Canadian Tax Haiku of the Week:

Duty of care for

Tax shelters? Is it really

All CRA’s fault?


In Scheuer,[1] a group of taxpayers who participated in a tax shelter donation scheme made a claim in negligence against the Canada Revenue Agency (“CRA”). The taxpayers in Scheuer alleged a breach of the CRA’s duty of care for failing to warn them in a timely fashion of the potential consequences of participating in the donation scheme. So far the plaintiffs have avoided being completely thrown out of court for failing to show any basis in law. This comes months after a landmark decision last year by the British Columbia Supreme Court where it held that the employees of CRA, specifically the auditors, owed a duty of care to a long-suffering taxpayer.[2]


The taxpayers are a group of Canadians who participated in a tax shelter donation program marketed by Global Learning Group Inc (“GLG”).[3] They alleged that the CRA was aware of potential issues surrounding the charitable donations made to GLG since 2000, but took no steps to warn or inform Canadian taxpayers of its concerns with the program. Specifically, the CRA failed to properly warn and protect the Plaintiff taxpayers. One of the Plaintiffs, Scheuer, claimed to have relied upon the fact that CRA had issued a valid tax shelter number to GLG. As a result, Scheuer made various donations to GLG for the years 2004 to 2007, for which charitable donation tax credits were claimed.[4] The CRA later reassessed Scheuer, disallowing those charitable donation tax credits.[5]

The Decision Under Appeal

The Defendants made a motion to strike the claim on the basis that it revealed no reasonable cause of action. They argued that the CRA did not have a recognized duty of care to inform taxpayers of the consequences of investing in tax shelters, and that the taxpayers had not pled the facts necessary for the recognition of such a duty of care.[6]

At the Federal Court, the Prothonotary dismissed the motion, concluding that he was not convinced that it was abundantly clear that the claim was bereft of any chance of success.[7] In this decision, the Defendants were appealing the Order of the Prothonotary pursuant to section 51 of the Federal Courts Rules,[8] seeking an order setting aside the Prothonotary’s Order.

The Defendants argued that the facts pled by the taxpayers fell short of meeting the proximity requirement to impose a duty of care on the CRA, and that there were policy considerations that dictated against the imposition of such a duty of care.[9]


The Federal Court agreed with the Prothonotary and held that it was not plain and obvious that the claim was bereft of any chance of success and dismissed the appeal.[10]

The Federal Court found regulators have been held to owe a duty of care where:

There is a relationship and connection between the regulator and individual that is distinct from and more direct than the relationship between the regulator and that part of the public affected by the regulator’s work; and
Public statutory duties are consistent with the existence of a private law duty of care owed to an individual plaintiff[11]
The test for establishing whether a duty of care exists is the Anns/Cooper Test.[12] The first step is to determine whether a prima facie duty of care exists. A duty exists if, on the facts, foreseeability and proximity exist, and in the case of a government actor the duty is explicit or implicit from the statutory scheme or from the interactions between the claimant and the government. If a prima facie duty exists, the second step is to ask whether there are policy reasons which negate the imposition of the prima facie duty of care.[13]

The threshold in this instance was quite low. The Federal Court read the taxpayers’ pleadings generously and assumed the facts as plead were true. The Federal Court held that the facts pleaded are sufficient to ground a prima facie duty of care, and nothing in the act foreclosed such a duty. Moreover, the Court held that none of the policy considerations brought by the Defendants were sufficient to negate the duty of care at this stage without a hearing.[14]

The Federal Court identified a list of the taxpayers claims that were sufficient to find proximity:

CRA issued a tax shelter number to GLG without properly assessing the scheme and with knowledge that the taxpayers would rely on the tax shelter number as an indication that GLG had met the requirements of the Income Tax Act;
The taxpayers relied on the tax shelter number;
The taxpayers are separate from the general public in that they are part of a group of taxpayers who donated to the charity;
CRA was aware of potential issues surrounding the charitable donations made to GLGI as early as the year 2000 but took no steps to warn or inform Canadian taxpayers and in particular the taxpayers;
CRA accepted the taxpayers donations to GLG, creating further reliance by the taxpayers on CRA that the scheme was approved by CRA;
CRA waited until 3 years later to reassess the tax payer, when CRA knew or ought to have known that the donation would not be accepted;
CRA has continued to allow GLGI to market its program to Canadian taxpayers, knowing that none of the tax credits issued will be honoured by CRA.
The Federal Court recognized there were policy considerations cited by the Defendants that could ultimately negate the imposition of any prima facie duty of care at trial. However, the Court was not prepared to conclude that the taxpayers had “a hopeless case, and no chance of success.” Thus, the taxpayers were allowed to have these matters “fully and properly considered at a hearing.”[15] The Court cautioned that it was not clear whether taxpayers would ultimately succeed in establishing a private law duty of care owed to them by the CRA.[16]


This decision combined with the Leroux case indicates that the Courts are taking a closer look at the conduct of the CRA. As we have previously blawged, Leroux shows that regarding the application of penalties, the CRA is beginning to be held accountable for its actions if they adversely affect taxpayers without reasonable grounds. While this ruling does not do much for the taxpayers involved other than give them their day it court, it is at least a micro-step in the right direction.

In truth, since the CRA has not yet even responded to the suit by filing a defense to the statement of claim, this decision does not mean very much. Moreover, given that we have no doubt that the CRA will not be held liable in this case, this case is almost a non-event. However, it serves as a platform for us to re-iterate a couple of key things:

Just because a structure has a “Tax Shelter Number” does not mean that the benefits of the structure have been approved by the CRA in any way! All it means is that the CRA has it on its list of structures to eventually deny.
Just because an entity has a “Charity Number” does not mean that the CRA will accept donations to that entity as charitable!
Just because the vendor/promoter has an opinion from a tax lawyer or other tax professional does not mean that the opinion is in any way a validation of the structure. You have to be a tax lawyer with our Herculean capacity to deal with boredom to be able to wade through the legal morass of the typical 170-page opinion document and no one but a tax lawyer would not know what to look for even if you could struggle your way through it.
Mass-marketed tax shelters do not work and always fail. If they do not fail, the CRA, Finance and Justice will change the law so that they fail, retroactively if they have to (and yes this is legal in Canada). So they always fail. Always.
The CRA can reassess you retroactively back to the War Income Tax Act of 1917 if there have been misrepresentations on a tax return due to fraud, wilful blindness, carelessness or neglect. In this case, the CRA’s website clearly says everything that we just put in points 1 through 4. So it is kind of hard for the plaintiffs/taxpayers to claim “How were we supposed to know it didn’t work?” if they did not even bother to check with the CRA or any other tax professional, other than the promoters of the scheme, as to whether the structure worked or not?
If you are offered a tax shelter, particularly one that relies on the old canard, “Nudge nudge, wink wink, say no more! We are oh sooooooo much more clever than those idiots at the CRA”. Then you probably should run, not walk, run away!
Just because a tax shelter is sold at your place of business or worship, with the approval someone you respect and hold in esteem does not mean that it is OK. You should still get a second opinion from your friendly neighbourhood tax lawyer before doing something that could be hazardous to your wealth.
At the end of the day, we really do not think that the taxpayers in this case have a hope in hell of winning, but we are glad they will get their day in court. The CRA needs to be held accountable for when they do wrong by taxpayers. But in this case, the Taxpayers own “willful blindness” will doom them to failure. The signs were always there for anyone to read if they had their eyes open.

By Jonathan Neil Garbutt, Barrister & Solicitor and Raminder Pandher, Student-at-law.

This Blawg is provided on a “For your information” basis only, and is not intended as, does not constitute and should not be seen as legal or tax advice. If you have purchased a tax shelter, you should contact legal counsel at your earliest convenience.

[1] Scheuer v Canada, 2015 FC 74 [Scheuer]

[2] Leroux v Canada Revenue Agency, 2014 BCSC 720 [Leroux]

[3] Scheuer at para 3

[4] Ibid at para 4

[5] Ibid

[6] Ibid at para 5

[7] Ibid at para 6

[8] Federal Courts Rules, SOR/98-106

[9] Scheuer at para 8

[10] Ibid at para 43

[11] Ibid at para 27

[12] Anns v Merton London Borough Council, [1978] AC 728 [Anns]; Cooper v Hobart, 2001 SCC 79 [Cooper]

[13] Scheuer at para 15

[14] Ibid at para 35

[15] Ibid at para 42

[16] Ibid at para 43