Ross v. The Queen

Ross v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2013-10-23
Neutral citation
2013 TCC 333
File numbers
2010-1473(IT)G, 2010-1474(IT)G, 2010-1475(IT)G
Judges and Taxing Officers
Randall S. Bocock
Subjects
Income Tax Act
Decision Content
Docket: 2010-1473(IT)G
BETWEEN:
CHARLES ROSS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Evidence heard on October 15 and 16, 2012, at Toronto, Ontario
Argument heard January 28, 2013, at Toronto, Ontario
Before: The Honourable Mr. Justice Randall S. Bocock
Appearances:
Counsel for the Appellant:
Eric Fournie
Oleg M. Roslak
Counsel for the Respondent:
Justine Malone
____________________________________________________________________
JUDGMENT
In accordance with the Consolidated Reasons for Judgment delivered in respect of this matter along with those of Susanne E. Greenhalgh and John W. Martiniuk, the Appeal of Charles Ross with respect to a reassessment made under the Income Tax Act (the “Act”) for the 2001 taxation year is allowed on the basis that the Minister of National Revenue (“the Minister”) has not proven on balance that a misrepresentation was made by the Appellant in the context of information supplied under the Act relevant to the taxation year reassessed.
The reassessment is referred back to the Minister for reconsideration and reassessment.
Costs are awarded to the Appellant.
Signed at Ottawa, Ontario, this 23rd day of October 2013.
“R.S. Bocock”
Bocock J.
Docket: 2010-1474(IT)G
BETWEEN:
SUSANNE E. GREENHALGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Evidence heard on October 15 and 16, 2012, at Toronto, Ontario
Argument heard January 28, 2013, at Toronto, Ontario
Before: The Honourable Mr. Justice Randall S. Bocock
Appearances:
Counsel for the Appellant:
Eric Fournie
Oleg M. Roslak
Counsel for the Respondent:
Justine Malone
____________________________________________________________________
JUDGMENT
In accordance with the Consolidated Reasons for Judgment delivered in respect of this matter along with those of Charles Ross and John W. Martiniuk, the Appeal of Susanne E. Greenhalgh with respect to a reassessment made under the Income Tax Act (the “Act”) for the 2000 taxation year is allowed on the basis that the Minister of National Revenue (“the Minister”) has not proven on balance that a misrepresentation was made by the Appellant in the context of information supplied under the Act relevant to the taxation year reassessed.
The reassessment is referred back to the Minister for reconsideration and reassessment.
Costs are awarded to the Appellant.
Signed at Ottawa, Ontario, this 23rd day of October 2013.
“R.S. Bocock”
Bocock J.
Docket: 2010-1475(IT)G
BETWEEN:
JOHN W. MARTINIUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Evidence heard on October 15 and 16, 2012, at Toronto, Ontario
Argument heard January 28, 2013, at Toronto, Ontario
Before: The Honourable Mr. Justice Randall S. Bocock
Appearances:
Counsel for the Appellant:
Eric Fournie
Oleg M. Roslak
Counsel for the Respondent:
Justine Malone
____________________________________________________________________
JUDGMENT
In accordance with the Consolidated Reasons for Judgment delivered in respect of this matter along with those of Charles Ross and Susanne E. Greenhalgh, the Appeal of John W. Martiniuk with respect to a reassessment made under the Income Tax Act (the “Act”) for the 2000 taxation year is allowed on the basis that the Minister of National Revenue (“the Minister”) has not proven on balance that a misrepresentation was made by the Appellant in the context of information supplied under the Act relevant to the taxation year reassessed.
The reassessment is referred back to the Minister for reconsideration and reassessment.
Costs are awarded to the Appellant.
Signed at Ottawa, Ontario, this 23rd day of October 2013.
“R.S. Bocock”
Bocock J.
Citation: 2013 TCC 333
Date: 20131023
Docket: 2010-1473(IT)G
BETWEEN:
CHARLES ROSS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2010-1474(IT)G
AND BETWEEN:
SUSANNE E. GREENHALGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2010-1475(IT)G
AND BETWEEN:
JOHN W. MARTINIUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
CONSOLIDATED REASONS FOR JUDGMENT
Bocock J.
I. Introduction and Partial Agreed Facts
a) Background
[1] Each Appeal involves an Appellant who, after working some three decades, retired from a public service. At the time of retirement, each was a contributing member of either the Ontario Municipal Employees Retirement System (“OMERS”) or the Ontario Teachers’ Pension Plan (the “Teachers’ Plan”). Following professional advice regarding pension planning, business ventures and retirement, each Appellant incorporated a personally owned limited liability company. Each respective company received the individual’s commuted pension plan benefits as a transfer under section 147.3 of the Income Tax Act (“Act”). In each case, the Appellant was the only member of the plan and each also received a surplus distribution from the plan pursuant to the requisite actuarial opinion. The Minister of National Revenue (“the Minister”) eventually revoked each Appellant’s own plan. The Minister asserts that the tax immune pension funds reverted into income retroactively in the year each plan was otherwise created through the combined effect of subsections 56(1), 56(2) and Regulation 8502 of the Act. Each Appellant was then reassessed to include such income in the taxation year in which each personal pension plan was registered. Although not relevant to the matters before this Court, collateral judicial review applications were launched challenging the Minister’s revocation decisions and the applications were dismissed in the case of each Appellant.
b) Procedure at Hearing
[2] The foregoing Appeals were not heard on a consolidated basis, but were heard one immediately after the other. Although they were not heard on the basis of common facts, there are certain facts which are materially common to each. The legal issues were sufficiently common to the Appeals to justify these consolidated reasons for judgment. However, the reasons, where warranted, identify the different facts among each of the otherwise completely unrelated and unassociated Appellants.
II. Three Appeals – Similar, but Not Identical
a) Common Basis for Reassessment
[3] In each case the reassessments were outside the normal statutory period for reassessment. In each case, the Minister alleged misrepresentation attributable to neglect, carelessness or wilful default in supplying information under the Act. The Minister contends these misrepresentations bring the reassessments within the ambit of subparagraph 152(4)(a)(i) of the Act and permits reassessment beyond the normal assessment period.
[4] The Minister’s position is that misrepresentations were made in the course of the supply by each Appellant or their advisors of information relating to the registration and audit of the plan: as to the primary purpose of the plan, the level of remuneration and the employment relationship of each Appellant with their plan administrator (the limited company).
[5] The Minister contends that the misrepresentations had a causal relationship with the registration of the plans in the first instance. This initial registration of the plans precluded inclusion into income of the transferred assets at the time of transfer and during the registration period. The misrepresentations supported the plan registration and shielded each Appellant from tax otherwise payable. Respondent’s counsel summarized the issue as to whether each Appellant “misrepresented to CRA facts upon which the registration of the plans rested and gave untrue, misleading or inaccurate responses to questions from CRA regarding those same facts.” (Respondent’s written submissions at paragraph 2).
b) Distinguishing Facts
[6] The specific facts regarding the alleged misrepresentations (the “Misrepresentation Issue”) in each matter are different. Therefore, the following facts relevant to the Misrepresentation Issue, as among each Appeal, are individually summarized as follows.
(i) Ross Appeal
A. Agreed Facts
[7] Mr. Ross was a police officer of 28 years when he retired and transferred the commuted value of his OMERS pension, $674,513.00, to Jordan Financial Inc. (“JFI”). JFI administered the new pension plan (the “JFI Plan”) registered effective November 1, 2000 (“Registration Date”), in respect of which Mr. Ross was the sole member. Ultimately the JFI Plan was revoked on May 9, 2008 retroactively to the Registration Date.
B. Testimony at Trial
[8] In providing evidence at trial surrounding the Misrepresentation Issue, Mr. Ross testified forthrightly and credibly. Factually, Mr. Ross had no intention to cease working at the time of retirement from policing. He avidly sought to become a mutual fund advisor. This evidence is relevant to the determination of the primary purpose, status of employment and expectation of salary in the new endeavour.
[9] His new endeavour would be as an employee of Jordan Financial Inc. (“JFI”), which in turn would contract its services with a local mutual fund investment brokerage. Coincidentally, Mr. Ross would market financial plans for retiring police officers and firefighters not unlike his own. He laid out a business plan, promoted the structures and ultimately became a registered mutual fund advisor. He transferred the sum of $754,513.00 being the committed value of his pension benefits from OMERS to the JFI Plan. Regrettably, the business, like any number of other new ventures, was not successful.
[10] To the issue of primary purpose, the Canada Revenue Agency (“CRA”) required Mr. Ross to estimate his expected annual income, describe his relationship with JFI and the nature of the business.
[11] The representations within a letter dated December 28, 2000 stated JFI would enter into various business relationships in order to generate profits whereby Mr. Ross would be paid expected annual earnings of not less than $66,500.00 (being an approximation of his final year’s salary as a police officer). The application also identified the expected difficulty of projecting revenue which would determine salary, but since this was a requirement of the CRA, Mr. Ross, nonetheless, attempted to comply when establishing the JFI Plan.
[12] Subsequently and beginning in 2001, CRA began to express “concern surrounding the establishment of this plan and the potential consequences that could arise.” Some two years later, notice of an audit was delivered by the CRA. Mr. Ross, through his advisor, responded confirming Mr. Ross received salary equal to compensation received from the previous employer and advising CRA that Mr. Ross had to take an unpaid leave of absence. When provided at that time, such facts were incorrect.
[13] In 2004, an actuarial valuation dated as of January 1, 2003 was filed indicating annualized pensionable earnings of $65,000.00. This was also an incorrect statement concerning 2003. In addition, Mr. Ross testified that he did not report all of his income in his T-1 tax returns. Although he wished to receive this income in his capacity as an employee of JFI, it was instead received directly from the mutual fund dealer. Mr. Ross filed an amended tax return correcting this error. The Minister does not allege otherwise.
[14] After its audit, in November 2004 (the “2004 Preliminary Opinion”), the CRA preliminarily stated that the “primary purpose” had not been met since the JFI Plan failed to provide lifetime retirement benefits to “employee(s) in respect of their service with the employer.”
[15] Mr. Ross testified that he received a surplus payment from the JFI plan of $80,000.00 in 2001 which Mr. Ross appropriately included in income. This ultimately drew the ire of CRA, as reflected in the 2004 Preliminary Opinion in which the agency stated that the apparent purpose of the Plan was to shelter previous pension benefits in order to avoid the transfer rules and to access the funds at will. Mr. Ross testified that, although a surplus payment was received, he learned of such a mechanism during the transfer period. Factually, although an intention and plan to receive employment income from JFI existed, it was not entirely clear from the evidence that any was received by Mr. Ross in that capacity. The Responded led no contradicting evidence regarding the valuations of the surplus distributions in the JFI Plan or any of the other plans relevant to the other appeals.
(ii) Greenhalgh Appeal
A. Agreed Facts
[16] Ms. Greenhalgh was a teacher for approximately 30 years before retiring. During her employment she was a member of the Ontario Teachers’ Pension Plan (“Teachers’ Plan). She is also the only member of the Pension Plan for the presidents of 1346687 Ontario Inc. (the “1346687 Plan”). On January 20, 2000 the sum of $564,478.00 was transferred from the Ontario Teachers Superannuation Fund to the 1346687 Plan. She did not report the amount she transferred and reported a surplus payment from the 1346687 Plan in the amount of $14,478.00 on her tax return in that year.
B. Testimony at Trial
[17] Prior to retiring, Ms. Greenhalgh had a vision of entering into the craft vinegar business. She resides in the Niagara Peninsula where a proximate supply of a necessary ingredient, surplus grapes, exists.
[18] In response to promotional materials, she met with financial planners and learnt of a structure which would allow her to transfer her pension benefits to a company, develop her new business as an employee of that new company and recoup the profits in the form of income and enhanced contributions to the 1346687 Plan.
[19] The 1346687 Plan was established; Ms. Greenhalgh retired from teaching, transferred her commuted pension benefits and began her new life in the vinegar production business in October of 1999. In her application to register the 1346687 Plan, she projected income of $65,000.00 per annum which she testified she believed she could earn through dedication, effort and strategy. Instead, she ultimately reflected only three months income which she recorded as income and upon which she paid tax. As with most such entries, she could not identify these funds as having been received in the commonly understood method of cash or cheque as opposed to accrual.
[20] Within 12 months, the CRA requested evidence of a primary purpose to generate pension benefits, a bona fide employer/employee relationship and expected comparable earnings. The letter was not received by Ms. Greenhalgh, but was responded to in June, 2001 by her advisors. Although the letter contained expectational assertions, it also contained some misstatements of fact. Subsequent submissions in 2003 and 2004 also contained incorrect information regarding annualized pensionable earnings, subsequent employment status and employment income.
[21] Previously, in early 2002, Ms. Greenhalgh’s business suffered irrevocable set backs. Her husband and co-venturer in the business had a stroke, never really recovered and the two separated. Notwithstanding attempts to continue, she effectively wound the business up in early 2004, whereafter she retired and began drawing her pension benefits from the 1346687 Plan.
(iii) Martiniuk Appeal
A. Agreed Facts
[22] Mr. Martiniuk was a police officer for approximately 30 years when he retired, during which time he was a member of the OMERS. He was also the only member of the pension plan for the presidents of 1354339 Ontario Inc. doing business as Excalibur (the “Excalibur Plan”). On February 8, 2000 Mr. Martiniuk transferred $546,913.00 from the OMERS to the Excalibur Plan. He did not report the amount he transferred as income. However during 2000 Mr. Martiniuk received a series of surplus payments from the Plan in the aggregate amount of $38,881.80 which he reported in his tax return for that year.
B. Testimony at Trial
[23] In 1999, as a soon to be retired police officer, Mr. Martiniuk chose to train and ultimately become a paralegal in the area of defending Highway Traffic Act charges. In August of 1999, his advisors submitted the application to register the Excalibur Plan. As with the two other Plans, Mr. Martiniuk indicated the new entity had no earnings record and salaries would be contingent upon revenue, both items of which were then unknown. Although Mr. Martiniuk found it “ridiculous” to be asked to say with certainty what the revenue of his new company would be, he nonetheless stated strongly that it had “great” earning potential. To learn the trade, in early 2000 he shadowed a then working paralegal, opened a bank account, acquired certain assets for the purposes of undertaking the endeavour.
[24] In June 2000, CRA expressed its concerns regarding the Excalibur Plan and the consequences which could arise. Mr. Martiniuk’s advisors submitted that the earnings potential was sizeable with Mr. Martiniuk as its sole employee.
[25] Correspondence and the supply of information ensued between CRA and Mr. Martiniuk between 2002 and 2008. During that period, certain misstatements as to then current facts were made in the content of information supplied: current remuneration and plan contributions. In 2008, the Excalibur Plan was revoked and Mr. Martiniuk was reassessed in his 2000 taxation year for income equal to the value of the original assets transferred from the OMERS Plan to the Excalibur Plan.
[26] As to his business, Mr. Martiniuk pursued his new career, but experienced very slow growth. He wished to draw pension benefits, which he did in 2001, but recorded nominal income from Excalibur to himself for three months in early 2000 prior to drawing pension benefits. Ultimately, Mr. Martiniuk gave up his business and in 2005 joined the City of Durham as a provincial offences prosecutor. At that time, the assets in the Excalibur Plan were transferred and thereby returned to OMERS as trustee, from which to this day Mr. Martiniuk draws pension benefits.
III. The Issues Before The Court
a) Misrepresentation Issue
[27] The first ground upon which the Appellants pursue this Appeal is that the Respondent has not established that the information supplied by each Appellant under the Act does not in the first instance constitute a misrepresentation in the supply of information under the Act (the “Misrepresentation Issue”). This factual ground of Appeal stands quite apart from the legal issues (described below as the “Interpretation Issues”). On the Misrepresentation Issue, each Appellant’s respective facts will be determinative to any finding of this Court as to whether a “misrepresentation in supplying of information under the Act” has occurred relative to the grounds alleged.
b) Interpretation Issues
(i) “Information Supplied” relates only to Fraud
[28] Although the determination of whether a misrepresentation attributable to neglect, carelessness or wilful default has occurred depends on the factual record, the reliance by the Minister on subparagraph 152(4)(a)(i) is the common basis for reaching beyond the normal reassessment period and back to the year of registration. In the Replies, each reassessment is limited to the issue of misrepresentation in the supply of information under the Act and does not rely upon any allegation of fraud or any misrepresentation in filing the return. The relevant subparagraph permitting reassessment beyond the normal period provides as follows [emphasis added]:
152(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
[…]
[29] Central to the issue is whether misrepresentation committed solely in respect of supplying information under the Act is sufficient to allow the Minister to reopen the assessment beyond the normal reassessment period for the relevant year.
[30] In each Appeal, the parties agree that there is no misrepresentation in filing the return nor is there any fraud (in the return or in information supplied). The Appellants assert that since there was no misrepresentation contained within the return, subparagraph 152(4)(a)(i) of the Act does not permit reassessment outside the normal reassessment period (where misrepresentation in filing the return is not alleged) unless or until a taxpayer has committed “fraud in filing the return or in supplying any information under the Act.” Based upon the wording of the subparagraphs, the Appellants state that the commission of misrepresentation attributable to neglect, carelessness or wilful default as a precondition to assessment outside the normal period must have occurred in filing the return. The Appellants assert it is insufficient if misrepresentation only occurred within information supplied under the Act.
[31] The Respondent takes the position that subsection 152(4) permits reassessment outside the normal reassessment period where misrepresentation attributable to neglect, carelessness or wilful default has occurred in supplying any information under the Act. Once a taxpayer has committed such a misrepresentation, then the Minister by virtue of subparagraph 152(4)(a)(i) is permitted to reassess, and in these specific matters, require the taxpayers to include in income, in the year of the transfer (usually the year of registration), the entire amount transferred from the public pension plan to the private pension plan pursuant to the combined effect of subsections 56(1) and 56(2) and Regulation 8502 of the Act. In effect, that revocation retroactively removes the relief afforded by subsection 147.3(9) from including into income (by deeming the transfer a contribution) the transfer of assets from one registered plan to another registered plan.
[32] As regards this fraud only issue, assuming there is a primary finding of misrepresentation of information supplied under the Act; each Appellant’s case succeeds or fails on the result of the interpretation of this issue, subject only to the issue below.
(ii) Timing and Transfer Issues
[33] A separate issue exists in relation to retroactivity and timing of the transfer made pursuant to subsection 147.3(9) of the Act which provides as follows:
147.3(9) Where an amount is transferred in accordance with any of subsections 147.3(1) to (8),
(a) the amount shall not, by reason only of that transfer, be included by reason of subparagraph 56(1)(a)(i) in computing the income of any taxpayer; and
(b) no deduction may be made under any provision of this Act in respect of the amount in computing the income of any taxpayer.
[34] Each Appellant argues that at the time of the transfer the plan was registered and therefore any transfer is not taxable during that year. The retroactive effect of revocation of the plan affects only the plan and subsequent returns the pension plan and taxpayer must file. Each Appellant argues that he or she is entitled to have his or her income assessed on the basis of the facts as they existed at the time that each individual tax return was filed (“Timing Issue”).
[35] As a second alternative argument within the context of whether an amount was received, Appellants’ counsel submits that the transferred funds, even after revocation of the plans, were neither directly destined to, nor permitted to be held by, the Appellants. Although the transferred property was effected by the trustee, pursuant to the direction of the taxpayer, such transfer was made directly to a substitute plan with a different trustee, but for the same taxpayer/beneficial owner. This prevented the application of the constructive receipt concept contained with subsection 56(2) of the Act. Accordingly, the taxpayer/beneficial owner was not at that time seized of any then current entitlement to receive those funds given the prohibition under the terms of the trust agreement. The terms prevented the benefits from being paid to the taxpayer, save and except in accordance with the terms of the pension plan and relevant pension legislation (the “Transfer Issue”). It is upon the occurrence of this permitted payment that each Appellant would become liable for tax under subsection 56(2).
IV. Analysis
a) Misrepresentation Issue “Supplying any Information” under the Act
[36] In respect of asserting a misrepresentation in supplying any information of the Act, different factual assessments and assertions were made by the Minister in respect of each of the three Appeals.
[37] It is established law that the Respondent must prove that each Appellant, or his or her advisors, made misrepresentations to the Minister in accordance with those pleaded in the Reply relevant to “facts upon which the registration rested.”
(i) Ross Appeal
[38] In the Ross Appeal, subparagraphs 11(a), (b) and (c) and (d) of the Reply provide the basis for the allegations of misrepresentations, namely:
11. In determining that the appellant made misrepresentations attributable to neglect, carelessness or wilful default in filing his return or in supplying information under the Act, the Minister relied on the following facts:
a) The appellant was advised by the Canada Revenue Agency (“CRA”) as early as at the time of the registration of the Plan that its primary purpose may not be compliant with paragraph 8502(a) of the Regulations and that the Plan may be in a revocable position.
b) In the course of the audit of the Plan, the appellant made multiple misrepresentations to the CRA in respect of his status as an employee of Jordan Financial Limited and the purpose of the Plan.
c) The appellant misrepresented to the CRA the nature of his employment relationship with Jordan Financial Limited and the amount of employment remuneration received or to be received by Jordan Financial Limited.
d) The appellant misrepresented to the CRA the primary purpose of the Plan when he stated that its primary purpose was to provide lifetime retirement benefits to him in respect of his services as an employee.
[39] Counsel mutually agree these paragraphs embody the three concepts of primary purpose, employee status and remuneration.
[40] Appellant’s counsel made nuanced reference to Mr. Ross being unaware of certain CRA requests or assertions and of his advisor’s responses. The Court does not accept such an allusion as a softening agent with respect to any misrepresentation made. Subsection 152(4) is clear on this point. To the extent Mr. Ross hired an advisor and such advisor provided information in Mr. Ross’ name in furtherance of any retainer, then Mr. Ross must live with same to the extent misrepresentations were made on his own behalf and not on behalf of the plan or any other entity. This conclusion also holds for the other Appellants in relation to any similar argument.
[41] With respect to the allegation of misrepresentation on primary purpose, reference must be had to information submitted and Mr. Ross’ business intentions, both at the time of initial registration and during the audit process in respect of the facts upon which the registration was originally based.
[42] Since the Respondent bears the onus on this issue, it must establish a misrepresentation as to “primary” purpose: that Mr. Ross made misrepresentations by providing or withholding information concerning contrary intention or actions relevant to primarily providing lifetime retirement benefits as defined in Regulations 8502 and 8504 (the “Lifetime Benefit Purpose”).
[43] Evidence exists that other purposes, either directly referenced or subsequently undertaken existed: the ability to devolve residual pension benefits to his children upon death, the ability to pay surplus benefits, the ability to domicile all pension benefits in one vehicle and the ability to ultimately pay pension benefits through a more proximate plan. Mr. Ross recognized each of these possibilities and acknowledged them, along with the Minister, as goals or purposes. The question remains however: has the Minister introduced evidence as a misrepresentation which elevates any one of these purposes to a “primary purpose” which topples the Lifetime Benefit Purpose from the highest pedestal?
[44] The Court is not satisfied that the presence of the purposes related to surplus benefit distribution and succession benefits have done so. The surplus benefit distribution is allowed at law and has occurred in many registered pension plans, including potentially the OMERS plan from which the commuted benefits were initially transferred. It cannot be suggested that such a distribution is supercedeous to the primary purpose, when the very calculation undertaken to determine whether a surplus distribution may be made is whether sufficient assets will remain to satisfy the Lifetime Benefits Purpose. Not dissimilarly, succession planning with respect to the assets is completely compatible with the Lifetime Benefit Purpose, since succession rights only become choate upon the pensioner’s death, after which time the Lifetime Benefit Purpose has logically expired. These disclosed facts, when coupled with the sincere and definitive testimony of Mr. Ross that his pension and its goal of a Lifetime Benefit Purpose were not only primary, but paramount, shows that the primary purpose (albeit coupled with other subordinate purposes), remained the provision of lifetime retirement benefits to Mr. Ross in respect of his service as an employee.
[45] The Minister’s reasonable conclusions (as held on judicial review) related to these other purposes, while relevant to the decision regarding the revocation of the JFI Plan, are neither determinative to nor binding on the issue before this Court as to whether misrepresentations were made to permit reassessment outside the normal period.
[46] As to remuneration and employee status, the Respondent asserts that the comparatively small income generated by JFI and paid to Mr. Ross, the lack of long term existance of a business and the non-existing expressed leave of absence constitute misrepresentations of his status as employee and level of remuneration.
[47] Aside from the plain fact that the Minister was never confused by any such assertions, the question remains as to whether these factual references can constitute misrepresentations at all in the context of information supplied under the Act relevant to the 2001 registration and the “facts upon which the registration rested.”
[48] The comparatively small income generated and the short life of the business relate to the fact that the business failed. This fact was not misrepresented, nor was the Minister confused. There were reasons for its failure -- sluggish financial markets after the 9/11 attacks, the delay in Mr. Ross’ accreditation or lack of attractiveness of the financial products he attempted to sell – but none amount to a misrepresentation as to the reasonably held belief regarding Mr. Ross’ projected income. Factually, based upon Mr. Ross’ evidence and the Minister’s absence of evidence suggesting otherwise, it was reasonable for Mr. Ross to conclude that his remuneration would approximate his previous income if the business were successful. The Minister has not asserted she did not know of the embryonic nature of the enterprise. Instead, the JFI Plan was registered on the basis of both parties understanding the inherent business risk. As with each Appellant, the Minister, not the Appellant, chose to certify the JFI Plan in the company’s start-up phase. Similarly, the Minister chose to delay revocation and reassessment beyond the normal assessment period.
[49] Moreover, on the basis of Taylor v Minister of National Revenue, 88 DTC 1571, Justice Rip, as he then was, concluded that the receipt of remuneration is not essential to the finding at law that an officer is an employee. Additionally, in the present case, Mr. Ross on balance likely did receive a salary and, if so, the determination by the Federal Court of Appeal in Scott v Canada, [1994] FCJ No. 3 (QL), would not be necessary. Mr. Ross was an employee within the ordinary and legal sense of the word based upon the facts before the Court and his unshakeable reasonably held belief.
[50] As to employee status, Mr. Ross was an employee of the enterprise, likely earned and was allocated T-4 income and certainly accrued it and paid tax on it. This subsequent affirming conduct, while not to the extent of his expectations, or to the Minister’s for the matter, demonstrated he was an employee of the enterprise within the ordinary sense and meaning of the words. The proffered “window dressing” argument is relevant to the Minister’s decision to revoke the registration not to the factual issue of whether misrepresentation has occurred in connection with that fact. As to the factual error regarding the leave of absence, the Minister was not in the least misled by it, nor frankly at the stage it arose did it assuage, dissuade, expedite or delay the Minister’s audit, conclusions, revocation or reassessment. It was simply an incorrect statement and not germane to the onus the Minister has to show a misrepresentation surrounding remuneration or status of relationship in information supplied relevant to the basis for the registration of the JFI Plan and the ability to reassess in the 2001 taxation year. This is demonstrated by the complete non-effect it had on the process, arising when it did, in 2003.
[51] As to the issue of reasonableness of belief and the clearly differing view, interpretation and emphasis placed by each of Mr. Ross and the Minister on the issue of employment status and expectation of comparable income, the Court references Justice Lamarre in the case of Petric v Canada, 2006 TCC 306, [2006] TCJ No. 230 (QL). Although the matters before the Court in Petric dealt with fair market value rather than employment status and projected income, the following conclusions are helpful in describing the degree of ministerial reliance upon the alleged misrepresentation. Specifically at paragraph 38 and a portion of paragraph 40 as follows:
38 […] The matter of fair market value is a controversial issue, to be settled on the basis of the interpretation of the facts in evidence, as is the question of whether proceeds of disposition should be characterized as income or as a capital gain (Regina Shoppers Mall Limited) or of whether corporations are associated (1056 Enterprises Ltd.). The mathematical error in Nesbitt, by contrast, is a clear-cut issue, which even the taxpayer in that case conceded to be non-controversial.
40 […] Although fair market value is ultimately a question of fact to be resolved by the trier of fact, it is mostly a question of opinion answered by analysing different methodological approaches. Certainly the Minister is entitled to disagree with a taxpayer’s view of fair market value and can reassess, within the limitation period, on the basis of his own evaluation. However, where the issue is whether the Minister should be allowed the benefit of an exception to the application of the limitation period, it must be shown that the taxpayer made a misrepresentation in filing his or its tax return. In the case at bar, I am of the view that unless it can be said that the appellants’ view of fair market value was so unreasonable that it could not have been honestly held, there was no real misstatement. […] Besides, even if the Minister was of the opinion that there was misrepresentation, the fact is that he did not rely on the misstatement as he obtained his own appraisal, knowing of the existence of the emphyteutic lease, and even reassessed the appellants on the basis of that appraisal in 2000, within the limitation period. At that point, there was no further reliance on any representation made by the appellants in filing their tax returns.
[52] While Mr. Ross was not ultimately correct as to the level of comparable remuneration he obtained, the longevity of his tenure as an employee or the future accretions to the JFI Plan of pension benefits, his view in 2000 and 2001 was sufficiently bona fide when compared to the evidence which must be tendered by the Minister to prove misrepresentation in information supplied relevant to that period and the “facts upon which the registration rested.” Information supplied in 2003 about income in 2003 was incorrect, but unless it can be said that Mr. Ross’ view of the primary purpose, his employment status and expected income at the time of, and as the basis for, registration could not be honestly held during the time such statements were relevant, then there is no material misrepresentation relative to the return or, as is relevant in this matter, the information supplied under the Act relative to primary purpose, remuneration and employee status.
[53] Logically and legally, one might ask why should any misrepresentation in information supplied be tethered temporally to the registration of the JFI Plan. Logically, just as a 2003 misrepresentation on a return cannot reopen a 2001 tax return (with certain exceptions), information supplied, dated and reflective of a 2003 state of affairs should not impact, as misrepresentations, the registration process where the misrepresentations are otherwise unrelated in substance and time to the “facts upon which the registration rested.” Legally, the 2001 tax year in question is outside the normal reassessment period. To allow the Minister to utilize information supplied, dated and reflective of a 2003 state of affairs (as a misrepresentation) where the misrepresentation is not contrary to the “facts upon which the registration rested” would enhance reassessment rights outside the normal reassessment period beyond those afforded the Minister where a 2003 return contained a then current misrepresentation, but a previous year, which contained none, is beyond the normal reassessment period.
[54] Subsection 152(4.01) of the Act [with emphasis added] likely provides some instruction in this regard.
152(4.01) Notwithstanding subsections (4) and (5), an assessment, reassessment or additional assessment to which paragraph (4)(a), (b) or (c) applies in respect of a taxpayer for a taxation year may be made after the taxpayer’s normal reassessment period in respect of the year to the extent that, but only to the extent that, it can reasonably be regarded as relating to,
(a) where paragraph 152(4)(a) applies to the assessment, reassessment or additional assessment,
(i) any misrepresentation made by the taxpayer or a person who filed the taxpayer’s return of income for the year that is attributable to neglect, carelessness or wilful default or any fraud committed by the taxpayer or that person in filing the return or supplying any information under this Act, or
(ii) a matter specified in a waiver filed with the Minister in respect of the year; and
[55] In Hans v Canada, 2003 TCC 576, 2003 DTC 1065 at paragraph 8, Justice Bowie expands, by analogy, upon this point;
8 In my view, the approach that was taken by Mr. Mutch and Mr. Bozyk does not give proper effect to subparagraph 152(4.01)(a)(i) of the Act. Generally, a taxpayer becomes immune to reassessment by the Minister for any taxation year when three years have passed since the initial assessment for that year. Subparagraph