Date: 20070727
Docket: A-472-05
Citation: 2007 FCA 263
CORAM: SEXTON
J.A.
MALONE
J.A.
RYER
J.A.
BETWEEN:
JORDAN FINANCIAL LIMITED ON BEHALF OF THE
PENSION PLAN FOR PRESIDENTS OF JORDAN FINANCIAL LIMITED
Appellant
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1]
Mr.
Charles Ross was a police officer for many years. Upon retirement, he was
entitled to a pension from the Ontario Municipal Employees Retirement System
(“OMERS”). Mr. Ross chose to forego the collection of retirement benefits from
the public sector and instead chose to have the commuted value of his pension,
which amounted to $754,513.47, transferred from OMERS to a newly created
pension plan (the “Plan”) that had been set up by Jordan Financial Limited
(“Jordan Financial”).
[2]
The Plan
is called the Pension Plan for Presidents of Jordan Financial Limited. Mr. Ross
is President of the Company and the sole member of the Plan by virtue of his
position as President. The sole shareholder of Jordan Financial is Michael
McBurney.
[3]
ActuBen
Consulting Inc. (“ActuBen”) acting through its principal, Mr. Brian Jenkins,
was instrumental in the formation of the Plan and its registration with the Ontario pension regulatory
authorities and the Canada Revenue Agency (the “CRA”). Mr. Jenkins has
considerable experience in dealing with the Registered Plans Directorate (the
“RPD”) of the CRA. Prior to the Plan’s registration, he had been involved in
detailed discussions about individual pension plans (“IPP”) with the RPD.
[4]
After the
Plan’s registration, the RPD corresponded and had discussions with both Mr.
Ross and Mr. Jenkins and an audit of the Plan was conducted by the CRA to
ensure that it met the requirements of the Income Tax Act, R.S.C. 1985
(5th Supp.), c. 1 (the “ITA”). This process culminated on September
8, 2005, when the CRA gave notice (the “Notice of Intent”) to the Plan that the
Minister of National Revenue (“the Minister”) proposes to revoke the
registration of the Plan effective November 1, 2000. The matter under appeal is
the decision of the Minister to give the Notice of Intent.
[5]
The letter
from the Minister stated that the Notice of Intent was given because the Plan
fails to satisfy an essential registration condition, namely, that the primary
purpose of the Plan must be to provide lifetime retirement benefits to
employees in respect of their service as employees. Whether or not this
essential condition has been fulfilled has been determined by this Court in Loba
Limited v. Minister of National Revenue, 2004 FCA 342, to be a question of
fact. Accordingly, a detailed consideration of the facts is warranted.
[6]
Before
canvassing the facts, it should be noted that this case was heard in
conjunction with 1346687 Ontario Inc. on behalf of the Pension Plan for
Presidents of 1346687 Ontario Inc. v. Minister of National Revenue (A-471-05),
a case involving an IPP that was set up for the benefit of the president of
1346687 Ontario Inc. Mr. Fournie, who represented both appellants,
acknowledged that the cases were similar. He spent most of his time on the 1346687
Ontario Inc. matter and then pointed out the factual differences between the
two cases.
FACTUAL BACKGROUND
Jordan Financial
[7]
Jordan
Financial was incorporated as Joandan Financial Inc. on April 28, 2000. For
income tax purposes, it has a year-end of December 31. It was originally owned
by Auke Zylstra, who incorporated it to facilitate the formation of an IPP into
which the commuted value of accrued pension benefits were to be transferred.
That plan fell through and Mr. Zylstra sold the shares of the corporation to Mr.
McBurney on July 26, 2000, for nominal consideration. The record does not
disclose the nature of the relationship, if any, between Mr. McBurney and Mr.
Ross or how it was that Mr. Ross came to be the president of Jordan Financial.
Effective December 31, 2003, the corporate name was changed from “Joandan
Financial Inc.” to “Jordan Financial Limited”.
Registration of the Plan
[8]
On
December 28, 2000, ActuBen applied for registration of the Plan on behalf of Jordan
Financial under section 147.1 of the ITA. In the registration documents, Jordan
Financial was identified as both the sponsor and the administrator of the Plan
and Mr. McBurney was identified as the contact person for both Jordan Financial
and the Plan.
[9]
The
documents submitted at the time of registration of the Plan with the CRA included
actuarial valuations, with an effective date of November 1, 2000, that
indicated that Jordan Financial had no history of earnings and salaries were
contingent upon the receipt of future revenues. The documents also indicated
that expected annual earnings of Mr. Ross, the sole member of the Plan, were
$66,500. Also included in the documents were statements from Mr. Ross to the
effect that he was an employee, but not a shareholder, of Jordan Financial and that
the Plan had not been established for the purpose of receiving transfers of
funds from other pension plans.
[10]
Registration
was granted by the CRA on March 28, 2001, with effect from November 1, 2000.
CRA Warnings
[11]
On March
28, 2001, the same day that the Plan was registered, the RPD wrote to Mr. Ross
as President of Jordan Financial, to make him aware of the CRA’s concerns about
the circumstances surrounding the establishment of the Plan and the potential
consequences that could arise if the Plan did not meet the requirements of the
ITA. The concerns outlined were similar to those that had been previously
expressed by the RPD to the Ontario Public Service Employee’s Union Pension
Trust and the Financial Services of Commission of Ontario with respect to the
validity of similar IPPs.
[12]
The
correspondence from RPD, a copy of which was sent to ActuBen and Michael
McBurney, clearly stated the concerns of the CRA with respect to the creation
of IPPs and the required compliance with paragraph 8502(a) of the Income
Tax Regulations, C.R.C., c. 945 (the “ITR”). While the letter is
somewhat lengthy, it is worthwhile to reproduce the relevant portion of it:
We have noticed a trend
in which individuals near normal retirement age leave large public sector
employers and establish their own corporation. The individual is hired by the
corporation, and the corporation sponsors an individual pension plan (IPP) for
the individual that recognizes the prior service under the public sector
pension plan. Once the IPP is established, the full commuted value of the
individual’s prior pension is transferred to the IPP, as the transfer rules of
the Income Tax Act do not limit transfers from one defined benefit plan
to another. We are concerned that while many of these IPPs may be acceptable,
others may not meet the requirements for registration under the Act.
The primary purpose of
every registered pension plan must be to provide retirement benefits to
individuals in respect of their service with the employer who has established
the plan. This requirement is reflected in the Act as a condition of
registration. If it is subsequently determined that a plan is established for a
reason other than this primary purpose, it will cease to qualify for
registration under the Act.
The first issue we have
with these arrangements is the legitimacy of the employee/employer
relationship. Our concern is that some of these arrangements may not exist if
it were not for the purpose of avoiding the transfer rules of the Act. If there
is not a bona fide relationship that has the employee rendering
legitimate services to the employer, the plan will fail the primary purpose
test.
Even if this
relationship is established and nominal earnings are received, there may still
be an issue with the primary purpose test. The Act only permits a pension plan
to base retirement benefits on the earnings received from an employer who
participates in the plan. In most cases, the earnings with the new corporation
are much lower than what was received with the prior employer, and therefore
the benefits under the IPP are significantly lower than the benefits that the
individual would have received from the prior plan. This creates a large
surplus in the IPP.
When an individual
foregoes a substantial retirement benefit by transferring the associated funds
to a recently established IPP that provides a much smaller retirement benefit,
it can be argued that the primary purpose test is not met. In these cases, we
may conclude that the primary purpose of establishing the IPP was to facilitate
a transfer of funds from a prior plan that would have been limited by the Act
had it been transferred to a registered retirement savings plan. The conclusion
that the primary purpose condition is not met is further supported by the fact
that following the transfer, the IPP holds significant surplus assets rather
than providing retirement benefits of a level comparable to those that would
have been paid from the prior plan. As mentioned earlier, if the primary
purpose of a plan is for any reason other than providing retirement benefits
with respect to the individual’s service as an employee with the current
employer, the plan will fail to qualify for registered status.
If it is apparent at the
time of submission of the past service amendment that the IPP will not meet the
primary purpose test, we will refuse to accept the amendment. Unfortunately, in
many cases, it will not be apparent until a year or two later that the primary
purpose test was not met. This situation can be more problematic for
individuals as they may have already transferred funds into the IPP.
If it is determined that
a registered plan does not, and never did, meet the primary purpose test, the
plan’s registered status can be revoked as of the original effective date. The
consequences to the member could be severe if the CCRA were to revoke the
registration of the plan upon discovering that the purpose of incorporating a
company was simply to establish a pension plan to hold the transferred pension
for a specific member. The impact of this action is that all the assets of the
plan would become taxable.
It is for this reason
that we want to ensure that you are made aware of these concerns.
[13]
The RPD
made several attempts to communicate this information to Mr. Ross. The original
letter that was mailed to Mr. Ross was returned to RPD. As a result, an
official of the RPD attempted to contact Mr. Ross at the telephone number
provided in the registration documents. The notes of this official that formed
a part of the record indicate that the telephone number provided appeared to be
a personal number unrelated to Mr. Ross. These notes also indicated that a
search of the telephone directory and the CRA’s database failed to locate a
corporate telephone listing for Jordan Financial. When RPD attempted to reach
the shareholder of Jordan Financial at the second telephone number that was
provided in the Plan’s documents, the person on the telephone answered on
behalf of a different corporate entity.
The Audit
[14]
On
February 4, 2003, the CRA commenced an audit of the Plan. A little less than
one year later, the audit was completed. In the course of the audit, the CRA
spoke and corresponded with Mr. Ross, Mr. Jenkins, and Mr. McBurney on several
occasions.
[15]
On May 14,
2003, RPD wrote to Mr. McBurney, requesting submissions on various issues
including:
(a) the names of all
participants in the Plan;
(b) the amount and date of any
transfer of funds into the Plan;
(c) all employer
contributions that had been made to the Plan;
(d) the details
of the accrued pension entitlement as of December 31, 2002 and all pension
adjustments;
(e) the details of any
distributions from the Plan; and
(f) the business number for
Jordan Financial.
[16]
On
September 26, 2002, ActuBen filed the Plan’s Annual Information Return for the
2001 year which disclosed that $80,000 had been paid to Mr. Ross out of surplus
funds in the Plan, and not as employment income.
[17]
An
Actuarial Valuation for the Plan, dated January 1, 2003, which was certified by
Mr. Ross, indicated that he was “actively employed and earning benefits” from
Jordan Financial and that his “Estimated Annualized 2003 Earnings” were
$66,500.
[18]
Between
June and December of 2003, the CRA communicated with Mr. McBurney, in writing
and by telephone. During the course of these communications, the CRA asked Mr.
McBurney to explain why Mr. Ross had “no months worked” and no paid employment
with Jordan Financial. The CRA also asked Mr. McBurney to explain how Mr. Ross
could have had $66,500 in final average earnings for 2002 if he has “no months
worked” and no paid employment income with Jordan Financial. An explanation of the
primary purpose of the Plan was also requested.
[19]
With
respect to the question of why Mr. Ross had “no months worked” with Jordan
Financial, Mr. McBurney replied:
The letter from the CCRA
requires that when the member receives a salary from the Company that it is in
the amounts equal to the total compensation received from his previous employer
despite any changes made to the member’s compensation structure. The President,
had to take an unpaid leave of absence from Jordan Financial Limited for
personal reasons. The owner kindly agreed to wait for his return. The member
should be returning to active employment with the Company in 2003. The member
will be collecting a salary at the level required by CCRA, and will finish
meeting the requirement of the letter before retirement benefits become
payable.
Mr. McBurney also indicated that the final average earnings
of $66,500 was the amount that Mr. Ross expected to earn upon his return to
work.
[20]
With
respect to the explanation as to how Jordan Financial met the “primary purpose”
requirement in paragraph 8502(a) of the ITR, Mr. McBurney replied:
The primary purpose of
the pension plan remains that which is required under the Regulations to the Income
Tax Act 8502(a). This primary purpose as defined in the legislation was the
primary reason the Pension Plan for Presidents of Jordan Financial Limited was
established, and this continues to be the primary purpose of the plan. We
believe we comply with the legislation. In addition, we do believe we also have
and continue to comply with your much different “primary purpose” although our
focus has been in complying with requirements of the Income Tax Act.
[21]
The audit
also revealed that in the period from 2000 to 2003, Mr. Ross reported gross
farming income, employment income from the Corporation of the City of Sault Ste. Marie, the Government of Canada,
Algoma Co-Operative Livestock Sales, the Ontario Cattlemen’s Association and “self
employment” income from W. H. Stuart Mutuals Ltd.
[22]
On October
30, 2002, all of the property and assets in the Plan were transferred from the
Plan to Mr. Ross’s RRSP.
Post-Audit Correspondence
[23]
By
correspondence, dated November 2, 2004, the RPD advised the Corporation that it
was considering the revocation of the Plan, effective from and after its
initial registration date, on the basis that the Plan failed to meet the
“primary purpose” requirement in paragraph 8502(a) of the ITR. In
reaching that preliminary conclusion, the RPD stated that the following facts
were relevant:
·
Application
for registration of the Plan was submitted on December 28, 2000 with a request
to register the Plan effective November 1, 2000.
·
In
your letter of December 22, 2000, submitted along with the application for
registration, you stated,
This company was
established to enter into various businesses with the intention of making a
profit. This company was not formed “simply to establish a pension plan to hold
the transferred pension for a specific member.”
I am employee of the
company and I expect to be paid by my employer. I do not directly or indirectly
own any shares of the company.
I expect to receive
compensation from the company at a level comparable to the earnings I received
by my previous employer.
·
The
Plan received deemed registration on January 23, 2001.
·
The
Plan was registered on March 28, 2001 with effect from November 1, 2000.
·
On
March 28, 2001, we sent you a letter in relation to your December 22, 2000
letter. In our letter, we stated in part the following:
We received your letter
of December 22, 2000 in which you make various statements.
In light of the
statements made in your letter, we would like to make you aware of our concern
about the circumstances surrounding the establishment of this plan and the
potential consequences that could arise…
·
During
the course of our audit of the Plan, we requested, on September 8, 2003, from
Michael McBurney, owner of Jordan Financial Limited, Articles of Incorporation
for Jordan Financial Limited and that company’s Business Number (BN). Subsequent
to our request, we were advised of a company called Joandan Financial Inc.
·
On
October 17, 2003, Brenda Tubic of ActuBen Consulting Inc. faxed documents to us
including Articles of Incorporation for “Joandan Financial Inc.”, and other
documentation related to the change in ownership of that company. On the
coversheet to the fax, we are advised that,
Our client has requested
us to fax you these incorporation documents. Mr. McBurney will be sending you
the audit letter response shortly.
·
All
documents related to the registration of the Plan were in the name of Jordan
Financial Limited and not Joandan Financial Inc. In Michael McBurney’s letter
of October 15, 2003, we are advised,
Please find attached a
copy of the Articles of Incorporation for Jordan Financial Limited. We do
realize there is a difference between the pension plan name and the name of the
corporation. We are in the process of having this brought into line.
·
On
January 14, 2004, we received a letter from Brenda Tubic of ActuBen Consulting
Inc., attaching Articles of Amendment. The letter advises us that,
In point B, of the
October 15th letter, a difference between the pension plan name and
the name of the corporation was reported. This has been corrected, the name of
the company Joandan Financial Inc. has been changed to Jordan Financial
Limited.
·
We
note that from Michael McBurney’s letter of July 3, 2003 that $754,513.47 was
transferred into the Plan on September 5, 2001 from the “OMERS” plan. Also, we
note from the letter that you received an $80,000 payment of “Surplus Amount”
on September 19, 2001. This payment was made within days of the September 5,
2001 transfer.
·
In
our letter of May 14, 2003, we requested “…a detailed calculation of each
member’s accrued pension entitlement as of December 31, 2002.” We note from
Michael McBurney’s letter of July 3, 2003, that you had “0.00” years of service
with the company from the effective date of the Plan (November 1, 2000) onward.
Also we note from the letter that “29.04” years of pre-effective date service
with the former employer was being recognized.
·
In
Michael McBurney’s letter of October 15, 2003, we are advised in part that,
…The President, had to
take an unpaid leave of absence from Jordan Financial Limited for personal
reasons. The owner kindly agreed to wait for his return. The member should be
returning to active employment with the Company in 2003…
…The member was not
actively at work during the period, and was on unpaid leaves of absence…
·
In
our letter of September 8, 2003 to Michael McBurney, we stated in part that,
We note from your letter
that the member began his participation in the pension plan on November 1, 2000
(the pension plan’s effective date) and that the employer has not made any
contributions whatsoever. Please explain why the employer has not made any
current service contributions to the pension plan.
·
The
letter we are referring to above is Michael McBurney’s letter of July 3, 2003.
·
In
reply, we are advised in Michael McBurney’s letter of October 15, 2003 that,
The member was not
actively at work during the period, and was on unpaid leaves of absence. Under
the terms of the plan no benefits accrue during such a period and contributions
would be inappropriate.
·
In
our letter of May 14, 2003, we requested for each member “…detailed
calculations of all pension adjustments (PA) and any past service pension
adjustments (PSPA) in relation to their participation in this pension plan.”
In Michael McBurney’s
letter of July 3, 2003, we are advised that you had no “Months Worked”, no
“Paid Employment Income” from the company and no “Pension Adjustment”. We are
also advised that “Mr. Ross is receiving employment income in 2003. No T4s have
been issued, so no pension adjustment have been computed yet.”
Also, indicated in
Michael McBurney’s letter of October 15, 2003, “…The member should be returning
to active employment with the Company in 2003.”
·
Based
on our audit findings, we note that you did not have any employment earnings from
either Jordan Financial Limited or Joandan Financial Inc. during the period
2000 (the Plan’s effective date is November 1, 2000) through 2003.
[24]
At the conclusion of the correspondence, Mr.
Ross was advised that if he had any additional information relevant to this
matter, or if he wished to make any further representations to RPD, that it was
open for him to do so prior to January 7, 2005.
[25]
By correspondence
dated November 18, and November 28, 2004, Mr. Jenkins responded to RPD on
behalf of Jordan Financial. These letters contained several general questions
about RPD’s interpretation of the ITA and ITR and included requests for
RPD to justify its position on substantive issues, such as its position with
respect to retroactive deregistration of plans, its requirement that earnings
with a current employer must be comparable to earnings received from a prior
employer, and its apparent new policy under which a plan would have to
establish an employee-employer relationship rather than to just having to demonstrate
that its members were employees.
[26]
On November 20, 2004,
Mr. Jenkins submitted a third letter indicating that a salary had been paid to
Mr. Ross in 2002 and 2003, but had not been reported properly. No documentation
was provided in support of this assertion.
[27]
In an initial
response to these letters, on December 10, 2004, the RPD indicated that the
letter of November 18, 2004 was too general in nature and did not address any
of RPD’s concerns outlined in their letter of November 2, 2004. The RPD further
stated that Mr. Jenkins should ensure that any response should be specific to
the Plan and respond specifically to the concerns outlined in the November 2,
2004 letter.
[28]
In a letter dated
December 21, 2004, RPD wrote to Mr. Jenkins indicating that they had forwarded
the letter of November 28, 2004 to the Income Tax Rulings Directorate of the
CRA for their consideration.
[29]
By correspondence
dated December 22, 2004, RPD responded to the inquiries made by Mr. Jenkins in
his letters on November 18 and 28, 2004. After responding to his concerns, the
RPD concluded by indicating that they were still of the opinion that the Plan
did not meet the “primary purpose” requirement
in paragraph 8502(a) of the ITR.
[30]
Mr. Jenkins replied
to these letters with a final letter on January 5, 2005. In it he complained of
the unfair timelines imposed by RPD, indicated that he did not agree with
several of their positions and sought further clarification on some of their
responses. Mr. Jenkins also included a letter from W.H. Stuart Mutuals Ltd., in
which that corporation stated that it had, in fact, been paying fees to Jordan
Financial, rather than to Mr. Ross, for services that had been rendered to it in
2002 and 2003. No documentation confirming that these payments were, in fact,
made to Jordan Financial, and not to Mr. Ross, was provided. Moreover, this
statement contradicts the statements of Jordan Financial, in its October 15,
2002 correspondence to the RPD, to the effect that Mr. Ross had not, at the
date of that correspondence, actively worked for Jordan Financial, was on an
unpaid leave of absence and was expected to undertake active employment with
Jordan Financial in 2003.
[31]
On September
8, 2005, the CRA issued the Notice of Intent stating as follows:
The Minister intends to
revoke the Plan’s registration effective November 1, 2000 because:
It appears that the Plan
fails to satisfy paragraph 8502(a) of the Regulations, one of the prescribed
conditions for registration set out in paragraph 8501(1)(a) of the Regulations.
This condition, the “primary purpose” test requires that the Plan provide
lifetime retirement benefits to employees in respect of their service with the
employer.
The relevant facts and
documentation used in coming to our conclusion are set out above and in our
letter of November 2, 2004.
Consequences of Revocation
[32]
The
revocation of registered pension plans is a matter that has been recently
considered by this Court in Loba and in Boudreau v. Canada (Minister of National Revenue
– M.N.R.),
[2005] F.C.J. No. 1551, 2005 FCA 304. These cases dealt with registered pension
plans that were created for the benefit of a number of employees, unlike the
Plan, which was an individual pension plan that was created solely for the
benefit of Mr. Ross. Notwithstanding this material factual distinction, the Boudreau
decision, in particular, sheds some light on the overall context of registered
pension plan revocations. At paragraphs 5, 6 and 7, Sharlow J.A. states:
[5] Generally, any payment made by any pension plan,
registered or unregistered, is taxable if it is made to or for the benefit of a
member. That is so whether the payment is made in the form of a periodic
pension payment, or in a lump sum (paragraph 56(1)(a) of the Income
Tax Act).
[6] A number of income tax advantages are obtained by
the registration of a pension plan under the Income Tax Act. First, any
contribution made to a registered pension plan by a member of the plan is
deductible, subject to certain limitations, in computing the member's income
for income tax purposes. Second, income earned on investments held in a
registered pension plan is exempt from income tax as long as the investment is
held in the plan (provided certain conditions are met). Third, in a number of
situations, money can be transferred from one registered pension plan to
another registered pension plan (or certain other recognized tax deferred
plans) for the benefit of a member, without the member incurring a tax
liability in respect of the transfer.
[7] The revocation of the registration of a pension
plan does not cause the pension plan to cease to exist. It remains in
existence, but the special tax advantages of registration would be lost. It
would no longer be possible for a member to make deductible contributions to
the plan. Income earned on investments held in the plan would be taxable. It
would no longer be possible to make a tax-free transfer of money from the
pension plan to another plan. Such a transfer of funds probably would be taxed
in the hands of the member, either as a pension benefit under paragraph 56(1)(a)
of the Income Tax Act or as a distribution from a trust under paragraph
12(1)(m) of the Income Tax Act, depending upon the circumstances.
If funds are transferred from an unregistered pension plan to a registered
plan, the member could be at risk of double taxation because the transfer
itself would be taxable, and any payments subsequently made out of the
transferee plan to the member could also be taxable.
STATUTORY PROVISIONS
[33]
The
relevant statutory provisions are paragraphs 147.1(11)(a) and 172(3)(f)
and section 180 of the ITA, as well as paragraph 8502(a) of the ITR.
These provisions are reproduced in Appendix “A”.
ANALYSIS
Nature of the Appeal
[34]
An appeal that is
brought under subsection 172(3) and section 180 of the ITA will be decided on
the basis of a record presented to this Court. The record must reflect not only
the position of the Minister but also the position of the affected party. This
requires the Minister to comply with the rules of natural justice and procedural
fairness by ensuring that the affected party has a reasonable opportunity to
respond to the concerns of the Minister. (See Renaissance International v.
Minister of National Revenue, [1983] 1 F.C. 860
(C.A.).)
[35]
In such an appeal, the onus is on the appellant
to demonstrate that the Minister erred in reaching the conclusions that
underpin the decision to give a notice of proposed revocation of a pension
plan. (See Human Life International in Canada Inc. v. M.N.R. (C.A.),
[1998] 3 F.C. 202 and Canadian
Committee for the Tel Aviv Foundation v. Canada,
2002 FCA 72, [2002]
F.C.J. No. 315.)
Procedural Fairness
[36]
In the present
circumstances, the Notice of Intent is based upon the application of paragraph
147.1(11)(a), which permits a revocation of a pension plan that does not
comply with the prescribed registration conditions specified in section 8502 of
the ITR. In particular, the CRA asserted that the primary purpose of the Plan
was not to provide periodic payments to individuals after retirement and until
death in respect of their service as employees, as required by paragraph 8502(a)
of the ITR. This concern was communicated to Jordan Financial and Mr. Jenkins
in at least two letters (March 28, 2001 and November 2, 2004) that were sent by
the CRA during the period from the date of the registration of the Plan to the
date of the Notice of Intent. Moreover, the November 2, 2004 correspondence invited
Jordan Financial and Mr. Jenkins to make further submissions. Clearly, Jordan
Financial had a number of opportunities to provide additional information to
the CRA.
[37]
Counsel for the
appellant argued that the CRA should have asked about Mr. Ross’s job description at Jordan Financial,
what the Jordan Financial’s
business plan entailed and why Jordan Financial failed to achieve anything at
all by way of business development.
[38]
In my view, there is
no basis for the appellant’s
contention that it did not know the nature of the CRA’s concerns and that it
did not have an opportunity to respond to those concerns. As such, the CRA
cannot be said to have failed to comply with the rules of natural justice and
procedural fairness in giving the Notice of Intent, having regard to its
dealings with the appellant and its representatives over the approximately five year period since the
Plan was registered.
[39]
The alleged failure
to meet the condition in paragraph 8502(a) of the ITR was known to the
appellant and it was open to the appellant to provide any submissions that it
thought would be useful to it in dealing with that matter. The appellant was
aware of the possibility that the Notice of Intent would issue since March 28,
2001. As decided in Human Life International In Canada Inc., the
appellant has the burden of demonstrating that the decision of the CRA to give
the Notice of Intent was in error. If it had chosen to do so, the appellant
could have easily provided answers to the questions that the CRA “neglected to ask” and those
answers would have been part of the record upon which the CRA based its
decision to give the Notice of Intent.
The
Minister’s
Decision
[40]
Paragraph
147.1(11)(a) of the ITA permits the Minister to issue a notice of intent
to revoke a pension plan where that plan does not comply with prescribed
registration conditions specified in section 8502 of the ITR. Paragraph 8502(a)
of the ITR contains such a condition. Accordingly, the decision of the Minister
to issue the Notice of Intent, pursuant to paragraph 147.1(11)(a) of the
ITA, based upon the failure of the Plan to comply with the registration
condition contained in paragraph 8502(a) of the ITR, is a correct
application of the law.
[41]
As
indicated in Loba, the determination of whether the provisions of
paragraph 8502(a) of the ITR have been met is essentially a question of
fact.
[42]
The Minister provided
two reasons for his determination that the condition in paragraph 8502(a)
of the ITR – that the primary purpose of the Plan was not to provide lifetime
retirement benefits to Mr. Ross with respect to his service as an employee –
had not been met. First, the Minister contended that there was no bona fide
employment relationship between Mr. Ross and Jordan Financial. To the Minister,
this was apparent for several reasons: Mr. Ross received no remuneration from,
and provided no services to, Jordan Financial from the inception of the Plan
until at least the end of 2003; he was employed by, and received remuneration
from third parties, during that period; and a number of inconsistent statements
were made with respect to his employment with, and earnings from, Jordan
Financial.
[43]
The second reason
given by the
Minister for his determination that the primary purpose requirement was not met
was that the Plan was established primarily for the purpose of receiving a
transfer of funds from the OMERS rather than for the provision of lifetime
retirement benefits to Mr. Ross in respect of his service as an employee of
Jordan Financial. According to the Minister, this purpose is evident from the
fact that within days of the transfer of funds from OMERS, Mr. Ross caused a
portion of the transferred funds to be paid to himself as a payment out of a
“surplus” in the Plan that was apparently created by virtue of his relatively
low or non-existent earnings from Jordan Financial. According to the Minister,
this ability to withdraw surplus was only available to Mr. Ross by virtue of
the structure of the Plan. In contrast, no such “surplus” removal would have
been available if the funds would have been left in the OMERS pension plan. The
immediate removal of the surplus demonstrated to the Minister that the primary
purpose of the plan was not to provide lifetime retirement benefits. Moreover, according to the Minister, the
transfer of all of the funds in the Plan to Mr. Ross’s RRSP, in 2003, provided
additional support for this conclusion.
[44]
In my view,
the appellant has failed to demonstrate that either of these reasons is unsound
or unsupported by the record that is before this Court. It follows that the
appellant has similarly failed to demonstrate that it was unreasonable for the
Minister to conclude that the condition in paragraph 8502(a) of the ITR
was not met.
DISPOSITION
[45]
The
determination of the CRA that the condition in paragraph 8502(a) of the
ITR has not been met must stand, with the consequence that the Plan has been
shown to have failed to comply with a prescribed condition, as contemplated by
paragraph 147.1(11)(a) of the ITA. Accordingly, the appeal should be
dismissed with costs.
“C. Michael Ryer”
“I
agree
J.
Edgar Sexton J.A.”
“I
agree
B.
Malone J.A.”
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