THE LAWYERS WEEKLY
April 6, 2012 | 11
Saga continues over
charity tax opinions
SEAN KILPATRICK / THE CANADIAN PRESS
The Canada Revenue Agency reassessed tens of thousands of donors, many of whom are still in the appeals process.
The recent certification of a
class action against two law firms
that prepared tax opinions on the
legality of a charitable donation
structure is another chapter in
the continuing saga of consequences for participants in a
number of these structures, and
serves as further warning to lawyers on the perils of providing tax
opinions to support them.
On Jan. 18, Justice George
Strathy of the Ontario Superior
Court certified a class action
against the promoters of a charitable donation tax scheme and the
law firms that provided supporting opinions, in Cannon v.
Funds for Canada Foundation,
 O.J. No. 168.
Just the day previous, Justice
Strathy approved the settlement
of a similar class action against
Fraser Milner Casgrain, related to
the Banyan Tree Foundation Gift
Program that operated from
2003 to 2007 in the total amount
of $11-million (Robinson v.
Rochester Financial Limited,
 O.J. No. 534).
Both cases involved complex
schemes that sought to maximize
a donor’s tax savings using either
a leveraged loan or a multilevel
trust structure, which often left
little money in the recipient registered charity or amateur athletic
association compared with the
fees paid to the promoters, lawyers and others involved.
In both instances, the Canada
Revenue Agency reassessed tens
of thousands of donors largely on
the basis that their donations
were invalid, resulting in substantial tax, interest and penalties.
Many of the CRA reassessments
are still in the tax appeals process;
as a result, many of the donors
have begun class actions against
the promoters, lawyers and others
involved in an effort to recoup the
funds they lost.
In Cannon, the two law firms
(Patterson Palmer Law and
McInnes Cooper) were included
as defendants based on what is
alleged to be the uncontrolled
and imprudent use of their tax
opinions, “comfort letters,” and
the reputation of a particular
lawyer in the marketing of the
The lawyer in question, who
had been employed by both firms
at different times, prepared legal
opinion letters regarding the
legality of the scheme on three
occasions. The court stated that
the 2005 letter implied that a
donor would be entitled to receive
tax credits for both a cash donation and a donation in-kind of the
sub-trust units that were allegedly
obtained by the donors. This
implication was made express in
the 2006 and 2007 legal opinions, subject to the qualification
that the General Anti-Avoidance
Rule may be found to apply.
According to the lawyer, his
opinion letters were issued on the
basis that they were not to be
shown to the donors, although
the donors’ professional advisors
could use them when advising
their clients. All the donors were
required to sign a waiver that they
had received independent legal
advice and were prepared to
assume the risk of reassessment.
The lawyer also provided what
the court referred to as a “comfort
letter” for the promoters on three
occasions. It is alleged that these
were intentionally given to potential donors to provide them with
comfort that the tax scheme had
been vetted by a lawyer for compliance with the Income Tax Act
and regulations, and that the lawyer understood that they would
be used by the promoter to inform
potential donors that he had
issued the opinion letter for the
benefit of the promoter.
The marketing brochures for
three years each included a signed
letter from the lawyer on firm
letterhead, stating that the tax
scheme was “in compliance” with
the tax act and regulations and
that the opinion could be viewed
by professional advisors of donors.
Notably, the brochure included a
statement addressed to donors
with the lawyer’s credentials,
biography and photograph. As
well, there was a note from the
promoters addressed to the
donors that indicated an opinion
had been prepared by the lawyer
in relation to the tax scheme.
These brochures were accompanied by the comfort letter.
The representative plaintiff
claimed negligent misrepresentation and negligence against
the law firms based on the
donors’ use of the opinion and
comfort on whether to participate in the scheme.
In making his application for
certification, the representative
plaintiff argued that the case at
hand was similar to the Banyan
See Tax Page 13
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