Date: 20070727
Docket: A-471-05
Citation: 2007 FCA 262
CORAM: SEXTON
J.A.
MALONE
J.A.
RYER
J.A.
BETWEEN:
1346687 ONTARIO INC.ON BEHALF OF THE PENSION PLAN
FOR PRESIDENTS OF 1346687 ONTARIO INC.
Appellant
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
RYER J.A.
INTRODUCTION
[1]
Mrs. Susan
Greenhalgh taught school for over 30 years prior to her retirement. As a result
of her efforts, she became entitled to a pension from the Ontario Teachers’
Pension Plan Board (the “Teachers’ Pension Plan”). Upon her retirement, Mrs.
Greenhalgh had a number of options with respect to her pension. She chose to
have the commuted value of her pension, which amounted to $564,478.56, transferred
from the Teachers’ Pension Plan to a newly created pension plan (the “Plan”)
that had been set up by 1346687 Ontario Inc. (the “Corporation”), itself a
newly incorporated corporation.
[2]
The Plan
is called the Pension Plan for Presidents of 1346687 Ontario Inc. and, from its
inception, Mrs. Greenhalgh was its sole member by virtue of her position as the
President of the Corporation.
[3]
Mr. Brian
Jenkins is an experienced actuary and the principal of ActuBen Consulting Inc.
(“ActuBen”). He 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. Even before the creation of the Plan, Mr. Jenkins had been involved in
detailed discussions with the RPD with respect to the income tax consequences
that would arise out of the registration and operation of an individual pension
plan (an “IPP”) such as the Plan.
[4]
Not long
after the registration of the Plan, the CRA expressed concerns to Mr. Jenkins
and to Mrs. Greenhalgh, in her capacity as the contact person for the Plan, with
respect to the validity of the Plan. Correspondence went back and forth between
the CRA and each of them and an audit of the Plan was undertaken. This process
culminated on September 8, 2005, when the CRA gave notice (the “Notice of
Intent”) to the Plan, pursuant to paragraph 147.1(11)(a) of the Income
Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the “ITA”), that the Minister of
National Revenue (“the Minister”) proposes to revoke the registration of the
Plan. A revocation of the Plan could have adverse income tax consequences to
Mrs. Greenhalgh. The present appeal relates to the decision of the Minister to
give the Notice of Intent.
[5]
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.
FACTUAL BACKGROUND
The Corporation
[6]
The
Corporation was incorporated on July 30, 1999 and has a July 31st year-end for
the purposes of the ITA. Corporate income tax returns for its 2000, 2001, 2002
and 2003 taxation years indicate that the Corporation had no material assets or
revenues in any of those years. A CRA payroll account was opened by the
Corporation on September 4, 2003. At the times that are material to this
appeal, Ms. Brenda Hookings was the sole shareholder of the Corporation and
Mrs. Greenhalgh was its president. The record does not disclose the nature of
the relationship, if any, between Ms. Hookings and Mrs. Greenhalgh or how it
was that Mrs. Greenhalgh came to be the president of the Corporation.
Registration of the Plan
[7]
On October
6, 1999, ActuBen applied for registration of the Plan on behalf of the Corporation
pursuant to section 147.1 of the ITA. In the registration documents, the
Corporation was identified as both the sponsor and the administrator of the
Plan and Mrs. Greenhalgh was identified as the contact person for both the
Corporation and the Plan. The registration documents also indicated that the
Corporation was newly incorporated, with no history of earnings and that its
ability to pay salaries would be contingent upon the receipt of revenues, the
source of which was then unknown. Nonetheless, those materials indicated that
Mrs. Greenhalgh, as the sole member of the Plan, anticipated receiving annual
earnings from the Corporation of $65,000. No explanation was provided as to how
this amount was determined.
[8]
On
November 15, 1999, the CRA accepted the Plan for registration with an effective
date of August 1, 1999.
Amendment of the Plan
[9]
On March
21, 2000, ActuBen submitted materials to the RPD that related to an amendment
to the Plan. The amendment permitted the Plan to credit Mrs. Greenhalgh with
past service benefits and permitted the Plan to receive a transfer of the
commuted value of her pension entitlement under the Teachers’ Pension Plan. In
his cover letter submitted with the materials, Mr. Jenkins stated:
It has been indicated
that the CCRA wished an indication of the current salary levels of people prior
to making amendments. To that end, we have attached a statement from the
company indicating the member’s salary once she returned from her unpaid leave
of absence.
Accompanying the letter was a statement indicating that Mrs.
Greenhalgh had received gross wages of $6,000 in each of December 1999, January
2000 and February 2000. The record before us shows no evidence that any of the
indicated amounts were paid by the Corporation or that any unpaid leave of
absence was formally approved by the Corporation.
CRA Warnings
[10]
On May 16,
2000, the Director of the RPD wrote to the plan manager of the Ontario Public
Service Employee’s Union Pension Plan expressing a concern that IPPs that were
established primarily for the purpose of accepting transfers of funds from existing
registered pension plans might not meet the registration condition in paragraph
8502(a) of the Income Tax Regulations, C.R.C., c. 945 (the
“ITR”). Under that provision, a plan cannot be registered unless its primary
purpose is to provide post-retirement benefits to individuals in respect of
their services as employees. The CRA warned that if compliance with this
condition could not be demonstrated, the CRA registration of the IPP could be
revoked retroactively, with potentially adverse income tax consequences.
[11]
On May 29,
2000 a similar letter was sent to the Financial Services Commission of Ontario.
[12]
On June
28, 2000, the CRA wrote to the Corporation in its capacity as administrator of
the Plan, acknowledging receipt of the amendments to the Plan that allowed for
the accrual of past service benefits. That correspondence, a copy of which was
sent to ActuBen, clearly stated the concerns of the CRA with respect to the
creation of IPPs for the purpose of receiving transfers of the commuted value
of previously accrued pension benefits. 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. While it is not immediately evident that
this plan will not meet the primary purpose, we ask you to confirm the
following within the next 30 days:
·
the company was
established for a reason other than to establish a pension plan for the purpose
of transferring benefits from a prior plan;
·
there is a bona fide
employer/employee relationship between the plan member and this company;
and
·
the plan member expects
to receive earnings at a level comparable to the earnings they received from
the prior employer.
If you cannot confirm this information we will
consider that the plan will not meet the primary purpose and its registration
may be revoked.
[13]
On August
22, 2001, the RPD corresponded with the Corporation, again with a copy to
ActuBen, indicating that a reply to its June 28, 2000 correspondence had not
yet been received. This correspondence indicated that the CRA was considering
the revocation of the Plan and invited the Corporation to submit any additional
information or to make representations that might be relevant to a potential
revocation of the Plan.
[14]
By correspondence
dated June 22, 2001 (but post-marked December 4, 2001, according to the
Minister), the Corporation responded to the June 28, 2000 correspondence from
the CRA. The body of the response reads as follows:
Dear Sir:
Re: Pension Plan for
Presidents of 1346687 Ontario Inc. – Reg. No. 1051923
I am sorry to say that
we did not receive your letter dated June 28, 2000.
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 did not directly or
indirectly own any shares of the company as of June 28, 2000.
I expect to receive
compensation from the company at a level comparable to the earnings I received
by my previous employer and that my highest average compensation will be at
least as high.
Yours truly,
Susanne Greenhalgh
President
The Audit
[15]
On January
29, 2003, an audit of the Plan was commenced by the CRA and approximately one
year later that audit was completed. In the course of the audit, the CRA spoke
and corresponded with both Mrs. Greenhalgh and Mr. Jenkins on a number of
occasions.
[16]
On May 14,
2003, the CRA auditor advised the Corporation that the additional information
was required, in particular:
(a) the names of all
participants in the Plan;
(b) the names of all of
the shareholders of the Corporation;
(c) the amounts and
dates of any transfers of funds into the Plan;
(d) the
details of the accrued pension entitlement, as of December 31, 2002, of each
member of the Plan; and
(e) the
details of any distributions out of the Plan.
[17]
During the
summer of 2003, the CRA had a number of telephone conversations with Ms.
Greenhalgh in her capacity as the person responsible for the Plan. In the
course of those conversations, Mrs. Greenhalgh advised that she was suffering
from anxiety and depression and that she was separated from her husband, who
also had serious health problems. She also advised that the Plan had been her
husband’s “brainchild” and that much of the information that was requested by
the CRA was in the possession of Mr. Jenkins, who was going to compile it for
delivery to the CRA.
[18]
The audit
revealed that on January 20, 2000, the Teachers’ Pension Plan transferred $564,478.56
to the Plan. From that amount, Mrs. Greenhalgh had received payments aggregating
$90,271.83 as withdrawals of “surplus”, the first payment of which occurred
within days of the transfer of the funds by the Teachers’ Pension Plan.
[19]
An
Actuarial Valuation for the Plan, as of January 1, 2002, that was prepared by
ActuBen and signed by Mrs. Greenhalgh, indicated that she had “Estimated
Annualized 2002 Earnings” of $65,000. However, in response to CRA questions,
she stated that she had not received any earnings from the Corporation. In
addition, in correspondence to the CRA, dated November 13, 2003, Mrs.
Greenhalgh stated that she had taken an unpaid leave of absence from the
Corporation to enable the Corporation to accrue sufficient capital to support
the level of salary that the CRA allegedly demanded. No indication was given as
to how this capital accumulation process was expected to occur. Moreover, the
T2 corporate income tax returns for its 2001, 2002 and 2003 taxation years
indicated that the Corporation had total assets of approximately $1,045 and
liabilities of a slightly higher amount.
[20]
In
correspondence to the CRA, dated September 12, 2003, the Corporation advised
that Mrs. Greenhalgh had begun to receive employment income from the
Corporation in 2003.
[21]
In
correspondence to the Corporation, dated September 23, 2003, the CRA asked for
an explanation as to why Mrs. Greenhalgh had “no months worked” for the
Corporation since August 1, 1999 (the effective date of the Plan) and for proof
of employment income in 2003. The CRA also asked for an explanation as to how
the Corporation met the “primary purpose” requirement in paragraph 8502(a)
of the ITR.
[22]
In
correspondence to the CRA, dated November 13, 2003, the Corporation advised
that contrary to the information contained in its September 12, 2003
correspondence, Mrs. Greenhalgh was not in fact receiving employment
income in 2003, but that it was anticipated that she would begin to work for the
Corporation in 2003. With respect to the question of why Mrs. Greenhalgh had
“no months worked” with the Corporation since August 1, 1999, the Corporation
replied:
The member has no months
worked with the company because there was no available eligible “work”. Of
course, work can only be offered to the member when it complies with the
special rules imposed by Registered Plans.
With respect to the explanation as to how the Corporation
met the “primary purpose” requirement in paragraph 8502(a) of the ITR,
it replied:
The primary purpose of
the pension plan remains that which is required under the Regulations to the Income
Tax Act 8502(a). To provide pension benefits to individuals after
retirement or death in respect of their service. This primary purpose as
defined in the legislation was the primary reason the Pension Plan for
Presidents of 1346687 Ontario Inc. was established, and this continues to be
the primary purpose of the plan. We believe we comply with the legislation.
[23]
The audit
also revealed that in the period from 1999 to 2003, Mrs. Greenhalgh reported
employment income from the Niagara South Board of Education, the LCBO, the
District School Board of Niagara and the Lincoln County Board of Education. The
anticipated commencement of employment with the Corporation in late 2003 did
not occur.
Post-Audit Correspondence
[24]
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 October 6, 1999 with a request to
register the Plan effective August 1, 1999.
·
The
Plan was deemed registered on November 10, 1999.
·
The
Plan was registered on November 15, 1999 with effect from August 1, 1999.
·
On
June 28, 2000, our warning letter was sent to you. In our letter, we stated in
part that,
Based on the terms of
the pension Plan as registered, plan members can only accrue a pension benefit
with respect to service from August 1, 1999 onwards. Currently, the pension
Plan does not provide a pension benefit in respect of pre-August 1, 1999
service. Before such a pension benefit can be provided, the pension plan will
have to be amended in order to allow Plan members to accrue a pension benefit
in respect of pre-August 1, 1999 service. Also, until such time as the pension
plan is amended, funds from another registered pension plan cannot be
transferred into this Plan.
We note that on April 3,
1999 we received an amendment to the pension Plan allowing the Plan members to
accrue a pension benefit in respect of pre-August 1, 1999 service. 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…
…It is for this reason
that we want to ensure that you are made aware of these concerns. While it is
not immediately evident that this plan will not meet the primary purpose, we
ask you to confirm the following with the next 30 days:
·
the
company was established for a reason other than to establish a pension plan for
the purpose of transferring benefits from a prior plan;
·
there
is a bona fide employer/employee relationship between the plan member
and this company; and
·
the
plan member expects to receive earnings at a level comparable to the earnings
they received from the prior employer.
If you cannot confirm
this information we will consider that the plan will not meet the primary
purpose and its registration may be revoked.
·
We
received a letter dated June 22, 2001 (the letter was postmarked December 4,
2001) from you. In your letter, we are advised that,
I am sorry to say that
we did not receive your letter of June 28, 2000.
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 did not directly or
indirectly own any shares of the company as of June 28, 2000.
I expect to receive
compensation from the company at a level comparable to the earnings I received
by my previous employer and that my highest average compensation will be at
least as high.
·
We
note from your letter of September 12, 2003 that $564,478.56 was transferred
into the Plan on January 20, 2000 from the “Teachers Pension” plan. Also, we
note from the September 12, 2003 letter that you received five payments of
“Surplus Amount” totalling $90,271.83 during the period January 24, 2000 to
October 12, 20002. In addition, we note that the first payment of “Surplus
Amount” you received was paid on January 24, 2000, within days from the date of
the January 20, 2000 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
your letter of September 12, 2003 that you had “0.00” years of service with
1346687 Ontario Inc. from the effective date of the Plan (August 1, 1999)
onward. Also, we note that “30.57” years of pre-effective date service with the
former employer was being recognized.
·
Also,
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 your letter of
September 12, 2003, we are advised that you had no “Months Worked”, no “Paid
Employment Income” from 1346687 Ontario Inc. and no “Pension Adjustment”. Also,
we are advised that “Susanne Greenhalgh is receiving employment income in 2003.
No T4s have been issued, so no pension adjustment have [sic] been computed
yet”.
·
In
your November 13, 2003 letter, we are advised in part that “…To date Ms.
Greenhalgh has not started to take a salary from 1346687 Ontario Inc. At this
time, we anticipate she will begin work in December 2003.”
·
Also,
in your letter of November 13, 2003, you advised us in part that, “…The member
was not actively at work during the entire 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…”.
·
Based
on our audit findings, we note that you did not have any employment earnings
from 1346687 Ontario Inc. during the period 1999 (the Plan’s effective date is
August 1, 1999) through 2003.
The correspondence closed with an invitation to the
Corporation to make any submissions that it may consider relevant.
[25]
By
correspondence dated November 18 and 28, 2004, Mr. Jenkins responded to this
letter, on behalf of the Corporation. His correspondence contained a number of
general questions about the RPD’s interpretation of the ITA and ITR and requested
that the RPD 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 just having to demonstrate that
its members were employees.
[26]
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 the RPD’s concerns outlined in its 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
correspondence of November 2, 2004.
[27]
In a
letter dated December 21, 2004, the RPD advised Mr. Jenkins that they had
forwarded his November 28, 2004 correspondence to the Income Tax Rulings
Directorate of the CRA for their consideration.
[28]
By
correspondence dated December 22, 2004, the RPD responded to the inquiries made
by Mr. Jenkins in his letters of November 18 and 28, 2004. After addressing his
concerns, the RPD concluded that they were still of the opinion that the Plan
did not meet the “primary purpose” requirement in paragraph 8502(a) of
the ITR.
[29]
Mr.
Jenkins replied to the December 22, 2004 correspondence from the RPD with a
final letter on January 5, 2005. In it he complained of the unfair timelines
imposed by the RPD, indicated that he did not agree with several of their positions
and sought further clarification on some of their responses.
[30]
On September
8, 2005, the CRA issued the Notice of Intent stating as follows:
The Minister intends to
revoke the Plan’s registration effective August 1, 1999 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 in our letter of
November 2, 2004.
Consequences of Revocation of a Plan
[31]
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 maintained for the benefit of a number of employees, unlike the
Plan, which was an IPP created solely for the benefit of Mrs. Greenhalgh.
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
[32]
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
[33]
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.).)
[34]
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
[35]
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 the Corporation and Mr. Jenkins in
three letters (June 28, 2000, August 22, 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, each of those letters invited the
Corporation and Mr. Jenkins to make further submissions. Clearly, the
Corporation was provided with multiple opportunities to provide additional
information to the CRA.
[36]
Counsel for the
appellant argued that the CRA should have asked about Mrs. Greenhalgh’s job description at the Corporation, what
the Corporation’s
business plan entailed and why the Corporation failed to achieve anything at
all by way of business development.
[37]
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 six year period since the
Plan was registered.
[38]
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 August 22,
2001, at the latest. 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
[39]
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.
[40]
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.
[41]
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 Mrs. Greenhalgh with respect to her service as an
employee – had not been met. First, the Minister contended that there was no bona
fide employment relationship between Mrs. Greenhalgh and the Corporation.
To the Minister, this was apparent for several reasons: Mrs. Greenhalgh
received no remuneration from, and provided no services to, the Corporation
from the inception of the Plan until at least the end of 2003; she was employed
by, and received remuneration from third parties, during that period; and a
number of inconsistent statements were made with respect to her employment with,
and earnings from, the Corporation.
[42]
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 Teachers’ Pension Plan rather than for the provision
of lifetime retirement benefits to Mrs. Greenhalgh in respect of her service as
an employee of the Corporation. According to the Minister, this purpose is
evident from the fact that within days of the transfer of funds from the
Teachers’ Pension Plan to the Plan, Mrs. Greenhalgh caused a portion of the
transferred funds to be paid to herself as a payment out of a “surplus” in the
Plan that was apparently created by virtue of her relatively low or
non-existent earnings from the Corporation. According to the Minister, this
ability to withdraw surplus was only available to Mrs. Greenhalgh 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 Teachers’ 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.
[43]
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
[44]
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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