REASONS
FOR JUDGMENT
Graham J.
[1]
This appeal involves a unique question regarding
retroactivity. The facts are straightforward and are not in dispute. The dates
are important.
[2]
Prior to his retirement, Frank Mammone worked as
a mechanic for Toronto Fire Services. Over his many years of employment he was
a member of the Ontario Municipal Employees Retirement System (“OMERS”)
pension plan.
[3]
On January 1, 2009, a company called 1723586
Ontario Inc. established the Pension Plan for Senior Executives of 1723586
Ontario Inc. (the “New Plan”). The Appellant was the only member of the New Plan. The New Plan
was registered as a pension plan pursuant to the Income Tax Act
effective January 1, 2009.
[4]
In June 2009, Mr. Mammone transferred the
commuted value of his OMERS pension to the New Plan.
[5]
In 2013, the Minister of National Revenue
decided that the New Plan did not qualify for registration under the Act. The
Minister gave notice of her intention to revoke the New Plan’s registration.
That notice was mailed on November 14, 2013.
[6]
On December 12, 2013, the Minister issued a
notice of revocation which purported to revoke the registration of the New Plan
effective January 1, 2009. The Minister now acknowledges that the attempted
revocation was ineffective. The attempted revocation was ineffective because an
unforeseen delay in mailing the notice of intention to revoke caused the Minister
to erroneously issue the notice of revocation before the required 30-day notice
period under subsection 147.1(12) had passed.
[7]
On the same day that the Minister purported to
revoke the New Plan’s registration, the Minister also reassessed Mr. Mammone’s
2009 tax year to include the commuted value of the OMERS pension in his income pursuant
to paragraph 56(1)(a). The reassessment was based on the belief that the
New Plan’s registration had been retroactively revoked. The reassessment was
issued on the last day of the normal reassessment period of Mr. Mammone’s 2009
tax year.
[8]
Approximately three and a half years later, in June
2017, the Minister issued a proper notice of revocation, which revoked the
registration of the New Plan effective January 1, 2009.
[9]
Mr. Mammone accepts that the New Plan did not
qualify for registration. He accepts that subsection 147.1(12) gives the
Minister the power to retroactively revoke a plan’s registration. He accepts
that the Minister had the authority to issue the June 2017 notice of revocation.
He accepts that that notice of revocation had the effect of revoking the New
Plan’s registration effective January 1, 2009. He accepts that a transfer of a
taxpayer’s pension from a registered plan to an unregistered plan results in the
commuted value of the pension being included in the taxpayer’s income pursuant
to paragraph 56(1)(a).
[10]
What Mr. Mammone disputes is whether the factual
basis for assessment existed at the time the Minister reassessed him. Mr.
Mammone argues that, because the first attempt at revocation failed, the New
Plan was still a registered plan when the Minister reassessed him. He says that,
while the June 2017 notice of revocation was effective, that does not alter the
fact that the registration had not been revoked when the reassessment was
issued. I disagree.
[11]
Mr. Mammone further submits that the Minister’s
reliance on the June 2017 notice of revocation is a new basis for reassessment
that is prohibited by subsection 152(9). Again, I disagree.
[12]
Mr. Mammone’s submissions are largely
interrelated but I will nonetheless discuss them separately.
The factual
basis for the reassessment existed when Mr. Mammone was reassessed
[13]
As set out above, the parties agree that the
Minister has the power to revoke the registration of a pension plan
retroactively (Boudreau v. Minister of National Revenue). Where the parties disagree
is with regard to whether the notice of revocation had to have been sent before
the Minister reassessed Mr. Mammone. Mr. Mammone says that, because the
notice of revocation had not been sent when the reassessment was made, the
registration had not yet been revoked and thus the facts necessary to support
the reassessment did not exist.
[14]
In my view, Mr. Mammone’s argument fails because
of the retroactive effect of the revocation. The facts necessary to support the
reassessment did exist when the reassessment was issued because subsection
147.1(12) caused them to exist retroactively.
[15]
While the following analysis may make one feel
like he or she is trying to follow the plot of the popular 1980’s movie Back
to the Future, I believe the analysis is sound and the analogy to the movie
is apt. When the Minister reassessed Mr. Mammone in 2013, the New Plan’s
registration had not yet been revoked. However, when that registration was
ultimately revoked in 2017, the revocation was effective as of January 1, 2009.
The retroactive nature of the revocation altered history, causing an altered timeline
to replace the original timeline. Under this altered timeline, when the Minister
reassessed Mr. Mammone in 2013, the facts necessary to support the reassessment
were already in place and had been in place for almost four years. It is in
this altered timeline that I am required to determine whether the reassessment
should stand. Had the appeal come to trial before the Minister issued the June
2017 notice of revocation, I would have been dealing with the original timeline
and would have come to a different conclusion. In the original timeline, the
revocation would not have occurred, the registration would still have been in
place and the reassessment could therefore not have stood.
[16]
The Respondent submits that comparisons can be
drawn to the effect of retroactive legislation. I agree. Like retroactive
legislation, subsection 147.1(12) alters the tax consequences of transactions
after the fact by operation of law. Retroactive legislation has been applied to
transactions that occurred when the legislation was not yet in place (Budget
Steel Limited v. Canada).
It has been applied after the taxpayer has already commenced an appeal (C.I.
Mutual Funds Inc. v. Canada).
It has been applied by an appellate court even though it was not in effect when
the lower court heard the case (The Queen v. Gibson). I do not see any practical
difference between a law being given retroactive effect and a fact deemed by
law to exist retroactively being given retroactive effect.
[17]
Mr. Mammone submits that cases regarding
retroactive legislation can be distinguished because they result from an act of
Parliament whereas the retroactive facts in this case result from a decision of
the Minister. With respect, I do not think the distinction is material. Parliament
enacted legislation which gave the Minister the power to retroactively change
facts. There is no suggestion that Parliament was unaware what it was doing.
[18]
In my view, a strong comparison can also be
drawn between retroactive revocation and rectification. Imagine this appeal
differently. Imagine that the Minister successfully revoked the registration in
2013 when she intended to and reassessed Mr. Mammone to include the commuted
value of the OMERS pension in his income. Now imagine that Mr. Mammone
immediately applied to the Ontario Superior Court of Justice for a
rectification order declaring that the pension had never been transferred to
the New Plan in the first place. For the sake of argument, since the
application would have been made prior to the Supreme Court of Canada decision
in Canada (Attorney General) v. Fairmont Hotels Inc., assume that the application
was granted on the basis that the tax outcome was something that Mr. Mammone
had not intended. The effect of the rectification would have been retroactive
such that the transfer in 2009 never occurred. Mr. Mammone would have relied on
that fact to defeat the reassessment. He would have successfully claimed that
he could not be reassessed in respect of a transfer that had been retroactively
determined never to have occurred. Faced with this argument, the Minister could
not have argued that the reassessment should stand because the rectification
was not granted until after the reassessment was issued (Dale v. R.). Yet this is exactly what
Mr. Mammone is trying to argue in his appeal. He is arguing that you cannot
take retroactive changes of fact into account unless the event causing those
changes occurred before the reassessment was made.
[19]
Mr. Mammone tried to distinguish rectification
cases from his situation on the basis that rectification occurs as a result of
a court order whereas the revocation of the New Plan’s registration occurred as
a result of an exercise of the Minister’s power. With respect, I do not see any
real difference between the two situations.
[20]
Based on all of the foregoing, I find that the
facts necessary to support the reassessment were in place when the reassessment
was issued and that the reassessment stands.
There was no new basis for reassessment
[21]
As set out above, Mr. Mammone submits that the
Minister’s reliance on the 2017 notice of revocation is a new basis for reassessment
that is prohibited by subsection 152(9). Mr. Mammone says that the 2017 notice
of revocation is a basis of reassessment that differs from the 2013 purported
notice of revocation. I disagree.
[22]
The basis for reassessment is and always has
been that the commuted value of the OMERS pension was transferred to a
non-registered pension plan. For the reasons described above, due to the
retroactive nature of the revocation, the facts underlying that basis of reassessment
were always present.
[23]
Mr. Mammone relies on the Federal Court of
Appeal decisions in Walsh v. The Queen
and Gramiak v. The Queen.
In Gramiak, the Court held that:
A further
restriction is that an alternative argument cannot be advanced when it would
result in a reassessment being made outside the normal reassessment period set
out in subsection 152(4) (Walsh v. Canada, 2007 FCA 222 at para. 18).
This restriction which is central to the present appeal acknowledges the fact that
allowing the Minister to raise an argument based on a legal and factual basis
that is different from the one underlying the assessment after the normal
reassessment period has expired would in effect do away with the limitation
period.
[Emphasis
added.]
[24]
As set out above, the difficulty with Mr.
Mammone’s position is that the factual basis for the reassessment has not
changed. As a result, the restrictions in subsection 152(9) are not invoked.
[25]
I understand Mr. Mammone’s concern that the
Minister has been able to cure a problem with the reassessment three and a half
years after Mr. Mammone’s 2009 tax year became statute-barred. Mr. Mammone
argues that Parliament cannot have intended revocations to be retroactive for
all purposes of the Act. In particular, he argues that Parliament cannot have
intended retroactive revocations to be used to extend the normal reassessment
period. I agree, but not in a way that assists Mr. Mammone.
[26]
My analysis would be somewhat different if the
reassessment in question had been made after the normal reassessment period. I
would still conclude that the New Plan’s registration had always been revoked. That
is the clear effect of subsection 147.1(12). However, in my view, it would be
inappropriate for me to attribute knowledge of that revocation to Mr. Mammone
when determining whether he had made a misrepresentation attributable to
carelessness, neglect or wilful default in filing his 2009 tax return. I accept
that Parliament intended that the fact of the revocation be retroactive, but I
would need to see something very clear in the Act before I would accept that
Parliament also intended a taxpayer to retroactively have knowledge of that
retroactive fact. In my view, had the reassessment been made after the normal
reassessment period, in attempting to open up the statute-barred year the
Minister could have relied on the knowledge of the attributes of the New Plan that
Mr. Mammone had when he filed his return, but could not have relied on his
retroactive knowledge of the revocation.
[27]
That said, the reassessment of Mr. Mammone’s
2009 tax year occurred within the normal reassessment period. I find that subsection
147.1(12) gives the Minister the power to retroactively change the facts to
support that reassessment even if the notice of revocation doing so is issued
after the end of the normal reassessment period. Subsection 152(9) does not come
into play because there has been no change to the factual basis of the
reassessment.
Conclusion
[28]
Based on all of the foregoing, the appeal is
dismissed.
Costs
[29]
Costs are awarded to the Respondent but it is my
hope that, due to circumstances which need not be described here, she will
choose not to pursue them.
Signed at Vancouver,
British Columbia, this 18th day of January 2018.
“David E. Graham”
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