[2013] 3 F.C.R. D-4
Income Tax
Income Calculation
Registered Retirement Savings Plans—Registered Retirement Income Funds—Appeals from Tax Court of Canada (T.C.C.) decision (2011 TCC 536) dismissing appeals from reassessments including amounts in appellants’ income under Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 146(9) or 146.3(4) on basis trust governed by appellants’ registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) having acquired shares of certain private companies; that fair market value of such shares nil in value—While conditions to be met for ss. 146(9) or 146.3(4) identical, consequences arising from application thereof very different—Under Act, s. 146(9), if RRSP funds used, amount included in income constituting difference between consideration paid for property, fair market value thereof; under s. 146.3(4), if funds in RRIF used, amount included in income constituting two times difference thereof—Main issue involving correct interpretation of ss. 146(9), 146.3(4)—Respondent claiming provisions should be interpreted, applied as read; appellants claiming provisions only applying if acquisition of property by RRSP or RRIF part of scheme devised to allow annuitant to extract funds from RRSP or RRIF without paying tax on such amounts—However, clear that subsections at issue only applying if RRSP, RRIF disposing of or acquiring property—Interpretations of subsections not discussed since RRSPs, RRIF at issue not acquiring property upon which reassessments based—Appellants, innocent victims, losing money in respective registered plans when money intended for investment unwittingly taken by third party—Persuaded to acquire shares in either Sonnum Capital Leasing Corp. (Sonnum) or Cuatro Corp. (Cuatro), two companies—Fair market value of shares of both companies nil throughout period in issue—Whether appellants’ RRSPs, RRIFs acquiring shares—T.C.C. mistaken in concluding in particular that parties agreeing that registered plans having acquired shares in question without analysing whether shares in fact acquired—First appellant (St. Arnaud), entering into share purchase agreement with Sonnum whereby Sonnum record holder of shares in itself—However, first appellant’s RRSP could not acquire shares of Sonnum under agreement since Sonnum could not hold shares in itself as prohibited by Alberta statute governing Sonnum—Apart from agreement, Sonnum shares could also not be considered to be validly issued from treasury—Shares of Sonnum, Cuatro nil at all relevant times—Relevant time under s. 146(9) meaning time property acquired—Therefore, if shares acquired by first appellant’s RRSP on date in question, fair market value thereof would be nil—Based on evidence, Sonnum never receiving money for shares on own account—Under Alberta statute governing Sonnum, share cannot be issued until consideration thereof fully paid; thus shares of Sonnum could not have been validly issued since Sonnum never receiving money—Since evidence contradicting respondent’s assumption that first appellant’s RRSP acquiring Sonnum shares, reassessment for first appellant not standing—As for second (Patenaude), third (Braun) appellants, both entering into share purchase agreement with other corporation defined as seller of Cuatro shares—Cuatro also incorporated under Albertan law—Evidence not disclosing that seller corporation in question owning any shares of Cuatro—Since person cannot sell what not owning, second, third appellants’ RRIF, RRSP could not acquire Cuatro shares from seller corporation—Given evidence that Cuatro never receiving any money various investors having paid for shares, no basis for finding that second, third appellants’ RRIF, RRSP acquiring Cuatro shares from treasury—Provision under Albertan law that shares cannot be issued until consideration fully paid also applying to Cuatro shares—Thus, respondent’s reassessment of second, third appellant not standing—Appeals allowed—Per Sharlow J.A. (concurring): Appellants’ alternative argument regarding interpretation of Act, ss. 146(9), 146.3(4) addressed—Respondent’s literal interpretation thereof rejected—Appellants arguing reasonable to infer Parliament assuming that if RRSP, RRIF authorized to dispose of property for proceeds less than fair market value or to acquire property for amount greater than fair market value, reason must be that annuitant or someone connected thereto having arranged to recover resulting loss through collateral arrangement—Appellants thus arguing interpretation of provisions necessarily subject to collateral arrangement—Appellants’ interpretation accepted—Rational basis existing for concluding that tax imposed by ss. 146(9), 146.3(4) intended to deter tax avoidance transactions—Basis favouring appellants’ proposed interpretation thereof—Therefore, ss. 146(9), 146.3(4) not applying in present case.
Braun v. Canada (A-463-11, A-464-11, A-465-11, 2013 FCA 88, Webb and Sharlow JJ.A., judgment dated March 22, 2013, 26 pp.)