SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-14-00496741-000
DATE: 20140428

RE: Christopher David Iskander, Applicant

AND:

BMO Nesbitt Burns Inc. and BMO Trust Company, Respondents

BEFORE: Matlow, J.

COUNSEL:
The Applicant, in person

Ian MacLeod, for the Respondents

HEARD: February 24 and March 6, 2014 at Toronto

ENDORSEMENT

[1] The applicant’s claim as set out in the notice of application is for the following relief:

An order directing the respondents to de-register 66,667 common shares of Dominion Voting Systems Corp. (“the shares”) from the applicant’s Registered Retirement Savings Plan (“RRSP”) account administered by the respondents, by transferring the shares, in kind, from RRSP account (number deleted) and to remit the applicable withholding tax, as per the applicant’s instructions of December 25, 2013.

[2] On April 16, 2014, I ordered that the shares be de-registered as directed by the appellant without deduction for withholding tax and stated that written reasons would follow. These are those reasons.

[3] On December 25, 2013, the applicant instructed BMO Nesbit Burns Inc. (“NBI”) to “de-register” the shares and remit the applicable withholding tax to the Canada Revenue Agency (“CRA”) on his behalf out of the cash in his account.

[4] At the same time, the applicant provided NBI with a copy of a recent offer by a third party to sell shares in the company at $.50 per share so that NBI could establish a fair value on the shares and correctly calculate the amount of tax to withhold.

[5] Dominion Voting Systems Corp. is a privately held corporation and its shares are not traded on the public market. Accordingly, it was not readily possible to ascertain their fair value on the basis of recent stock exchange trades.

[6] Notwithstanding the documentation provided by the applicant, NBI refused to de-register the shares unless the applicant would provide a letter from an officer of Dominion Voting Shares Corp. setting out the market value of the shares. The applicant subsequently informed NBI that he was not able to provide such a letter. NBI nevertheless remained firm and insisted that the applicant provide the required letter. Mired in this stalemate, the applicant turned to this Court for relief.

[7] The applicant’s agreement with the respondent, BMO Nesbitt Burns Inc. contains the following provision governing withdrawals from his RRSP.

6. Withdrawals: The Annuitant may, by written application at any time before the commencement of a retirement income, request the Trustee to pay to the Annuitant all or any part of the assets held under the Plan subject to proper charges, including income tax, and the Trustee may liquidate any investments held under the Plan to the extent deemed necessary for that purpose.

[8] It is NBI’s position that, pursuant to section 153 (1) (j) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), it was required to withhold payment from the applicant’s RRSP and remit the amount to the Receiver General on account of the applicant’s tax for the year of the de-registration. This provision reads, in part, as follows:

153. (1) Every person paying at any time in a taxation year

(j) a payment out of or under a registered retired savings plan or a plan referred to in subsection 146.3(11) as an “amended plan”,

shall deduct or withhold from the payment the amount determined in accordance with the prescribed rules and shall, at the prescribed time, remit that amount to the Receiver General on account of the payee’s tax for the year under this Part or Part XI.3, as the case may be, and, where at that prescribed time the person is a prescribed person, the remittance shall be made to the account of the Receiver General at a designated financial institution. (Emphasis added)

[9] On the first day of the hearing of this application, I asked the applicant and counsel for the respondents to refer me to the applicable prescribed rules referred to in section 153 (1) but that information was not readily available. Accordingly, I adjourned the hearing to the second day to give the applicant and counsel an opportunity to research the issue and provide the information to me. The information provided by counsel was summarized in a supplementary factum filed on behalf of the respondents that included the following:

9. Nesbitt Burns has the authority to calculate the withholding tax for payment out of an RRSP, as it is an employer within the meaning of the Income Tax Act and this payment constitutes remuneration. The definition of “remuneration” is set out in s.100(1) (i) of the Income Tax Regulations and includes any payment that is “a payment made during the lifetime of an annuitant referred to in subparagraph 146(1) of the Act under a registered retirement savings plan of that annuitant”.

10. Taken together, these provisions signify that Nesbitt Burns constitutes an employer that is paying remuneration within the meaning of the Income Tax Regulations when it is tasked with paying out under an RRSP.

11. As an “employer” within the meaning of the Income Tax Regulations, Nesbitt Burns is required to calculate, withhold and remit taxes to the Receiver General where a payment is made out of the RRSP.

12. In order to comply with its obligations under the Income Tax Act and Income Tax Regulations, it is necessary for Nesbitt Burns to determine the fair market value of the shares. It is only after this information has been acquired that that Nesbitt Burns will be in a position to determine the appropriate calculation for withholding tax, as set out in section 103 (4) of the Income Tax Regulations:

(4) Subject to subsection (5), where a lump sum payment is made by an employer to an employee who is a resident of Canada,

(a) if the payment does not exceed $5,000, the employer shall deduct or withhold therefrom, in the case of an employee who reports for work at an establishment of the employer

(i) in Quebec, 5 per cent,
(ii) in any other province, 7 per cent, or
(iii) in Canada beyond the limits of any province or outside Canada, 10 per cent,
(iv) to (xiv) [Repealed, SOR/2001-221, s. 3]

of such payment in lieu of the amount determined under section 102;

(b) if the payment exceeds $5,000 but does not exceed $15,000, the employer shall deduct or withhold therefrom, in the case of an employee who reports for work at an establishment of the employer

(i) in Quebec, 10 per cent,
(ii) in any other province, 13 per cent, or
(iii) in Canada beyond the limits of any province or outside Canada, 20 per cent,
(iv) to (xiv) [Repealed, SOR/2001-221, s. 3]

of such payment in lieu of the amount determined under section 102; and

(c) if the payment exceeds $15,000, the employer shall deduct or withhold therefrom, in the case of an employee who reports for work at an establishment of the employer

(i) in Quebec, 15 per cent,
(ii) in any other province, 20 per cent, or
(iii) in Canada beyond the limits of any province or outside Canada, 30 per cent,
(iv) to (xiv) [Repealed, SOR/2001-221, s. 3]

of such payment in lieu of the amount determined under section 102.

[10] For the sake of completeness, I have set out below, as an appendix, the entirety of Part I, Tax Deductions” of the Income Tax Regulations that addresses “tax deductions”. It includes sections 100 to 110.

[11] It is self-evident, not only from its own language but from the language of the balance of Part I, as well as from its context, that section 103.(4) has no relevance or application whatsoever to the issues raised in this application.

[12] Rather, it applies to the income tax consequences arising out of certain specified transactions between employers and employees. This application deals with a private RRSP self-administered by the applicant that is totally unrelated to any status that he has, or had, as an employee. The applicant has never been employed by either of the respondents and has never received “remuneration” from them. It may well be that “remuneration” paid by an employer into an employee’s RRSP in certain circumstances may have tax implications but this is not shown to be such a case.

[13] Accordingly, as I have not been referred to, and cannot find, any prescribed rules that would require the respondents, or either of them, to withhold any tax from the applicant’s RRSP and remit it to the Receiver General, there can be no legal requirement that they do so. It follows that the applicant is entitled to the relief granted to him.

Appendix

PART I

TAX DEDUCTIONS

Interpretation

100. (1) In this Part and in Schedule I, “employee”
     “employee” means any person receiving remuneration; (employé)

“employer”
“employer” means any person paying remuneration; (employeur)

“estimated deductions”
“estimated deductions” means, in respect of a taxation year, the total of the amounts estimated to be deductible by an employee for the year under any of paragraphs 8(1)(f), (h), (h.1), (i) and (j) of the Act and determined by the employee for the purpose of completing the form referred to in subsection 107(2); (déductions estimatives)

“exemptions”
“exemptions”[Repealed, SOR/89-508, s. 1]

“pay period”
“pay period” includes

(a) a day,
(b) a week,
(c) a two week period,
(d) a semi-monthly period,
(e) a month,
(f) a four week period,
(g) one tenth of a calendar year, or
(h) one twenty-second of a calendar year; (période de paie)

“personal credits” “personal credits” means, in respect of a particular taxation year, the greater of

(a) the amount referred to in paragraph 118(1)(c) of the Act, and
(b) the aggregate of the credits which the employee would be entitled to claim for the year under

(i) subsections 118(1), (2) and (3) of the Act if the description of A in those subsections were read as “is equal to one”,

(ii) subsections 118.3(1) and (2) of the Act if the description of A in subsection 118.3(1) of the Act were read as “is equal to one” and if subsection 118.3(1) of the Act were read without reference to paragraph (c) thereof,

(iii) subsections 118.5(1) and 118.6(2) of the Act if subsection 118.5(1) of the Act were read without reference to “the product obtained when the appropriate percentage for the year is multiplied by” and the description of A in subsection 118.6(2) of the Act were read as “is equal to one”, and after deducting from the aggregate of the amounts determined under those subsections the excess over $3,000 of the aggregate of amounts that the employee claims to expect to receive in the year on account of a scholarship, fellowship or bursary,

(iv) section 118.8 of the Act if the formula A + B - C in that section were read as (A + B) / C where
A is the value of A in that section, B is the value of B in that section, and
C is the appropriate percentage for the year.

(v) section 118.9 of the Act if the formula A - B in section 118.81 of the Act were read as
A / B
where
A is the value of A set out in that section, and
B is the appropriate percentage for the year. (crédits d’impôts personnels)

“remuneration”
“remuneration” includes any payment that is

(a) in respect of

(i) salary or wages, or
(ii) commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated (referred to as “commissions” in this Part)

paid to an officer or employee or former officer or employee,

(a.1) in respect of an employee’s gratuities required under provincial legislation to be declared to the employee’s employer,

(b) a superannuation or pension benefit (including an annuity payment made pursuant to or under a superannuation or pension fund or plan) other than a distribution

(i) that is made from a pooled registered pension plan and is not required to be included in computing a taxpayer’s income under paragraph 56(1)(z.3) of the Act, or

(ii) that subsection 147.5(14) of the Act deems to have been made,

(b.1) an amount of a distribution out of or under a retirement compensation arrangement,

(b) a retiring allowance,

(c) a death benefit,

(d) a benefit under a supplementary unemployment benefit plan,

(e) a payment under a deferred profit sharing plan or a plan referred to in section 147 of the Act as a “revoked plan”, reduced, if applicable, by amounts determined under subsections 147(10.1), (11) and (12) of the Act,

(f) a benefit under the Employment Insurance Act,

(g.1) an amount that is required by paragraph 56(1)(a.3) of the Act to be included in computing a taxpayer’s income,

(h) an amount that is required by paragraph 56(1)(r) of the Act to be included in computing a taxpayer’s income, except the portion of the amount that relates to child care expenses and tuition costs,

(i) a payment made during the lifetime of an annuitant referred to in the definition “annuitant” in subsection 146(1) of the Act out of or under a registered retirement savings plan of that annuitant, other than

(i) a periodic annuity payment, or

(ii) a payment made by a person who has reasonable grounds to believe that the payment may be deducted under subsection 146(8.2) of the Act in computing the income of any taxpayer,

(j) a payment out of or under a plan referred to in subsection 146(12) of the Act as an “amended plan” other than

(i) a periodic annuity payment, or

(ii) where paragraph 146(12)(a) of the Act applied to the plan after May 25, 1976, a payment made in a year subsequent to the year in which that paragraph applied to the plan,

(j.1) a payment made during the lifetime of an annuitant referred to in the definition “annuitant” in subsection 146.3(1) of the Act under a registered retirement income fund of that annuitant, other than a particular payment to the extent that

(i) the particular payment is in respect of the minimum amount (in this paragraph having the meaning assigned by subsection 146.3(1) of the Act) under the fund for a year, or

(ii) where the fund governs a trust, the particular payment would be in respect of the minimum amount under the fund for a year if each amount that, at the beginning of the year, is scheduled to be paid after the time of the particular payment and in the year to the trust under an annuity contract that is held by the trust both at the beginning of the year and at the time of the particular payment, is paid to the trust in the year,

(k) a benefit described in section 5502,

(l) an amount as, on account or in lieu of payment of, or in satisfaction of, proceeds of the surrender, cancellation or redemption of an income-averaging annuity contract;

(m) in respect of an amount that can reasonably be regarded as having been received, in whole or in part, as consideration or partial consideration for entering into a contract of service, where the service is to be performed in Canada, or for an undertaking not to enter into such a contract with another party; or

(n) a payment out of a registered education savings plan other than

(i) a refund of payments,

(ii) an educational assistance payment, or

(iv) an amount, up to $50,000, of an accumulated income payment that is made to a subscriber, as defined in subsection 204.94(1) of the Act, or if there is no subscriber at that time, that is made to a person that has been a spouse or common-law partner of an individual who was a subscriber, if

(A) that amount is transferred to an RRSP in which the annuitant is either the recipient of the payment or the recipient’s spouse or common-law partner, and

(B) it is reasonable for the person making the payment to believe that that amount is deductible for the year by the recipient of the payment within the limits provided for in subsection 146(5) or (5.1) of the Act; (rémunération)

“total remuneration” “total remuneration” means, in respect of a taxation year, the total of all amounts each of which is an amount referred to in paragraph (a) or (a.1) of the definition “remuneration”. (rémunération totale)

(2) Where the amount of any credit referred to in paragraph (a) or (b) of the definition “personal credits” in subsection (1) is subject to an annual adjustment under section 117.1 of the Act, such amount shall, in a particular taxation year, be subject to that annual adjustment.

(3) For the purposes of this Part, where an employer deducts or withholds from a payment of remuneration to an employee one or more amounts each of which is

(a) a contribution to or under a pooled registered pension plan, a registered pension plan or a specified pension plan, or

(b) dues described in subparagraph 8(1)(i)(iv), (v) or (vi) of the Act paid on account of the employee,

(b.1) a contribution by the employee under subparagraph 8(1)(m.2) of the Act,

(a) a premium under a registered retirement savings plan, to the extent that the employer believes on reasonable grounds that the premium is deductible under paragraph 60(j.1) or subsection 146(5) or (5.1) of the Act in computing the employee’s income for the taxation year in which the payment of remuneration is made, or

(b) an amount that is deductible under paragraph 60(b) of the Act,

the balance remaining after deducting or withholding this amount, as the case may be, shall be deemed to be the amount of that payment of remuneration.

Matlow, J.

Date: April 28, 2014