http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143740/index.do
Chaisson v. The Queen (April 21, 2016 – 2016 TCC 95, Favreau J.).
Précis: This decision involves a variation of the “RRSP strip” schemes that have appeared in recent years. Ms. Chaisson transferred funds ($117,000) from her RRSP to new self-administered RRSP which then purchased shares of a Canadian company, Landmark Capital Partners Ltd. (“Landmark Canada) which, in turn, was heavily invested (93%) in a Barbados company, Landmark Capital Inc. (“Landmark Barbados”). CRA did not attack the transaction as tax avoidance; rather they simply attacked it as involving the purchase of a non-qualified investment by Ms. Chaisson’s RRSP. The Court agreed with CRA that the shares of Landmark Canada were a non-qualified investment since they derived virtually all of their value from the investment in Landmark Barbados. As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
Decision: The facts of this case were clear cut:
[53] As of December 31, 2001, the balance sheets of Landmark showed that the shares of Landmark Barbados represented over ninety-three percent of its assets. The principal purpose of the business carried on by Landmark in Canada was to derive income from property or from deriving gains from disposition of property. This means that Landmark did not use all or substantially all of its property in a “qualifying active business’ on December 31, 2001.
[54] As an “eligible corporation” pursuant to subsection 5100(1) of the Regulations includes a “taxable Canadian corporation” where all or substantially all of its property is shares or debts issued by related eligible corporations, it is necessary to determine if the shares of Landmark Barbados were shares of a related eligible corporation.
[55] As Landmark Capital Inc. was incorporated under the laws of Barbados, has received an International Business Licence from the Government of Barbados and has filed its tax returns for the 2001 and 2002 taxation years reporting that it was a resident of Barbados, it did not meet the definition of a “Canadian corporation” and, therefore, it was not an “eligible corporation”, as defined in subsection 5100(1) of the Regulations, and its shares were not shares of a related eligible corporation.
[56] Based on the foregoing reasoning, Class B shares of Landmark were not a qualified investment for registered retirement savings plans for 2001 and the analysis made for 2001 is also applicable to 2002. Mrs. Chiasson’s Plan acquired the Class B shares of Landmark a few days after the beginning of 2002. Based on the reconstructed balance sheet of Landmark as of January 15, 2002, the company had 91% of its assets invested in shares of Landmark Barbados which was not a related eligible corporation in 2002 for the reasons given in paragraph 55 above. Furthermore, Landmark did not use all or substantially all of its assets in a “qualifying active business” in 2002.
[57] Similarly, the Class B shares of Landmark did not constitute a qualified investment pursuant to subsection 4900(12) of the Regulations when they were acquired or on December 31, 2001 as they were not shares of a small business corporation. The fair market value of, all or substantially all, of its assets were not used principally in an active business carried on primarily in Canada. On December 31, 2001 and on January 4, 2002, more than 90% of the fair market value of its assets was shares in Landmark Barbados, cash and marketable securities. In these circumstances, the business carried on by Landmark was a “specified investment business”, the principal purpose of which was to derive income from property without having more than five full-time employees.
As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
Comment: This structure was promoted by “the Institute of Global Prosperity (“Global Prosperity’) and associated organizations, such as the Omnicorp Financial Group of Companies owned either wholly or in part by Nelson Bayford” [para. 3 of Reasons, citing Crown’s assumptions, para. dd)]. The same promoters were involved in another recent Tax Court decision blogged earlier on this site, Baker v. The Queen, holding that a similar transaction was an RRSP strip: http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/72238/index.do