http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/126915/index.do
Olympia Trust Company v. Canada (December 4, 2015 – 2015 FCA 279, Ryer (author), Boivin, Rennie JJ.A. ).
Précis: This was an appeal from a decision of the Tax Court blogged earlier on this sight. The Tax Court decision was on an interlocutory motion pursuant to Rule 58 of the Tax Court of Canada Rules (General Procedure). The issue was whether the trustee of several self-administered RRSPs was the “purchaser” (for the purposes of subsection 116(5) of the Income Tax Act (the “ITA”)) of certain private company shares acquired by the RRSPs from non-residents. As “purchaser” the trustee would be potentially liable for any unremitted withholding taxes (none had been remitted in respect of the transactions).
The Court of Appeal upheld the decision of the Tax Court holding that the trustee was indeed the purchaser of the shares.
Decision: The Court of Appeal put the issue succinctly:
[2] The Judge was presented with an application for the determination of a question of mixed fact and law, pursuant to Rule 58 of the Tax Court of Canada Rules (General Procedure) S.O.R./90-688a (the “Rule 58 Question”). The Rule 58 Question reads as follows:
Whether, on the accepted facts in this matter, as outlined in Exhibit “A” to the Amended Notice of Motion, or such other facts as the Court may accept or direct in the circumstances, Olympia Trust Company (“Olympia Trust”) is the purchaser [as defined in subsection 116(3) of the Income Tax Act (ITA)] under subsection 116(5) of the ITA.
[3] The Rule 58 Question arose out of a number of assessments (the “Assessments”) made by the Minister of National Revenue (the “Minister”) against Olympia Trust Company (“Olympia” or the “Appellant”), pursuant to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “Act”), for its 2001, 2002, 2003 and 2004 taxation years (the “Years in Dispute”). All statutory references shall be to the corresponding provisions of the Act that were in force in the Years in Dispute.
[4] The Judge answered the Rule 58 Question in the affirmative. For the reasons that follow, it is my view that he made no reviewable error in doing so.
The Court rejected the argument that the Tax Court Judge erred in construing the purchase and sale agreement for the shares:
[48] In this regard, the Appellant asserted at the hearing that the Judge erred in law in his interpretation of the Share Purchase Agreements by looking beyond the specific words of those agreements.
[49] While this argument is not found in the Appellant's factum, it is nonetheless readily disposed of.
[50] First, in interpreting the Share Purchase Agreements, it was permissible for the Judge to consider the circumstances that surrounded those agreements. Of particular relevance in this regard is the location of the agreements in the context of the RRSP regime under the Act. Each Share Purchase Agreement refers to Olympia as trustee under an RRSP. Moreover, the facts presented to the Judge for the purposes of the Rule 58 Question contain numerous references to RRSPs.
[51] Secondly, the Judge referred to the additional documents that were related to the Share Purchase Agreements. Of these, the Directions are significant in that they demonstrate how and by whom the purchase price was to be paid under each of those agreements. Reference to the Directions was required because, as acknowledged by counsel for the Appellant, none of those agreements contain any provision stipulating how the purchase price of the Private Company Shares was to be paid.
[52] Thus, I conclude that the Judge committed no error of law in his approach to the interpretation of the Share Purchase Agreements.
The Court found that the Directions signed by the annuitants were important indicia of what actually transpired:
[56] The Directions that were before the Judge contradict the contractual stipulations relied upon by the Appellant. Under the Directions that the Annuitants gave to Olympia, the Annuitants stipulated that they were providing documents to Olympia that are "… required by your firm to complete a purchase of shares of a privately held corporation by my RRSP account." The Directions go on to admonish Olympia to "… proceed to transfer and close on the purchase agreement with all reasonable haste."
[57] These stipulations in the Directions support the Judge's conclusion that the Annuitants participated in the Share Purchase Agreements in a representative capacity and not as purchasers of the Private Company Shares in their own right. In addition, if the Annuitants had been the Section 116 Purchasers of such shares, then RRSP withdrawals would have occurred and Olympia would have been obligated to make the tax withholdings contemplated by paragraph 153(1)(j). The fact that no such withholdings were made by Olympia provides additional support for the Judge's conclusion.
The Tax Court Judge’s conclusion was also supported by the non-commercial nature of the transactions:
[75] It is noteworthy that Olympia obtained indemnifications from the Annuitants to protect it from any taxes, penalties and other costs resulting from the implementation of such purchases in accordance with instructions from the Annuitants. Whether such indemnifications led Olympia to permit the transactions to be implemented in such a non-commercial fashion is a matter that is not before us in this appeal.
[76] For the sake of completeness, I note that in its factum the Appellant asserted that the RRSP Trusts were "bare trusts" with the result that they should essentially be ignored for the purposes of the Act. In my view, this assertion is unpersuasive. First, Olympia as trustee of the RRSP Trusts has meaningful powers and responsibilities. In particular, it is clear that while the Annuitants have "self-direction" rights, Olympia has the power to countermand directions to sell trust property. In addition, Olympia is responsible for tax reporting and withholding obligations in respect of such trusts. Finally, each RRSP Trust has a beneficiary other than its Annuitant. These factors are sufficient to negate the "bare trust" assertion.
As a result the taxpayer’s appeal was dismissed with costs in the cause (presumably because this was, technically, an appeal of an interlocutory order).