Many people have quite rightly asked “why does it take so long for a charity tax shelter scheme to ever make it to court?”.  “Why does a 2001 donation only get to court in 2010?”.  For example, we recently had a decision in Maréchaux, F.M.E. v. The Queen (TCC) which dealt with a 2001 taxation year and the decision in favour of CRA was in 2009.  Well if you are interested in the procedural wrangling you can read a recent decision, Kossow v. the Queen, in which it appears that the participants/promoters of a tax shelter are doing everything they can to stall litigation as long as possible to delay a court decision on the scheme.

Some of the promoters of these schemes say that CRA is not interested in having the matter go to court because CRA knows it is going to lose!  In fact CRA has been winning these cases, like Marechaux, and in the Kossow case costs were awarded already over a year ago to CRA by the courts because “At some point in time … discoveries must end so that the parties can get ready for the trial in this matter. That time has arrived”.  The decision notes “There is a responsibility on litigants to move their litigation along, and I find the Appellant [participant] has not done so. ”  Justice Campbell had in fact already set a trial date for the matter in mid-June 2008!  With the Tax Court’s busy schedule and the lawyer’s previous comitments it seems that the earliest date that this matter can get to trial is January 2011. 

Some of the highlights of the decision by The Honourable Justice Campbell J. Miller on the motion include:

[2]          This litigation for the years 2000, 2001 and 2002 concerns what the Respondent calls a leveraged-donation scheme, by which a taxpayer borrows, on favourable terms, 80% of funds used to make a donation to Ideas Canada Foundation. The Respondent claims that, given the circumstances of the loan, the taxpayer cannot be said to have made a gift. In the alternative, if there was a valid gift, the General Anti-Avoidance Rules (“GAAR”) is engaged to deny the credit that would otherwise flow from the donation.

[3]          The Appellant objects to the Motion, firstly on the basis that it would deny the Appellant fair and full disclosure, and, secondly, on the basis that it would be unfair to ask the Appellant to incur any further costs in this matter, especially the cost of a two-week trial, when the Federal Court of Appeal has before it an appeal in the Maréchaux v. R.[1] case. Justice Woods in the Tax Court of Canada decision in Maréchaux dealt with the issue of whether a donation is a gift in circumstances of using borrowed funds. After referring to the definition of a gift in the Friedberg v. R.[2] case she concluded:

32.    In applying the above definition to the facts of this appeal, it is clear that the appellant did not make a gift to the Foundation because a significant benefit flowed to the appellant in return for the Donation.

33.    The benefit is the financing arrangement. The $80,000 interest-free loan that was received by the appellant, coupled with the expectation of the Put Option, was a significant benefit that was given in return for the Donation. The financing was not provided in isolation to the Donation. The two were inextricably tied together by the relevant agreements.

35.    I would also comment that, even without the Put Option, the financing provided a significant benefit. It is self-evident that an interest-free loan for 20 years provides a considerable economic benefit to the debtor. I would also note that the $8,000 security deposit could not reasonably be expected to accrete to anywhere near $80,000 in 20 years. The evidence of Mr. Johnson clearly showed this, even taking into account differences of opinion regarding some of his assumptions.

[5]          It will be helpful to provide a brief overview of the history of this litigation. Ms. Kossow filed her Appeal with the Tax Court of Canada in June 2005. There are well over a thousand taxpayers who made donations to the Ideas Canada Foundation in similar circumstances to Ms. Kossow, and who have an interest in the outcome of this Appeal. The taxpayers are spread across the country. In November 2007, I had a teleconference with counsel from Toronto representing Ms. Kossow and counsel from Vancouver representing Messrs. Gould and Fiorante who had also brought appeals in connection with the Ideas Canada Foundation’s donation arrangement. I ordered that the Kossow matter should proceed expeditiously and set a two-week trial date in mid-June 2008. I was satisfied at the time that the Kossow matter was further advanced vis-à-vis discoveries and pre-trial matters. All related appeals would await the outcome in Kossow. At the same time, I ordered full disclosure pursuant to Rule 82 by January 31, 2008.

[8]          The Respondent [CRA] provided a written response to all 1546 questions, though objected to answering written questions 1424 to 1546 arising from undertakings, on the basis that Justice Valerie Miller did not order such, notwithstanding the Appellant’s motion before her.


[11]      On March 16, 2009, the Federal Court of Appeal dismissed the Appellant’s Appeal of Justice Valerie Miller’s Order and Justice Létourneau stated:

“As for the Appellant’s request that the discovery process continue, the Judge noted that there had been extensive discovery. “At some point in time”, she writes at paragraph 66 of her Reasons for Judgment, “discoveries must end so that the parties can get ready for the trial in this matter. That time has arrived”. In the exercise of her discretion, she was entitled to put an end to the discovery process: see Canada v. Aventis Pharma Inc. 2008 FCA 316.”

The Federal Court of Appeal ordered costs of $3,000 payable forthwith to the Respondent.

[21]      With respect to the Appellant’s position that there remain documents to be disclosed, I have considered the nature of those documents and concluded that even if the Appellant was successful in her Motion, the potential marginal knowledge that might be unearthed is insufficient to justify any further delay. The issues in this matter are clear. The extensive documentation surrounding the Ideas Canada Foundation program is known to both sides. I recognize that there is an awkwardness in a situation such as this when the taxpayer is a small cog in a larger wheel, of which the taxpayer has minimal knowledge and limited access to the extensive surrounding documentation. But that is something for the trial judge to address. The preliminary process of disclosure of documents and examinations is meant to put both sides on an equal footing as far as knowing the case each has to meet. I find the Parties are there, and that any delay at this stage is a delay of a fair hearing.

[32]      In summary, the time has come to end the procedural skirmishes and to get this matter to trial.  Certainly we have rules and procedures in our system to ensure both Parties approach a trial on a level playing field. If one side believes the other is not playing by the rules, then, yes, they can come to Court to seek a resolution to the impasse so the litigation can move on its steady course to the fair hearing. But, at the same time, the Court should be able to say, as the impartial arbiter – enough. Time, expense, extensive disclosure and fairness dictates an end to the process. I do not share Ms. Tari’s view that doing so denies fair process at this stage. By setting a trial date in January 2011, I hope to accomplish the following: to ensure the availability of counsel and the Court, to provide time for the release of the Federal Court of Appeal decision in Maréchaux, to minimize the risk of delay by further motions, to minimize further costs other than trial and to provide some certainty, not just to Ms. Kossow, but to all taxpayers with an interest in this matter arising from donations to Ideas Canada Foundation.

Here is a full copy of the decision: