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$144-million charitable tax scheme class action certified

|Written By Kendyl Sebesta

Ontario Superior Court Justice George Strathy has sent a large class action lawsuit to trial after a charitable tax donation “scheme” cost a retired Ontario staff sergeant more than $20,000 in reassessed taxes and interest.

Michael Cannon, the representative plaintiff in Cannon v. Funds for Canada Foundation, brought the motion for certification of the action as a class proceeding in August 2011 after nearly 10,000 Canadians, including himself, contributed $144 million in total to the Donations for Canada Gift Program between 2005 and 2009.

Law firms would be well advised to carefully consider the role which their lawyers play in the marketing of their clients’ products, says Sam Marr.

The brainchild of financial software businessman Edward Furtak, the gift program enlisted a $2,500 donation from donors like Cannon, who would then become part of a private charitable trust he created in Bermuda. This would then lead to acquired units of the trust for $7,500, ultimately resulting in $10,000 remaining in the possession of a charity for a moment before donors received a tax receipt for $2,500 in cash and a $7,5000 donation-in-kind for the trust units.

When the Canada Revenue Agency reassessed the program donations in 2009, the donors were left with a hefty bill ordering them to pay the full deduction plus interest for expecting to receive financial gains from the tax credit.

“When Michael Cannon heard about the Donations for Canada Gift Program — an opportunity to obtain a $10,000 charitable tax credit in return for a $2,500 donation — he thought it was ‘too good to be true,’” writes Strathy in Cannon. “It was. A few years later, his tax returns were reassessed by Canada Revenue Agency and he had to repay his deductions, with interest. The only thing he received for his ‘donation’ was a tax bill.”

Other donors, including teachers, lawyers, and nurses, were required to repay the full deduction plus interest as well, with one person donating $4 million, according to court documents provided in Cannon.

Additional defendants in the case also included a sizable list of Furtak’s corporations and private trusts, directors and trustees of the Funds for Canada Foundation, and Patterson Palmer Law.

Strathy also pointed out the gift program likely had an extensive sales team and written legal opinions in Cannon, as well as a large network of companies, trusts, and significant cash flow provided by Furtak’s trust.

The program also involved legitimate charities, including Biathlon Canada, the Canadian Lacrosse Association and the New Brunswick Foundation for the Arts.

The charities are not facing allegations of wrongdoing in court.

Ultimately, the CRA revoked the charitable status of the program in 2009, declaring it a “scheme.” An audit by the agency revealed it had issued $176.5 million in receipts received through a tax shelter at that time.

“This was not just a victory on procedural grounds authorizing the certification of the class action,” says Samuel Marr, lead counsel for Cannon and partner at Landy Marr Kats LLP. “Faced with two defendants’ motions for summary judgment, Justice Strathy took a hard look at the merits of the case, and determined that it was a meritorious case that should proceed to trial.”

The result, Marr adds, will likely permeate the legal community for some time.

“Behaviour modification is an important goal of the class proceedings legislation,” says Marr. “Law firms, for the protection of themselves and the public would, in my view, be well advised to carefully consider the role which their lawyers play in the marketing of their clients’ products.”

A trial date has not yet been set.

  • retired

    Larry Russell
    Both my wife and I participated in the Donations Canada scheme 2005-2007 as advised by a financial advisor - and friend - in Winnipeg. I should have listened to my "spidey senses", pure case of "if it sounds too good to be true, it probably is". We filed notices of objections to our tax re-assessments by CRA for a number of years and watched the "amount owing" climb to very scary amounts. We decided to take CRA's eventual settlement offer and it cost us 10s of $1000s. We now have our hopes set with the Paliare Roland class action suit to regain some of our losses.
  • More of the same

    Tax Lawyer
    These types of shelters have been implemented many many many times. A part of the problem is that CRA hands out a tax shelter number when schemes like this are registered, even if they appear bogus. Yeah makes no sense. So participants rely in part on that. They also rely on opinions from big and small firms that state that, yes, according to the precise wording of the provisions of the Income Tax Act the tax outcome makes sense. However, the issue is policy and that the government does not want to see its coffers raided. Also, recently the government retroactively modified the legislation. So, innocent participants get left with the bill and some lawyers make a buck writing the opinions and others appealing the assessments.
  • never again

    steven wilson
    it took CRA 13 years to catch up with me to the tune of 7000$
  • Unfortunate victim

    d martin
    I was mislead by a guy who ran a tax office down on the Danforth. It caused me so much grief and money
  • exec admin

    Penny Gay
    please advuse if names can still be added
    Tom Reid fray used his own family as well and bank
    Accounts are now frozen and they are left we with
    Nothing - I know of three or more people that
    Would like to be included
  • DONOR 2002 2003

    d martin
    I also was a victim of this man. His office was on the Danforth. I ended up settling my debt. It was a horrible financial disaster
  • tom reid fraud

    pauline marshall
    my wife and myself were victoms of tom reid fraud. totaly destroyed our lives
  • CHT rip off

    Terry Stef
    Can I PLEASE have contact in of to add out names to this class action lawsuit, We get no reply from CHT .They took our money and ran. CRA is after us for a ton. Tens years later,
    Thanks .
  • Mrs

    Angela Brandt
    Hello, I was the victim of Thomas Reid = National Childrens Burn Society. I filed a notice of objection but was taking over a decade. I signed the waiver to my right to objection for reduced capital gains. However, the CRA does not seem to be addressing the taxpayer relief. My current balance is 27K. I should note I filed in 2002 and 2003 and received an additional $3000 on my income tax return at that time. My balance was originally around 50K. Any action I can take? I was diagnosed with mental illness and i have a disabled child which i can barely afford.
  • CGI 2003

    S L Iftody
    Could you please send me the e-mail address or phone number of the person I would contact in order to join this class actions suit.
  • also a donor to CGI

    William D Bell
    would like to know how to get my name added to list
    on class action suit
    to possible recovery of cost associated with this scam
    thanks William D Bell
  • The gang of

    Armin Sachse
    The perpetrator people like Edward Furtak, Stephen Rosen, Ron Olsthoorn, David Singh
    The abetting.
    The account firms that approved it MBO,
    The legal firms that approved it
    The investment house that sold it.
    Canadian Revenue Agency who encouraged it.
    All profited it from the scheme.
    CRA after years dropped all interest owed which would probably ranked it as one of the biggest benefit ors of the scheme
    Could you please send me the e-mail address or phone number of the person I would contact in order to join this class actions suit. I was also stung by these scam artists.

    K. Fox




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