Charitable Donation Schemes and Proposed Legislation

Edwards v. The Queen.  A recent decision from the Federal Court of Appeal, Edwards v. The Queen (2012 FCA 330), contains interesting dicta regarding the Canada Revenue Agency’s (CRA) administration of proposed legislation in the last decade or so, with the presiding Justice JA John M. Evans declaring it “fundamentally unfair.” 

Edwards was a case being closely followed by other taxpayers who have taken part in the prolific charitable donation tax credit schemes whereby taxpayers obtain a charitable donation tax credit in an amount greater than their outlay. Mr. Edwards was just one of approximately 8,000 taxpayers that had been reassessed, and other appeals were hanging in the balance.

To complicate matters further, the CRA had already been applying proposed amendments to the Income Tax Act to certain situations as if they were law. However, they refused to apply them for Mr. Edward’s situation. They simply took the position that the rules did not apply to his circumstances, and, because it was an administrative position on proposed amendments rather than interpretation of law, the taxpayer could not challenge this decision.

This administration of policy by the CRA is disreputable to say the least. However, in the first instance, the Tax Court of Canada hearing, when the taxpayer brought a motion for an adjournment of the hearing pending the enactment of the proposed amendments, the trial judge dismissed the application; this was a reasonable judgment given the facts at the time.

However, just five days prior to his hearing at the Federal Court level, Mr. Edwards filed a supplementary book of authorities which disclosed that the proposed amendments were included in Bill C-48, which received first reading on November 26, 2012. If enacted as proposed, these amendments would have retroactive effect to when they were initially announced and they may have permitted Mr. Edwards to claim all or a portion of his denied credit.

At paragraphs 10 and 11 Justice Evans stated:

[10]      In my view, this is a new fact that was not, and could not have been, put before the Motions Judge when she dismissed the motion for adjournment on July 23, 2012. It is a fact that might well have caused her to decide the motion differently, because it is highly probable that the proposed amendments will be enacted next year, especially since the Government now has a majority in both the House of Commons and the Senate.

[11]      In addition, if Mr. Edwards’ appeal were heard before the proposed amendments became law and decided on the basis of the existing law, another lead case would be selected to litigate the issues in dispute on the basis of the proposed amendments as enacted. Refusing an adjournment of Mr. Edwards’ Tax Court appeal now will thus not promote judicial economy.

The Edwards appeal reveals the potential injustice that the CRA can administer when dealing with proposed legislative amendments. Proposed amendments, especially when they are purported to have retrospective effect, can cause a great deal of confusion, but thankfully we continue to receive sound judgments and fair results from our courts of law on these matters. Mr. Edwards has until November 26, 2013 to see if the proposed amendments will in fact be enacted; he agreed not to apply for any further adjournments.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.