Donation
Continued From Page 9
the sole purpose of providing
loans to donors. $70,000 of this
amount was donated to the foundation. (The foundation then
paid the funds to two charities,
one of which had entered into a
fundraising agreement with the
promoter.) The foundation issued
a receipt reflecting a donation of
$100,000.
Of the remaining $10,000,
Maréchaux deposited $8,000
with the lender as security for the
loan, with the intention that it
would accrete to $80,000 in 20
years. A further $800 portion
was paid for a policy to insure
against the risk that the security
deposit would not accrete to that
amount. The remaining $1,200
was paid as a fee to the promoter.
The same day, Maréchaux satis-
fied the loan by assigning the
security deposit and insurance
policy back to the lender. Had the
CRA accepted his claim for a tax
credit for the $100,000 dona-
tion, Maréchaux would have
received a rate of return exceed-
ing 60 per cent on his initial
$30,000 cash outlay.
Because, the court said, a “signifi-
cant benefit” had flowed to him
in return for making it.
That “benefit” was the financing arrangement — the $80,000,
20-year interest-free loan, together
with the arrangement that enabled
Maréchaux to discharge it immediately after he incurred it. The court
said it was clear that the $8,000
security deposit could not be
expected to accrete to “anywhere
near” $80,000 in 20 years, so it
could not be said that he had paid
sufficient consideration to discharge the loan.
The CRA has already indi-
cated that it is inclined to treat
donors who have participated in
similar programs like Maré-
chaux. But donors who wish to
have recognized at least the cash
portion of their donation (in
Maréchaux’s case, the $30,000
amount) may yet be able to do so.
Adrienne Woodyard and David
Nathanson are counsel at Davis
LLP in Toronto. Their practices
focus on tax dispute resolution and
planning.
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Directors must resign properly
Directors
Continued From Page 11
ruptcy or has become subject to
a bankruptcy order, the CRA
can hold a director liable by
proving its claim against the
corporation within the defined
six-month period.
Once the CRA has properly
confirmed the corporation’s lia-
bility, the director can be held
liable unless he or she can suc-
cessfully advance one of the sev-
eral procedural and substantive
defences available. For example,
the director can:
Each director liability case
comes with its own unique set of
facts and each category of defence
has a history of case law, which in
defining the defence’s availability
and threshold, can be conflicting
at times.
One of the defences available
to a director is that the CRA is
out of time. Subsection 227.1( 4)
of the ITA and subs. 323( 5) of
the ETA provide that the CRA
cannot commence an action
against or assess the director
more than two years after he or
she ceased to be a director of
the corporation.
To start the clock running by
resigning, the court has held that
the individual must follow the
requirements of the relevant corporate statute. After properly
resigning, it is important that the
individual does not become a de
“
One of the defences
available to a director
is that the CRA is out
of time.
facto director by continuing to
perform directorial duties, as this
may revive liability.
The two-year limitation periods in subs. 227.1( 4) of the ITA
and subs. 323( 5) of the ETA are
also triggered when a corporation is dissolved, as there can be
no director when there is no
corporation. However, when the
CRA revives the corporation by
way of a court order, the previous director becomes a director
again and the previous director’s liability may be revived.
The court has held that the
revival only restarts the director’s liability if that is specifically provided for in the court
order reviving the corporation
(see Aujla v. Canada, [2007]
T.C.J. No. 562).
Previously, the court had
held that an individual ceased
to be a director when his or her
ability to act freely as a director
is removed by certain events,
such as the corporation being
put into bankruptcy and its
finances being taken over by a
financial institution (see: Robi-
taille v. Canada, [1989] F.C.J.
No. 1136). However, the current
case law provides that merely
losing control of the corpora-
tion due to an event (i.e. bank-
ruptcy or receivership) is
insufficient to start the clock
running (see Canada (Attorney
General) v. McKinnon (C.A.),
[2000] F.C.J. No. 1730). Of
course, the loss of the ability to
remit source deductions or net
tax may be the basis for a suc-
cessful due diligence defence
(see Trajkovich v. Canada,
[2008] T.C.J. No. 305).
Christine Ashton is an asso-
ciate with Wilson Vukelich LLP
in Markham, Ont. Her practice
focuses primarily on labour and
employment law, tax litigation
and other related litigation.
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