On June 20, 2016, the Ontario Superior Court of Justice allowed the Crown’s motion to strike the Plaintiff’s statement of claim for failing to disclose a reasonable cause of action in the case of Deluca v The Queen. The Plaintiff participated in a charitable tax shelter, which involved the Plaintiff taking a loan from a barter organization for which he received “TradeBux” and then making donations to Liberty Wellness Initiate Foundation (“LWIF”), a registered charity at the time. The Plaintiff received “very substantial tax refunds” for donations he made under the scheme in 2007, 2008, and 2009. In 2010, LWIF’s charitable registration was revoked. While the decision does not specify a time frame, at some point the Plaintiff was issued notices of reassessment for his 2007 and 2008 taxation years. Although the Plaintiff is disputing these reassessments in the Tax Court of Canada, he also brought a claim against the Crown and two individual CRA employees, asserting that they “failed to take prompt actions to warn the public” about problems it was aware of with the tax shelter “and the risks in dealing with them until April 2010.” This, the Plaintiff alleged, constituted negligence on the part of the CRA and was “a breach of a public and private law duty of care” that resulted in the denial of the Plaintiff’s charitable donations and the resulting credits for their respective tax years.
One of the issues central to the decision was whether CRA owed a duty of care to the Plaintiff, since CRA was aware of problems with the tax shelter and LWIF failed to take steps to warn the public. In its analysis, the Court rejected the claim that there was a duty of care for a number of reasons. First, the Court held that the “loss of value of a tax deduction stemming from a questioned (and questionable) in-kind donation” was not a “foreseeable consequence of failing to police the registration of charitable organizations.” Second, the Court held that there was no statutory duty under the Income Tax Act (“ITA”) “from which the necessary degree of proximity might be inferred” and would be required to establish the duty of care. In commenting on this point the Court clearly stated that the purpose of issuing charitable registrations or tax shelter identification number is “to protect the tax base administered by CRA” and that the “ITA cannot be construed to impose a duty on the Minister or his or her officials to administer the registration and supervision of registered charities in order to protect taxpayers from the risk of dealing with them.” As a result, the Court found that the relationship between the Plaintiff and CRA “lacks the elements of foreseeability of harm and proximity necessary to sustain a claimed duty of care” and the Court therefore struck the Plaintiff’s claim for this, and a number of other reasons including public policy. As the Court summarized “There is no duty to warn taxpayers away from participating in tax shelter schemes that prove unsuccessful”. It is not yet known if the Plaintiff plans to appeal, but this decision will likely have a strong persuasive effect in similar types of actions.