Receipting by Canadian Registered Charities
June 14, 2013
New CRA Application for “Municipal or public bodies performing a function of government in Canada”
The CRA has just released its new process for recognizing “municipal or public bodies performing a function of government in Canada”. This will be of particular interest to Aboriginal bands, school boards and others who may wish to obtain this recognition as it makes them a qualified donee and therefore able to issue official donation receipts and also more easily receive funds from other Canadian charities. We hope that this new process will facilitate philanthropy in the Aboriginal space. There are probably over a thousand organizations that could one day be listed on the CRA website, which will make donations to them far simpler and easier. It is important to note that as of January 1, 2014 for a group to be recognized under the category “municipal or public bodies performing a function of government in Canada” it cannot self-assess but must be on the list. Some organizations will want to proceed quickly with the process as CRA has not set out a service standard yet and therefore it is difficult to know how long the process will take. It is also interesting to note that “...organizations that apply before January 1, 2014, and that can show that they met the requirements to be a municipal or public body performing a function of government in Canada as of January 1, 2012, will be given qualified donee status retroactive to that date.” Although a lawyer is not required to send the letter to CRA some organizations may wish to retain legal counsel to assist with this and other matters such as appropriate issuance of receipts and required books and records.
Here is the note from the Charities Directorate of CRA:
To apply for registration, an applicant should send a letter stating that it is applying for registration as a qualified donee and should include an explanation of how it meets the requirements for a municipal or public body performing a function of government in Canada. The letter and supporting documentation should be sent to the Canada Revenue Agency’s Charities Directorate at:
Canada Revenue Agency
Ottawa ON K1A 0L5
For detailed information about the criteria used by the CRA to determine whether an entity qualifies as a municipal or public body performing a function of government and the supporting documentation that must be submitted, go to Qualified Donee – Municipal or Public Body Performing a Function of Government in Canada.
In addition, the letter should be signed by at least one of the applicant’s officials and also be accompanied by:
•a complete list of the applicant’s current officials; and
•the address for the physical location of its books and records (a post office box or rural route number alone is not enough).
An applicant that meets the requirements will receive a letter confirming its registration and its name will be added to the publicly available list of qualified donees on the CRA Web site. If an applicant does not meet the requirements, it will receive a letter explaining why. An applicant that disagrees with the CRA’s decision can file an objection with the Minister of National Revenue through the CRA Appeals Branch. For more information, go to Objections below.
As of January 1, 2014, the CRA will end the interim measures put in place while the application process was being developed, which allowed the CRA to continue to recognize all municipal and public bodies under 149(1)(c) as qualified donees. As of that date, only registered municipal and public bodies included on the CRA’s list will have qualified donee status. This means that as of January 1, 2014, only those municipal and public bodies appearing on the list will have the ability to issue official donation receipts and receive gifts from registered charities. However, organizations that apply before January 1, 2014, and that can show that they met the requirements to be a municipal or public body performing a function of government in Canada as of January 1, 2012, will be given qualified donee status retroactive to that date.”
For further information from CRA see: http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/mncplpblcbds-eng.html
Here is a note from CRA in terms of the criteria that was recently posted at http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/mncplpblcbds-ltr-eng.html although at http://www.globalphilanthropy.ca (TM) we published that letter on May 12, 2013 at http://www.canadiancharitylaw.ca/index.php/blog/comments/cra_letter_on_municipal_or_public_bodies_performing_a_function_of_governmen/
“Qualified Donee – Municipal or Public Body Performing a Function of Government in Canada
March 7, 2013
Attention: Policy, Planning and Legislation Division
Qualified donee: Municipal or Public Body Performing a Function of Government in Canada
We are writing in response to your request for our views with respect to a “municipal or public body performing a function of government in Canada” pursuant to paragraph 149(1)(c) of the Income Tax Act (the “Act”). Your request has arisen due to the requirement that, as of January 1, 2012, a municipal or public body performing a function of government in Canada must apply for registration with the Canada Revenue Agency (“CRA”) in order to become or remain a qualified donee in subsection 149.1(1) of the Act.
Specifically, a municipal or public body performing a function of government in Canada that has applied to and is registered by the Minister of Revenue, is a “qualified donee” pursuant to subparagraph (a)(iii) of the definition of “qualified donee” in subsection 149.1(1) of the Act. Sections 118.1 and 110.1 of the Act provide that within specified limits, and if supported by official receipts, individual taxpayers may claim a credit against taxes payable, and corporations may claim a deduction in computing taxable income, respectively, for an eligible amount of a gift made to a “qualified donee”. The qualified donee must be shown on a list maintained and made public by the CRA. The requirement to apply for, be registered, and be maintained on a publicly available list became effective January 1, 2012.
We understand that the Charities Directorate is currently developing a process for a municipal or public body performing a function of government in Canada to apply for registration as a qualified donee and is seeking our assistance in this regard.
Municipal or public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act
The term “municipal body” is not defined in the Act. However, we consider a municipal body to have similar characteristics to a municipality. In this regard, a municipal body is typically considered to be a body established or exercising a power under a municipal act or a similar statute of a province or territory with respect to governing the affairs or purposes of a geographic area and is accountable to those governed by it.
The term “public body” is also not defined in the Act. A public body is typically a body that acquires both its existence and its authority from a statute enacted by a legislature, and whose functions and transactions are for the benefit of, and affect the whole community of, persons to which its authority extends. Generally, a public body has a governance purpose and is accountable to those governed, regulated or represented by it.
Generally, a public body is:
1. An Indian band as defined in the Indian Act with procedures to elect Chief and council.
2. Other Aboriginal governments with election procedures.
3. A body (whether incorporated or not, the members of which may be elected or appointed) established under or as a result of implementing a statute with specific authorization and duties assigned by the statute to the body to develop, administer or regulate governance functions.
Further, in our view, if a public body is incorporated, the federal government or a provincial or territorial government, or the “public” that the corporation is serving or representing should have some specific control over the actions and operation of the corporation and the corporation should be accountable to either that government or that public.
Performing a function of government in Canada
In addition to being a municipal or public body, an entity must also be performing a “function of government” in Canada in order to qualify for the exemption from tax provided by paragraph 149(1)(c) of the Act. Again, the term “function of government” is not defined in the Act and reference must be made to the ordinary usage of this term.
A government typically taxes its residents and sets laws for the orderly management of the area over which it has jurisdiction. As part of managing the area, the government provides a wide variety of services. It is important to note that any particular service provided by a government is not necessarily equivalent to a “function of government”.
In our view, a function of government generally means an activity or group of activities undertaken to meet a governance role or purpose within a geographic area. Historically, the CRA has required that to be performing a function of government an entity must have the ability and powers to govern, tax, pass by-laws and/or provide municipal- or provincial-type services to its members/citizens.
The CRA has accepted that providing a range of municipal-type services, such as water, sewage removal, the pick-up of garbage and the maintenance of infrastructure such as roads, sewers and public buildings is a function of government. Further, providing a key service traditionally offered by the provinces or territories such as social services, overseeing of the environment, health services, and education is generally considered to constitute performing a function of government. The CRA also accepts that negotiating a treaty with the federal government, or a provincial or territorial government, is a function of government.
Accordingly, performing a function of government may be demonstrated by the following:
•Laws and Taxation
◦Enacting and enforcing laws, by-laws or rules which all citizens (or, in the case of an Indian band or other Aboriginal government, all of the band’s or other Aboriginal group’s citizens or members) must follow.
◦Imposing and collecting taxes.
•In the case of an Indian band or other Aboriginal government:
◦Negotiating and implementing a treaty or self-government agreement with the Crown (e.g., a federal, provincial or territorial government), and continued administration of the agreement.
◦An Indian band has passed by-laws under both sections 81 and 83 of the Indian Act.
◦An Indian band has passed by-laws under both section 81 of the Indian Act and subsection 5(1) of the First Nations Fiscal and Statistical Management Act.
•Being responsible for and providing provincial-type services or a range of municipal-type government services as follows: ◦
◾Protection of the environment
◾Designation of park land and other special use property
◾Water treatment and delivery
◾Building of infrastructure
◾Maintenance of infrastructure (such as sewers, public buildings and maintaining and clearing of roads)
◾Fire protection services
Note that any one of these activities or services may not be sufficient for the entity to be considered a municipal or public body performing a function of government; it depends on the scope of the service or activity.
As mentioned, we would expect a municipal or public body performing a function of government in Canada to have a governance role or purpose within a geographic area.
Proposed subsection 149(11) of the Act provides that the geographical boundaries of a municipal or public body performing a function of government to be either:
“…(a) the geographical boundaries that encompass the area in respect of which an Act of Parliament or an agreement given effect by an Act of Parliament recognizes or grants to the body a power to impose taxes; or
(b) if paragraph (a) does not apply, the geographical boundaries within which that body has been authorized by the law of Canada or a province to exercise that function…”
The explanatory notes explain that proposed subsection 149(11) of the Act is added to define, for the purposes of section 149, the geographical boundaries of a municipal or public body performing a function of government in Canada. The explanatory notes state:
“For example, if a particular self-governing First Nation meets the definition of “a public body performing a function of government in Canada,” it is intended that the relevant geographic boundary would delineate the area where the self-government agreement, or the statute enacting self-government powers, provides the First Nation authority to impose direct taxes. As a second example, if a particular Indian Band meets the definition of “a public body performing a function of government in Canada,” it is intended that the geographic boundary of the Indian Band be the band’s reserves as defined in the Indian Act. Similarly, if a particular school board meets the definition of “a municipal or public body performing a function of government in Canada” it is intended that the geographic boundary of the school board be the area of jurisdiction of the board as defined by provincial legislation or regulation.”
As mentioned, your Directorate is currently developing the process for a municipal or public body performing a function of government in Canada to apply for registration as a qualified donee (the “Applicant”). You have requested assistance with respect to the documentation required of an Applicant for registration as a qualified donee.
In our view, an Applicant must clearly provide support to indicate that it is a municipal or public body performing a function of government in Canada. Presently, as there is no prescribed form to apply for registration, an Applicant should submit a letter to the CRA (Charities Directorate) and include documentation such as the following:
•Identifying information of the Applicant, i.e., name, mailing address, business number, tax services office and tax centre servicing the entity.
•A statement as to whether, to the best of the Applicant’s knowledge, the issue of whether the Applicant is a municipal or public body performing a function of government in Canada, within the meaning of paragraph 149(1)(c) of the Act, is being considered or has previously been considered by the CRA.
•If the Applicant has previously been determined by the CRA to be a municipal or public body performing a function of government in Canada, a copy of the determination letter or of the advance income tax ruling letter, or any other relevant correspondence previously issued by the CRA.
•A complete description of the Applicant. The description should include:
◦an explanation of how the Applicant was created and how it is organized (how the officials are elected or appointed);
◦the Applicant’s purpose;
◦the geographical area over which the Applicant has responsibility and authority;
◦ an explanation of the persons that the Applicant is governing and accountable to; i.e., the residents and members for which the Applicant is responsible in its authorized area; and
◦ an explanation of the responsibilities and powers of the Applicant and of the programs and services offered by the Applicant. The description of programs and services should explain what the Applicant is actually performing, not simply what it is empowered to do.
•A statement as to how the Applicant meets the criteria as a municipal or public body performing a function of government in Canada.
•An explanation of the source of revenues of the Applicant, including any funding received from other governments.
•If relevant, a description of any other activities carried on by the Applicant, such as business activities. The Applicant should also advise if any activities are carried out by a subsidiary entity(s) of the Applicant.
•Copies of supporting documents and agreements supporting the Applicant’s request as necessary. Some of these supporting documents are shown in the examples below.
•A summary of the relevant facts contained in the supporting documents and agreements.
It should be noted that the above information should not be considered an exhaustive list. Additional information may be required as each application is reviewed. In addition, all of the documentation suggested may not be necessary in every situation.
We provide the following two examples for your assistance:
Example: An Indian band that is a public body performing a function of government in Canada
Generally, the CRA has accepted that an Indian band or Indian organization that clearly provides government services and is accountable to either the federal, or a provincial or territorial government, or directly to the band members it represents, is a public body. An Indian band is considered to be performing a function of government if it demonstrates that it performs functions and provides services in a manner generally exhibited by a government.
Along with the general information described above, information and documentation that support an Indian band’s application would be:
•The fact that the Indian band is a band as defined in subsection 2(1) of the Indian Act. This information can be verified on the Aboriginal Affairs and Northern Development Canada website.
•A statement with respect to the members of the band and the reserves over which the band has responsibility, or in the case of a self-governing First Nation, the lands transferred to it pursuant to a land settlement agreement or self-government agreement.
•A description of the election procedures of the Chief and council (generally the election procedures are in accordance with the provisions of the Indian Act).
•If the Indian band has section 81 and 83 bylaws passed pursuant to the Indian Act, or section 81 of the Indian Act and section 5 of the First Nation Fiscal and Statistical Management Act, copies of the bylaws should be submitted.
•If applicable, information explaining that the Indian band is involved in the negotiation of a settlement agreement with Canada or a province or territory and will continue to be involved in the administration and implementation of the settlement agreement. This can be evidenced by documentation such as letters of intent to negotiate a treaty, information relating to the stage of the treaty negotiation, or agreements entered into relating to the implementation of taxes.
•A description of the programs and services for which the First Nation is responsible and is providing. These programs and services may be supported with a copy of agreements between Health Canada and/or Aboriginal Affairs and Northern Development Canada.
Example: Other organization that is a municipal or public body performing a function of government in Canada
Along with the general information described above, information and documentation that support an organization’s application may include:
•Creating documents, such as the Act of Parliament or an agreement given effect by Parliament, or the authority that recognizes or grants to the body the power to impose taxes, or gives power and authority to the entity to govern in a geographical area.
•Financial statements, including a statement of revenue and expenses and a statement of assets and liabilities. The statement should be descriptive of the sources of the entity’s income and the main expenditures of the entity.
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch”
June 12, 2013
FCA overturns TCC in Guindon case - reinstates third party civil penalties for charity tax scheme
The Federal Court of Appeal (FCA) has overturned a Tax Court of Canada (TCC) decision in Guindon. The FCA found that, in this case in which no notice of constitutional questions was served by Guindon, “the Tax Court did not have the jurisdiction to find that section 163.2 of the Income Tax Act creates an offence, triggering the rights under section 11 of the Charter.”
The Court notes “ Ms. Guindon is a lawyer, practising mainly in the area of family law and wills and estates. She became involved in a charitable donation scheme called “The Global Trust Charitable Donation Program.”  Ms. Guindon provided a legal opinion vouching for the scheme. She signed tax receipts on behalf of the charity. In her legal opinion, she represented that she had reviewed certain documentation. She had not. The scheme was a sham. A full account of the facts appears in the reasons of the Tax Court.” The CRA assessment of penalties of $564,747 was upheld by the FCA.
The FCA explains the background of the Third-Party Civil Penalties and discusses in detail the penalties and even responds to some academic articles on the provision. The FCA noted “ In my view, the assessment of a penalty under section 163.2 is not the equivalent of being “charged with a [criminal] offence.” Accordingly, none of the section 11 rights apply in section 163.2 proceedings. In this regard, I disagree with the Tax Court’s conclusion on this question of law.  The Income Tax Act contains a complex web of provisions constituting a discrete regulatory and administrative field of endeavour with unique characteristics. Justice Wilson of the Supreme Court of Canada described it in this way: A chief source of revenue for the federal government is the collection of income tax. The legislative scheme which has been put in place to regulate the collection of tax is the Income Tax Act. The Act requires taxpayers to file annual returns and estimate their tax payable as a result of calculations made in these returns. In essence, the system is a self-reporting and self-assessing one which depends upon the honesty and integrity of the taxpayers for its success. (R. v. McKinlay Transport Ltd.,  1 S.C.R. 627.)  The provision of accurate information that permits the proper calculation of tax is another aspect of self-compliance. This is achieved through tax returns, reports, certificates, forms and other information supplied. Timely elections, designations, reports and payments also allow for the efficient administration of the tax system.  Conduct that is antithetical to the proper functioning of this system must be deterred. Compliance and order within this self-assessment system must be maintained. This is done – in this administrative field of endeavour as in many others – through the imposition of administratively simple sanction or, as the Act calls them, penalties. Given the complexity and breadth of the discrete regulatory and administrative field of endeavour set up by the Act, the sanctions must be administratively simple.  Seen in this way, penalties under the Act are not about condemning morally blameworthy conduct or inviting societal condemnation of the conduct. They are not among the “most serious offences known to our law”: Wigglesworth, supra, at page 558. Rather, the penalties are about ensuring that this discrete regulatory and administrative field of endeavour works properly.  In my view, section 163.2 is mainly directed to ensuring the accuracy of information, honesty and integrity within the administrative system of self-assessment and reporting under the Act. The imposition of a section 163.2 penalty by way of assessment and the subsequent procedures for challenging the assessment are proceedings of an administrative nature aimed at redressing conduct antithetical to the proper functioning of the administrative system of self-assessment and reporting under the Act. Put another way, proceedings under section 163.2 aim at maintaining discipline, compliance or order within a discrete regulatory and administrative field of endeavour. They do not aim at redressing a public wrong done to society at large.”
Here is a PDF of the decision: A-459-12_20130612_Guindon_2013_FCA_153.pdf
Here are large portions of the text of the case:
Citation: 2013 FCA 153
CORAM: NOËL J.A.
HER MAJESTY THE QUEEN
Heard at Ottawa, Ontario, on June 5, 2013.
Judgment delivered at Ottawa, Ontario, on June 12, 2013.
REASONS FOR JUDGMENT BY: STRATAS J.A.
CONCURRED IN BY: NOËL J.A.
Citation: 2013 FCA 153
CORAM: NOËL J.A.
HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT
 The Crown appeals from the judgment dated October 2, 2012 of the Tax Court of Canada (per Justice Bédard): 2012 TCC 287.
 The Tax Court set aside a penalty assessed against the respondent, Ms. Guindon, under section 163.2 of the Income Tax Act, R.S.C. 1985 c. 1 (5th Supp.). The Tax Court found that section 163.2 of the Act creates an “offence” within the meaning of section 11 of the Charter. Therefore, in the section 163.2 proceedings against Ms. Guindon, she was entitled to the rights guaranteed by section 11. In this case, Ms. Guindon was not given these rights. Therefore, the Tax Court set aside the assessment.
 For the reasons set out below, the Tax Court did not have the jurisdiction to find that section 163.2 of the Income Tax Act creates an offence, triggering the rights under section 11 of the Charter. That finding would require a ruling that, as a constitutional matter, some or all of section 163.2 was invalid, inoperable or inapplicable. The jurisdiction to make that ruling is present only when a notice of constitutional question has been served. None was served.
 In this Court, as an alternative submission, Ms. Guindon pointed to some of the section 11 rights, such as the requirement that liability be demonstrated only upon proof beyond a reasonable doubt. In her view, despite the failure to serve a notice of constitutional question, she could assert some of them because they supplemented section 163.2 and did not conflict with its wording.
 For the reasons set out below, Ms. Guindon could not assert only some of the section 11 rights – either all of the section 11 rights apply, or none of them. But even if she could assert only some of them, the Wigglesworth/Martineau test for criminality has not been met – proceedings under section 163.2 are not criminal by their nature, nor do they impose true penal consequences.
 Notwithstanding its finding that the assessment against Ms. Guindon should be set aside because of non-compliance with section 11 of the Charter, the Tax Court went on to consider the correctness of the assessment. It interpreted section 163.2 in a manner favourable to Ms. Guindon. However, on the facts, even on that favourable interpretation of section 163.2, the Tax Court confirmed the correctness of the assessment. Put another way, the Tax Court would have upheld the penalty against Ms. Guindon had it not found that proceedings under section 163.2 attract the protection of section 11 of the Charter.
 In this Court, the Crown submits that the Tax Court’s interpretation of section 163.2 was incorrect. In the circumstances, we need not determine this issue: even under the interpretation of section 163.2 most favourable to Ms. Guindon, the Tax Court upheld the assessment.
 Therefore, I would allow the appeal, set aside the judgment of the Tax Court and restore the assessment against Ms. Guindon, with costs here and below.
B. The basic facts
 Ms. Guindon is a lawyer, practising mainly in the area of family law and wills and estates. She became involved in a charitable donation scheme called “The Global Trust Charitable Donation Program.”
 Ms. Guindon provided a legal opinion vouching for the scheme. She signed tax receipts on behalf of the charity. In her legal opinion, she represented that she had reviewed certain documentation. She had not. The scheme was a sham. A full account of the facts appears in the reasons of the Tax Court.
 The Minister assessed a penalty against Ms. Guindon under section 163.2 of the Act for 134 tax receipts issued to participants in the charitable donation scheme. For these receipts, she received penalties ranging from $1,000 to $25,114, on the basis that she knew, or would have known but for wilful disregard of the Income Tax Act, that the tax receipts issued and signed by her constituted false statements. These penalties totalled $564,747.
 Subsection 163.2(4) is the key provision:
(4) Every person who makes or furnishes, participates in the making of or causes another person to make or furnish a statement that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by another person (in subsections (6) and (15) referred to as the “other person”) for a purpose of this Act is liable to a penalty in respect of the false statement. (4) La personne qui fait un énoncé à une autre personne ou qui participe, consent ou acquiesce à un énoncé fait par une autre personne, ou pour son compte, (ces autres personnes étant appelées « autre personne » au présent paragraphe, aux paragraphes (5) et (6), à l’alinéa (12)c) et au paragraphe (15)) dont elle sait ou aurait vraisemblablement su, n’eût été de circonstances équivalant à une conduite coupable, qu’il constitue un faux énoncé qui pourrait être utilisé par l’autre personne, ou pour son compte, à une fin quelconque de la présente loi est passible d’une pénalité relativement au faux énoncé.
 Subsection 163.2(5) quantifies the penalty under subsection 163.2(4) as the lesser of (a) $100,000 plus the person’s gross compensation in relation to the statement, and (b) the penalty hypothetically payable by the taxpayer to which the statement relates, usually 50% of the amount of tax sought to be avoided. Ms. Guindon’s fine was based on the latter calculation, done separately for each of the 134 tax receipts.
 This penalty provision was introduced in the 1999 Federal Budget. Ever since its enactment, the Canada Revenue Agency has viewed it as imposing a civil penalty: Canada Revenue Agency, Information Circular IC 01-1, “Third-Party Civil Penalties” (September 18, 2001). However, noting the penalty’s potential scope, many outside of the Canada Revenue Agency have maintained that the penalty, in substance, is a criminal penalty as opposed to a civil penalty.
 In the Tax Court and in this Court, Ms. Guindon so maintains. She submits that if it imposes a criminal penalty, she is entitled to the rights under section 11 of the Charter. Section 11, and the rights it guarantees, are as follows:
11. Any person charged with an offence has the right
(a) to be informed without unreasonable delay of the specific offence;
(b) to be tried within a reasonable time;
(c) not to be compelled to be a witness in proceedings against that person in respect of the offence;
(d) to be presumed innocent until proven guilty according to law in a fair and public hearing by an independent and impartial tribunal;
(e) not to be denied reasonable bail without just cause;
(f) except in the case of an offence under military law tried before a military tribunal, to the benefit of trial by jury where the maximum punishment for the offence is imprisonment for five years or a more severe punishment;
(g) not to be found guilty on account of any act or omission unless, at the time of the act or omission, it constituted an offence under Canadian or international law or was criminal according to the general principles of law recognized by the community of nations;
(h) if finally acquitted of the offence, not to be tried for it again and, if finally found guilty and punished for the offence, not to be tried or punished for it again; and
(i) if found guilty of the offence and if the punishment for the offence has been varied between the time of commission and the time of sentencing, to the benefit of the lesser punishment. ...
 The full text of the portions of section 163.2 most relevant to this case is as follows:
163.2 (1) The definitions in this subsection apply in this section.
“culpable conduct” means conduct, whether an act or a failure to act, that
(a) is tantamount to intentional conduct;
(b) shows an indifference as to whether this Act is complied with; or
(c) shows a wilful, reckless or wanton disregard of the law.
“entity” includes an association, a corporation, a fund, a joint venture, an organization, a partnership, a syndicate and a trust.
“false statement” includes a statement that is misleading because of an omission from the statement.
“gross compensation” of a particular person at any time, in respect of a false statement that could be used by or on behalf of another person, means all amounts to which the particular person, or any person not dealing at arm’s length with the particular person, is entitled, either before or after that time and either absolutely or contingently, to receive or obtain in respect of the statement.
“gross entitlements” of a person at any time, in respect of a planning activity or a valuation activity of the person, means all amounts to which the person, or another person not dealing at arm’s length with the person, is entitled, either before or after that time and either absolutely or contingently, to receive or obtain in respect of the activity.
(a) to cause a subordinate to act or to omit information; and
(b) to know of, and to not make a reasonable attempt to prevent, the participation by a subordinate in an act or an omission of information.
“person” includes a partnership.
“planning activity” includes
(a) organizing or creating, or assisting in the organization or creation of, an arrangement, an entity, a plan or a scheme; and
(b) participating, directly or indirectly, in the selling of an interest in, or the promotion of, an arrangement, an entity, a plan, a property or a scheme.
“subordinate”, in respect of a particular person, includes any other person over whose activities the particular person has direction, supervision or control whether or not the other person is an employee of the particular person or of another person, except that, if the particular person is a member of a partnership, the other person is not a subordinate of the particular person solely because the particular person is a member of the partnership.
“tax benefit” means a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act.
“valuation activity” of a person means anything done by the person in determining the value of a property or a service.
(2) Every person who makes or furnishes, participates in the making of or causes another person to make or furnish a statement that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by another person (in subsections (6) and (15) referred to as the “other person”) for a purpose of this Act is liable to a penalty in respect of the false statement.
(3) The penalty to which a person is liable under subsection (2) in respect of a false statement is
(a) where the statement is made in the course of a planning activity or a valuation activity, the greater of $1,000 and the total of the person’s gross entitlements, at the time at which the notice of assessment of the penalty is sent to the person, in respect of the planning activity and the valuation activity; and
(b) in any other case, $1,000.
(4) Every person who makes, or participates in, assents to or acquiesces in the making of, a statement to, or by or on behalf of, another person (in this subsection, subsections (5) and (6), paragraph (12)(c) and subsection (15) referred to as the “other person”) that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of this Act is liable to a penalty in respect of the false statement.
(5) The penalty to which a person is liable under subsection (4) in respect of a false statement is the greater of
(a) $1,000, and
(b) the lesser of
(i) the penalty to which the other person would be liable under subsection 163(2) if the other person made the statement in a return filed for the purposes of this Act and knew that the statement was false, and
(ii) the total of $100,000 and the person’s gross compensation, at the time at which the notice of assessment of the penalty is sent to the person, in respect of the false statement that could be used by or on behalf of the other person.
C. Does section 11 of the Charter apply?
(1) The existing jurisprudence, summarized
 The Tax Court found that section 163.2 of the Act creates an “offence” such that Ms. Guindon had the rights set out in section 11 of the Charter. In so finding, it applied the jurisprudence set out in R. v. Wigglesworth,  2 S.C.R. 541 and later cases such as Martineau v. M.N.R., 2004 SCC 81,  3 S.C.R. 737.
 The Tax Court’s summary of that jurisprudence is essentially accurate. A person is entitled to the procedural protections under section 11 of the Charter in two circumstances:
● the matter is, by its very nature, intended to promote public order and welfare within a public sphere of activity. This is to be contrasted with proceedings of an administrative nature instituted for the protection of the public in accordance with the policy of a statute: Martineau, supra at paragraphs 21-22; Wigglesworth, supra at page 560.
● the person is exposed to the possibility of a “true penal consequence,” for example imprisonment or a fine imposed for the purpose of redressing the wrong done to society at large rather than to the maintenance of discipline or compliance within a limited sphere of activity or an administrative field of endeavour: Martineau, supra at paragraph 57; Wigglesworth, supra at page 561.
 In light of these cases, the parties agreed that there is a line, albeit sometimes a fuzzy one, between cases to which section 11 protections apply, and those to which they do not.
 Drawing the line in matters arising under the Income Tax Act can be a challenge, particularly because the Act touches almost all Canadians, yet much of it is largely administrative in character. Nevertheless, indeed one can discern a line and, as this illustration shows, some cases are clearly on one side or the other:
● It is contrary to the Act to file a late tax return. Under the Act, a penalty may be imposed against a late-filing taxpayer. This is best regarded as a penalty imposed against a taxpayer for a transgression within the self-assessment and reporting system under the Act, and is not a wrong committed against society as a whole. It is aimed at ensuring the maintenance of discipline or compliance within a limited sphere of activity or an administrative field of endeavour. A person subject to such a penalty is not entitled to the protections under section 11 of the Charter.
● It is contrary to the Act to evade or commit tax fraud and, if found guilty, fines or imprisonment can follow. This is best regarded as a sanction imposed for a wrong committed against society as a whole, every bit as much as the offence of fraud in the Criminal Code, R.S.C. 1985, c. C-46. A person charged with tax evasion or tax fraud is entitled to the protections under section 11 of the Charter.
(2) The Tax Court’s conclusion
 The Tax Court applied this distinction between criminal and non-criminal matters. It found that section 163.2 of the Act “should be considered as creating a criminal offence” such that Ms. Guindon had the rights set out in section 11 of the Charter (at paragraph 70):
...[Section 163.2 of the Act] is so far-reaching and broad in scope that its intent is to promote public order and protect the public at large rather than to deter specific behaviour and ensure compliance with the regulatory scheme of the Act. Furthermore, the substantial penalty imposed on the third party – a penalty which can potentially be even greater than the fine imposed under the criminal provisions of section 239 of the Act, without the third party even benefiting from the protection of the Charter – qualifies as a true penal consequence.
(3) Did the Tax Court have jurisdiction to conclude as it did? Did its jurisdiction depend on the service of a notice of constitutional question?
 On appeal to this Court, the Crown submits that the Tax Court had no jurisdiction to find that section 11 of the Charter applied to section 163.2 of the Act because Ms. Guindon did not serve a notice of constitutional question. Ms. Guindon was obligated to serve such a notice on the federal and provincial Attorneys General if she sought a finding that a section of the Act was invalid, inoperative or inapplicable: Tax Court of Canada Act, R.S.C. 1985 c. T-2, section 19.2 and, on appeal, the Federal Courts Act, R.S.C. 1985 c. F-7, section 57.
 In substance, Ms. Guindon sought that very thing in the Tax Court and seeks that very thing here.
 She contends that section 11 of the Charter applies to penalty proceedings under section 163.2 of the Act. If her contention is accepted, section 11 of the Charter renders the scheme of section 163.2 and related procedural sections invalid, inoperative or inapplicable. Section 11 of the Charter requires that a penalty can only be imposed until after charges are laid and a fair trial is conducted before an independent and impartial tribunal. Section 163.2 and related procedural sections do something quite different: under them, a person can be assessed a penalty and the assessment is binding unless it is varied or overturned by way of reconsideration or in an appeal to the Tax Court. Only in the Tax Court, after liability has been found, is there something akin to an independent and impartial trial of the matter.
 In her memorandum of fact and law filed in this Court, Ms. Guindon submitted that, once section 163.2 of the Income Tax Act is regarded as an offence provision, subsection 34(2) of the Interpretation Act, R.S.C. 1985 c. I-21 kicks in. That subsection requires that Criminal Code procedures be followed instead of Income Tax Act procedures. In her view, then, finding section 163.2 is an offence under section 11 of the Charter does not make any procedures in the Income Tax Act invalid, inoperative, or inapplicable.
 I disagree. This submission overlooks the language of subsection 34(2), which imposes the procedures of the Criminal Code to any offence, “except to the extent that [another] enactment otherwise provides.” The Income Tax Act otherwise provides. It provides for the assessment of a penalty under section 163.2, a reconsideration procedure and an appeal to the Tax Court.
 Therefore, I conclude that in these circumstances, Ms. Guindon was seeking the invalidity, inoperability or inapplicability of sections of the Income Tax Act. A notice of constitutional question had to be served.
 The failure to serve a notice of constitutional question took away the Tax Court’s jurisdiction to consider whether section 163.2 of the Act creates a criminal offence, triggering Ms. Guindon’s section 11 rights.
 Canadian courts regard the requirement that a notice of constitutional question be served on the Attorneys General as a matter going to the jurisdiction of the Court to consider the constitutional issues: see, e.g., Paluska v. Cava (2002), 59 O.R. (3d) 469 (C.A.). The requirement serves a “useful and essential purpose”: Bekker v. Canada, 2004 FCA 186 at paragraph 9. Attorneys General need notice of a constitutional challenge to the validity, applicability or operability of laws because if the challenge succeeds, their own laws may be affected.
 Once notice is provided to them, Attorneys General may intervene and participate in the constitutional challenge. They may wish to adduce important evidence, test other evidence, rebut that evidence, make submissions on the constitutional issues, or any and all of these things. Their participation can affect the outcome of the constitutional challenge.
 Before the Tax Court, the Minister objected to Ms. Guindon raising section 11 of the Charter because she had not served a notice of constitutional question. If asked, the Tax Court could have exercised its discretion to adjourn its proceedings to allow a notice of constitutional question to be served. However, in the face of the Minister’s objection, Ms. Guindon did not ask for an adjournment in order to serve the notice. Similarly, in this Court, Ms. Guindon has neither served a notice of constitutional question nor asked for an adjournment.
 Therefore, I conclude that it was not open to the Tax Court to find that section 163.2 of the Act prescribes a criminal offence such that all of the rights under section 11 of the Charter apply.
(4) Is it open to Ms. Guindon to assert that only some section 11 rights apply in proceedings conducted under section 163.2 of the Act?
 In the event that her failure to serve a notice of constitutional question prevented the Tax Court from finding that all of the section 11 rights apply in section 163.2 proceedings, Ms. Guindon submitted that, nevertheless, some section 11 rights could still apply. She pointed out that some of the section 11 rights do not conflict with the words of section 163.2 and related procedural sections in the Act.
 For example, section 11 requires that guilt be found only upon proof of the commission of the offence beyond a reasonable doubt. This does not conflict with the wording of section 163.2 or any other provision of the Act.
 In my view, this submission cannot be entertained. It is not open to Ms. Guindon to assert that some of the section 11 rights apply but not others. Under the text of section 11, set out above, either a person is “charged with an offence” and all of the section 11 rights apply, or a person is not “charged with an offence” and none of the section 11 rights apply. Section 11 is not a buffet table where one can pick and choose the rights on offer. The Supreme Court of Canada confirmed this in the context of extradition proceedings, using words of broad application:
To say that some provisions of s.11 apply to extradition hearings, while others do not, involves giving varying meanings to “any person charged with an offence.” The expression must have a constant meaning throughout, one that harmonizes with the various paragraphs of the section.
(R. v. Schmidt,  1 S.C.R. 500 at page 519.)
(5) Section 163.2 of the Act does not create an “offence” within the meaning of section 11 of the Charter
 Even if it were open to Ms. Guindon to submit that only some of the section 11 rights apply, the submission still fails.
 In my view, the assessment of a penalty under section 163.2 is not the equivalent of being “charged with a [criminal] offence.” Accordingly, none of the section 11 rights apply in section 163.2 proceedings. In this regard, I disagree with the Tax Court’s conclusion on this question of law.
 The Income Tax Act contains a complex web of provisions constituting a discrete regulatory and administrative field of endeavour with unique characteristics. Justice Wilson of the Supreme Court of Canada described it in this way:
A chief source of revenue for the federal government is the collection of income tax. The legislative scheme which has been put in place to regulate the collection of tax is the Income Tax Act. The Act requires taxpayers to file annual returns and estimate their tax payable as a result of calculations made in these returns. In essence, the system is a self-reporting and self-assessing one which depends upon the honesty and integrity of the taxpayers for its success.
(R. v. McKinlay Transport Ltd.,  1 S.C.R. 627.)
 The provision of accurate information that permits the proper calculation of tax is another aspect of self-compliance. This is achieved through tax returns, reports, certificates, forms and other information supplied. Timely elections, designations, reports and payments also allow for the efficient administration of the tax system.
 Conduct that is antithetical to the proper functioning of this system must be deterred. Compliance and order within this self-assessment system must be maintained. This is done – in this administrative field of endeavour as in many others – through the imposition of administratively simple sanction or, as the Act calls them, penalties. Given the complexity and breadth of the discrete regulatory and administrative field of endeavour set up by the Act, the sanctions must be administratively simple.
 Seen in this way, penalties under the Act are not about condemning morally blameworthy conduct or inviting societal condemnation of the conduct. They are not among the “most serious offences known to our law”: Wigglesworth, supra, at page 558. Rather, the penalties are about ensuring that this discrete regulatory and administrative field of endeavour works properly.
 In my view, section 163.2 is mainly directed to ensuring the accuracy of information, honesty and integrity within the administrative system of self-assessment and reporting under the Act. The imposition of a section 163.2 penalty by way of assessment and the subsequent procedures for challenging the assessment are proceedings of an administrative nature aimed at redressing conduct antithetical to the proper functioning of the administrative system of self-assessment and reporting under the Act. Put another way, proceedings under section 163.2 aim at maintaining discipline, compliance or order within a discrete regulatory and administrative field of endeavour. They do not aim at redressing a public wrong done to society at large.
 This conclusion is confirmed by a particular feature of the Income Tax Act. The Act contains approximately sixty penalty provisions, including section 163.2. This is in contradistinction from the provisions in the Act that create “offences.” A comparison of the penalty provisions and the offence provisions in the Act reveals something most salient to the question before us.
 Each of the penalty provisions, including section 163.2, prescribes a non-discretionary fixed amount or a non-discretionary formula for the calculation of the penalty to be included in the assessment. In no way does the Minister evaluate the moral blameworthiness or turpitude of the conduct, including any mitigating circumstances. Indeed, based on the rather mechanical nature of the task of preparing an assessment and the type of information available to the Minister, the Minister is not equipped to do such a thing. Accordingly, these provisions, including section 163.2, seem directed to maintaining discipline or compliance within a discrete regulatory and administrative field of endeavour, rather than redressing and condemning morally blameworthy conduct or a public wrong.
 On the other hand, each of the offence provisions is punishable by a fine, imprisonment, or both, none of which is fixed or calculated by a rigid formula. Instead, each is punishable by a range of sanctions – for example, in the case of tax evasion under section 239, a term of imprisonment up to a maximum or a fine between a certain minimum or maximum. The judge’s task is not mechanical, but discretionary. In sentencing, the judge is entitled to take into account, among other things, the moral blameworthiness or turpitude of the conduct, including any mitigating circumstances. Accordingly, the offence provisions do more than merely maintain discipline or compliance within a discrete regulatory and administrative field of endeavour. They also redress and condemn morally blameworthy conduct or a public wrong.
 Ms. Guindon points out that the penalties under section 163.2 can be large. This is true, but the size of a penalty does not alone dictate whether section 11 of the Charter applies: Martineau, supra. Sometimes administrative penalties must be large in order to deter conduct detrimental to the administrative scheme and the policies furthered by it: Re Cartaway Resources Corp., 2004 SCC 26,  1 S.C.R. 672. Many cases confirm that large penalties, indeed very large penalties, can qualify as administrative monetary penalties governed by administrative law principles, free from the requirements of section 11 of the Charter: United States Steel Corporation v. Canada (Attorney General), 2011 FCA 176; Rowan v. Ontario Securities Commission, 2012 ONCA 208; Lavallee v. Alberta (Securities Commission), 2010 ABCA 48; Martineau, supra.
 Under subsection 163.2(4), the provision engaged in the present case, the maximum possible penalty for a person making a false statement is $100,000 plus the person’s gross compensation in relation to that statement. Such a magnitude does not demonstrate a purpose extending beyond deterrence to denunciation and punishment of the offender for the “wrong done to society”: Wigglesworth, supra, at page 561. Rather, in light of the possibility of false statements going undetected, penalties of such magnitude are necessary to prevent them from being regarded as just “another cost of doing business”: United States Steel Corporation, supra, at paragraph 77.
 Ms. Guindon also draws our attention to the reference to “culpable conduct” in section 163.2 and urges that it imports a notion of criminality into the matter. Taken in isolation, assessed in the abstract, and understood in its colloquial meaning, “culpable conduct” does suggest “guilty” conduct. But in the Act “culpable conduct” has a defined meaning that sets out the elements that must be present before the Minister can assess a penalty under section 163.2 of the Act. This definition does not bring within it the notion of “guilt” or conduct violating some criminal standard.
 Incidentally, in this appeal, the parties debated the meaning of “culpable conduct.” Accepting the more exacting definition of “culpable conduct” proposed by Ms. Guindon, the Tax Court nevertheless found on the facts that Ms. Guindon had engaged in such conduct. Therefore, it is unnecessary for us in this appeal to decide this issue.
 In another submission before us, Ms. Guindon emphasizes the need for section 11 Charter rights to apply given the serious sanctions that may be imposed under section 163.2 of the Act. She warns that unless section 11 protections are afforded, great unfairness will result. The short answer is that section 11 Charter rights apply only when the Wigglesworth/Martineau test is met. The discussion above shows that it has not been met.
 Some commentators have also expressed concerns about the unfairness of section 163.2 of the Act and the potential for misuse of the section: see, e.g., William I. Innes and Brian J. Burke, “Adviser Penalties: How Will the Courts Construe Section 163.2?”, 2001 Conference Report, Report of Proceedings of the Fifty-Third Tax Conference (Toronto: Canadian Tax Foundation, 2002); Warren J.A. Mitchell, “Civil Penalties: A Wolf in Sheep’s Clothing?”, 2000 Conference Report, Report of Proceedings of the Fifty-Second Tax Conference (Toronto: Canadian Tax Foundation, 2001); Brian Nichols, “Civil Penalties for Third Parties”, 1999 Ontario Tax Conference (Toronto: Canadian Tax Foundation, 2000). In light of these well-considered expressions of concern, some additional words may be appropriate.
 In my view, many of the concerns expressed are overstated.
 The jurisprudence concerning section 163.2 is in an embryonic state. What now appears to some to be uncertain and worrying may later be addressed satisfactorily in the jurisprudence.
 In addition, there are many available tools to address procedural or substantive unfairness and any misuse of the section.
 As is well-known, an appeal ultimately lies to the Tax Court from the assessment of penalties. In that appeal, pursuant to subsection 163(3) of the Act, the burden lies on the Minister to demonstrate the facts justifying the imposition of the penalty. A number of procedural rules – including the right to adduce evidence, to test the Minister’s evidence, and to obtain disclosure of relevant documents – give the appellant a meaningful opportunity to challenge the assessment. The Tax Court must construe these rules to ensure, among other things, the just determination of every proceeding, and can modify them “as necessary in the interests of justice” – in other words, if it is appropriate and necessary in order to achieve procedural fairness: See Tax Court Rules, SOR/1990-688a, Rules 4 and 9. That Court also has a plenary jurisdiction to take necessary steps to ensure the fairness of proceedings before it and, further, to restrain any abuses of its process: Canada (National Revenue) v. RBC Life Insurance Company, 2013 FCA 50 at paragraph 35 (by analogy to the Federal Courts, also courts of statutory jurisdiction).
 Undoubtedly, in certain individual circumstances, penalties set by formulae or in fixed amounts – while administrative in nature and not triggering section 11 of the Charter – can be harsh. However, relief against harsh penalties can potentially be had under a different provision of the Act, subsection 220(3.1). Under that subsection, those subject to a section 163.2 penalty can ask the Minister to exercise her discretion to cancel all or part of the penalty. Before us, the Crown conceded the availability of this remedy.
 Some might question the meaningfulness or effectiveness of this remedy. After all, it is the Minister imposing the penalty who considers whether it should be cancelled. But that is too facile a view of the matter. Subsection 220(3.1) of the Act imposes on the Minister an entirely different task. The Minister does not have a free hand to do whatever she wants, act on whim, or unthinkingly rubber-stamp her earlier penalty assessment. A few more words on this are apposite.
 The Minister’s discretion on an application for relief must be based on the purposes of the Act, the fairness purposes that lie behind subsection 220(3.1) of the Act, and a rational assessment of all the relevant circumstances of the case. Her discretion must be genuinely exercised and must not be fettered or dictated by policy statements such as Information Circular 07-1: Stemijon Investments Ltd. v. Canada (Attorney General), 2011 FCA 299 at paragraph 27.
 On an application for judicial review from a subsection 220(3.1) decision, the Federal Court may quash unreasonable exercises of discretion by the Minister – i.e., exercises of discretion that fall outside the range of the acceptable and defensible on the facts and the law: Dunsmuir v. New Brunswick, 2008 SCC 9,  1 S.C.R. 190. Depending on the circumstances, the range available to the Minister can be quite narrow: Canada (Attorney General) v. Abraham, 2012 FCA 266 at paragraphs 37-50; and in a different context, see Canada (Attorney General) v. Canadian Human Rights Commission, 2013 FCA 75 at paragraphs 13 and 14.
 Finally, I note that section 12 of the Charter prohibits cruel and unusual punishment or treatment, i.e. a disproportionate sanction that “outrage[s] standards of decency”: Canada (Minister of Employment and Immigration) v. Chiarelli,  1 S.C.R. 711 at page 736. In the administrative context, section 12 remains largely untested and its applicability remains a matter of debate. Further, since penalties under section 163.2 are calculated by formulae that attempt to gauge the extent to which the impugned conduct may have affected the tax system, I am sceptical whether a section 12 claim against a section 163.2 penalty could ever succeed. Nevertheless, at this early point in the development of the jurisprudence under section 163.2, it cannot yet be ruled out as a possible avenue of exceptional recourse.
 In the case at bar, resort to these recourses was not made. Accordingly, I offer no further comment on them.
D. Proposed disposition
 For the foregoing reasons, I would allow the appeal with costs, set aside the judgment of the Tax Court, and giving the judgment the Tax Court should have given, I would dismiss Ms. Guindon’s appeal with costs.
Marc Noël J.A.”
Johanne Gauthier J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
APPEAL FROM A JUDGMENT OF THE HONOURABLE MR. JUSTICE BÉDARD DATED OCTOBER 2, 2012, NO. 2009-3368(IT)G
STYLE OF CAUSE: Her Majesty the Queen v. Julie Guindon
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: June 5, 2013
REASONS FOR JUDGMENT BY: Stratas J.A.
CONCURRED IN BY: Noël J.A.
DATED: June 12, 2013
FOR THE APPELLANT
Joel Secter FOR THE RESPONDENT
SOLICITORS OF RECORD:
William F. Pentney
Deputy Attorney General of Canada
FOR THE APPELLANT
Ottawa, Ontario FOR THE RESPONDENT
May 31, 2013
Blumbergs’ Canadian Charity Law Institute 2013 - corporate law, CRA compliance and more
On October 15, 2013, Blumbergs will be having the 2nd Annual Blumbergs’ Canadian Charity Law Institute in Toronto. It will be a full day of practical legal and ethical compliance information geared toward charities, professional advisors and those interested in regulatory issues affecting charities.
Some of the topics (tentatively) will include:
CNCA Progress and Challenges
Growing up and becoming Canadian - Ontario (OCA) to Federal (CNCA) continuance
The ONCA Update
Abusive Schemes, Class Action Lawsuits and Legal Opinions
Update on CRA changes
Ontario charitable environment
Top Employment Mistakes for Charities to Avoid
Trends in Philanthropy and Fundraising
Here is the tentative information on registration http://charitylawinstitute.eventbrite.ca
March 30, 2013
Kathryn Blaze Carlson in Globe & Mail “Canada Revenue Agency struggling to put a lid on tax fraud”
In an article today in the Globe & Mail entitled “Canada Revenue Agency struggling to put a lid on tax fraud” Kathryn Blaze Carlson discusses false receipting schemes.
Here is a link to the article:
Here is a link to the presentation by Danie Huppe-Cranford, who is head of compliance at the Charities Directorate of the CRA. The presentation was to the Ontario Bar Association (OBA) Institute charity program that I co-chaired:
March 19, 2013
Globe and Mail article “Tax-scheme case revived against Bay Street law firm”
Jeff Gray of the Globe and Mail is reporting today in an article “Tax-scheme case revived against Bay Street law firm” that the class action lawsuit against Cassels Brock & Blackwell LLP has been certified by a decision of the Ontario Court of Appeal.
Here is the decision on the Ontario Court of Appeal in Lipson v. Cassels Brock & Blackwell LLP
I had covered this case earlier at http://www.globalphilanthropy.ca/index.php/blog/comments/lipson_v._cassels_brock_blackwell_llp_dismissed_as_statute_barred/
All allegations in the lawsuit have yet not yet been proven.
Below is the text of the Ontario Court of Appeal decision:
“COURT OF APPEAL FOR ONTARIO
CITATION: Lipson v. Cassels Brock & Blackwell LLP, 2013 ONCA 165
Goudge, Simmons and Gillese JJ.A.
Respondent by way of Cross-Appeal)
Cassels Brock & Blackwell LLP
Appellant by way of Cross-Appeal)
David F. O’Connor and J. Adam Dewar, for the appellant
Peter H. Griffin, Ian MacLeod and Shara N. Roy, for Cassels Brock & Blackwell LLP
Tim Gleason and Sean Dewart, for Gardner Roberts LLP and the Estate of Ronald Farano
Alexandra Urbanski, for Deloitte & Touche LLP
Heard: September 17 and 18, 2012
On appeal from the order of Justice Paul Perell of the Superior Court of Justice, dated November 14, 2011.
Goudge and Simmons JJ.A.:
 The main issue before us is whether, on a motion for certification, the motion judge erred in holding that a proposed class action for solicitor negligence and negligent misrepresentation is statute-barred, but that the action otherwise qualifies for certification.
 The appellant, Jeffrey Lipson, is one of about 900 Canadian taxpayers who donated cash and resort timeshare weeks to registered Canadian athletic associations during the four-year period between 2000 and 2003. He and the other donors made their donations through a program (the “Timeshare Tax Reduction Program” or “the Program”) operated by the Canadian Athletic Trust (the “Athletic Trust”).
 Under the terms of the Timeshare Tax Reduction Program, donors anticipated receiving tax credits worth more than the donor’s actual financial outlay. In support of the viability of the Program, the promotional material included an opinion prepared by Cassels Brock & Blackwell LLP indicating that it was unlikely that the Canada Customs and Revenue Agency could successfully deny the anticipated tax credits.
 In 2004, the CCRA notified Mr. Lipson that it intended to disallow his claims for tax credits under the Timeshare Tax Reduction Program in their entirety. On receiving this information, he and other donors who had received similar notices sought legal and accounting advice.
 In 2006, two of the other donors launched proceedings with the assistance of counsel as a test case to challenge the CCRA’s denial of the tax credits.
 In 2008, the CCRA settled the test case on the basis that the donors would receive tax credits for their actual cash donations, but not for their donations of timeshare weeks (which had been paid for by a third party). Mr. Lipson and other members of the proposed class entered into similar arrangements with the CCRA.
 In April 2009, almost five years after he had received the initial notice of disallowance from the CCRA, Mr. Lipson commenced a proposed class action in which he sued Cassels Brock for negligence and negligent misrepresentation relating to their opinion about the Timeshare Tax Reduction Program. Mr. Lipson claimed damages in the form of interest arrears, lost opportunities to make other donations, and special damages consisting of professional fees for challenging the CCRA’s position.
 On a motion for certification of the action as a class proceeding, Perell J. found that, apart from the limitations issue (and with the exception of certain proposed common issues including causation), the proposed class action satisfied the criteria for certification. Nonetheless, in an order dated November 14, 2011 (the “Order”), he dismissed the action, holding that it is statute-barred by the two-year limitation period set out in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.
 Mr. Lipson raises two issues on appeal:
1. Did the motion judge err in dismissing his action as statute-barred?
2. Did the motion judge err in not certifying the action, including his proposed common issue relating to causation, as a class proceeding?
 In the event Mr. Lipson succeeds on the first issue, Cassels Brock cross-appeals from aspects of the motion judge’s finding that the proposed class action otherwise satisfies the criteria for certification.
 For the reasons that follow, we allow the appeal, set aside those portions of the Order holding that the action is statute-barred and dismissing it, and substitute an order certifying the action as a class proceeding. The cross-appeal is dismissed.
(1) The Timeshare Tax Reduction Program
 The motion judge provided a full summary of the origin and structure of the Timeshare Tax Reduction Program at paras. 14 to 18 of his reasons.
 In brief, after establishing the Athletic Trust in Ontario, a Bahamian resident purchased timeshare weeks in a Caribbean resort and transferred them to the Trust.
 Under the terms of the Timeshare Tax Reduction Program, potential donors could apply to become beneficiaries of the Athletic Trust and, once accepted, the trustee of the Athletic Trust had discretion to distribute timeshare weeks to them. Beneficiaries could, but were not required to, donate their timeshare weeks to a registered Canadian amateur athletic association, along with sufficient cash to discharge encumbrances on the timeshare weeks.
 In return for each donation, the registered Canadian amateur athletic association that received the donation would issue two charitable tax receipts: one for the donor’s cash contribution to discharge the encumbrances on the timeshare weeks (ranging from $4,600 to $9,700 per donated timeshare week); and one for the then fair market value of the donated timeshare week, less the amount of the encumbrance (ranging from $8,765-$18,900).
 The Program also included arrangements for pooling the donated timeshare units and facilitating their resale to the original developer at a significantly discounted price, subject to a 5% commission on net revenue to one of the promoters of the Program.
 Without getting into all the details, in general, the net result of these arrangements was:
· assuming receipt of the anticipated tax credits, participants in the Program would realize a net return on their cash donations of about 35% (this is because it was the Bahamian resident who settled the Athletic Trust and actually paid for the timeshare weeks); and
· although they issued charitable receipts to each participant totalling between $13,275 and $28,600, the registered Canadian amateur athletic associations that received donations ultimately benefited by about $1,300 per donated timeshare week.
(2) The Cassels Brock Legal Opinions
 Commencing in 2000, on each occasion that timeshare weeks were made available for distribution to beneficiaries, Cassels Brock was retained to provide the promoters of the Timeshare Tax Reduction Program with a legal opinion about the tax consequences of participating in the Program as a beneficiary and donor.
 In all, Cassels Brock provided six opinions between October 2000 and April 2003. The six opinions are substantially the same. The motion judge excerpted the relevant passages of the opinions at para. 23 of his reasons.
 For the purposes of this appeal, two aspects of the opinions are key. First, the opinions are directed not just to the promoters of the Athletic Trust, but also to potential donors. In fact, all but the final opinion specifically state that the opinion “may be relied upon … by … potential donors”.
 Second, although the opinions acknowledge the prospect of a challenge by the CCRA to the tax benefits available under the Program, the opinions state that “it is unlikely that the CCRA could successfully deny … the [anticipated] tax credit[s].”
 As we have said, a copy of the pertinent Cassels Brock opinion was included in the promotional material marketing the Timeshare Tax Reduction Program on each occasion that timeshare weeks were offered for distribution.
 Because the opinions are central to the issues on appeal, we set out here the text of the key passages. The remainder of the excerpts quoted by the motion judge together with certain other passages we consider important are set out in Appendix ‘A’:
Re: Donation of One-Bedroom and Two-Bedroom, Biennial Timeshare Vacation Weeks
You have requested our opinion regarding the Canadian Federal Income Tax consequences relating to a donation of … Timeshare Resort Weeks … by individual Canadian resident taxpayers. It is contemplated that any such donation would entitle the donor to claim a tax credit under the Income Tax Act (Canada) (the “Tax Act”).
…This opinion is specifically directed to potential donors who are individuals and who acquire and hold the Timeshare Weeks as capital property.
3. Meaning of “Gift”
In order to claim a tax credit for a donation there must be a complete gift of the property.
If all or substantially all of the Class A Beneficiaries who receive Timeshare Weeks donate them, the CCRA may be more inclined to challenge the arrangement (but see our opinion below at page 23 as to the unlikely success of such a challenge.)
7. General Anti-Avoidance Rule (“GAAR”)
In our opinion, and based on the foregoing, a donation of Timeshare Weeks in these circumstances would not likely be successfully attacked under GAAR.
9. General Comments
This opinion may be relied upon only by CAA and potential donors, their agents and professional advisors, for the purpose of the transactions contemplated by this opinion. …
Based on and subject to the foregoing review, in our opinion it is unlikely that the CCRA could successfully deny the deemed adjusted cost base of the Timeshare Weeks to, nor the tax credit claimed by, the Class A Beneficiaries who receive a distribution of the Timeshare Weeks from the Trust, and subsequently choose to make a voluntary and complete donation of some or all of their Timeshare Weeks to a [registered Canadian amateur athletic association].
(3) Other Legal Opinions Obtained by Promoters and Marketers
 In addition to the Cassels Brock opinion, in December 2002, the promoters of the Timeshare Tax Reduction Program obtained an opinion from a Manitoba law firm confirming the applicability of the Cassels Brock opinion to the Manitoba Tax Act.
 Further, one of the entities marketing the Timeshare Tax Reduction Program obtained a second opinion confirming the Cassels Brock opinion from Ronald J. Farano, Q.C., a tax partner at Gardner Roberts LLP.
(4) Mr. Lipson’s Participation in the Timeshare Tax Reduction Program
 In an affidavit filed on the certification motion, Mr. Lipson deposed that his accountant spoke to him about the Timeshare Tax Reduction Program in the fall of 2000. Although he understood “the gist” of the Program, he says he did not understand the intricacies of how it worked. He asked his accountant whether there was a legal opinion to support the tax benefits of the program. On being told that Cassels Brock had issued a supporting legal opinion, Mr. Lipson was satisfied that the Program offered legitimate tax benefits and decided to participate. He states: “I would not have participated in the Program absent a favourable tax opinion from a reputable law firm.”
 On his cross-examination, Mr. Lipson indicated he has no recollection of reading the Cassels Brock opinion. He understood from his accountant that the Cassels Brock opinion provided an assurance that the Program was “legal” and thus that there would be “nothing for the [CCRA] to complain about.” According to Mr Lipson, had there been an 80% chance he would not receive the tax credits, he would not have participated.
 Mr. Lipson confirmed that, for the years 2000 to 2003, he claimed the following tax credits for donations under the Timeshare Tax Reduction Program:
2000 – $634,352
2001 – $1,261,988
2002 – $2,085,835
2003 – $1,148,879.60.
(5) Mr. Lipson’s Dealings with the CCRA
 In a series of letters to Mr. Lipson dated October 19 through to November 9, 2004, the CCRA indicated it would be denying the full amount of the tax credits Mr. Lipson had claimed arising from the Program. Among other things, in their correspondence, the CCRA challenged (i) the validity of the Athletic Trust; (ii) the validity of the gifts of timeshare weeks; and (iii) the valuation of timeshare weeks
 Both in the statement of claim and in his affidavit, Mr. Lipson indicates that in response to the reassessments, he “sought legal and accounting advice at significant personal expense”. In his affidavit, Mr. Lipson also states that he retained Thorsteinssons LLP in April 2004 to act for him in his dealings with the CCRA and that it is his understanding that Thorsteinssons acted for most of the class members in this regard.
 On his cross-examination, Mr. Lipson confirmed that the promoters of the Program had created a fund to look after any challenge to the tax structure that might occur and that he understood that Thorsteinssons’ legal fees were paid from that fund. This evidence was confirmed by evidence from one of the creators of the Program.
 According to Mr. Lipson, the dispute with the CCRA proceeded by way of test cases launched in 2006 by two of the participants in the Timeshare Tax Reduction Program on behalf of all of the donors who participated in the Program and who were reassessed.
 On March 24, 2008, Mr. Lipson accepted an offer to settle made by the CCRA restricting his tax credits for participation in the Timeshare Tax Reduction Program to the amount of his cash donations to Canadian athletic associations.
 Although Thorsteinssons conducted the test case litigation, on his cross-examination, Mr. Lipson testified that he retained Davies Ward Phillips & Vineberg LLP “to interface” with Thorsteinssons. Further, he says he settled with the CCRA as a result of advice received from Davies Ward, and not Thorsteinssons.
 During his cross-examination, Mr. Lipson agreed with suggestions that he realized there was a problem as soon as he received the first disallowance letter and that he knew then that the result Cassels Brock had said would occur was not going to happen.
(6) The Proposed Class-Action
 On April 15, 2009, Mr. Lipson commenced the proposed class action in which he sued Cassels Brock for negligence and negligent misrepresentation.
 At para. 35 of his Fresh As Amended Statement of Claim, Mr. Lipson characterizes the Cassels Brock opinions as follows:
35. In each of the Legal Opinions, Cassels Brock stated that Lipson and the other Class Members would obtain the tax benefits described in the promotional materials. Cassels Brock’s ultimate conclusion, as set out in each of the Legal Opinions, was that:
[I]t is unlikely that the [CCRA] could successfully deny the deemed adjusted cost base of the Timeshare Weeks to, nor the tax credit claimed by, the Class A beneficiaries who receive a distribution of the Timeshare Weeks from the [Athletic] Trust, and subsequently choose to make a voluntary and complete donation of some or all of their Timeshare Weeks to an RCAAA.
 In essence, Mr. Lipson alleges that Cassels Brock (i) fell below the standard of care of a reasonably competent tax solicitor in preparing its opinion, resulting in an opinion that contains material misrepresentations; (ii) knew that a favourable tax opinion was a necessary precondition to the creation and successful promotion of the Timeshare Tax Reduction Program; and (iii) knew that potential donors would rely on the existence of a favourable tax opinion in deciding whether to participate in the Program.
 Mr. Lipson claims that, but for the Cassels Brock opinion, the Timeshare Tax Reduction Program could not have been made publicly available or successfully promoted. In addition, he claims that he and the other class members decided to participate in the Program in reliance on the Cassels Brock opinion and the representations, both express and implied, which it contained.
 Finally, Mr. Lipson claims that, as a result of the negligence and negligent misrepresentations of Cassels Brock, he and the other class members suffered damages in the form of substantial interest arrears under federal and provincial income tax legislation, loss of the opportunity to make other donations or participate in other tax shelters, and special damages in the form of accounting and other professional fees to respond to the CCRA’s reassessments.
 In his Fresh As Amended Statement of Claim, Mr. Lipson defines the proposed class as:
[A]ll individuals who applied and were accepted to be beneficiaries of the Athletic Trust 2000, 2001, 2002 and/or 2003 and received Timeshare Weeks from the Athletic Trust and donated them, together with a cash donation, to one or more of [certain registered Canadian amateur athletic associations].
 According to the Fresh As Amended Statement of Claim, Mr. Lipson and the other class members settled with the CCRA when it became “at least likely, if not certain” that the CCRA would be successful in challenging the tax credits claimed by Mr. Lipson and the other class members.
(7) Cassels Brock’s Third-Party Claim and Statement of Defence
 On April 15, 2011, Cassels Brock issued a third party claim against a number of individuals and entities, alleging that they provided tax, financial or legal advice to putative class members with respect to the Timeshare Tax Reduction Program. Gardiner Roberts LLP and the Estate of former Gardiner Roberts senior tax partner Ronald J. Farano, deceased, are among the named third parties.
 In accordance with a direction from the motion judge, prior to the certification motion, Cassels Brock delivered its statement of defence and the third parties delivered statements of defence to the main action and to the third party action.
 The statements of defence to the main action included an assertion that, by pleading that the CCRA denied his claims for tax credits in 2004, Mr. Lipson had acknowledged that the proposed class action is statute-barred.
(8) Mr. Lipson’s Reply
 In his reply, Mr Lipson pleaded that “ntil January 2008 during the test case litigation … it was not known or reasonably discoverable that it was at least likely … that [the CCRA] would be successful in challenging the tax credits claimed by Lipson and the other Class Members.” He also pleaded that it was not until at least January 2008, when the test case appeal litigation had significantly progressed, that a proceeding against Cassels Brock became an appropriate avenue for the donors to seek redress.
(9) The Proposed Common Issues
 On the certification motion, the Mr. Lipson proposed the following common issues:
1. Did the Defendant owe the Class a duty of care (in among other things, negligence or negligent misrepresentation) in the preparation of the Legal Opinions?
2. If the answer to common issue 1 is “yes”, what is the content of the standard(s) of care?
3. Did the Defendant breach the foregoing standard(s) of care? If so, how?
4. If the answer to common issue 3 is “yes”, did the Defendant’s breach of the foregoing standard(s) of care cause or materially contribute to the damages of the Class Members?
Damages or Other Relief
5. If the answer to common issue 4 is “yes”, what types or heads of damages, if any, are the class members entitled to?
6. If the answer to common issue 4 is “yes”, what remedy or remedies, if any, are the Class Members entitled to?
7. If the Class Member is entitled to a damages award, can some or all of that award be determined commonly? If so, what is the quantum and how?
(10) Expert Opinion from Professor Vern Krishna
 Mr. Lipson’s material on the certification motion included affidavits and letters of opinion from Professor Vern Krishna concerning the validity and appropriateness of the Cassels Brock legal opinions supporting the Timeshare Tax Reduction Program.
 Professor Krishna’s letters of opinion address two main issues: i) Cassels Brock’s opinions concerning whether the donation of timeshare weeks constitutes a valid gift; and ii) Cassels Brock’s opinions concerning the general anti-avoidance rule.
 In relation to the first issue, Professor Krishna concludes that the Cassels Brock opinions failed to address issues relevant to the validity of the gift in circumstances where the anticipated tax credit substantially exceeds the donor’s financial outlay. On that issue, he opines that the Cassels Brock legal opinions do not meet the standard of care expected of a tax lawyer.
 In relation to the second issue, Professor Krishna states that while “existing jurisprudence suggests that the [Timeshare Tax Reduction Program] would violate the general anti-avoidance provisions of the Income Tax Act … the jurisprudence in the Supreme Court of Canada did not emerge until 2005.” Moreover, “even after the three Supreme Court of Canada’s decisions, there remains considerable uncertainty as to the scope and reach of GAAR.” On that issue, he opines that the Cassels Brock legal opinions reasonably address the anti-avoidance aspects of the Timeshare Tax Reduction Program in light of the available jurisprudence at the relevant time.
(11) The Positions of the Parties on the Certification Motion
 Cassels Brock and the third parties opposed certification of the proposed class action on the grounds that the claims of all class members, including Mr. Lipson, are statute-barred under the Limitations Act. In particular, they argued that the class members’ claims were discoverable when the CCRA disallowed their claims for tax credits. In addition, they claimed that, when it can be shown that a proposed representative plaintiff’s claim is statute-barred, he or she cannot be a member of the proposed class and he or she cannot act as the representative plaintiff.
 Cassels Brock also submitted that the proposed class action failed to satisfy three of the five criteria for certification under s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6:
i) The claims of the class members must raise a common issue (s. 5 (1)(c));
ii) A class proceeding must be the preferable procedure for the resolution of the common issues (s. 5 (1)(d)); and
iii) There must be a suitable representative plaintiff (s. 5 (1)(e)).
 Finally, although Cassels Brock conceded that the proposed class action disclosed a cause of action for negligent misrepresentation, it argued that the negligence claim failed to disclose a reasonable cause of action (s. 5 (1)(a)) because none of the class members were clients of Cassels Brock.
C. the motion judge’s decision
 In the analysis section of his reasons, the motion judge dealt first with the question of whether, leaving aside the limitation issue, the proposed class action meets the criteria for certification. He held as follows:
· It was not plain and obvious that either the negligent misrepresentation claim or the negligence claim failed to disclose a reasonable cause of action (s. 5(1)(a) of the Class Proceedings Act). Although the negligence claim may be novel, the question of whether Cassels Brock owed class members a duty of care should be left for trial.
· The proposed class definition satisfies the identifiable class criterion (s. 5 (1)(b) of the Class Proceedings Act).
· The claims of the proposed class raise common issues. Proposed questions one, two and three are suitable for certification as common
issues. Proposed questions five and six would be suitable for certification if revised. Proposed questions four and seven, relating to causation and damages, are not suitable common issues. (Section 5 (1)(c) of the Class Proceedings Act).
· A class proceeding would be the preferable procedural for resolution of the common issues. Although there is little to suggest that the class proceeding is necessary to ensure access to justice or to modify behaviour, the judicial economy factor justifies a class proceeding in which the common issues at trial will focus essentially on the opinions of Cassels Brock. (Section 5 (1)(d) of the Class Proceedings Act).
· As Mr. Lipson had selected competent and experienced counsel and, as his litigation plan was unchallenged, there was no reason to believe he would not move the action forward to the common issues stage. Leaving aside the limitations issue, he is a suitable representative plaintiff (Section 5 (1)(e) of the Class Proceedings Act).
 As for the limitations issue, the motion judge concluded that no independent factual inquiry was necessary to dispose of it. Based on the Supreme Court of Canada’s decision in Central Trust Co. v. Rafuse,  2 S.C.R. 147, and a review of the facts alleged in the statement of claim, the claims for negligence and negligent misrepresentation should have been discovered in 2004 when the CCRA denied the validity of the tax credits or, at the very latest, in 2006, when Thornsteinssons was retained to sue the CCRA. The claims of Mr. Lipson and the other class members were therefore statute-barred.
D. The Appeal
(1) Did the motion judge err in dismissing the appellant’s claim as statute-barred?
(a) The Positions of the Parties on Appeal
 On appeal, Mr. Lipson submits that the motion judge acted without jurisdiction or authority in dismissing the action as statute-barred on a certification motion. He argues that the purpose of a certification motion is purely procedural. Such a motion is intended to determine whether the proposed claims are suitable as a class proceeding and there is to be no preliminary review of the merits of any proposed defence.
 Further, Mr. Lipson says that, in the absence of a Rule 21 motion or a summary judgment motion, he had no proper notice of the limitation issue. The record he placed before the court was intended to address only the certification issue. It was not intended to address a merits defence. It was particularly not intended to address a merits defence for the class that had never been certified as a common issue – and one which, by its very nature, is not a common issue in any event.
 In the alternative, if the motion judge was entitled to address the limitation issue under s. 5(1)(a) of the Class Proceedings Act – as relating to whether the statement of claim disclosed a reasonable cause of action – Mr. Lipson submits that the motion judge erred by failing to accept the facts as pleaded in the statement of claim and in the reply as true. In both documents, Mr. Lipson pleaded facts indicating the claim was not discovered until approximately January 2008 when the test case had significantly progressed and it became apparent that the CCRA would likely be successful in denying a substantial portion of the tax credits claimed.
 Further, whether the motion judge proceeded under s. 5(1)(a) or 5(1)(e) (proper plaintiff) of the Class Proceedings Act, Mr. Lipson submits that he erred by misinterpreting Central Trust Co. v. Rafuse as standing for the proposition that, in a claim for negligence arising from a solicitor’s opinion, the limitation period begins to run when the validity of the opinion is challenged.
 Cassels Brock asserts that a motion judge on a certification hearing is required to perform a gatekeeping function – accordingly, where it is apparent on the certification motion that an action is bound to fail, the certification judge has the authority both to decline to certify the action and to dismiss it without the need for a cross-motion. The motion judge’s decision in this regard is entitled to deference.
 In this case, Mr. Lipson had notice of the limitations issue by virtue of the statements of defence that were delivered. Further, on Mr Lipson’s own evidence, it was clear – and the motion judge concluded – that the limitation period had expired. Mr. Lipson did not read the Cassels Brock opinions. Moreover, he testified that he understood the opinions to mean that the Timeshare Tax Reduction Program was legal and that there was no risk that the CCRA would reassess him. He learned in 2004 that that was not the case – he also began incurring damages in the form of legal and accounting fees at that time.
 Further, all members of the class were aware of the reassessments and had begun incurring legal and accounting fees by no later than 2006 when the test case litigation was commenced.
 Except for acknowledging that it may have been preferable for Cassels Brock to have brought a formal motion to dismiss the action, the third parties, take the same position as Cassels Brock. They assert that the motion judge had authority to decline to certify the action because it was clear on the evidence that the limitation period had expired and Mr. Lipson was fully aware of this issue.
(b) The Discoverability Principle
 As the motion judge observed, in this case, the application of the two-year limitation period turns on the discoverability principle, now codified in s. 5 of the Limitations Act. That section provides as follows:
5. (1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
 In our view, it is unnecessary that we resolve the question of whether it is open to a certification judge to dismiss a proposed class action based on a finding that the action is statute-barred, and in particular, in the absence of a cross-motion under either Rule 20 or Rule 21.
 Based on our review of the motion judge’s reasons, his decision to dismiss the proposed class action as statute-barred turned on his interpretation of the Supreme Court of Canada’s decision in Central Trust Co. v. Rafuse and his application of that decision to the facts of this case.
 In our respectful view, the motion judge erred in interpreting and applying Central Trust Co. v. Rafuse. Moreover, when that decision is interpreted properly, it is apparent that the record before the motion judge did not disclose whether Mr. Lipson’s claim was statute-barred. Nor did it support the conclusion that the limitation period applicable to Mr. Lipson’s claim also applied to the entire class.
 The motion judge’s findings concerning Central Trust Co. v. Rafuse begin at para. 138 of his reasons where he said that, in his view, the Supreme Court of Canada’s decision in that case is dispositive of the question of whether the class members’ claims in this case are statute-barred.
 The motion judge correctly described the issues in Central Trust Co. v. Rafuse. In that case, the defendant solicitors had acted for Central Trust on a mortgage transaction in 1969 and had certified that Central Trust had a valid mortgage against the title to the property on which it was registered. However, in a subsequent action by Central Trust against the mortgagor, the mortgage was held to be void ab initio because it contravened a statutory prohibition against a certain form of lending.
 In 1980, Central Trust sued the solicitors who acted for it on the mortgage transaction. A major issue was whether the solicitors could be held liable both in contract and in negligence. If the solicitors could be found concurrently liable in negligence, further issues arose concerning whether the doctrine of discoverability applied in determining the limitation period, and, if so, when the limitation period began to run.
 However, the motion judge had this to say at paras. 146-147 of his reasons about the Supreme Court of Canada’s conclusions about discoverability:
 Justice Le Dain’s succinct analysis of discoverability is found in paragraph 77 where he stated:
Since the [lawyers] gave the [Central Trust] a certificate on January 17, 1969 that the mortgage was a first charge on the Stonehouse property, thereby implying that it was a valid mortgage, the earliest that it can be said that [Central Trust] discovered or should have discovered the respondents’ negligence by the exercise of reasonable diligence was in April or May 1977 when the validity of the mortgage was challenged in the action for foreclosure. Accordingly [Central Trust’s] cause of action in tort did not arise before that date and its action for negligence against the [lawyers] is not statute-barred.
 It should be noted that the damage suffered by Central Trust occurred when it accepted a mortgage that could be challenged as illegal. It later transpired that the mortgage was challenged, and Justice Le Dain held that the limitation period for the claim of solicitor’s negligence commenced running with the manifest challenge to the mortgage, even though the actual declaration of invalidity of the mortgage would occur still later. [Emphasis added.]
 In our respectful view, the motion judge’s conclusion about Justice Le Dain’s holding in Central Trust Co. v. Rafuse is incorrect. Justice Le Dain did not hold that “the limitation period for the claim of solicitor’s negligence commenced running with the manifest challenge to the mortgage”. Rather, he concluded that the earliest date on which the claim for solicitor’s negligence could have commenced running was the date on which the validity of the mortgage (and therefore the validity of the solicitors’ opinion) was challenged.
 Because the applicable limitation period for solicitor negligence was six years when Central Trust Co. v. Rafuse was decided, it was unnecessary that Justice Le Dain go further and determine the actual date on which the limitation period commenced – the action for solicitor negligence had been started well within six years after the earliest date on which Justice Le Dain found the cause of action was discoverable.
 In Kenderry – Esprit (Receiver of) v. Burgess, MacDonald, Martin and Younger (2001), 53 O.R. (3d) 208, at para. 19, Molloy J. recognized that Central Trust Co. v. Rafuse is not binding authority for the proposition that the limitation period in an action for solicitor negligence begins to run on the date of a manifest challenge to the solicitor’s opinion.
 Instead, Molloy J. held that, in an action for solicitor negligence arising from a solicitor’s opinion, “[t]he date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence to run will depend on the circumstances of the particular case.”
 We agree with that conclusion and note that it was adopted by the majority in this court’s decision in Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, at para. 71.
 The motion judge in this case applied his understanding of Central Trust Co. v. Rafuse to the facts pleaded in the Fresh As Amended Statement of Claim at paras. 148 to 158 of his reasons. We excerpt the most relevant portions of these paragraphs below:
 The same analysis can be applied to the case at bar. The Class Members, including Mr. Lipson … should have discovered their tort claims against Cassels Brock when the validity of the tax credits was denied by Canada Revenue in 2004. At that time and certainly not later than 2006, when Thornsteinssons LLP was retained to sue Canada Revenue, the Class Members knew or ought to have known the material facts on which the negligence claim or negligent misrepresentation claim against Cassels Brock was based.
 Like Central Trust, … the Class Members made donations that turned out to be ineligible for tax credits. It is alleged that the Class Members relied on Cassels Brock’s opinions or but for Cassels Brock’s opinions they would have not participated in the Timeshare Program. In both situations … their awareness of the material facts of their claim against Cassels Brock came … when Central Trust or the participants in the Timeshare Program respectively learned that there was a potential problem with the tax credits.
 In the case at bar, as soon as the letters from Canada Revenue started to arrive, Mr. Lipson and the Class Members knew or ought to have known that Cassels Brock’s opinion had caused damage because they had actually relied on the opinions, or, but for those opinions they would not or could not have participated in the Timeshare Program and suffered damages. Given that Canada Revenue was challenging the validity of the trust, the validity of the gift, the donative intent of the participants, and the value of the donation, the donors knew that Canada Revenue could successfully deny the tax credit.
 At the time of the letters from Revenue Canada, the Class Members’ loss was actual not potential and they knew who to blame for that actual loss. The Class Members had been denied the tax credits in their entirety, and they allegedly had been lured into a transaction or not properly warned about a transaction that they allege they would have avoided but for the role played by Cassels Brock. The Class Members incurred expenses, i.e. special damages, in an attempt to fix their problems by retaining another law firm in bringing proceedings against Canada Revenue.
 In the case at bar, no independent inquiry of the facts is necessary to determine whether or not the Class Members’ claims are statute-barred. Indeed, this is apparent from the statement of claim that sets out the material facts for the discovery of the negligence and negligent misrepresentation claims that occurred when the letters of from Canada Revenue arrived denying the tax credits to the Class Members. [Emphasis added.]
 In our respectful view, the motion judge’s reasons concerning this issue are not entirely clear.
 On the one hand, although the motion judge seems to acknowledge that the notices of disallowance were not a final disposition of the tax credit issue – and therefore at best provided notice of a potential claim – he appears to have concluded that all class members should have known when they received the notices of disallowance that the CCRA could successfully challenge their claims for tax credits and that the action therefore became statute-barred at that time (for example, see paras. 150 and 158).
 Further, the motion judge appears to have treated the class members’ knowledge that they were incurring professional fees to challenge the CCRA’s denial of the claimed tax credits as a relevant factor affecting the commencement of the limitation period (for example, see paras. 148, 157 ).
 In our view, neither the fact that the CCRA was challenging the claimed tax credits nor the fact that the class members may have been incurring professional fees to challenge the CCRA’s denial of the tax credits is determinative of when the class members reasonably ought to have known they had suffered a loss as a result of a breach of the standard of care on the part of Cassels Brock.
 As pleaded in the Fresh As Amended Statement of Claim, the Cassels Brock opinion was that it was unlikely that the CCRA could successfully deny the claimed tax credits. Accordingly, the fact of a CCRA challenge to the tax credits did not, in itself, mean the challenge would likely be successful or make the Cassels Brock opinion invalid. Further, even accepting that receipt of the notices of disallowance prompted class members to obtain professional advice and to launch test case litigation to challenge the denial of the tax credits, that conduct does not demonstrate when class members knew, or ought reasonably to have known, that the test case litigation would not likely be entirely successful.
 The test case litigation did not settle until 2008. The answer to when the limitation period began to run for each Class Member may very well depend on several factors, including what position, if any, Cassels Brock took in response to the CCRA challenge; what notice, if any, Cassels Brock gave to class members of their position, if any, on the CCRA challenge; and what each class member was told by his or her professional advisor(s) and when: see Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors. Importantly, this may be an issue that must be determined individually for each class member, depending on what individual class members were told and when.
 In the Fresh As Amended Statement of Claim, Mr. Lipson pleaded that he and the other class members settled with the CCRA when it became “at least likely, if not certain” that the CCRA would be successful in challenging the tax credits claimed by Mr. Lipson and the other class members. In his Reply, he pleaded that “ntil January 2008, during the test case litigation … it was not known or reasonably discoverable that it was at least likely … that [the CCRA] would be successful in challenging the tax credits claimed by Lipson and the other Class Members.”
 Although perhaps not express, these pleadings at least imply that Mr. Lipson and the other class members were not advised until January 2008 of the likelihood that the CCRA’s disallowance of the tax credits would succeed, at least in part.
 For the purposes of s. 5(1)(a) of the Class Proceedings Act (the reasonable cause of action prong of the certification test), no evidence is admissible. Unless patently ridiculous or incapable of proof, a plaintiff’s pleadings must be accepted as true. On their face, Mr. Lipson’s pleadings do not demonstrate that, prior to January 2008, he knew that the CCRA’s challenge to his claimed tax credits would likely be successful. Accordingly, his pleadings do not demonstrate that his claim was statute-barred when he commenced his action in April 2009.
 Further, under ss. 5(1)(b)-(e) of the Class Proceedings Act (the remaining prongs of the certification test), a plaintiff need only show some evidence that the proposed claim satisfies each of the relevant criteria. Because the limitation issue is a defence, in the absence of evidence tending to demonstrate that the limitation period had expired, the limitation issue did not undermine Mr. Lipson’s request for certification.
 Cassels Brock argues that Mr. Lipson’s own evidence demonstrates that, at least for him, the relevant limitation period had expired. They rely, for example, on the fact that he testified that he did not read the Cassels Brock opinion; that he interpreted the existence of the opinion as meaning the Timeshare Tax Reduction was legal and not subject to challenge; and that, when the CCRA challenged the tax credits, he knew he had a problem and that he would not obtain what Cassels Brock had promised.
 We do not accept this argument. Whatever Mr. Lipson’s interpretation of the Cassels Brock opinion, their opinion remains the same. Their opinion did not promise that the CCRA would not challenge the anticipated tax credits under the Timeshare Tax Reduction Program. Rather, it stated that it was unlikely that the CCRA could successfully challenge tax credits claimed under the Program. Mr. Lipson is not entitled to, and did not, sue Cassels Brock for an opinion they did not give. To the extent that his interpretation of the opinion may weaken his claim for reliance in relation to his negligent misrepresentation claim, in our view, that will be an issue for the trial judge.
 Based on the foregoing reasons, we allow the appeal on this ground.
(2) Did the motion judge err in finding that causation in simple negligence is not a proper common issue?
 The motion judge found that Mr. Lipson’s pleading disclosed a cause of action in negligent misrepresentation and also in simple negligence, and that it was not plain and obvious that these claims would fail. He also found that, for both causes of action, whether Cassels Brock owed the class a duty of care and whether it had breached that duty were proper common issues.
 However, the motion judge found that, for both causes of action, the question of whether Cassels Brock’s breach caused the class damage was not a proper common issue but instead had to be answered on an individual basis for each class member.
 Mr. Lipson contests this finding as it applies to his claim in simple negligence. He says that, for that cause of action, causation should be certified as a common issue.
 For the following reasons, we agree.
 In finding that Mr. Lipson’s claim in simple negligence was properly disclosed by his pleading, the motion judge looked to Mr. Lipson’s allegations that the Cassels Brock legal opinion was a necessary precondition for the marketing of the program, that Cassels Brock ought to have foreseen that for the promoters the opinion was fundamentally necessary for the presentation of the program, and that those who then bought into the program would suffer damage if the opinion had been negligently prepared.
 Thus, the claim in simple negligence is distinct from Mr. Lipson’s claim in negligent misrepresentation, which required proof of reliance on the opinion by individual class members in deciding to participate in the program.
 Framed in this way, the cause of action in simple negligence does not require a showing of reliance on the Cassels Brock opinion by individual class members. The allegation is that class members suffered damage because they participated in the program, which, but for Cassels Brock’s negligent opinion, would not have been marketed by the promoters and thus not available to class members. In our view, this issue is common to the claims of all class members.
 It may be that, at the trial of this common issue, evidence will emerge that the Cassels Brock legal opinion was not a necessary precondition for the promoters to market the program. For example, there may be evidence that the promoters were satisfied to go to market without any legal opinion, or because of legal opinions other than those of Cassels Brock. However, that determination is for the trial. At this stage, there need only be some basis in fact supporting Mr. Lipson’s simple negligence claim. That requirement was met here. In addition to Mr. Lipson’s pleading that the legal opinion was a necessary precondition, there was evidence of the promoters’ accountant who said as much.
 In summary, as it is pleaded, Mr. Lipson’s claim in simple negligence raises the issue of whether, but for the Cassels Brock opinion, the program would have been marketed and therefore available to cause harm to all members of the class. This issue is properly resolved in a common trial.
E. The cross-appeal
 Cassels Brock raises three issues by way of cross-appeal.
 First, it says that the motion judge erred in finding that Mr. Lipson properly pleaded the elements of negligence, in particular: duty of care, causation and damages.
 We do not agree. The claim pleads that Cassels Brock owed a duty of care to those who it could reasonably foresee would read and rely on its opinion and to those who would participate in the program marketed by the promoters based on the opinion. The claim pleads causation and damages insofar as those participating in the program on either basis suffered losses as a consequence.
 Second, Cassels Brock says that the motion judge erred in certifying as common issues whether it owed the class a duty of care, what types of heads of damage class members may have suffered, and what remedies they might therefore be entitled to.
 Again, we do not agree. Cassels Brock is mistaken in arguing that reliance on its opinion (which is an individual issue) is a key element in determining whether it owed a duty of care to any class members. Whether or not any class member in fact relied on the Cassels Brock opinion is irrelevant to whether Cassels Brock owed a duty of care to those who Cassels Brock could reasonably foresee might do so. Cassels Brock is also in error in saying that the quantum of damage each class member in fact suffered (an individual issue) is integral to determining what types or heads of damage to which class members could be entitled, and what remedies flow from that determination. The former is not relevant to the latter.
 Third, Cassels Brock argues that the motion judge erred in finding that Mr. Lipson’s action met the preferred procedure requirement for certification. It says that, in this case, the individual issues overwhelm the common issues and that the third party claims make a common trial unmanageable.
 Here too we reject Cassels Brock’s argument. The motion judge’s conclusion about preferable procedure requires the balancing of a number of considerations. This exercise of judicial discretion will attract appellate scrutiny only if it reflects an error in principle or an unreasonable finding of fact. Neither argument raised by Cassels Brock permits such a conclusion. The motion judge was well-aware of the individual issues that would remain after adjudication of the common issues. He weighed the relative importance of each in fully resolving the action, and determined that the latter were not overwhelmed by the former. We see no basis to interfere with his conclusion.
 Mr. Lipson’s litigation plan effectively addresses the manageability question in light of the third party claims. The motion judge approved that plan, and Cassels Brock did not challenge the plan in this court. Here too, we see no basis to interfere with the motion judge’s determination.
 For these reasons, we allow the appeal, set aside paras. 1, 2 and 3 of the Order and dismiss the cross-appeal. Further, the action is ordered certified as proposed by the motion judge, with the addition of the common issue of causation in simple negligence. The Order should be amended to that effect.
 The parties shall file submissions of no more than ten pages addressing the issues of costs here and below. These are to be filed within 30 days of the release of these reasons.
Released: “STG” March 19, 2013
“S.T. Goudge J.A.”
“Janet Simmons J.A.”
“I agree E.E. Gillese J.A.”
Re: Donation of One-Bedroom and Two-Bedroom, Biennial Timeshare Vacation Weeks
You have requested our opinion regarding the Canadian Federal Income Tax consequences relating to a donation of 75-year leasehold Biennial Timeshare Resort Weeks at the Alexandra Resort and Spa in Providenciales, Turks and Caicos Islands, British West Indies (the “Timeshare Weeks”) by individual Canadian resident taxpayers. It is contemplated that any such donation would entitle the donor to claim a tax credit under the Income Tax Act (Canada) (the “Tax Act”).
This opinion is specifically directed to potential donors who are individuals and who acquire and hold the Timeshare Weeks as capital property. The Timeshare Weeks will generally be considered to be held as capital property, unless…
1.Meaning of “Gift”
In order to claim a tax credit for a donation there must be a complete gift of the property. Each of several elements must be found in order for a donation to qualify as a gift for income tax purposes. These elements are summarized by the CCCRA in its Interpretation Bulletin IT-110R3 entitled, “Gifts and Official Donation Receipts”, at para 3 as follows:
A gift, for purposes of sections 110.1 and 118.1, is a voluntary transfer of property without valuable consideration. Generally, a gift is made if all three of the conditions listed below are satisfied:
(c) the transfer is made without expectation of return. No benefit of any kind may be provided to the donor or to anyone designated by the donor, except where the benefit is of nominal value.
The courts have held that a tax advantage (that is a tax credit for an individual) is not considered to be a benefit within this test (see Friedberg (A.D.) v. Canada 92 DTC 6031 (F.C.A.)).
If a Class A Beneficiary chooses to retain the Timeshare Weeks, he or she may do so and hold, exchange, or sell the Timeshare Weeks, as well as to utilize them for his or her own vacations, or for any other lawful and permitted purposes. If all or substantially all of the Class A Beneficiaries who receive Timeshare Weeks donate them, the CCCRA may be more inclined to challenge the arrangement (but see our opinion below at page 23 as to the unlikely success of such a challenge.)
7. General Anti-Avoidance Rule (“GAAR”)
Although the current version of GAAR has been in place since 1988, there has to date been little jurisprudence of direct relevance to charitable donations. GAAR is intended to apply to situations where a transaction or series of transactions results in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit, or unless the transaction does not result in a misuse of the provisions of the Tax Act or an abuse having regard to the provisions of the Tax Act as a whole.
Accordingly, we are of the opinion that a good argument can be made that it cannot reasonably be said that there is an abuse of the provisions of the Tax Act as a whole in these circumstances.
In our opinion, and based on the foregoing, a donation of Timeshare Weeks in these circumstances would not likely be successfully attacked under GAAR.
9. General Comments
This opinion is based on the current provisions of the Tax Act, the regulations thereunder, and our understanding of the current administrative practices of the CCCRA. .... No advance tax ruling has been sought or obtained from the CCCRA to confirm the tax consequences or any of the transactions described herein.
This opinion may be relied upon only by CAA and potential donors, their agents and professional advisors, for the purpose of the transactions contemplated by this opinion. It may not be relied upon by any other person or for any other purpose, nor may it be quoted in whole or in part or its existence or contents otherwise referred to, without our prior written consent.
Based on and subject to the foregoing review, in our opinion it is unlikely that the CCCRA could successfully deny the deemed adjusted cost base of the Timeshare Weeks to, nor the tax credit claimed by, the Class A Beneficiaries who receive a distribution of the Timeshare Weeks from the Trust, and subsequently choose to make a voluntary and complete donation of some or all of their Timeshare Weeks to an RCAA.
 Paragraphs 54 and 55 of the Fresh As Amended Statement of Claim provide as follows:
54. In or about January 2008, [the CCRA] agreed to settle the test case litigation on the basis that [the two donors] would be entitled to a tax credit for the cash portion of their donations to the [registered Canadian amateur athletic associations] under the [Timeshare Tax Reduction Program], but would not receive any tax credits for their donations of Timeshare Weeks. [The CCRA] extended this settlement offered to Lipson and the other Class Members.
55. Faced with the prospect that it was at least likely, if not certain – and not “unlikely” as Cassels Brock had represented in each of the Legal Opinions – that [the CCRA] would be successful in challenging the tax credits claimed by Lipson and the other Class Members in respect of at least their donation of Timeshare Weeks to the [registered Canadian amateur athletic associations], Lipson accepted [the CCRA’s] settlement offers.
 The motion judge stated the revised questions as follows:
5. If after an individual issues trial, the defendant were found liable to a Class Member for negligent misrepresentation or negligence, what types or heads of damages, if any, would the Class Members be entitled to?
6. If after an individual issues trial, the defendant were found liable to a Class Member for negligent misrepresentation or negligence what remedy or remedies, if any, would the Class Members be entitled to? “
February 27, 2013
CRA View -Interpretation of a Gift
CRA recently released a letter which provided comments on the rules relating to the voluntary gifting of property to a registered charity and whether a qualified donee is required to issue a donation receipt.
CRA View -Interpretation of a Gift
AUTHOR Danis, Sylvie
SUBJECT Interpretation of Gift
SECTION 118.1(2), Reg 3501
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: 1. Whether a gift is voluntary? 2. Whether a qualified donee is required to issue a donation receipt?
POSITION: 1. General comments provided. 2. No.
REASONS: 1. Question of fact. 2. No provision in the Act requires qualified donees to issue donation receipts.
January 17, 2013
Re: Interpretation of Gift
This is in response to your letters dated October 31, 2012 and December 30, 2012 wherein you requested clarification of the rules relating to the gifting of property. You asked us whether a transfer of a property would be considered voluntary if one had to go to Court to prove ownership of the property prior to the making of a gift and whether a registered charity could be held accountable for not providing a donation receipt. You’ve also asked us other general questions with respect to the naming of beneficiaries and conflict of interest issues to which we cannot comment since the Canada Revenue Agency (“CRA”) does not provide legal advice. Finally, you’ve outlined concerns in your December 30, 2012 letter with respect to a particular registered charity that you believe is making false statements that are not of an income tax nature.
The term “gift” is not defined in the Income Tax Act (the “Act”) and therefore assumes its common law meaning. Under common law, a bona fide gift is a voluntary transfer of property from a donor, who must freely dispose of his or her property, to a donee, who receives the property given with no right, privilege, material benefit or advantage conferred on the donor or any person designated by the donor in exchange for the donor making the gift. Proposed subsections 248(30) to (32) of the Act allow for the recognition of a gift for tax purposes in certain situations where a donor, or a person or partnership who does not deal at arm’s length with the donor, receives consideration or other advantages for property transferred. Pursuant to proposed subsection 248(31) of the Act, the eligible amount of a gift is the excess of the fair market value of the property transferred to a qualified donee over the amount of the advantage provided. A qualified donee is defined in subsection 149.1(1) of the Act and includes municipalities in Canada registered by the Minister of National Revenue and registered charities.
Whether a transfer of property has been made voluntarily is a question of fact. In order for a transfer to be considered as voluntary there must be no obligation to make such a transfer. In our view, the act of going to court to establish ownership of a property prior to making a gift would not generally, in and by itself, create an obligation to make a gift. Whether any other agreement or settlement decided in the court process could create an obligation to transfer a property is a question of fact which must be considered on a case by case basis.
Subsection 118.1(2) of the Act requires a receipt issued in prescribed form in order for an individual to claim a donation tax credit. However there are no provisions in the Act requiring a qualified donee to issue a donation receipt. Section 3501 of the Income Tax Regulations provides that the official receipt in respect of a gift issued by a qualified donee must contain certain information which includes, for a gift of property other than cash, “the amount that is the fair market value of the property at the time that the gift was made”. Consequently, a qualified donee cannot issue a donation receipt where it cannot reasonably determine the value of the gift.
The CRA administers a system to register charities and to promote compliance with the income tax legislation and regulations relating to charities. Registration provides charities with exemption from income tax and authorizes charities to issue official donation receipts for income tax purposes. While the CRA can impose penalties or sanctions on charities where they do not comply with the Act, the CRA has no jurisdiction with respect to a charity over matters that are outside the scope of the Act. If you suspect that a charity is involved in fraudulent activities, please contact the Canadian Anti-Fraud Centre, by going to http://www.antifraudcentre.ca or calling 1-888-495-8501. Matters relating to government funding should be directed to the appropriate Ministry or Department responsible for issuing grants.
We trust the above comments are of assistance.
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
February 09, 2013
“David Baines: Vancouver museum’s “Michelangelo” sculptures fail to sell at auction”
Vancouver Sun investigative reporter David Baines has just written a followup article entitled “Vancouver museum’s “Michelangelo” sculptures fail to sell at auction”. In this article he discusses how the valuations of the sculptures exaggerated their fair market value and how the Canadian Cultural Property Export Review Board validated the inflated figures. Interesting that “In an email Friday, the Canadian Cultural Property Export Review Board—which certified both transactions—said it has the legislative authority to reopen files and Canada Revenue Agency “has the legislative authority to reassess taxpayer returns.” Who should care if property is donated by people as part of a transaction, they receive over $30 million in tax receipts and about $13 million in tax savings and the property is actually only worth 100 - 200,000. The answer is that taxpayers should be concerned - normal Canadians, who don’t get involved in tax schemes are paying billions in extra taxes and receiving billions in less services as a result of these tax schemes. As well if you are concerned with the cultural and arts sector in Canada - it is distressing that all sorts of questionable objects are being provided to Canadian charities who are then spending large amounts of money storing them etc.
Here is the full article:
It will be interesting to see whether the CPERB reopens this case and whether CRA can and does reasses the taxpayers. Furthermore, it will be interesting to see how many such reassessments CPERB has been involved with.
February 07, 2013
In another receipting case TCC denies receipts without all mandatory elements. Sklodowski
The Tax Court of Canada has denied more charitable donation receipts because they did not have all the mandatory elements. The judge also was concerned that the cash ‘donations’ may never have in fact taken place.
Here is a link to the Case:
HER MAJESTY THE QUEEN,
Appeal heard on common evidence with the appeals of
John Ashbert (2012-1609(IT)I)
on January 14, 2013, at Toronto, Ontario
Before: The Honourable Justice Campbell J. Miller
For the Appellant:
The Appellant himself
Counsel for the Respondent:
The appeal from the assessment made under the Income Tax Act for the 2007 taxation year is dismissed.
Signed at Ottawa, Canada, this 31st day of January 2013.
“Campbell J. Miller”
C. Miller J.
HER MAJESTY THE QUEEN,
Appeals heard on common evidence with the appeal of
Wayne Sklodowski (2012-1642(IT)I)
on January 14, 2013, at Toronto, Ontario
Before: The Honourable Justice Campbell J. Miller
For the Appellant:
The Appellant himself
Counsel for the Respondent:
The appeals from the reassessments made under the Income Tax Act for the 2006 and 2007 taxation years are dismissed.
Signed at Ottawa, Canada, this 31st day of January 2013.
“Campbell J. Miller”
Citation: 2013 TCC 37
HER MAJESTY THE QUEEN,
HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
C. Miller J.
 Mr. Sklodowski and Mr. Ashbert both appeal by way of Informal Procedure the Minister of National Revenue’s (the “Minister”) denial of charitable donation tax credits.
 Mr. Sklodowski claims to have made cash donations of $9,250 throughout 2007 to The Christ Healing Church, a registered charity in 2007. Mr. Ashbert claims that he made cash donations of $6,000 throughout 2005 to The Redemption Power International Ministry, a registered charity, the credits being claimed in 2006, and donations of $8,000 throughout 2007 to The Christ Healing Church.
 I will review Mr. Sklodowski’s evidence first. He testified that he started going to The Christ Healing Church as a result of his daughter going there with her boyfriend. He found the atmosphere supportive and helpful, given he was experiencing marital difficulties at the time and was at times suicidal. He divorced his wife in 2008 and left Canada, he believed for good, but given the economic climate in Europe he eventually returned to Canada, though is currently struggling as he is unemployed and homeless.
 Mr. Sklodowski described The Christ Healing Church as being in an industrial area at 1177 Finch Avenue in Toronto. He indicated that in 2007 he would go to the church sometimes three times a week and sometimes not for a couple of weeks. He suggested he did not attend services but simply went to talk. It was a place to help people, as he put it, Christian but different. He did not donate cash every time he went but if he did not donate one time he would feel obliged to give more the next time. He testified that the largest cash donation he made was approximately $1,700. He would give the cash to the priest, and if the priest was not available then to his wife or to someone in the office named Andrew. He had no records confirming when and in what amount the cash donations were made.
 As Mr. Sklodowski had gone bankrupt 12 years earlier, he indicated that he did not have his own bank account in 2007, and he therefore deposited his earnings in his wife’s account. He could access this account to withdraw funds when required, including for the purpose of making donations to the church.
 Mr. Sklodowski testified that he made other charitable donations such as Salvation Army and the Autistic Children’s Fund, but the Canada Revenue Agency (the “CRA”) showed no claim for charitable donation credits for the years 2002 to 2011, other than the $9,250 in dispute and $12,750 allowed in 2006. Mr. Sklodowski had earnings of approximately $48,000 in 2007 and his wife had approximately $58,000 of earnings. She also claimed a charitable donation of $8,500 to The Christ Healing Church.
 The receipt that Mr. Sklodowski relies upon from The Christ Healing Church (receipt number 171) shows the church’s address at 134 Norfinch Drive, #202, Toronto, while the address on record with the CRA is the 1177 Finch Avenue address. The receipt also indicates a date of February 2008 without specifying a day, nor does it indicate the place or locality where the receipt was issued.
 With respect to Mr. Ashbert, he claimed he also made cash donations to The Christ Healing Church in 2007, but as well made $6,000 in cash donations to The Redemption Power International Ministry in 2005, which he claimed in 2006.
 Mr. Ashbert confirmed that The Christ Healing Church was indeed at 1177 Finch Avenue, an industrial area with a printer operation next door. He was first invited by a friend, Oscar, and continues to attend every other Friday or Sunday. Prior starting to go to The Christ Healing Church he attended The Redemption Power International Ministry, which he described as also being in the Finch area, though nothing more specific. He started going there on the invitation of the Pastor, as he was working at the premises on a job in 2004.
 Mr. Ashbert described his donations, which he said he made on most church visits, were not for any particular purpose: in effect everyone donated, “so I did too”. He claimed the money came from his earnings or out of something he referred to as su su, his community’s collective gathering of funds, ultimately to be shared. This was a vaguely defined concept. He said he would give $250 or more at a time, either by going to an usher or the Pastor. He had no records of these cash donations, other that the two receipts he is relying upon.
 The Redemption Power International Ministry receipt shows no address for Mr. Ashbert, shows no location of the donation nor CRA’s website address. It does show a breakdown of the $6,000 donation amongst:
Offering $ 500
Building fund $ 500
Thanksgiving $ 250
Pledge $ 250
Donation $ 484
 Mr. Ashbert was unable to explain the significance of this breakdown. He certainly did not earmark anything, but simply “just gave money”.
 Mr. Ashbert also did not have any history of charitable donations other than the two years in issue. In those years he earned income of approximately $42,000 and $46,000 respectively.
 Mr. Huenemoeder, a charities auditor with the CRA, testified regarding the audit of The Christ Healing Church, of which he had firsthand knowledge. He testified that the books and records of The Christ Healing Church were inadequate. The registration was revoked in 2008. Little cash went through the church’s books, minimal deposits were accounted for (approximately $70,000 to $90,000); receipts reported by the church indicated approximately $60,000, though the auditors found individual receipts totalling well over $200,000. A CRA worksheet identified those receipts, one of which was to Mr. Ashbert, though also showed receipts numbered 81 to 160 signed in blank by Pastor Ankrah. Receipts 160 to 200 were missing (recall Mr. Sklodowski’s was numbered 171). There was no concrete evidence of cash receipts from either Mr. Sklodowski or Mr. Ashbert.
 The audit of The Redemption Power International Ministry was for the 2001 and 2002 years though the registration was not revoked until 2007.
 Are Mr. Sklodowski and Mr. Ashbert entitled to tax credits based on charitable cash donations of $6,000 and $8,000 by Mr. Ashbert in 2006 and 2007 to The Redemption Power International Ministry and The Christ Healing Church respectively and of $9,250 by Mr. Sklodowski in 2007 to The Christ Healing Church?
 The Respondent argues that they are not entitled to such credits for two reasons:
a) first, the receipts provided by Mr. Sklodowski and Mr. Ashbert to support the credits do not contain the requisite prescribed information;
b) second, Mr. Sklodowski and Mr. Ashbert have not proven they made the cash donations.
 Section 118.1(2)(a) of the Income Tax Act (the “Act”) reads:
118.1(2) A gift shall not be included in the total charitable gifts, total Crown gifts, total cultural gifts or total ecological gifts of an individual unless the making of the gift is proven by filing with the Minister
(a) a receipt for the gift that contains prescribed information;
 Income Tax Regulation 3501(1) (the “Regulation”) sets out the requirements for the charitable donation receipt as follows:
3501(1) Every official receipt issued by a registered organization shall contain a statement that it is an official receipt for income tax purposes and shall show clearly in such a manner that it cannot readily be altered,
(a) the name and address in Canada of the organization as recorded with the Minister;
(b) the registration number assigned by the Minister to the organization;
(c) the serial number of the receipt;
(d) the place or locality where the receipt was issued;
(e) where the donation is a cash donation, the day on which or the year during which the donation was received;
(e.1) where the donation is a gift of property other than cash
(i) the day on which the donation was received,
(ii) a brief description of the property, and
(iii) the name and address of the appraiser of the property if an appraisal is done;
(f) the day on which the receipt was issued where that day differs from the day referred to in paragraph (e) or (e.1);
(g) the name and address of the donor including, in the case of an individual, his first name and initial;
(h) the amount that is
(i) the amount of a cash donation, or
(ii) where the donation is a gift of property other than cash, the amount that is the fair market value of the property at the time that the gift was made;
(i) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge donations; and
(j) the name and Internet website of the Canada Revenue Agency.
 Read together these provisions require there be:
a) a gift;
b) a receipt proving it is a charitable gift.
The Crown maintains the Appellants have not provided sufficient evidence of either.
i) Validity of receipt
 In the recent case of Afovia v. Her Majesty the Queen, Justice Paris dealt with both these issues. He had this to say about the receipt requirements:
9. The question that must be decided by this Court is whether it is mandatory that a charitable donation receipt contain all of the information listed in subsection 3501(1) of the Regulations, including a serial number and the name and Internet website of the Canada Revenue Agency. On the basis of the clear wording of that provision, I find that all of the information listed there is mandatory. The material portion of the section states that “every official receipt issued by a registered organization . . . shall show clearly in such a manner that it cannot be readily altered . . .” the information listed in paragraphs (a) to (j).
14. The fact that the appellants were unaware of what information was required on a charitable receipt cannot relieve them of the obligation to support their claim for the charitable donation tax credits with official receipts that contain the prescribed information. This Court is bound by subsection 118.1(2) of the Act.
 Do Mr. Ashbert’s and Mr. Sklodowski’s receipts conform to the mandatory Regulation 3501 requirements? First, looking at Mr. Ashbert’s receipt from The Redemption Power International Ministry, it clearly does not provide all the prescribed information. It is missing:
- the place where the receipt was issued;
- Mr. Ashbert’s address;
- the name and internet website of the CRA.
Next looking at the Mr. Ashbert’s and Mr. Sklodowski’s receipts from The Christ Healing Church, these receipts are missing:
- the correct address of the church as recorded with the Ministry;
- the place where the receipt was issued;
- the date including the day, not just the month and year in which the receipt was issued.
 These cases can be dismissed on this basis alone: the Appellants have simply not provided the necessary receipts with the prescribed information. I do, however, also want to address the second element of the argument.
ii) Were the cash donations made?
 It is clear that I have not heard the full picture of what was really going on with these charitable organizations and the purported donations. While there could be a number of possibilities there are three primary alternatives: first, Mr. Sklodowski and Mr. Ashbert did make the cash donations which for reasons of mismanagement or misappropriation were not properly accounted for by the church’s filing of the required information return T3010. Second, Mr. Sklodowski and Mr. Ashbert never made the cash donations claimed. Third, there is a middle ground that Mr. Sklodowski and Mr. Ashbert did make some cash donations but not nearly as much as the amount indicated on the receipts. Frankly, this is what makes the most sense to me given Mr. Sklodowski’s and Mr. Ashbert’s somewhat vague testimony as to the amounts donated. Their evidence regarding their attendance at the church was credible. I was not left with the impression that this whole thing was a sham, that they simply bought into some scheme of fictitious donations for fictitious receipts. However, the lack of any detailed accounting of cash donations actually made, the large amount of the donations in comparison to their income, their lack of donation history and the vagueness of their testimony generally all suggest to me that the amount of the charitable receipts is simply not accurate. Unfortunately for Mr. Sklodowski and Mr. Ashbert they not only were unable to verify the amounts claimed, they also provided nothing upon which I could possibly find there was a legitimate lower amount, not that that could have helped. The only evidence of the amounts donated were the receipts themselves, receipts emanating from organizations where audits concluded books and records were inadequate. The Pastor was not called, no bank records were presented and there was simply nothing to verify the amounts. I can only conclude that Mr. Sklodowski and Mr. Ashbert did not make the cash donations in the amounts receipted. Perhaps they did make some cash donations to The Redemption Power International Ministry and The Christ Healing Church, but they have fallen far short of proving on balance the amounts of $6,000, $8,000 and $9,250.
 Something is rotten in the state of Denmark, but I have insufficient evidence to pinpoint exactly what. I do, however, have enough evidence to find both that the receipts are deficient and also that Mr. Sklodowski and Mr. Ashbert did not make the cash donations claimed. The Appeals are therefore dismissed.
Signed at Ottawa, Canada, this 31st day of January 2013.
“Campbell J. Miller”
C. Miller J.
CITATION: 2013 TCC 37
COURT FILE NO.: 2012-1642(IT)I and 2012-1609(IT)I
STYLE OF CAUSE: WAYNE SKLODOWSKI AND HER MAJESTY THE QUEEN and
JOHN ASHBERT AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: January 14, 2013
REASONS FOR JUDGMENT BY: The Honourable Justice Campbell J. Miller
DATE OF JUDGMENT: January 31, 2013
For the Appellants:
The Appellants themselves
Counsel for the Respondent:
COUNSEL OF RECORD:
For the Appellant:
For the Respondent: William F. Pentney
Deputy Attorney General of Canada
 2012 TCC 391.
January 30, 2013
Charity settles class action lawsuit over tax receipts
The Hamilton Spectator in an article entitled “Redeemer settles $6-million lawsuit with families” is reporting that Redeemer University College has made a payout to settle a lawsuit over receipts it issued as part of a forgiveable loan program.
Here is the article:
Redeemer settles $6-million lawsuit with families
Here is the statement of claim http://www.classactionlaw.ca/content/claims/Redeemer/Statement%20of%20Claim%20ISSUED%20March%2021%202011.pdf
Here is a page on Scarfone Hawkin’s website: http://www.classactionlaw.ca/content/claims/Redeemer/Redeemer.htm
January 27, 2013
Glooscap Heritage Society v. The Queen - FCA refuses applic. to delay revocation of charity status
In the case of Glooscap Heritage Society v. The Queen, a charity had its charitable status revoked for improperly issuing tax receipts and operating for the benefit of a tax shelter. The Charity filed an objection to the revocation and applied for an order delaying the revocation until their challenge was heard but this objection was ultimately dismissed. The Court acknowledged that “Glooscap’s activities are socially worthy and important to the community” but the Court noted that “Glooscap’s involvement with the tax shelter is central.” There is a very important discussion about the issue of reputation. There is also an interesting recognition by the FCA on the subject of “the regrettable, often abysmal, sometimes unspeakable events surrounding Canada’s history of aboriginal/non-aboriginal relations: Report of the Royal Commission on Aboriginal Peoples: Looking Forward, Looking Backward, vol. 1 (Ottawa: Canada Communication Group Publishing, 1996)”. In this case the Court noted that Glooscap issued $19,775 in total donations during 2007-2011 that were not related to the tax scheme but issued $116 million in tax receipts related to the scheme.
In the decision, the court stated:
“ In order to delay the revocation, Glooscap must satisfy the Court that it has met the normal test for the granting of stays and injunctions: International Charity Association Network v. Minister of National Revenue, 2008 FCA 114 at paragraph 5. Glooscap must show it has an arguable case against the revocation, it will suffer irreparable harm if the revocation is allowed to happen, and the balance of convenience lies in its favour: RJR-MacDonald v. Canada (Attorney General),  1 S.C.R. 311.
 For the reasons set out below, Glooscap has not satisfied this test. Therefore, I shall dismiss Glooscap’s application to delay the revocation of its registration as a charity, with costs.”
The FCA then goes on to talk about the low threshold for the first step of the test, ‘arguable case’, and the Minister conceded and the Court concluded that the charity met this part of the test.
However, to meet the second part of the test, ‘irreparable harm’, there must be evidence that the unavoidable irreparable harm would result unless the stay was granted. In this case, it was accepted that the charity would suffer some reputational harm however most of it was caused by the actions of the charity by being associated with a tax shelter, not the revocation of the charity’s status. The charity knew that they could lose their charitable status if they became involved with a tax shelter yet they still chose to continue with these actions. The Court stated (my highlighting):
“ Glooscap has adduced evidence from very well-placed deponents: the executive director of the tourist association with which Glooscap is partnered, a multi-decade councillor with the Millbrook First Nation reserve, and the general manager of the museum. However, much of the evidence of harm given by these deponents consists of sweeping, unparticularized assertions and declarations that difficulties would arise that might result in actual harm.
 Without a better understanding of Glooscap’s overall financial situation and fundraising ability, I cannot conclude that a loss of donations would result in any irreparable harm to it or its activities.
 Glooscap submits that revocation of its registration as a charity will cause harm to its relationships, particularly with non-aboriginal organizations, and these injuries are not capable of later remediation. However, its evidence goes no higher than to identify “jeopardy” or a risk to those relationships: see paragraphs 11 and 13 of the Mingo Affidavit.
 The Court does accept that Glooscap will suffer some reputational harm. However, as explained below, much of the reputational harm, especially in the donor community, will be caused not by the revocation of Glooscap’s registration as a charity, but rather by the reassessment of the donors to the tax shelter.
 Ultimately fatal to Glooscap`s application is the requirement that it establish irreparable harm that is unavoidable, i.e., irreparable harm that will be caused by the failure to get a stay, not harm caused by its own conduct in running a clearly-known risk that it actually knew about, could have avoided, but deliberately chose to accept: Dywidag Systems International, supra at paragraphs 14 and 16.”
“ In this case, Glooscap knew about the sizeable advantages of registered charitable status: exemption from income tax and the ability to issue receipts for donations received. It was warned at an early stage that it might lose its advantageous charitable status if it associated with this tax shelter. Part of that risk is the very thing that has now materialized – the revocation of its charitable status before it can challenge the revocation in this Court. Warnings about involvement with this tax shelter came from the Canada Revenue Agency (two emails and a meeting), Glooscap’s own lawyer (two letters) and its own auditor. Glooscap’s auditor resigned, at least in part over the issue. There were also warnings that involvement in the tax shelter would require an amendment to Glooscap’s objects and the approval of the Canada Revenue Agency. Yet, knowing of the risks, Glooscap chose to continue its association with the tax shelter, and in fact renewed its association in 2009.
 Glooscap submits that it exercised good faith throughout. In support of that submission, among other things, Glooscap points to confirmatory testimony given on cross-examination of a representative of the Canada Revenue Agency. That may be so, but the fact remains that at an early stage Glooscap knew of the risk of the very harm that has eventuated here and it chose to run that risk.
 If Glooscap blundered itself into involvement in this tax shelter, oblivious to any real risk, the irreparable harm might not be fairly laid at its feet. Similarly, circumstances such as mistaken advice, mistake as to the facts, trickery, duress or unauthorized conduct by someone wrongly purporting to act for Glooscap might cause a different view to be taken of the matter. But in this case none of these circumstances are present.”
As the irreparable harm part of the test was not met the court did not go into detail on the third part “balance of convenience”. The Court just noted: “ Were it necessary to proceed to this branch of the test, this Court would have found that the balance of convenience lies against the granting of relief to Glooscap.”
The Court noted:
 This Court recognizes the high significance and importance of the aboriginal/non-aboriginal partnership in this case between Glooscap and the tourist association, especially when viewed against the regrettable, often abysmal, sometimes unspeakable events surrounding Canada’s history of aboriginal/non-aboriginal relations: Report of the Royal Commission on Aboriginal Peoples: Looking Forward, Looking Backward, vol. 1 (Ottawa: Canada Communication Group Publishing, 1996).
The Court discussed the issue of what is in the “public interest”. I find this part to be fascinating:
“ The weight to be accorded to that public interest, already significant, is driven upward by the sizeable amounts said to be in issue in this case: $116,999,482 given in receipts to participants in the tax shelter in 2008-2011, in circumstances where valid non-tax shelter donations over the same period totalled only $19,775. It is also driven up by Glooscap’s decision to involve itself in the tax shelter despite the clear warnings it received.
 In assessing and weighing the public interest considerations in this case against the considerations offered by Glooscap, I can do no better than to adopt the words of my colleague, Sharlow J.A., in International Charity Association Network, supra at paragraph 12 (2008 FCA 62):
The Minister takes the position, properly in my view, that the public has a legitimate interest in the integrity of the charitable sector. It is reasonable for the Minister to attempt to safeguard that integrity by carefully scrutinizing tax shelter schemes involving charitable donations of property and, where there are reasonable grounds to believe that the property has been overvalued, by taking appropriate corrective action. In the circumstances of this case, the Minister’s factual allegations, while untested, are sufficiently serious to outweigh any advantage [the charity] might derive from an order deferring the revocation of its registration as a charity.”
The Court ultimately decided:
“For the foregoing reasons, I shall dismiss Glooscap’s application to delay the revocation of its registration as a charity. The Minister shall have his costs of the application.”