
of the payment of the purchase price once again looms large. As a matter of
commercial practice, in the absence of a "clearance
certificate", a Section 116 Purchaser would typically avail itself
of the withholding option so that it is in a position to pay the tax imposed
upon it under subsection 116(5).
A commercially motivated Section 116 Purchaser
would typically follow this course of action, even if it was acting in a
representative capacity, such as an agent for an undisclosed principal, a
nominee or a "bare trustee". In any of
those instances, it would be arguable that the representative would not acquire
any beneficial interest in the TCP. Nonetheless, an acquisition by a Section
116 Purchaser of a beneficial interest in each property is not the
determinative feature of the subsection 116(5) mechanism. Rather, subsection
116(5) imposes a tax upon the person to whom the Disposing Non-Resident
transfers its interest in the TCP and from whom the Disposing Non-Resident
receives the purchase price of such property.
The simple application of subsection 116(5) in a
two-party transaction can be complicated by the introduction of an additional
party, such as is the case in the circumstances under appeal.
Here, each Non-Resident Vendor entered into a
Share Purchase Agreement under which an Annuitant was described as the
purchaser of Private Company Shares. However, each Non-Resident Vendor
transferred the Private Company Shares to Olympia, in trust for an RRSP, and
received payment of the purchase price for such shares from Olympia, in trust
for such RRSP.
This is the factual context in which the issues
in this appeal must be decided, having regard to the interpretations of
subsections 116(3) and (5) referred to above.
Judge Err in concluding that the Annuitants were not the Section 116 Purchasers
of the Private Company Shares?
The Appellant asserts that the Judge erred in
his interpretation of the Share Purchase Agreements when he concluded that the
Annuitants were not the Section 116 Purchasers of the Private Company Shares
under those agreements.
The Appellant acknowledges that since the
decision of the Supreme Court of Canada in Sattva Capital Corp. v. Creston
Moly Corp., 2014 SCC 53,  2 S.C.R. 633, the interpretation of a
contract is now a question of mixed fact and law in respect of which the
standard of review is that of palpable and overriding error. However, the
Appellant correctly asserts that if a question of law can be extricated from
such a question of mixed fact and law, then the standard of review in respect
of such a question remains that of correctness.
In this regard, the Appellant asserted at the
hearing that the Judge erred in law in his interpretation of the Share Purchase
Agreements by looking beyond the specific words of those agreements.
While this argument is not found in the
Appellant's factum, it is nonetheless readily disposed of.
First, in interpreting the Share Purchase
Agreements, it was permissible for the Judge to consider the circumstances that
surrounded those agreements. Of particular relevance in this regard is the
location of the agreements in the context of the RRSP regime under the Act.
Each Share Purchase Agreement refers to Olympia as trustee under an RRSP.
Moreover, the facts presented to the Judge for the purposes of the Rule 58
Question contain numerous references to RRSPs.
Secondly, the Judge referred to the additional
documents that were related to the Share Purchase Agreements. Of these, the
Directions are significant in that they demonstrate how and by whom the
purchase price was to be paid under each of those agreements. Reference to the
Directions was required because, as acknowledged by counsel for the Appellant,
none of those agreements contain any provision stipulating how the purchase
price of the Private Company Shares was to be paid.
Thus, I conclude that the Judge committed no
error of law in his approach to the interpretation of the Share Purchase
The Appellant asserts that the Judge should have
accepted that the Annuitants were the Section 116 Purchasers of the Private
Company Shares because they were named as such in the Share Purchase Agreements
and those agreements contained representations to the effect that the
Annuitants were purchasing such shares as principals and not as agents.
The Judge found that these contractual
stipulations were not determinative and that the Appellant's proposed
interpretation could not have been intended by the Annuitants or Olympia
because they would have resulted in taxable withdrawals from the Annuitants'
The Judge was clear in his finding that the
Annuitants were not intended to be the Section 116 Purchasers of the Private
Company Shares. At paragraph 34 of his reasons, he states:
 … However, in the present case, the
documents in aggregate determined Olympia would tender the purchase money, take
title and receive delivery of the shares: all of which facts were known,
acknowledged and consistent within the documents executed by the vendors or
their agents and counsel.
The Directions that were before the Judge
contradict the contractual stipulations relied upon by the Appellant. Under the
Directions that the Annuitants gave to Olympia, the Annuitants stipulated that
they were providing documents to Olympia that are "…
required by your firm to complete a purchase of shares of a privately held
corporation by my RRSP account." The Directions go on to admonish
Olympia to "… proceed to transfer and close on the
purchase agreement with all reasonable haste."
These stipulations in the Directions support the
Judge's conclusion that the Annuitants participated in the Share Purchase
Agreements in a representative capacity and not as purchasers of the Private
Company Shares in their own right. In addition, if the Annuitants had been the
Section 116 Purchasers of such shares, then RRSP withdrawals would have occurred
and Olympia would have been obligated to make the tax withholdings contemplated
by paragraph 153(1)(j). The fact that no such withholdings were made by
Olympia provides additional support for the Judge's conclusion.
The Appellant also asserts that the Annuitants
must have been the Section 116 Purchasers of the Private Company Shares because
they acquired all of the incidents of ownership of those shares, such as use,
possession and risk, citing R. v. Wardean Drilling Ltd.,  2 Ex
C.R. 166,  C.T.C. 265 as support for this assertion. At the same time,
the Appellant's counsel asserted that the funds that emanated from Olympia, as
trustee of the RRSP Trusts, constituted payment of the purchase price of the
Private Company Shares. With respect, these two assertions are contradictory
and both cannot be valid.
In the circumstances, the latter assertion is by
far the more plausible. As noted above, if it were otherwise, the emanation of
funds from the RRSP Trusts would have to be characterized as taxable withdrawals
by the Annuitants from their RRSPs, a consequence that could not have been
intended. In my view, the Appellant's assertion that the purchase price was
paid out of the RRSP Trusts belies the Appellant's other assertion that the
Annuitants acquired "use, possession and
risk" in respect of the Private Company Shares. Instead, the
Appellant's assertion that the purchase price of the Private Company Shares was
paid out of the RRSP Trusts fully supports the Judge's conclusion that the
Annuitants were not the Section 116 Purchasers of the Private Company Shares.
For these reasons, it is my view that the Judge
made no reviewable error in concluding that the Annuitants were not the Section
116 Purchasers of the Private Company Shares under the Share Purchase
Judge Err in concluding that Olympia was the Section 116 Purchaser of the
Private Company Shares?
Assuming that the Annuitants were not the
Section 116 Purchasers of the Private Company Shares, the Appellant asserts
that it could only be regarded as the Section 116 Purchaser in its capacity as
trustee of the RRSP Trusts and not in its "personal"
capacity. In effect, the Appellant is essentially arguing that the Section 116
Purchasers were the RRSP Trusts.
The Appellant asserts that the RRSP Trusts have
independent existence, for the purposes of, and are taxable under the Act
either because they are deemed by subsection 104(2) to be individuals in
respect of trust property or because they fall within the definition of person
in subsection 248(1).
While these assertions may well be valid, the
RRSP Trusts have no independent legal existence at common law. Parliament
recognized this important limitation when it enacted subsection 104(1), which
provides that a reference in the Act to a trust shall, unless the context
otherwise requires, be a reference to the trustee having control of the trust
property. Thus, as was recognized by Justice Sharlow in St. Michael Trust
Corp. v. Canada, 2010 FCA 309, 411 N.R. 125, subsection 104(1) provides a
linkage between a trust and its trustee for the purpose of solving "practical problems of tax administration that would
necessarily arise" out of the taxability of trusts under the Act,
given their lack of an independent legal existence.
The independent status of the RRSP Trusts under
the Act, and their taxability as such, is a practical reality only by virtue of
the efforts of Olympia, as their trustee and the person through which they meet
their statutory obligations under the Act.
The issue then becomes how the taxability of
trusts under the Act, facilitated by a deemed or statutorily imposed persona or
independent existence, fits in with respect to the obligations of a Section 116
Purchaser under the Act.
As a practical matter, the critical element of
subsection 116(5) is the paying or crediting of an amount to a Disposing
Non-Resident as the purchase price or acquisition cost of the TCP that has been
transferred by the Disposing Non-Resident. This action cannot be taken by a
Another important element of subsection 116(5)
is the remittance to the Minister of the amount of the tax payable by the
Section 116 Purchaser. Again, this is an action that a fictional person cannot
perform. Thus, it is apparent that the separate legal existence of a trust
under the Act has its practical limitations.
Such limitations make it difficult to conceive
of the RRSP Trusts as the Section 116 Purchasers of the Private Company Shares.
It may well be the case that, for the purposes of the Act, the RRSP Trusts acquired
the beneficial ownership of those shares. Nonetheless, in my view, the identity
of the Section 116 Purchaser, which it must be remembered is a construct that
exists in the context of the non-resident tax collection mechanism in
subsection 116(5), is determined by reference to the Disposing Non-Resident who
transfers the TCP and receives the purchase price of such property.
Accordingly, it is my view that the existence of
a deemed or fictional legal independence of trusts under the Act, including the
RRSPs, precludes them from being Section 116 Purchasers. Because they lack
legal personality, trusts cannot receive transfers of TCP or pay its purchase
price. Importantly, trusts cannot perform the function of a Section 116
Purchaser, which is to facilitate the collection of tax from Disposing
Non-Residents who dispose of TCP. While it is the case that there is no
obligation on a Section 116 Purchaser to "withhold"
any portion of the purchase price payable for the TCP, typically that is what
is done in commercial transactions. It is possible that there may be
circumstances in which a Section 116 Purchaser would pay the purchase price of
such property without withholding. However, that would leave the Section 116
Purchaser in the very position that subsection 116(5) is intended to prevent
the Minister from being in, namely, having to try to collect an amount from a
person who is outside of Canada. In the commercial world, withholding by the
Section 116 Purchaser is the rule, not the exception.
The Appellant asserts that to impose liability
in Olympia is impermissible because Parliament intended that trustees would be
liable for tax only in the limited circumstances set forth in section 159. In
my view this assertion must be rejected because it is inconsistent with
Parliament's intention in establishing the collection mechanism in subsection
The Appellant further asserts, at paragraph 66
of its factum, that "[i]n the context of the Act,
the person that is primarily responsible for the action taken by the trust is
the trust itself as a separate individual taxpayer…" This assertion
is inconsistent with the common law notion that a trust has no legal
personality and cannot undertake actions otherwise than through its trustee.
This is so even though it has a fictional or deemed legal existence that
enables the Minister to impose tax, to the extent stipulated in the Act, upon
income generated by or from the use of trust property.
The Judge found that the Private Company Shares
were transferred to Olympia by the Non-Resident Vendors and that Olympia paid
the purchase price of those shares to those vendors. In making these findings,
the Judge made no palpable and overriding error. The application of the
interpretation of subsections 116(3) and (5), described above, to these
findings leads to the conclusion that Olympia was the Section 116 Purchaser. As
such, in my view, the Judge's conclusion to that effect contains no reviewable
I would add that the transactions that were
undertaken had a decidedly non-commercial flavour. Funds were paid to the
Non-Resident Vendors in the absence of "clearance
certificates" issued under either of subsection 116(2) or (4) and
no withholdings from those funds were made. The facts provided in relation to
the Rule 58 Question provide no explanation for this departure from normal
While it may be the case that Olympia was to
some extent reliant upon the Annuitants and their advisors with respect to the
documentation and implementation of the transactions relating to the purchases
of the Private Company Shares, as found by the Judge and affirmed in these
reasons, Olympia purchased such shares for and on behalf of the RRSP Trusts
and, as between itself and those trusts, Olympia was the only person with legal
existence (as opposed to deemed or fictional existence under the Act) who was
able to ensure that such transactions were carried out in a commercial fashion
that would meet the requirements of subsection 116(5).
It is noteworthy that Olympia obtained
indemnifications from the Annuitants to protect it from any taxes, penalties
and other costs resulting from the implementation of such purchases in
accordance with instructions from the Annuitants. Whether such indemnifications
led Olympia to permit the transactions to be implemented in such a
non-commercial fashion is a matter that is not before us in this appeal.
For the sake of completeness, I note that in its
factum the Appellant asserted that the RRSP Trusts were "bare trusts" with the result that they
should essentially be ignored for the purposes of the Act. In my view, this
assertion is unpersuasive. First, Olympia as trustee of the RRSP Trusts has
meaningful powers and responsibilities. In particular, it is clear that while
the Annuitants have "self-direction"
rights, Olympia has the power to countermand directions to sell trust property.
In addition, Olympia is responsible for tax reporting and withholding
obligations in respect of such trusts. Finally, each RRSP Trust has a
beneficiary other than its Annuitant. These factors are sufficient to negate
the "bare trust" assertion.
For the foregoing reasons, I would dismiss the
appeal. Costs of this appeal shall be in the cause.
“C. Michael Ryer”
Donald J. Rennie