BETWEEN:
and
ATTORNEY GENERAL OF CANADA
Heard at Ottawa, Ontario, on January 17, 2007.
Judgment delivered at Ottawa, Ontario, on February 5, 2007.
REASONS FOR JUDGMENT BY: PELLETIER J.A.
CONCURRED IN BY: NOËL J.A.
SEXTON J.A.
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
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:
[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:
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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
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.
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[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
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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).
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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"
J.A.
"I agree
Marc Noël J.A."
'I agree
J. Edgar Sexton J.A."
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-248-05
STYLE OF CAUSE: Suzanne Boudreau v. Minister of National Revenue, Attorney General of Canada
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: January 17, 2007
REASONS FOR JUDGMENT BY: PELLETIER J.A.
CONCURRED IN BY: NOËL J.A.
SEXTON J.A.
DATED: February 5, 2007
APPEARANCES:
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FOR THE APPLICANT (On her own behalf) |
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Ms. Justine Malone |
FOR THE RESPONDENT |
SOLICITORS OF RECORD:
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Ottawa, Ontario |
FOR THE APPLICANT (On her own behalf) |
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Mr. John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario |
FOR THE RESPONDENT |