Citation: 2012TCC187
Date: 20120601
Docket: 2011-3577(IT)I
BETWEEN:
ROBERT L. BREWSTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The Appellant was
reassessed in relation to his 2009 taxation year on the basis that his registered
retirement savings plan (“RRSP”) account had acquired non-qualified investments
in 2009.
[2]
The Appellant stated
during the hearing that, in 2009, he had acquired, through his RRSP account at
CIBC Investor Services Inc., shares in Bebida Beverage Co., Bioelectronics
Corp., and Opti Canada Inc. The Appellant was unable to provide any particular
details about these companies, nor was the Respondent. Other individuals that
the Appellant knew had recommended these companies to him and he contacted CIBC
Investor Services Inc. who arranged for the shares to be acquired in his RRSP
account. There was no discussion or any indication that these shares may not be
qualified investments for his RRSP account.
[3]
Subsection 146(10) of
the Income Tax Act (the “Act”) as it read in 2009, provided, in
part, that:
146(10) Where at any time in a taxation year a trust governed by a
registered retirement savings plan
(a) acquires a non-qualified investment, …
the fair market value of
(c) the non-qualified investment at the time it was acquired
by the trust, …
… shall be included in computing the income for the year of the
taxpayer who is the annuitant under the plan at that time.
[4]
A “non-qualified
investment” is an investment that is not a “qualified investment” (subsections
146(1) and 207.01(1) of the Act). To determine what investments are
“qualified investments” it is necessary to review the definition of “qualified
investment” in subsection 146(1) of the Act, parts of the definition of
qualified investment in section 204 of the Act, and section 4900 of the Income
Tax Regulations (the “Regulations”) (which, in subsection 4900(6)
thereof incorporates the definition of “eligible corporation” found in subsection
5100(1) of the Regulations).
[5]
CIBC Investor Services
Inc. issued four T4RSPs “Statements of RRSP Income” in the name of the
Appellant for 2009 and these were as follows:
Date
|
Amount
|
2011-12-07
|
$2,533.49
|
2011-12-07
|
$3,729.60
|
2011-12-07
|
$5,107.30
|
2011-12-07
|
($2,207.92)
|
Total:
|
$9,162.47
|
[6]
Although the forms are
all dated as indicated above, the forms introduced at the hearing were
reproductions. It is not clear when the original forms were sent by CIBC
Investor Services Inc. but I accept the Appellant’s testimony that he was not
aware of any problems with his RRSP account until he was notified by the Canada
Revenue Agency that he was being reassessed.
[7]
No explanation was
provided on the forms or otherwise to explain why these forms were issued. It
appears that these relate to the Appellant’s investment in the three companies
referred to above but it is not possible to determine which form relates to
which company or even if these amounts do relate to the companies identified
above by the Appellant. The investments that were alleged to be “non‑qualified
investments” were not identified in the Reply.
[8]
The assumptions made by
the Minister are set out in paragraph 10 of the Reply and these are as follows:
10. In determining the Appellant’s tax liability
for the 2009 taxation year, the Minister made the following assumptions of
fact:
(a) the Appellant was the owner of
the RRSP account with the contract number …;
(b)
the RRSP account was a self-directed RRSP
account; and
(c)
through his RRSP account the [sic]
Appellant’s acquired non-qualified investments amounting to $11,369.
[9]
In The Queen v. Anchor
Pointe Energy Ltd., 2003 FCA 294, [2004]
5 C.T.C. 98, Justice
Rothstein (as he then was) in writing on behalf of the Federal Court of Appeal
stated that:
8 In
the Reply to the Notice of Appeal, the Minister's assumptions are set forth,
including assumptions arising as a result of the Global decision. Specifically,
the Reply states at paragraph 10:
In
reassessing, the Minister assumed the following facts:
...
(q)
API, APII, APIII, APIV and APV did not purchase the seismic data for the
purpose of determining the existence, location, extent or quality of an accumulation
of oil or gas;
(r)
the seismic was not used for exploration purposes;
…
(z) the seismic data purchased by API, APII,
APIII, APIV and APV does not qualify as a Canadian Exploration Expense (“CEE”)
within the meaning of s. 66.1(6)(a) of the Income Tax Act (the “Act”).
…
24 Paragraph
10(z) was struck by Rip J. for an additional reason. He considered it to be a
conclusion of law “that has no place among the Minister’s assumed facts”.
25 I
agree that legal statements or conclusions have no place in the recitation of
the Minister's factual assumptions. The implication is that the taxpayer has
the onus of demolishing the legal statement or conclusion and, of course, that
is not correct. The legal test to be applied is not subject to proof by the
parties as if it was a fact. The parties are to make their arguments as to the
legal test, but it is the Court that has the ultimate obligation of ruling on
questions of law.
26 However,
the assumption in paragraph 10(z) can be more correctly described as a
conclusion of mixed fact and law. A conclusion that seismic data purchased does
not qualify as CEE within the meaning of paragraph 66.1(6)(a) involves the
application of the law to the facts. Paragraph 66.1(6)(a) sets out the test to
be met for a CEE deduction. Whether the purchase of the seismic data in this
case meets that test involves determining whether or not the facts meet the
test. The Minister may assume the factual components of a conclusion of mixed
fact and law. However, if he wishes to do so, he should extricate the factual
components that are being assumed so that the taxpayer is told exactly what
factual assumptions it must demolish in order to succeed. It is unsatisfactory
that the assumed facts be buried in the conclusion of mixed fact and law.
[10]
It seems to me that
whether the Appellant acquired “non-qualified investments” through his RRSP
account is a conclusion of mixed fact and law that can only be determined based
on the facts related to the investments and then applying the law to those
facts. It is not proper for the Minister to assume the final conclusion that
the investments were not qualified investments. The factual components should
have been separated and clearly stated for the Appellant. Someone must have
determined that the Appellant had acquired non-qualified investments but based
on the Reply and also on the information provided during the hearing it is not
even possible to ascertain if the shares in the companies identified by the
Appellant are the investments that were determined to be non-qualified
investments.
[11]
Justice Rothstein (as he then was)
writing on behalf of the Federal Court of Appeal in The Queen v. Anchor
Pointe Energy Ltd., 2003 DTC 5512 stated that:
[23] The pleading
of assumptions gives the Crown the powerful tool of shifting the onus to the
taxpayer to demolish the Minister's assumptions. The facts pleaded as
assumptions must be precise and accurate so that the taxpayer knows exactly the
case it has to meet.
[12]
In this case the
assumptions do not even identify which investments were non-qualified
investments. The assumptions as set out in the Reply are not precise and do not
assist the Appellant in determining what case he has to meet.
[13]
Counsel for the
Respondent submitted that the Appellant had to prove that the investments were
qualified investments. In McMillan v. The Queen, 2012 FCA 126,
the Federal Court of Appeal stated that:
7…In our respectful view, it is settled law that the initial onus on
an appellant taxpayer is to “demolish” the Minister’s assumptions in the
assessment. This initial onus of “demolishing” the Minister’s assumptions is
met where the taxpayer makes out at least a prima facie case. Once the
taxpayer shows a prima facie case, the burden is on the Minister to
prove, on a balance of probabilities, that the assumptions were correct (Hickman
Motors Ltd. v. Canada, [1997] 2 S.C.R. 336 at paragraphs 92 to 94; House v. Canada,
2011 FCA 234, 422 N.R. 144 at paragraph 30).
[14]
It seems to me that the
logical extension of this is that if the Minister has not made any valid
assumptions that would support the reassessment, there are no assumptions for
the Appellant to “demolish” and therefore the Appellant will be successful.
[15]
It should be noted that
included in the list of “qualified investments” are “securities … that are
listed on a designated stock exchange”, (paragraph (d) of the definition
of “qualified investment” in section 204 of the Act) and shares of a
“public corporation” (paragraph 4900(1)(b) of the Regulations. The Appellant did not have any connection
to any of the companies identified above and he had simply contacted CIBC
Investors Services Inc. to acquire the shares of these companies. If these
shares were not listed on a designated stock exchange or the companies were not
public corporations, how did CIBC Investors Services Inc. acquire the shares
for the Appellant’s RRSP account?
[16]
In this case since
there are no valid assumptions of fact in relation to any investments that were
non-qualified investments, there were no valid assumptions for the Appellant to
“demolish”. Since the Respondent did not lead any evidence to support a finding
that any of the investments were non-qualified investments, the Appellant’s appeal is allowed and the
reassessment is vacated. The Respondent shall pay costs to the Appellant which
are fixed in the amount of $250.
Signed at Halifax, Nova Scotia,
this 1st day of June 2012.
“Wyman W. Webb”