On July 31st, 2015 the Supreme Court issued its ruling in the matter of Ms. Guindon, a charity director, thus ending the appeal. The Supreme Court found that Ms. Guindon was indeed civilly liable for her actions related to the issuance of tax receipts by a charity.
By way of reminder, Ms. Guindon was a lawyer who signed a tax opinion letter indicating that a specific donation structure met all legal tests. In fact, not all had been met. Unfortunately, the signed version of Ms. Guindon’s opinion letter was distributed by the tax shelter promoter and used to convince people to purchase (non-existent) timeshare weeks and then donate them to a charity. Ms. Guindon was also a director of the charity which received the donations. Because the time-share weeks were never validly created the receipts issued for the donation were fraudulent.
The CRA assessed Ms. Guindon a penalty related to a percentage of the amount of each receipt issued. The total value of the penalty was almost $550,000. Ms. Guindon appealed the assessment and won at the Tax Court but lost at the Federal Court of Appeal. The Supreme Court agreed to hear the matter in March of 2014, the trial was held on December 5th 2014 and judgement was delivered on July 31st, 2015.
The arguments made to the Supreme Court were based on previous decisions at that level describing the circumstances in which a civil penalty may attract charter protection. There have been two major cases in the area decided by the Supreme Court and a smattering of other cases decided in the various Provinces relevant to the topic. This was the first time this provision of the Income Tax Act, which had originally drafted to target those who provided tax opinions and documentation used by third parties in the reporting of their taxes, had been tested in Court.
While this case has application in other areas of the law, the most direct result of this case is that the Charter does not apply to this specific provision. As a result any charity director, tax professional, or indeed anybody providing a document to another which they believe could reasonably be used on that individual’s tax return must take precautions to ensure that the information contained therein is accurate. The penalty provision is very wide and could apply (if they have the requisite mental element) not only to the individuals who signed the receipt but to anybody who made, participated in, assented to or acquiesced in the making of a false statement on a document. And indeed it could apply not only to the directors but to staff people if those people can be shown to have engaged in culpable conduct in allowing the statement to be made.
One would hope that for the most part directors of a charity would take great care in ensuring that the receipts issued are accurate. This provision then - at least insofar as it applies to the charity world - will not be used often. Indeed, one would expect that it would be applied with greater frequency to those on the fringes of the charity world such as charity promoters and others who misuse charity’s tax receipting privileges. Nevertheless, the wide wording of the provision and the lack of Charter protection means the charities must be extremely careful about the documents they supply to their supporters in recognition of gifts received.
Adam Aptowitzer of Drache Aptowitzer LLP is a charity law lawyer with a national practice based in Ottawa. He has been published in Canadian Taxpayer, Canadian Fundraising & Philanthropy and the Not-for-Profit News. He has also published a widely distributed study on the regulation of Canadian charities with the C.D. Howe Institute.
As a speaker, he has addressed many professional associations and Canadian charities. He has also given expert advice on Parliament Hill. Adam is an executive member of the Canadian Bar Association’s Charity and Not-for-Profit Law section. Contact him at 613-237-3300 or visit http://www.drache.ca.
