Buy low, donate high schemes are trouble for everyone
In what appears to be a first for the Tax Court of Canada, a costs award has been levied against a non-party promoter of a charitable donations scheme. In Mariano et al v Her Majesty the Queen
(2016 TCC 161), the promoter of a donations sham was held directly liable to pay litigation costs relating to CRA’s prosecution of the promoter’s program participants. In the scheme the court ruled that the culpable participants lacked donative intent for their donations, using the Canadian tax credit system to enrich themselves, instead of intending to charitably impoverish themselves through their donations, which perpetuated a sham on the Canadian public.
This signals a new era in the Tax Court where the general rule has traditionally been that cost awards could only be levied against the parties to litigation themselves. The Tax Court’s docket has been clogged with appeals from thousands of taxpayers relating to aggressive or entirely untenable tax schemes concocted by promoters and it was only a matter of time before the promoters of these questionable schemes were also held directly accountable. In Mariano
the promoter not only funded the appeals, but conducted them from the sidelines “if not directly from on-field”, assisted in the creation of a defense fund in anticipation of the inevitable CRA a challenge, the promoting of a test case, the hiring of the expert witnesses and the paying of legal fees. In short, the court recognized that the promoter controlled all aspects of the program and the court made it share, along with its participants, who turned a blind eye to the nature of the program, in paying the extensive costs related to its ultimate downfall.