Following its October 19, 2015 decision in Mariano v The Queen (amended on November 23, 2015), the Tax Court of Canada released an Amended Amended Order and Amended Amended Reasons Respecting Submissions on Costs on August 13, 2016. The facts of the case are described in October 2015’s Charity & NFP Law Update and relate to a charitable donation scheme. The taxpayers who participated in the scheme lost their appeals and the Court awarded costs to the Crown. The specific taxpayers who lost, i.e. the lead cases, five other taxpayers “who agreed to be bound by the decision in this matter” under Rule 146.1 of the Tax Court of Canada Rules (General Procedure) (“Rules”), the promoter of the scheme, and the Crown had “the opportunity to address the issue of costs.”
As the proceedings were under the Court’s General Procedure, the Court reviewed the general principles applicable to awarding costs under Rule 147. The Court also considered the quantum and reasonableness of the legal fees and expert witness fees claimed, who should pay, and how the costs should be allocated. The Court ultimately ordered the Crown’s costs to be set at $491,136.95 minus certain expert witness fees that the Court found to be unnecessarily claimed by the Crown. Liability for costs is to be shared “jointly and severally” between the taxpayers and the promoter, i.e. the Crown has the discretion to pursue one or more of the parties for the entire amount. The Court further ordered that the taxpayers’ liability would be capped, but “[t]here shall be no limit to the Promoter’s liability for costs.” Each taxpayer’s liability “shall be limited to the proportion that their total Charitable Tax Credits claimed in respect of the Program for all years under appeal herein is to total of all Charitable Tax Credits claimed by all of them combined with respect to the Program for such years under appeal.” Accordingly, taxpayers who become involved in similar donation schemes should be forewarned that although their potential liability for costs is not limitless, there is still a significant uncertainty as to the scope of financial risk.