Written on behalf of Feigenbaum Consulting
Over the last year, we have written a few blogs about how the Canada Revenue Agency (“CRA”) and the Tax Court of Canada have responded to a tax shelter known as the Global Learning Gifting Initiative (“GLGI”) that was reported to have been a fraudulent scheme. Many people who took part in the GLGI program have found themselves with significant tax bills following reassessments on their taxes owed. As previous blogs show, people have been largely unsuccessful in challenging the CRA’s reassessments, and a recent decision, Johnson v. The Queen, including a taxpayer who took part in GLGI provided the court with the opportunity to address a number of individual grounds of appeal.
Program aimed at lowering tax burdens is revealed as fraudulent
The GLGI program is one of the largest known tax scams in Canadian history. People who participated in the program would make charitable donations to Millennium; an organization owned by GLGI. In exchange for their donations, GLGI would give the donors educational software licenses. The assigned value of the licenses was up to eight times higher than the amount they donated. The taxpayers would then donate the licenses to a second charity called the Canadian Charities Association, which would provide the taxpayers with receipts equal to the “value” of the license.
Once the scheme was discovered, taxpayers who took part had two options. The first was to enter into a settlement agreement with the CRA under which they would pay penalties and taxes owing while surrendering their right to appeal. The other option was to join a group of taxpayers in a single appeal. However, some people were unsatisfied with their options and pursued individual appeals. In the case being discussed today, the CRA sought to have a number of grounds of appeal pursued by the taxpayer struck.
In order for the pleadings to be struck, the Crown was obligated to show that the facts presented are “plain and obvious” and that the grounds of appeal it seeks to strike have no reasonable cause of action. The court found that in this case, the taxpayer did not include any facts in his submission. Before allowing the taxpayer to amend his pleading, the court asked whether, even if they amended, they would support a cause of action.
Taxpayer is critical of the conduct of the Minister
A number of the taxpayer’s grounds for appeal focused on the conduct of the CRA. The first concerned the approval of GLGI as a charity before it was revealed to be a scam. The taxpayer said that since GLGI had been registered as a charity, donations made to it should be allowed. The court responded by stating that the validity of the GLGI and its associated charities has nothing to do with whether the donations made were valid. Simply put, a donation to a legitimate charity can still be deemed to not qualify for a tax credit.
The taxpayer also questioned whether the CRA was aware of the tax shelter being offered by GLCI, and if so, if there was an obligation to warn the public about it. Again, the court wrote that it is not the CRA’s responsibility to approve of individual donations before they are made, and that
“The CRA’s actions in warning or failing to warn taxpayers about the GLGI tax shelter are irrelevant to determining the validity or correctness of the (taxpayer’s) reassessments. Either the (taxpayer’s) donations were valid or they were not. No warning or lack thereof will change this.”
The theme here seems to be that even if the GLGI was in all other aspects a valid charity, it does not mean that every donation made to it is not subject to scrutiny and approval by the CRA.
The taxpayer also sought to rely on the Taxpayer Bill of Rights, which is an administrative document published by the CRA which outlines the quality of service it intends to provide Canadians. The taxpayer did not provide details as to how the Taxpayer Bill of Rights was violated, but the court wrote that it isn’t a law, and actions contrary to it are not illegal.
Taxpayer attempts to pursue a path to appeal via the Charter
The last ground of appeal addressed by the court was the taxpayer’s question of whether the decision of the CRA infringed on his constitutional rights, specifically those found in Section 7 of the Charter, which provides that “everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.”
The court wrote that it has been established that an assessment under the Income Tax Act cannot result in a violation of a taxpayer’s right to life, liberty, or security of the person. The court explained that an income tax assessment is a civil matter dealing with economic interests, which do not violate Charter rights. The taxpayer sought to appeal on the basis of other Charter rights, but the court denied those as well.
Ultimately, the taxpayer was unsuccessful in his attempts to appeal largely on the basis of the CRA’s failure to catch the GLGI scheme before people bought into it. We will be sure to keep following this story as it continues to make headlines.
Work with the experienced tax team at Feigenbaum Law to make tax decisions that are in compliance with the law
Contact the experienced lawyers at Feigenbaum Law to develop a custom solution to your personal tax planning needs while looking to avoid traps like those encountered by the appellant in this case. We work on individual tax strategies with our clients with the foal of taking advantage of all legal opportunities to reduce tax burdens. We offer services to clients in the US, Canada and around the world. Contact us online to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.