Deluca v Canada, 2016 ONSC 3865

The taxpayer used proceeds of a loan from “Barter World Canada Inc.” to acquire “TradeBux” from another Barter World entity (as well as to make a cash prepayment of the loan interest), donated the TradeBux to a registered charity (“LWIF”) and received a receipt equal to their alleged value. He could earn TradeBux through referrals and completing surveys online so as to repay the loan. In addition to appealing CRA’s disallowance of his charitable credits to the Tax Court of Canada, he brought this claim in Superior Court alleging principally that CRA’s negligence in failing to revoke LWIF’s charitable registration until a subsequent year caused him to make the charitable donations in question, thereby resulting in damages.

In considering whether this claim came within the exclusive jurisdiction of the Tax Court, and before striking the statement of claim in its entirety, Dunphy J stated (para 24) that the taxpayer could not “plead by way of tort damages as against the Crown in right of Canada the value of the very benefit he is ineligible to receive from the same Crown in right of Canada by the terms of a statute of Parliament (in this case, the ITA).” However, on the basis that the taxpayer pleaded some damages that were independent of the failure to qualify for the benefit of the tax deduction, Dunphy J found that he could not strike the entire claim, but instead struck so much of the damages claim as is measured by reference to the plaintiff’s inability to receive the claimed tax benefit (para 25).

The taxpayer’s claim against CRA for negligence in failing to revoke the registration of a charity on a timely-enough basis (so that he suffered losses as a result of making supposedly valuable donations to the charity) was struck by Dunphy J in its entirety. In addition he struck the s. 15 Charter claim of the taxpayer as frivolous, stating (at para 30):

It cannot be concluded from the facts pleaded that taxpayers making donations in kind through a barter network are members of an enumerated or analogous group under s. 15(1)… .

The taxpayer used proceeds of a loan from “Barter World Canada Inc.” to acquire “TradeBux” from another Barter World entity (as well as to make a cash prepayment of the loan interest), donated the TradeBux to a registered charity (“LWIF”) and received a receipt equal to their alleged value. He could earn TradeBux through referrals and completing surveys online so as to repay the loan. In addition to appealing CRA’s disallowance of his charitable credits to the Tax Court of Canada, he brought this claim in Superior Court alleging principally that CRA’s negligence in failing to revoke LWIF’s charitable registration until a subsequent year caused him to make the charitable donations in question, thereby resulting in damages.

Before striking the statement of claim in its entirety, Dunphy J found (at para. 38) that there was no basis to allege negligent misrepresentation on the pleaded facts as there was no allegation that the registration was invalid for the relevant tax years, but instead that the claimed value of the donations was rejected by CRA.

Dunphy adopted (at para. 45) the test in Cooper v. Hobart, 2001 SCC 79 for cases that do not fall within the established categories where a duty of care has been recognized, stated (at para. 49) that he could not “find that the loss of the value of a tax deduction stemming from a questioned (and questionable) in-kind donation is a foreseeable consequence of failing to police the registration of charitable organizations as alleged,” and concluded (at paras. 53, 64 and 65):

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… .

Tax shelters are an instance where the private good competes directly with the public good. … [T]he risk of such deductions being disallowed ought most efficiently to rest with those seeking to benefit from the scheme rather than with taxpayers at large. …

I would disallow the claimed duty of care as a matter of public policy.