Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Ethics and Canadian Charities, Avoiding 'Charity' Scams
The Supreme Court will be hearing the Guindon case in December. The case deals with the constitutionality of certain penalties that are provided for in the Income Tax Act (Canada). We have discussed the case in an earlier blog posting. It will be interesting to see what the Supreme Court of Canada decides in this matter. Apparently only about 50 such penalties have been imposed by CRA over the last decade but the ability to impose penalties is significant.
If the penalties are unconstitutional it means that CRA has less of an ability to impose any sanctions on individuals who have been involved with receipting abuse. The purveyors of abusive charity gifting tax schemes will get off with little consequence (except some may have made a lot of money) while the "investors" in those schemes have lost hundreds of millions of dollars. If Ms. Guindon is successful this will play into the Andrew Coyne type argument that the charitable donation incentive creates more problems than it solves and it should just be abolished. I am hearing that argument a lot from both the left (who don't like rich people abusing the system) and the right who don't like certain progressive charities claiming that the "rules" don't apply to them. In Canada we have by far the most generous system for tax incentives for donations to charities. With that generous system we need mechanisms to ensure that there are consequences for abusive charity gifting tax schemes. One potential upside if the case is decided in favour of the appellant is that CRA and the court system may have to prosecute more of these case under the criminal law. The standard of proof is higher but so are the potential consequences. The advantage of the court system is that there is far greater transparency for the public as to what is happening.
Here is the case summary:
Summary 35519 Julie Guindon v. Her Majesty the Queen (Federal Court) (Civil) (By Leave)
Canadian charter (Non-criminal) - Taxation, Assessment.
Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch) for information purposes only.
Charter of Rights – Taxation – Assessments – Penalties – Misrepresentation of a tax matter by a third party – Whether an individual assessed a penalty under s. 163.2 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), is entitled to the rights guaranteed by s. 11 of the Canadian Charter of Rights and Freedoms – Whether the requirement that a notice of constitutional question be served on the attorneys general is a matter going to the jurisdiction of the court to consider the constitutional issue – Application of R. v. Wigglesworth,  2 S.C.R. 541, and Martineau v. M.N.R.,  3 S.C.R. 737, 2004 SCC 81.
The Minister of National Revenue assessed against Ms. Guindon, the applicant, penalties under s. 163.2 of the Income Tax Act in the amount of $546,747, for false statements she made in the context of a charitable donation program. The Minister took the position that Ms. Guindon participated in, assented to or acquiesced in the making of 135 tax receipts she knew, or would reasonably be expected to have known, constituted false statements that could be used by participants in the donation program to claim an unwarranted tax credit under the Income Tax Act. Ms. Guindon appealed the assessment. She argued, among other things, that the third party penalty imposed under s. 163.2 of the Income Tax Act is a provision with true penal consequences and therefore falls within the ambit of s. 11 of the Canadian Charter of Rights and Freedoms. Accordingly, she claimed she should have been entitled to the fundamental substantive and procedural legal rights for which that section provides, such as the right to be presumed innocent, which would raise the burden of proof from proof on a balance of probabilities to proof beyond a reasonable doubt. The Tax Court accepted Ms. Guindon’s argument and vacated the assessment. The Court of Appeal reversed that decision.
The Chartered Professional Accountants Canada and the Canadian Constitution Foundation will be interveners in the case.
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.