Pensions Newsletter – October 2018

Welcome to the 22nd issue of the Blakes Pensions Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions and benefits and is not intended to be legal advice.

For additional information or to discuss how any aspect of these developments may affect you, please contact a member of the Blakes Pensions, Benefits & Executive Compensation group.

CANADA PENSION PLAN CONTRIBUTIONS

Freitas v. Canada, 2018 FCA 110

Mr. Terence Freitas retired as partner from Deloitte & Touche LLP (Firm) in 2007. The following year, Mr. Freitas was allocated income from the partnership as provided for in the partnership agreement. Mr. Freitas included this income in his 2008 tax return. He did not, however, make any Canadian Pension Plan (CPP) contributions.

Mr. Freitas was assessed as being liable for a CPP contribution in relation to such income after his retirement from the Firm. The assessment also included a deduction in computing his income for one-half of this amount payable and a non-refundable tax credit for the other half. Mr. Freitas submitted a T1 adjustment request form nearly four years later to request reassessment of the CPP contributions and the corresponding amounts for the deduction and non-refundable tax credit.

Upon reassessment, the Minister reversed the deductions for one-half of the CPP contribution payable and the non-refundable tax credit for the other half. However, since the reassessment was beyond the four-year limitation period, the Minister did not reverse the amount payable for the CPP contribution. As a result, Mr. Freitas was found to owe C$2,210.03.

Mr. Freitas objected to, and subsequently appealed this decision to the Tax Court of Canada (TCC). The TCC dismissed his appeal. Mr. Freitas subsequently appealed the decision to the Federal Court of Appeal (Court).

After confirming that the reassessment and objection processes were saved pursuant to subsection 152(8) of the Income Tax Act, the Court considered whether the income at issue could be considered self-employed earnings for the applicable tax year for the purposes of section 14 of the CPP. Specifically, in order for the income allocated to Mr. Freitas to be considered as his self-employed earnings, it would have to have been income from a business that was carried on by him.

The Court determined that, since Mr. Freitas had ceased to be a member of the Firm in 2007, his income from 2008 could not be considered to have been income from a business that was carried on by him. Therefore, the income that was allocated to Mr. Freitas by the Firm was not self-employed earnings for the purposes of section 14 of the CPP, as he was no longer a member of the partnership in 2008.

Accordingly, the Court allowed the appeal. It submitted the matter back to the Minister for reconsideration and reassessment on the basis that no CPP contribution was payable by Mr. Freitas in relation to the income at issue.

Federal Court of Appeal Decision

CERTIFICATION OF CLASS ACTIONS

Denluck v. The Board of Trustees for the Boilermakers' Lodge 359 Pension Plan, 2018 BCSC 1109

Mr. Grant Denluck applied to transfer the full commuted value of his pension plan. Mr. Denluck was advised that the transfer would be made in two instalments and that the second instalment would follow the first within five years. The first instalment was completed, but the second was cancelled due to ongoing solvency issues. Mr. Denluck claimed that the transfer of the full value was required pursuant to written and oral terms made by the trustees (Transfer Agreement). Mr. Denluck sought to certify a class action on behalf of all the members of the pension plan against the trustees for breach of contract. The application was allowed in part.

The court considered the requirements for certification of a class action. The court found that sections 25(2) and 25(7) of the Pension Benefits Standards Regulations and section 60(3) of the Pension Benefits Standards Act (PBSA) did not expressly prohibit making a deficiency payment if the pension plan did not have the required solvency ratio. Read together, the provisions simply required that trustees obtain consent from the Superintendent before proceeding with the payment. Therefore, it was not plain and...