Hilborn Charity eNEWS strives to
present a full range of views and comment on issues that matter to Canada's
charities. This article addresses the decision in Guindon v. The Queen, which
was previously reviewed by Adam Aptowitzer here.
The recent decision of the Tax Court of Canada in Guindon v. The Queen
((2012) TCC 287)
poses a major setback for the government in the battle against abusive donation
scams. The case dealt with whether the
third party penalties provided for under section 163.2 were properly assessed
against the appellant. The purpose of
this provision is to penalize persons who knowingly, or in circumstances
amounting to gross negligence, participate in, promote, or assist conduct that
results in another taxpayer making a false statement or omission in a tax
Given the egregious facts of the case, one might have
anticipated a favourable outcome for the government. Nonetheless, the court's somewhat surprising
holding, if not overturned on appeal, will significantly limit the ability of
the government to assess penalties against promoters of abusive donation scams.
case dealt with a buy-low, donate-high arrangement involving time share
units. Like other donation arrangements
of this nature, the arrangement was fairly complex, involving a number of
foreign and domestic entities. The
bottom line was that donors could in effect purchase time share units for a low
price and then donate them to a particular charity for a donation receipt
reflecting a much a higher value.
the appellant lacked expertise in tax law, she agreed to provide the promoters
with a legal opinion representing that participants in the donation arrangement
would be considered for income tax purposes to have made charitable gifts
(presumably at the higher value, though the facts are not explicit on this
point). She ultimately provided the
favourable opinion without ever having reviewed all of the relevant
documentation for the arrangement.
the appellant was the president of the charity participating in the
arrangement. She signed 135 donation
receipts acknowledging that the time share units had been donated to the
charity under the arrangement. In
signing the gift receipts, the appellant relied upon the verbal representations
of the promoters that title to the time share units had indeed been transferred
to the charity but took no other steps to independently confirm that the
transfers occurred. As it turns out, the
transfers never occurred.
to the unusual circumstances of the case was the fact that the appellant not
only backed the arrangement through a legal opinion and issued receipts as an
officer of the charity recipient, but also participated as a donor.
Minister of National Revenue assessed penalties against the appellant under s.
163.2 totalling $546,747 for making false statements that she either knew, or,
in effect, should have known, would result in other taxpayers - namely, the
donors participating in the arrangement - making false statements or omissions
in their tax returns. The alleged false
statements included her legal opinion and the improperly issued 135 donation
concluded that if the penalties under s.
163.2 were civil in nature, i.e., something
less than a truly criminal sanction, then they were properly assessed. Two issues were highlighted as being of
particular concern to the court.
first issue was that the appellant prepared her legal opinion in support of the
donation arrangement without reading all of the relevant documentation. The appellant could not deny knowing that the
opinion was misleading because it contained the express statement that she had
reviewed all of the principal documents even though she had not.
second issue was that appellant (in her capacity as an officer of the
participating charity) issued donation receipts solely in reliance upon the
representations of the promoters of the donation arrangement that the property
transfers to the charity had indeed occurred.
Justice Bédard held that, although s. 163.2 does not create an across-the-board
requirement for charities issuing gift receipts to confirm advisors' representations that title transfers have occurred, it was
inappropriate in these circumstances
for the appellant to take no steps to confirm the information received.
the court's reasoning on this point was not entirely clear, the concern
appeared to be that the appellant had reason to be suspicious of the promoters
because they pressured her into providing a supportive legal opinion without
providing her all of the background materials.
however, the court concluded that none of these were controlling considerations
because s. 163.2 creates what is in substance a criminal rather than a civil
sanction. The penalties brought against
the appellant would therefore have to be prosecuted, not in a tax court, but
instead in a provincial court in accordance with criminal procedure and
applicable protections under the Charter
of Rights and Freedoms.
coming to the conclusion that the penalties under s. 163.2 are criminal in
nature, the court relied upon the breadth of this provision. Specific mention was made of the fact that
the penalties are not subject to an express time limit and that the amount of
the penalties could be significant, as evidenced by the $546,747 penalty assessed
against the appellant. The court also
emphasized that s. 163.2 applies where a third party makes a false statement
that "could" be relied upon regardless
of whether it was ever actually relied upon by anyone.
holding in Guindon has been appealed
by the government. If the decision is
left to stand, it will become significantly more difficult to impose penalties
on advisors backing abusive donation schemes.
Such penalties would have to be prosecuted in accordance with the
strictures of criminal procedure and constitutional protections. Also, the standard of proof will be raised
from that of proof on a balance of probabilities to proof beyond a reasonable
doubt. This would be significantly
damaging to the future viability of s. 163.2.
the appeal is ultimately unsuccessful, it is likely that s. 163.2 will be
amended. The provision was very broadly
drafted, presumably so that it could be applied to abusive circumstances not
specifically within the contemplation of Parliament at the time it was adopted. That strategy has now come back to haunt the
architects of the provision.
timing of the judgment is somewhat unfortunate in that it was released while
the Standing Committee on Finance is completing its study of donation
incentives. The decision not only brings
attention to abuses of donation incentives at a crucial moment of policymaking
in this area of law, but it also calls into question the current capacity of
the Canada Revenue Agency to police such abuses.
Guindon decision was no doubt
received with some element of frustration by tax authorities. One might have thought that the facts,
involving as they did a lawyer lacking expertise in tax law providing a
supportive tax opinion for a donation scheme without ever reading all of the
background documentation, represented exactly the kind of circumstance within
the contemplation of s. 163.2. But as is
so often the case, there is more than one side to this story. Assessing well over a half million dollars of
fines against the appellant personally was more or less an invitation for the
court to very carefully consider whether proper protections are in place. The case tells a story of overreach as much
as anything else.
Adam Parachin is
associate professor at the Faculty of Law at the University of Western Ontario. He teaches, researches and writes in
the areas of trusts, estates and charities law. His work in the area of
charities law has recently been recognized through the Douglas J. Sherbaniuk
Distinguished Writing Award from the Canadian Tax Foundation and a substantial
research grant from the Social Sciences and Humanities Research Council to
study donation incentives.