Date: 20070205
Docket: A-248-05
Citation: 2007 FCA 32
CORAM: NOËL
J.A.
SEXTON
J.A.
PELLETIER J.A.
BETWEEN:
SUZANNE BOUDREAU
Applicant
and
MINISTER OF NATIONAL REVENUE,
ATTORNEY GENERAL OF CANADA
Respondents
REASONS FOR JUDGMENT
PELLETIER J.A.
INTRODUCTION
[1]
This case
is the sequel to Boudreau v. Minister of National Revenue and Attorney
General of Canada, 2005 FCA 304, [2005] F.C.J. No. 1551, in which this
Court decided that Ms. Boudreau had standing under subsection 147.1(13) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) to challenge
the Minister of National Revenue's choice of the date of revocation of Cryptic
Web Technology Security Inc.'s (Cryptic Web) pension plan registration under
the Act. At the same time, this Court stayed Ms. Boudreau's application until a
notice of revocation was actually issued because, at the time of the application,
the Minister had merely given notice of his intention to revoke. Not only has
the notice of revocation now been issued and Cryptic Web's pension plan
registration revoked, but the appeal of that revocation has been dismissed. Ms.
Boudreau now seeks to have this Court order that the effective date of
revocation is not the date specified in the Minister's notice of revocation. For
the reasons which follow, I would dismiss the application.
BACKGROUND
[2]
The
facts giving rise to this dispute can be briefly stated. This application arises
out of a scheme operated by certain individuals by which public servants
received a substantial premium in their pension account if they left the public
service and transferred their pension to a pension plan under the control of
those individuals. One of those plans was the Cryptic Web pension plan (the
Plan). It is not necessary for the purposes of these reasons to understand the
mechanics by which this premium was obtained other than to say that it was a
function of the reciprocal transfer agreement (RTA) in place between each of
these plans and Treasury Board. These agreements are negotiated between private
employers and the federal government so as to provide for the portability of
pension plans between the employer and the public service.
[3]
In
order for this scheme to work, three factors had to be in place. The first was
the RTA, which generated the premium which was the incentive for public
servants to participate in the scheme, and out of which the promoters of the scheme
paid themselves a significant fee. The second factor was that the Plan had to
be a registered pension plan, so that the transfer from the Public Service
Superannuation Fund (the Fund) to the Plan could take place without tax
consequences for the public servant. The third factor was a requirement of the
second. The public servants who left their employment and transferred their
pension to the Plan (the transferees) had to become employees of Cryptic Web,
since it was a condition of the Plan's registration under the Act that it
provide retirement benefits for employees.
[4]
As a result of a complaint from a public
servant, the Royal Canadian Mounted Police began an investigation of these
plans, including Cryptic Web and their principals. See Respondent's Record, vol.
1, p. 224. The results of the investigation were shared with the Canada Revenue
Agency (CRA). CRA was informed that transferees were enrolled in the Cryptic
Web pension plan without becoming employees of Cryptic Web. The transferees
were told by Cryptic Web that they were responsible for finding some kind of
remunerative contract which they should bill through Cryptic Web. With one or
two possible exceptions, including Ms. Boudreau, Cryptic Web did not provide
work for its "employees", did not pay them with its own money, and
exercised no control whatsoever in terms of the work they did. On the other
hand, Cryptic Web remitted source deductions on amounts which passed through
its hands as "salary" paid to the transferees and, in most cases,
issued a Record of Employment when they terminated their relationship with the
company. In CRA's view, these actions were undertaken simply to provide the
semblance of employment; they were not indications of a legitimate employment
relationship.
[5]
On the
basis of this information, CRA concluded that the Plan did not meet the primary
purpose test set out at paragraph 8502(a) of the Income Tax Regulations:
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8502. For the purposes of section 8501, the following
conditions are applicable in respect of a pension plan:
(a) the primary purpose of the plan is to provide
periodic payments to individuals after retirement and until death in respect
of their service as employees;
[…]
|
8502.
Pour
l 'application de l'article 8501, les conditions suivantes s 'appliquent aux
régimes de pension :
a) le principal objet
du régime consiste à prévoir le versement périodique de montants à des
particuliers, après leur retraite et jusqu'à leur décès, pour les services qu'ils
ont accomplis à titre d'employés;
[…]
|
[6]
In CRA's
view, the Plan was established as part of a scheme for obtaining payment of
amounts which would not otherwise have been payable from the Fund. See Applicant's Record, vol. 1, page 12.
[7]
On
October 16, 2003, an official of CRA, acting as the Minister's delegate, wrote
to Mr. MacGillivary, the President of Cryptic Web, to advise him of the
Minister's intention to revoke Cryptic Web's pension plan registration pursuant
to subsection 147.1(11) of the Act. The letter set out the reasons for
revocation as follows:
As we indicated in our
letters of March 28, 2002, July 16, 2003 and August 14, 2003, it is our view
that the pension plan established by Cryptic Web Information Technology
Security Inc. was established as a vehicle to obtain funds from the PSSA
[Public Service Superannuation Account] and that the semblance of the
employer-employee relationship was required to legitimize the registration of
the Plan, thus facilitating the transfer of greater amounts from the PSSA than
would otherwise have been due to departing members of the PSSA.
The Minister intends to
revoke the Plan's registration effective January 1, 1996 because:
It appears that the Plan
does not comply with the prescribed conditions for registration set out in
Subsection 8501(1) of the Income Tax Regulations (the "Regulations").
Specifically, it is a condition of registration that the Plan complies with
paragraph 8502(a) of the Regulations. The wording in paragraph 8502(a) of the
Regulations is quite clear that the primary purpose of the Plan must be to provide
retirement benefits in respect of service as an employee. Therefore, a pension
plan will only qualify for registration by having the provision of pension
benefits in respect of service as an employee as the plan's clear primary
purpose.
[8]
Cryptic
Web appealed the Notice of Intention to Revoke issued October 16, 2003, but its
appeal was ultimately dismissed for failure to prosecute. See Respondent's Record,
vol.3, tab 9.
RELEVANT LEGISLATION
[9]
The
Minister's power to revoke the registration of a pension plan is found at subsection
147.1(11) of the Act:
|
147.1(11) Where,
at any time after a pension plan has been registered by the Minister,
a) the plan
does not comply with the prescribed conditions for registration,
b) the plan is not administered in accordance with
the terms of the plan as registered,
c) the plan becomes a revocable plan,
d) a condition imposed by the Minister in writing
and applicable with respect to the plan (including a condition applicable
generally to registered pension plans or a class of such plans and a
condition first imposed before 1989) is not complied with,
e) a requirement under subsection (6) or (7) is not complied
with,
f) a benefit is paid by the plan, or
a contribution is made to the plan, contrary to subsection (10),
g) the administrator of the plan fails to
file an information return or actuarial report relating to the plan
or to a member of the plan as and when required by regulation,
h) a participating employer fails to file an information
return relating to the plan or to a member of the plan as and when required
by regulation, or
i) registration of the plan under the Pension Benefits Standards Act,
1985 or a similar law of a province is refused or revoked,
the Minister may give
notice (in this subsection and subsection 147.1(12)
referred to as a "notice of intent") by registered mail to the plan
administrator that the Minister proposes to revoke the registration of the
plan as of a date specified in the notice of intent, which date shall not
be earlier than the date as of which,
j) where
paragraph 147.1.(11)(a) applies, the plan
failed to so comply,
k) where paragraph 147.1.(11)(b)
applies, the plan was not administered in accordance with its terms as registered,
l) where paragraph 147.1.(11)(c)
applies, the plan became a revocable plan,
m) where paragraph 147.1.(11)(d)
or 147.1.(11)(e) applies, the condition or requirement
was not complied with,
n) where paragraph 147.1.(11)(f)
applies, the benefit was paid or the contribution was made,
o) where paragraph 147.1.(11)(g)
or 147.1.(11)(h) applies, the information return or
actuarial report was required to be filed, and
p) where paragraph 147.1.(11)(i)
applies, the registration referred to in that paragraph was refused
or revoked.
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147.1(11) Lorsque l'une des situations
suivantes se produit après que le ministre a agréé un régime de pension:
a)
le régime n'est pas conforme aux conditions d'agrément réglementaires;
b)
le régime n'est pas géré tel qu'il est agréé;
c)
l'agrément du régime peut être retiré;
d)
une condition (y compris une condition applicable de façon générale aux
régimes de pension agréés en général ou à une catégorie de régimes et une
condition imposée pour la première fois avant 1989) que le ministre a imposée
au régime par écrit n'est pas respectée;
e)
une des exigences énoncées aux paragraphes (6) ou (7) n'est pas respectée;
f)
des prestations sont payées par le régime ou des cotisations y sont versées
contrairement au paragraphe (10);
g)
l'administrateur ne présente pas de déclaration de renseignements ou de
rapport actuariel concernant le régime ou un participant à celui-ci selon les
modalités réglementaires de temps ou autres;
h)
un employeur participant ne présente pas de déclaration de renseignements concernant
le régime ou un participant à celui-ci selon les modalités réglementaires de
temps ou autres;
i)
l'agrément du régime aux termes de la Loi de 1985 sur les normes de
prestation de pension ou d'une loi provinciale semblable est refusé ou
retiré,
le ministre peut informer l'administrateur
du régime par avis -- appelé "avis d'intention" au présent
paragraphe et au paragraphe (12) --, envoyé en recommandé, qu'il entend
retirer l'agrément du régime à la date précisée dans l'avis d'intention, qui
ne peut être antérieure aux dates suivantes:
j)
si l'alinéa a) s'applique, la date où le régime cesse d'être conforme;
k)
si l'alinéa b) s'applique, la date où le régime n'est plus géré tel qu'il est
agréé;
l)
si l'alinéa c) s'applique, la date où l'agrément du régime peut être retiré;
m)
si l'alinéa d) ou e) s'applique, la date où la condition ou l'exigence n'est
plus respectée;
n)
si l'alinéa f) s'applique, la date où les paiements ou versements ont été
effectués;
o)
si l'alinéa g) ou h) s'applique, la date fixée pour la présentation;
p)
si l'alinéa i) s'applique, la date du refus ou du retrait.
|
[10]
Both the
employer and the administrator have the right to appeal the Minister's
intention to revoke registration of the pension plan to this Court:
172.(3) Where the Minister […] f) refuses to register for the purposes of this Act any pension plan or gives notice under subsection 147.1(11) to the administrator of a registered pension plan that the Minister proposes to revoke its registration, …the administrator of the plan or an employer who participates in the plan, in a case described in paragraph 172(3)(f) … may appeal from the Minister's decision, or from the giving of the notice by the Minister, to the Federal Court of Appeal. |
172.(3) Lorsque le ministre : […]
f)
refuse d'agréer un régime de pension, pour l'application de la présente loi,
ou envoie à l'administrateur d'un régime de pension agréé l'avis d'intention
prévu au paragraphe 147.1(11), selon lequel il entend retirer l'agrément du
régime;
…l'administrateur du régime ou l'employeur
qui participe au régime, dans une situation visée aux alinéas f)… peuvent
interjeter appel à la Cour d'appel fédérale de cette décision ou de la
signification de cet avis.
|
It is noteworthy that members
of the pension plan are not given a right of appeal.
[11]
Ms.
Boudreau brought her application pursuant to subsection 147.1(13) , which
provides as follows:
147.1(13) Where the Minister gives a notice of revocation
to the administrator of a registered pension plan, the
registration of the plan is revoked as of the date specified
in the notice of revocation, unless the Federal Court of
Appeal or a judge thereof, on application made at any time
before the determination of an appeal pursuant to subsection
172(3), orders otherwise.
|
147.1(13) L'agrément d'un régime de
pension agréé est retiré à compter de la date précisée dans l'avis de
retrait, sauf ordonnance contraire de la Cour d'appel fédérale ou de l'un de
ses juges sur demande formulée avant qu'il ne soit statué sur tout appel
interjeté selon le paragraphe 172(3).
|
ANALYSIS
[12]
The
issues in this matter were significantly reduced by this Court's earlier
decision which recognized that Ms. Boudreau had the status to bring this
application pursuant to subsection 147.1(13) of the Act, but that that
provision limited her challenge to the issue of the revocation date. Consequently,
the issue of the legality of the revocation of the Plan registration is not
before us.
[13]
Ms.
Boudreau attacks the retroactivity of the Minister's revocation on the basis of
the presumption against retroactivity. In addition, she raises two substantive
arguments to support her claim that CRA erred in revoking the Plan's registration
as of January 1, 1996, which is also the effective date of the Plan's
registration. She says that because the CRA did not afford the transferees the
opportunity to be heard before revoking the Plan's registration, the Minister
breached his duty of procedural fairness. As a result, the purported revocation
as of January 1, 1996, is void, with the result that the revocation takes
effect only from the date the Minister issued the notice of revocation, April
24, 2006. However,
if the CRA can revoke a registration as of an earlier date, then she suggests
that the appropriate date is the date at which the Plan first became
non-compliant which,
in her view, is the date at which the first transferee joined the Plan,
February 9, 1998.
[14]
It
is apparent from the terms of subsection 147.1(11) that the Act contemplates
revocation of the registration of a plan as of a date which precedes the date
of the Notice of Intention to Revoke. The date of revocation is tied to the
event giving rise to the revocation whose occurrence must necessarily precede
the Minister giving notice of his intention to revoke a plan's registration. As
a result, there is no support for Ms. Boudreau's argument that the Minister has
no right to revoke a pension plan registration retroactively.
[15]
Ms.
Boudreau's primary argument in favour of a later revocation date is that the
decision was not made in accordance with the requirements of natural justice as
the members of the Plan were not consulted. Ms. Boudreau relies on the decision
of the Supreme Court of Canada in Baker v. Canada (Minister of
Citizenship and Immigration), [1999] 2 S.C.R. 817, as authority for the
proposition that the transferees were entitled to be heard on the issue of the
date of revocation because the decision affected their personal interests.
[16]
Ms.
Boudreau's argument ignores the fact that Parliament has specified who is to be
given notice of the Minister's Notice of Intention to Revoke the registration
of a plan. The substance of Ms. Boudreau's argument is that the duty of
procedural fairness is not satisfied by compliance with the notice requirements
set out in the Act so that a decision made in full compliance with those
requirements would still be reviewable on grounds of procedural fairness. If
there is authority for this proposition, it has not been cited to us.
[17]
It is
precisely because the statute does not provide for pension contributors to be
heard by the Minister under subsection 147.1(11) that this Court found that
they had a right to be heard by this Court under subsection 147.1(13). The
argument as to procedural fairness cannot succeed.
[18]
Ms.
Boudreau's second argument is that pursuant to paragraph 147.1(11)(j), the
Minister can only revoke the Plan's registration as of the date at which it
became non-compliant which date, in her view, cannot be prior to the enrolment
of the first non-employee in the Plan. A pension plan amendment submitted on
July 24, 1998, establishes that the first transferee is recorded as having a
date of entry into the Plan of February 9, 1998. See Respondent's Record, vol.
1, p. 96.
[19]
Whatever
the practical utility of such an argument for subsequent transferees such as Ms.
Boudreau, it misses the point that the Minister's position is that the Plan was
not registrable from inception because it was never intended to provide
retirement benefits for employees of Cryptic Web. The fact that it took a
period of time to recruit the first transferee does not affect the Minister's
determination as to the purpose for which the Plan was established.
[20]
In
order to establish that the Plan was registrable and that, as a result, the
Minister has chosen the wrong date of revocation, Ms. Boudreau would have to
show that the Plan originally satisfied the primary purpose test but that, at
some later time, its primary purpose changed. Ms. Boudreau seeks to
meet this argument by making the point that pension plans have a statutory
purpose, which is set out in the pension benefits legislation of the various
provinces. Compliance with that purpose is evidenced by the registration of the
plan under the provincial legislation. Ms. Boudreau says that the CRA
cannot look past the statutory intention to the motives of the sponsors of a
plan to qualify or contradict the statutory purpose.
[21]
For
example, under the Ontario Pension Benefits Act, R.S.O. 1990,
c. P-8, a pension plan is defined at section 1 as "a
plan organized and administered to provide pensions for employees… "
subject to certain exceptions which are not material to this case. According to
Ms. Boudreau, registration of the plan under provincial legislation is evidence
of compliance with the statutory purpose, a fact which cannot be disregarded by
CRA.
[22]
This argument mistakes form for substance. The
question of the purpose of the Plan is a question of fact. See Loba Ltd. v. Canada (Minister of
National Revenue – M.N.R.), 2004 FCA 342, [2004] F.C.J. No. 1678, at
paragraph 2. What purpose did the sponsors of the Plan have
in mind when they established it? That is the relevant purpose. Relying on the
information before him, the Minister concluded that the Plan was established
for the purpose of facilitating pension transfers, as part of a scheme to
induce the government to pay substantial premiums to the pension accounts of
departing public servants. Ms. Boudreau has not led any evidence which would
rebut the Minister's position, nor has she shaken the factual foundation upon
which it rests. As a result, there is no basis upon which this Court could
conclude that the Minister erred in designating the date of inception of the
Plan as the appropriate date of revocation of registration.
[23]
Before concluding, I think it is useful to add
the following clarification. Ms Boudreau is but one of a number of transferees.
She does not bring her application in a representative capacity. It seems to me
that if an order were to be made under subsection 147.1(13), it would have to
be made on behalf of all pension contributors affected by the revocation
decision. The Court cannot alter the Minister's decision on the basis of the
inconvenience to the first applicant to get to Court, without regard to the
interests of others affected by the same decision.
[24]
Ms. Boudreau says that in this case there
is one date which would suit all transferees equally well, being the date the
notice of revocation was actually given because that would spare all the transferees
the risk of adverse tax consequences. That may be so in this case, but that
does not change the principle upon which this Court should approach these
applications.
CONCLUSION
[25]
I
would therefore dismiss the application with costs.
"J.D. Denis Pelletier"
"I
agree
Marc Noël J.A."
'I
agree
J. Edgar Sexton J.A."
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