Hamlyn,
T.CJ.:—These
are
the
appeals
of
Freda
Feldstein
for
the
1983,
1986
and
1987
taxation
years,
Sandra
Grant
for
the
1986
and
1987
taxation
years,
Sid
Feldstein
for
the
1986
and
1987
taxation
years
and
Isac
Feldstein
for
the
1986
and
1987
taxation
years.
In
relation
to
the
appellant
Freda
Feldstein
By
notices
of
reassessment
dated
February
8,
1990,
the
respondent
disallowed
pension
income
reported
of
$1,000
and
reallocated
it
as
other
income
in
both
1986
and
1987.
The
respondent
included
into
income
in
1986
a
benefit
of
$9,000
paid
from
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan.
The
respondent
further
disallowed
the
pension
income
deduction
of
$1,000
claimed
by
the
appellant
in
1987.
The
respondent
also
disallowed
the
appellant’s
non-capital
loss
carry-back
of
$9,000
from
1986
to
1983.
And
by
notice
of
reassessment
dated
November
29,
1990,
the
respondent
reassessed
the
appellant
for
1987
removing
from
income
other
income
of
$1,000
as
such
income
had
already
been
included
in
respect
of
the
benefit
paid
from
the
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan.
In
relation
to
the
appellants
Sid
Feldstein
and
Sandra
Grant
By
notices
of
reassessment
dated
November
25,
1989,
for
Sid
Feldstein
and
November
8,
1989,
for
Sandra
Grant
for
the
1986
and
1987
taxation
years
the
respondent
disallowed
pension
income
reported
of
$1,000
and
reallocated
it
as
other
income
in
both
1986
and
1987.
The
respondent
further
included
into
income
in
1986
a
benefit
of
$11,000
paid
from
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan
and
further
disallowed
the
pension
income
deduction
of
$1,000
claimed
by
the
appellants
in
1986
and
1987.
And
by
notice
of
reassessment
dated
November
14,
1990,
the
respondent
reassessed
the
appellants
for
1987
removing
from
income
other
income
of
$1,000
as
such
income
had
already
been
included
in
respect
of
the
benefit
paid
from
the
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan.
In
relation
to
the
appellant
Isac
Feldstein
By
notices
of
reassessment
dated
December
13,
1989,
for
the
1986
and
1987
taxation
years
the
respondent
disallowed
pension
income
reported
of
$1,000
and
reallocated
it
as
other
income
in
both
1986
and
1987,
included
into
income
for
1986
the
benefit
paid
of
$9,000
from
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan
and
further
disallowed
the
pension
income
deduction
of
$1,000
claimed
by
the
appellant
in
1987.
And
by
notice
of
reassessment
dated
November
14,
1990,
the
respondent
reassessed
the
appellant
for
1987
removing
from
income
other
income
of
$1,000
as
such
income
had
already
been
included
in
respect
of
the
benefit
paid
from
the
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan.
The
appellants
appealed
these
reassessments.
Mr.
Isac
Feldstein
acted
on
his
own
behalf
and
as
agent
for
the
other
appellants.
A
myriad
of
evidence
and
a
broad
range
of
submissions
were
received.
Relief
was
asked
for
on
several
issues.
However,
this
Court
being
a
statutory
Court
could
only
dispose
of
the
appeal
as
structured
under
section
171
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
'Act").
This
decision
reflects
only
this
prescribed
jurisdiction.
Facts
Mr.
Isac
Feldstein
was
the
president
and
at
the
relevant
time
(1986)
the
sole
shareholder
of
Speedy
Mortgages
Ltd.
and
Speedy
Re-Finance
Ltd.
Both
corporations
were
purportedly
operated
as
money
lending
companies.
The
purpose
and
operating
principle
of
Speedy
Mortgages
Ltd.
was
to
invest
in
reasonably
safe
and
secure
investments;
whereas,
the
stated
use
of
Speedy
ReFinance
Ltd.
for
1985
and
1986
was
that
it
was
to
hold
higher
risk
investments
than
those
held
by
Speedy
Mortgages
Ltd.
In
particular,
Speedy
Re-Finance
Ltd.
was
to
invest
in
and
hold
securities
on
equipment
and
machinery.
The
type
of
investment
to
consider
and
the
decision
to
invest
was
that
of
Mr.
Isac
Feldstein.
He
was
the
managing
director
and
made
all
decisions
in
relation
to
both
corporations.
His
wife,
son
and
daughter
supported
Mr.
Isac
Feldstein
in
relation
to
the
financial
activities
and
while
his
family
discussed
the
investment
opportunities
it
was
Mr.
Isac
Feldstein
who
looked
after
the
investments
of
the
companies.
Mr.
Isac
Feldstein
also
looked
after
the
investments
of
his
family.
Speedy
Re-Finance
Ltd.
was
incorporated
on
April
14,
1966.
However,
the
company
was
dormant
in
terms
of
business
activity
for
many
years.
Mr.
Isac
Feldstein
decided
to
structure
and
create
pension
plans
in
both
Speedy
Mortgages
Ltd.
and
Speedy
Re-Finance
Ltd.
On
behalf
of
both
corporations,
Mr.
Isac
Feldstein
had
pension
plans
registered
with
the
Minister
of
National
Revenue,
in
particular,
Speedy
Mortgages
Ltd.
#48659
on
January
9,
1985,
and
Speedy
Re-Finance
Ltd.
#92076
on
June
20,
1986.
Thereafter
in
1985,
Mr.
Isac
Feldstein
and
Mrs.
Freda
Feldstein
transferred
Registered
Retirement
Savings
Plan
funds
to
Speedy
Mortgages
Ltd.
Employees
Pension
Plan.
In
1980,
Mr.
Sid
Feldstein
and
Mrs.
Sandra
Grant
transferred
Registered
Retirement
Savings
Plan
funds
to
Speedy
Mortgages
Ltd.
Employees
Pension
Plan.
Subsequently,
funds
were
transferred
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan
on
behalf
of
the
same
individuals.
Thereafter,
the
appellants
received
from
Speedy
Re-Finance
Ltd.
an
alleged
pension
annuity
payment
of
$1,000
in
1986.
Each
taxpayer
declared
his
or
her
income
on
their
respective
income
tax
returns
and
sought
to
deduct
the
appropriate
pension
income
deduction
in
the
computation
of
taxable
income.
Reassessments
and
the
Issues
The
Minister
of
National
Revenue
reassessed
each
of
the
taxpayers
on
the
basis
that
the
alleged
pension
income
was
not
pension
income
within
the
meaning
of
the
Act
and
the
transfer
of
funds
from
Speedy
Mortgages
Ltd.
Employees
Pension
Plan
to
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan
on
behalf
of
each
of
the
appellants
was
not
a
transfer
of
funds
from
one
registered
pension
plan
to
another
registered
pension
plan.
The
Minister
of
National
Revenue
alleged
the
transfer
of
funds
in
effect
placed
the
funds
unsheltered
in
the
hands
of
each
of
the
appellants.
It
is
this
moment
in
time
that
is
in
issue
in
this
case,
that
is,
whether
or
not
the
funds
lost
their
sheltered
status
at
the
time
of
the
transfer.
At
trial
the
Minister
submitted
the
issue
from
his
point
of
view
was
simple,
that
is,
Speedy
Re-Finance
Ltd.
was
not
operating
an
active
business,
there
were
no
employees,
the
company
was
not
an
employer
and
there
was
no
employment;
as
a
consequence
the
pension
plan
was
not
a
pension
plan
within
the
meaning
of
the
Act.
The
taxpayers'
position
was
that
the
pension
plans
were
properly
registered,
the
companies
both
had
active
businesses
and
both
had
employees
and
there
was
employment.
The
transactions
were
such
that
the
transfer
from
one
plan
to
another
afforded
the
taxpayers
the
right
to
deduct
the
amount
that
had
to
be
taken
into
income.
In
the
alternative,
if
this
argument
failed,
the
appellants
argued
the
funds
in
the
hands
of
Speedy
Re-Finance
Ltd.
were
trust
funds
and
could
be
transferred
back
to
a
sheltered
status
without
attracting
the
incidence
of
tax.
Scheme
of
the
Act
Pursuant
to
paragraph
56(1)(a)
superannuation
or
pension
benefits
must
be
included
into
income.
Paragraph
60(j)
is
a
rollover
provision
permitting
the
deferment
of
tax
on
an
amount
paid
out
of
a
pension
plan
providing
it
is
rolled
over
into
another
pension
plan.
Paragraph
60(j)
permits
a
deduction
from
income
of
pension
benefits
so
transferred.
However,
when
funds
are
transferred
into
another
entity
which
does
not
qualify
as
a
sheltered
fund,
subsection
56(2)
provides
that
the
payments
are
taxable
in
the
hands
of
the
taxpayer.
Subsection
56(2)
reads
as
follows:
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
19.1
of
the
Canada
Pension
Plan
or
a
comparable
provision
of
a
provincial
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
him.
In
the
circumstances
described
in
subsection
56(2),
a
taxpayer
is
taxable
on
the
amount
transferred
to
the
extent
that
it
would
be
if
the
payment
had
been
made
to
him.
What
is
a
Registered
Pension
Plan?
Subsection
248(1)
of
the
Act
reads
as
follows:
“registered
pension
plan"
means
an
employees'
superannuation
or
pension
fund
or
plan
accepted
by
the
Minister
for
registration
for
the
purposes
of
this
Act
in
respect
of
its
constitution
and
operations
for
the
taxation
year
under
consideration.
[Emphasis
added.]
The
rules
with
respect
to
the
registration
of
pension
plans
were,
at
the
relevant
time,
found
in
Information
Circular
72-13R7.
The
existence
of
the
administrative
rules
with
respect
to
pension
plans
was
acknowledged
by
the
Federal
Court-Trial
Division
in
The
Queen
v.
Hoffman,
[1985]
2
C.T.C.
347;
85
D.T.C.
5508
at
353
(D.T.C.
5513).
In
addition
to
the
definition
in
subsection
248(1)
which
clearly
refers
to
"employees",
there
are
many
references
to
“employees”
in
Information
Circular
72-13R7
indicating
that
there
cannot
be
a
registered
pension
plan
if
there
are
no
employees.
Moreover,
registration
is
not
enough
to
give
legitimacy
to
a
registered
pension
plan
when
it
is
not
a
valid
pension
plan
in
the
first
place.
The
Court
must
examine
the
plan
in
the
context
of
the
facts
to
determine
if
there
is
a
valid
plan
in
existence.
The
plan
and
the
business
must
stand
on
their
own
and
not
be
a
guise
or
a
cloak
for
something
else.
In
West
Hill
Redevelopment
Co.
v.
M.N.R.,
[1969]
C.T.C.
581;
69
D.T.C.
5385,
Kerr,
J.
of
the
Exchequer
Court
of
Canada
stated
at
594
(D.T.C.
5392-93):
Coming
now
to
consideration
of
the
question
of
the
character
of
the
transaction
or
arrangements
by
which
the
payments
in
question
were
made,
it
is
well
settled
that
in
considering
whether
a
particular
transaction
brings
a
party
within
the
terms
of
the
Income
Tax
Act
its
substance
rather
than
its
form
is
to
be
regarded,
and
also
that
the
intention
with
which
a
transaction
is
entered
into
is
an
important
matter
under
the
Act
and
the
whole
sum
of
the
relevant
circumstances
must
be
taken
into
account.
[.
.
.]
I
think
that
in
the
final
analysis
what
I
must
determine
is
whether
the
appellant
established
a
true
superannuation
or
pension
plan
and
made
thereto
the
payments
in
question
for
the
purposes
of
such
plan,
or
whether
its
Pension
Plan
was
a
sham
designed
to
give
an
appearance
of
bona
tides
to
the
payments
which
would
enable
the
appellant
to
deduct
them
in
computing
its
income
and
thereby
escape
some
payment
of
income
tax.
And
at
page
597
(D.T.C.
5394):
If
a
claim
for
deduction
of
payments
into
a
pension
plan
is
to
succeed
the
plan
must
be
a
true
pension
plan
and
not
a
plan
which
masquerades
as
a
true
pension
plan
but
is
not
one.
Analysis
Significant
Evidence
Mr.
Isac
Feldstein
was
and
still
is
the
management
and
control
of
the
business
activities.
His
family
provides
marginal
assistance
including
taking
messages;
reading
newspapers
for
potential
borrowers
and
assisting
in
the
keeping
of
the
books
of
account.
Mr.
Isac
Feldstein
had
a
reticence
in
1986
to
taking
risky
adventures;
he
chose
investments
for
Speedy
Mortgages
Ltd.
on
the
basis
of
their
security;
whereas,
Speedy
Re-Finance
Ltd.,
as
stated,
was
to
make
investments
of
a
more
risky
nature.
In
1986
however,
there
really
was
no
investment
activity
in
relation
to
Speedy
Re-Finance
Ltd.
The
son
and
daughter
gave
evidence
in
relation
to
the
activities
in
1986.
It
would
appear
there
was
some
attempt
to
provide
assistance
to
their
father
but
their
evidence
in
relation
to
Speedy
Re-Finance
Ltd.
corroborated
little
or
nothing
was
done
in
terms
of
business.
Although
it
would
further
appear
there
was
"consultation"
between
the
family,
that
is,
discussions
between
family
members
and
their
father,
it
is
clear
the
father,
Mr.
Isac
Feldstein,
made
the
decisions
and
conducted
the
activities.
At
the
end
of
June
1986,
Speedy
Re-Finance
Ltd.
paid
each
of
the
four
appellants
$5
and
a
T-4
form
was
issued
to
each
appellant.
In
September
1986,
after
the
transfer
of
funds
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan,
there
was
a
termination
of
employment
by
the
company
of
all
family
members
and
in
November
1986
all
family
members
were
rehired
by
the
company.
The
explanation
of
the
father
was
that
he
had
nigh
blood
pressure
and
other
health
problems
and
therefore
decided
to
wind
the
company
up.
In
November
he
had
a
change
of
heart
and
wished
to
pursue
the
adventure
further.
It
is
also
interesting
to
note
in
March
1986
the
father
had
a
discussion
with
an
official
of
Revenue
Canada
as
to
whether
it
was
possible
for
an
employee
to
terminate
employment,
commence
to
collect
a
pension
annuity
and
then
recommence
employment.
The
purpose
of
the
discussion
was
to
determine
if
it
was
possible
to
continue
to
receive
a
pension
annuity
payment
and
then
to
be
re-engaged
in
employment
in
the
same
company.
There
also
appears
to
be
no
separate
books
or
records
or
documentation
in
relation
to
Speedy
Re-Finance
Ltd.
for
1986
in
relation
to
alleged
business
activities
and
I
find
no
real
business
was
conducted.
Form
and
Substance
Mr.
Isac
Feldstein
presented
his
evidence
forcefully
and
precisely
to
show
the
"paper
trail”
leading
to
the
result
he
and
the
other
appellants
took
in
filing
their
income
tax
returns
for
the
years
in
question.
In
terms
of
form
Mr.
Isac
Feldstein
took
great
care.
Mr.
Isac
Feldstein
had
both
plans
registered,
he
transferred
funds
from
one
to
the
other,
he
had
purported
wages
paid
and
T-4
forms
completed
and
he
took
great
pains
to
ensure
that
the
funds
never
"touched"
the
appellants
directly.
In
terms
of
substance,
the
evidence
is
not
so
complete.
No
business
was
really
carried
on
by
Speedy
Re-Finance
Ltd.
in
1986.
The
termination
and
recommencement
of
purported
employment
of
all
the
taxpayers
is
clearly
suspect.
The
cited
conversation
between
the
Revenue
Canada
official
and
Mr.
Isac
Feldstein
indicates
a
course
of
action
that
is
not
consistent
with
a
viable
ongoing
active
business.
From
a
common
sense
point
of
view,
the
receipt
of
$5
for
wages
and
the
issuance
of
a
T-4
for
this
amount
at
the
end
of
June
raise
the
issue
of
genuineness
of
the
employment.
The
activity
of
the
family
was
to
support
their
father
and
husband
and
was
to
assist
in
the
pursuit
of
their
investments.
It
was
not
employment
in
the
accepted
sense
of
a
relationship
between
employer
and
employee
because
there
was
no
business
activity
carried
on.
Further,
in
terms
of
substance,
the
funds
flow
and
the
actions
taken
in
the
absence
of
business
activity
and
the
discussion
surrounding
the
transaction
afterwards
by
the
family
indicate
this
whole
activity
was
a
cloak
to
allow
the
appellants
to
receive
annuity
pension
income.
Conclusion
The
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan
was
not
a
Registered
Retirement
Pension
Plan
within
the
meaning
of
the
Act
because
there
was
not
an
active
business,
there
were
no
employees,
there
was
no
employer
and,
as
such,
there
was
no
real
employment.
When
the
funds
left
the
sheltered
plan
and
were
transferred
to
the
Speedy
Re-Finance
Ltd.
Employees
Pension
Plan
they
were
taxable
in
the
hands
of
the
taxpayer
pursuant
to
subsection
56(2).
Moreover,
no
trust
was
established
within
the
meaning
of
the
Act
to
shelter
the
funds
so
that
they
could
be
redirected
to
sheltered
funds
so
as
not
to
attract
tax
liability
under
subsection
56(2).
As
a
result
of
this
finding,
the
amounts
paid
to
the
taxpayers
were
not
paid
from
a
valid
registered
pension
plan
and
consequently,
the
taxpayers
are
not
entitled
to
a
pension
income
deduction
pursuant
to
section
110.2
of
the
Act.
Decision
The
appeals
for
all
appellants
for
the
taxation
years
in
issue
are
dismissed.
Appeals
dismissed.
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