Trustee as Legal Owner’s Withholding Responsibility under s 116(5)
Olympia Trust Company v The Queen, 2014 TCC 372
At issue was whether the trustee of self-directed RRSP’s is a purchaser of shares under subsection 116(5) of the ITA, requiring the trustee to either obtain a clearance certificate under section 116 or to withhold and remit the statutorily prescribed amount when shares are purchased from a non-resident vendor.
The court held that the trustee is, for purposes of section 116, the purchaser who acquires property, and is charged by that section with withholding and remitting or, absent a clearance certificate, being vicariously liable for the non-resident sellers tax payable.
The court reviewed the relevant provisions of the ITA, being:
- The non-resident liability to tax on dispositions of taxable Canadian property – s 116(3)
- The purchasers obligation, when purchasing taxable Canadian property from a non-resident, to withhold and remit the non-resident’s tax liability (116(5)), unless a clearance has been issued by the MNR under 116(4);
- The definition of a trust – 104(1);
- The joint and several, or solidary, liability along with the trust of the legal representative for amount payable under the ITA – 159(1);
- The obligation on the legal representative to obtain a clearance certificate from the MNR before distributing property of a trust – s 215(2);
- The personal liability of the legal representative for the amounts due under the ITA if no clearance certificate is obtained – s 215(3);
- The definition of “disposition” to include a transfer of property to a trust – 248(1); and
- The definition of “retirement savings plan” – 146(1).
The court noted that with an RRSP plan is a trust, the trustee is seized of the power to manage and dispose. The rights of enjoyment are vested in the beneficiary annuitant. Here, Olympia is legally seized, has title, and has control over the trust property.
For ITA purposes, subsection 104(1) is a supplementary and expansive definition of trust, and not a codification, as no definition of trust exists in the ITA Fraser v The Queen, 91 DTC 5123 at page 5127 as affirmed 95 DTC 5685 (FCA). However, under the RRSP regime the annuitant has not right to the specific trust assets in specie but only to the wealth value of the assets once converted to cash (para 28).
Thus, the court concluded, that the non-resident disposed title of the shares to the trustee Olympia and not to the beneficiary annuitant (para 29). Olympia, as trustee, had the power of possession, title, and management of the RRSP property, had control and possession over the monies used to make the purchase, and, in combination with the RRSP provisions of the ITA never permitting the Annuitant to become seized of the set to the extent of legal title and possession, was the only party that could be the purchaser of underlying trust property (para 30-32). Olympia was the purchaser under 116(3).
The Court referred to Prevost Car Inc v R, 2008 TCC 231, and stated that “the true owner, where no other party has material incidents of ownership, is a fortiori the beneficial owner” (para 33). This was not the fact here.
Finally, the Court held that as trustee under an RRSP plan, Olympia was also the “purchaser” who “acquired” property from a non-resident for purposes of subsection 116(5). This is independent of section 159 which deals with the personal tax liability, but rather section 116 deals with the vicarious liability of a purchaser and is both a charging provision and a collection measure (para 39-40); RCI Trust (Trustee of) v MNR, 2009 FCA 373.
– Sas Ansari, JD LLM PhD (exp)
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