Section 237.1

Subsection 237.1(1) - Definitions


See Also

Krumm v. The Queen, 2020 TCC 7

provision of valuation report was sufficient to render vendor in private sale a promoter

The taxpayer acquired a 50% interest in software after being provided with a valuation report (prepared by a Toronto firm and provided to it by the vendor - IAC) that indicated that the software was Class 12 property and qualified as being available for use. Visser J found that this was sufficiently tantamount to representing that the cost of the software could be written off over two years and that there thus was an unregistered tax shelter, resulting in the CCA claims being denied under s. 237.1(6). He also rejected a submission that “the tax shelter rules are intended to apply only to publicly marketed tax shelters and not to private transactions between two parties” (para. 32).

Visser J further stated (at para. 31):

By providing copies of the Valuation Report to Mr. Krumm, IAC and its agents could each be considered to be a tax shelter “promoter”, as defined in subsection 237.1(1) … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(1) - Tax Shelter - Paragraph (b) tax shelter rules applied on the private purchase of property described as Class 12 available-for-use property 374

Administrative Policy

6 November 1991 T.I. (Tax Window, No. 13, p. 18, ¶1589)

Normally, where a partnership is created with a small number of members, all of whom are involved in its organization, statements or representations as to the deductibility of amounts will be made only to the organizers, in which event any accountant or lawyer who provided advice to the organizers on the creation of such a partnership would not be a promoter.

88 C.R. - F.Q.14

A lawyer or accountant who advises the organizer of a tax shelter normally would be included in the definition of a promoter.

88 C.R. - Q.63

Where an investor resells an interest in a tax shelter that was acquired prior to the requirement for an identification number, the investor will not be subject to the new rules if the resale is not in the course of a business. However, a repackaged tax shelter could be considered to be a new tax shelter.

Tax Shelter


Canada v. O’Dwyer, 2013 DTC 5156 [at 6369], 2013 FCA 200

Reply must specify "statements or representations" that established tax shelter

The Minister imposed over $2 million in penalties against the taxpayer in respect of the sale of partnership units constituting an alleged tax shelter. Webb JA upheld the motion judge's decision to strike the Minister's Reply, finding that it failed to make out the facts necessary to support the conclusion that there was a tax shelter. For property to be considered a tax shelter, there must have been statements or representations made in connection with that property, as described in para. (b) of the definition of "tax shelter." As the Reply did not point to any such statements or representations (para. 19-20), it was obvious that it had no chance of success. The taxpayer's appeal was upheld.

The Reply had also been written as if the partnership itself were the tax shelter rather than its units. This error alone would not have been fatal to the Reply, as a reasonable reading of the Reply in its entirety would lead to the inference that the units, not the partnership, were the alleged tax shelter (para. 13).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(7.4) reply must explain specific basis on which a penalty was imposed 281

Jevremovic v. Canada, 2008 DTC 6263, 2007 FCA 125

Business losses and investment tax credits allocated to an accountant ("Maege") and chemical engineer ("Jevremovic") by an alleged partnership were disallowed by the Minister on the grounds inter alia that their investments in the partnership were a tax shelter. Maege admittedly was a "promoter" as she had made "statements or representations" about losses and credits available to investors (such as Jevremovic) in offering memoranda.

In rejecting a submission made on behalf of both taxpayers that their decision to invest was not made on the basis of statements or representations but, instead, was based on the quality of the project, Noël J.A. stated (at para. 4) that he agreed with Rip J. (as he then was) in the Tax Court "that the existence of a tax shelter does not depend on the motivation of the investor, but rather on the equation provided for in section 237.1".

Furthermore, the submission on behalf of Maege, that although she was a promoter, no statement had been made to her, was rejected. Noël J.A. agreed with Rip J. (who had found that it was irrelevant that Maege had not made any statements to herself) and stated (at para. 5) that "what is relevant is that she knew that beneficial tax consequences would arise as a result of her investment, as had been announced [by her]".

Words and Phrases

Canada v. Baxter, 2007 DTC 5199, 2007 FCA 172

Before going on to find that the purchase by the taxpayer (with others) of a non-exclusive, limited-use day-trading licence was the acquisition of a tax shelter in light of statements contained in a legal opinion provided to him by selling agents that the cost of the licence would be depreciable over two years, Ryer J.A. indicated (at para. 42) that the use of the word "represented" in subparagraph (a)(i) "is intended to do no more than convey the notion that the amount that is the subject matter of the statements or representations contemplated by the opening portion of the definitions has been made known to the prospective purchasers of the property in question. To that extent, words such as communicated or announced could also be used ... ." and (at para. 44) that it would be reasonable to conclude that the persons who must have made the statements or representations referred to in the definition must each be a person who is a promoter, as defined in s. 237.1(1).

Evans, J.A. added (at para. 66) that he did not wish to "preclude the possibility that there may be circumstances in which property can be found to be a 'tax shelter' even though representations have not been made, provided that the promotor proposes to make them".

See Also

Seica v. Agence du revenu du Québec, 2021 QCCA 1401

tax shelter definition applied separately to purchased software and franchise rights, with interest excluded from cost

What had been found by the Court of Quebec to be a tax shelter entailed the sale by a corporation (“Prospector”) to investors, including the appellants, of rights to use software licences (treated as Class 12 property) for $190,000, and a franchise right for the non-exclusive right to distribute the software licences in specified territories (treated as eligible capital property), for $10,000. The consideration paid included a promissory note for $190,000 with a five-year term and bearing interest at 7.5%.

The Court confirmed two findings below relevant to the “mathematical test” in the “tax shelter” definition being satisfied:

  • The taxpayers had acquired two properties (the franchise right and the software rights) rather than one composite property, so that the mathematical test could be applied to the software rights separately.
  • In light of the approach taken to “cost” in Coast Capital Savings and Stirling, the “cost” of the tax shelter (against which the intimated deductions including CCA and interest expense were to be compared) should not be increased by the amount of interest covenanted to be paid under the promissory note.

Lee v. Agence du revenu du Québec, 2020 QCCQ 780, aff'd sub nomine Seica v. Agence du revenu du Québec, 2021 QCCA 1401

tax shelter definition applied on a property-by-property basis, and cost excluded interest

A tax shelter, for the initial (2003/2004) years assessed by the ARQ, entailed the sale by a corporation (“Prospector”) to over 200 investors of software licences. Following an adverse determination by the ARQ for those years, the design of the tax shelter was changed, and for the subsequent years (2005-2010) investors were sold franchises for the non-exclusive right to distribute the software licences in specified territories. After further pressure from the ARQ, the notes issued by investors for the franchises were full recourse rather than limited recourse notes. Drouin had reversed a CRA reassessment of some investors’ 2008 taxation years made on the basis that no business was carried on. Prospector obtained a tax shelter registration number for the 2005 and 2006 years, but not the other years.

After finding that the software licences acquired in 2003 and 2004 clearly were tax shelters (as defined in the Quebec equivalent of s. 237.1) given the description in the marketing materials of the (Class 12) deductibility of the licence costs and their financing with limited recourse debt representing prescribed benefits (so that the failure to obtain a tax shelter number resulted in a denial of the claimed deductions), Fournier JCQ turned to the franchises purchased in 2005 and 2006 (comprising, for each purchase, software purchased for $150,000 and a membership right for $10,000) and financed with notes bearing interest at 9.38% under which recourse was limited to revenues generated from the franchises, and found that these constituted tax shelters for essentially the same reasons, and that they also were tax shelter investments, and that the licences were computer tax shelter properties, as defined under the Quebec equivalents of ITA s. 143.2(1) and Reg. 1100(20.2). Accordingly, their CCA claims were denied on that basis notwithstanding the tax shelter registrations (the revenues generated were nil). Furthermore, two of the taxpayers had not filed the prescribed forms reporting the tax shelter numbers.

For the 2007 and subsequent taxation years, the taxpayers argued that they satisfied the numerical tests for those years because the cost of their acquisition of the property (being a single franchise property for these purposes comprised of the software licence and the membership right) included all the interest they had covenanted to pay. After referring to the definitions of “cost” in Coast Capital Savings and Stirling, and in rejecting this argument, Fournier JCQ stated (at para. 547, TaxInterpretations translation):

The term "cost" must therefore be assimilated to the price that the taxpayer agreed to pay to acquire the property, excluding other expenses incurred in respect of the property, including interest payable on money borrowed by the taxpayer to acquire the property.

In also rejecting the single property argument, Fournier JCQ stated (at paras 551-552):

[T]he assets acquired under the … franchise agreement must be considered separately for tax shelter determination purposes because they have different tax characteristics. The software suite is a Class 12 property while the membership right is an eligible capital property with different rates of depreciation.

… The definition of tax shelter contained in TA section 1079.1 … militates in favour of an individual analysis of the property in question in order to determine whether or not it qualifies as a tax shelter.

Accordingly, the Class 12 CCA claims for those years respecting the cost of the software were also denied, whereas the eligible capital amounts claimed for the membership right were deductible.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(ii) interest on limited recourse notes that could be extinguished through the surrender of the limited recourse asset was deductible 226
Tax Topics - Income Tax Act - Section 143.2 - Subsection 143.2(6) limited recourse debt eliminated CCA claims 151

Murji v. The Queen, 2018 TCC 7 (Informal Procedure)

charitable gifting arrangements with high promised credits was a tax shelter

The promotional materials of Strategic Gifting Group (“SGG”) contemplated that participants would make a cash donation to a participating charity, and receive a donation of shares from a non-resident philanthropist (later discovered to be fictitious) and also donate those shares (which the evidence indicated were worthless but which were treated by SGG as having a value of up to 12 times that of the cash donation) to the charity.

In finding that the arrangement was a tax shelter (which had not been registered) so that (in addition to other grounds for denying the taxpayers’ charitable credits, they were denied under s. 237.1(6), Favreau J stated (para. 63):

The promotional materials of SGG set out that participants make donations to a charity, acquire shares from a non-resident philanthropist and give the shares to the charity. By doing so, the participants could claim deductions in their income tax returns of four to twelve times the amount of their cash donation and obtain inflated tax credits. Clearly, the gifting arrangement offered by SGG qualified as a tax shelter... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts no intent to impoverish 230
Tax Topics - Income Tax Regulations - Regulation 3501 - Subsection 3501(1) - Paragraph 3501(1)(h) the cash portion of a donation made to a charity was reduced by the fees paid by it to the tax shelter promoter 234

Gleig v. The Queen, 2015 TCC 191 (Informal Procedure)

shelter based on potential interests rather than what actually was acquired

The taxpayers entered an arrangement with a corporation ("Blue Hill") in order to deduct Canadian resource expenditures from income:

  • the taxpayers paid $2 for an option to acquire an interest in mineral claims owned by Blue Hill;
  • in exercising the options, the taxpayers agreed to engage Blue Hill to incur CRE on their behalf in consideration for promissory notes

Lyons J found (at para. 42) that the taxpayers were not required by Blue Hill to pay the promissory notes. The taxpayers also made an out-of-pocket payment, not referred to in the agreements, for 25% of the face value of the notes.

Although the taxpayers apparently argued that the property actually acquired by the taxpayers (the option agreement) would not give rise to any deductions, Lyons J agreed with the Minister that the interests in the mineral claims were the tax shelter. Blue Hill's principal had specifically promoted the interests on the basis that they would lead to an income deduction of four times the purchasers' outlays (which was the purchasers' only cost as the promissory notes were a prescribed benefit under Reg. 231(6) (now Reg. 31001).). As Blue Hill had been assessed penalties under s. 237.1(7.4) which were not paid, the Minister was correct to deny the taxpayers' deductions under s. 237.1(6.1).

See summary under Reg. 3100(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 3100 notes were prescribed benefit where no intention to demand payment 74

Malo v. The Queen, 2012 DTC 1214 [at 3588], 2012 TCC 75 (Informal Procedure)

The taxpayer's purchases of tree seedlings that were being planted at a Costa Rican tree plantaition constituted a tax shelter on the basis of statements made to the taxpayer in a family setting by his brother-in-law (who also was the key individual involved in promoting investments by potenital investors in the plantation trees) that the taxpayer "would be able to deduct the money invested, as it constituted a current business expense." Hogan J. stated (at para. 15):

Following the guidance of Baxter, it suffices that Mr. Maheux discussed with the appellant the investment opportunity and that he presented to the appellant the amount of possible deductions for the definition of tax shelter to apply.

Dagenais v. The Queen, 2008 DTC 2830, 2006 TCC 209 (Informal Procedure)

Interests in partnerships were tax shelters given that the investors expected an immediate deduction of 100% of their investment and only contributed 32% of this amount.

Maege v. The Queen, 2006 DTC 3193, 2006 TCC 117, aff'd supra

In finding that the taxpayer's investment in a partnership was a tax shelter notwithstanding that she did not receive any representations as to the tax consequences of her investment, Rip J. stated at p. 3200) that "a 'representation' need not be an explicit written or verbal assertion but can also include a mental or intellectual element" and that this was "further reinforced by the definition of 'proposed' or 'proposal', which seems to include one's own personal intentions".

Administrative Policy

10 January 2014 CRA News Release "

//">Canada Revenue Agency continues its administrative procedures for gifting tax shelter schemes"

For the 2013 tax year...CRA...will not assess taxes owed or provide a refund to taxpayers who claim a tax credit under a gifting tax shelter scheme until the CRA has audited the tax shelter. However, if a taxpayer makes a claim under a gifting tax shelter scheme, the taxpayer can have his or her tax return assessed before the related tax shelter has been audited if they agree to remove the claim from their return. This procedure remains unchanged from the 2012 tax year.

The CRA continues to alert taxpayers that if they receive a charitable donation receipt for an amount higher than the value of property donated, the receipt is not valid... .The CRA is auditing all such gifting tax shelter schemes, and to date, none has been found to comply with Canadian tax law.

"The Canada Revenue Agency: protecting Canadians from gifting tax shelter schemes" CRA News Release, 30 October 2012

CRA announced that it will put on hold the assessments of any 2012 returns for individuals claiming credits in respect of a gifting tax shelter. An assessment will be processed once the shelter's audit is completed, or the taxpayer removes the claim for the receipt in question. CRA also noted that "all gifting tax shelter schemes are audited and CRA has not found any that comply with Canadian tax laws."

Income Tax Technical News, No. 41, 23 December 2009 Under "Definition of 'Tax Shelter' - Subsection 237.1(1)

"The Maege Decisions ... do not represent a departure from the requirement that statements or representations be made in connection with the property when applying the tax shelter rule; rather they adopt a broad view of this requirement, especially when sophisticated investors are involved."

Income Tax Technical News, No. 41, 23 December 2009 Under "Donation of Flow Through Share - Subparagraph 38(8.1)(i), Subsection 248(35) through (41) and Section 237.1".

6 October 2006 Roundtable, 2006-0197051C6 F - Abri fiscal: Don de valeurs mobilières

question of fact whether gift of securities described in s. 38(a.1)

Can securities described in s. 38(a.1) be property acquired under a tax-sheltering gifting arrangement when they are the subject of a charitable gift? CRA responded:

We cannot confirm that the acquisition of securities by a donor would not be property acquired under a gifting arrangement that would constitute a tax shelter as this issue must be determined in light of all relevant facts.

4 July 1997 External T.I. 9707565 - TAX SHELTER - FRANCHISE

Where a franchisor represents that a franchisee will have annual net income from the business but also makes a representation that the franchisee can expect to incur annual operating expenses exceeding the franchise fee and the franchisee's cost of establishing the franchised business, the amount of operating expenses would be an amount described in s. 237.1(1)(a)(ii) where s. 237.1(1)(a)(i) is not applicable. Accordingly, the franchise would be a tax shelter.

3 December 1990 T.I. (Tax Window, Prelim. No. 2, p. 21, ¶1057)

Discussion of measurement of 4-year period and of "cost".

90 C.P.T.J. - Q.23

The amount of loss represented to be deductible for purposes of s.a(i) includes capital losses, non-capital losses and allowable business investment losses. S.a(ii) would include such amounts as a joint venture investor's share of CCA and in the case of partnership, interest expenses, carrying charges and certain resource deductions not claimable at the partnership level.

90 C.R. - Q.53

Interest expense incurred on money borrowed to buy a partnership unit would be an amount deductible "in respect of" the partnership interest. Where the financing arrangements were made available as part of the tax shelter "package" it is likely that the interest will be regarded as being represented to be deductible.

23 April 1990 T.I. (September 1990 Access Letter, ¶1434)

Where the partnership is among a small number of partners where the individuals organizing it are also the only partners, there would not normally be written or verbal statements or representations made to any one other than the organizers. Accordingly, the partnership interest in the partnership would not normally meet the definition of a tax shelter.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(6) 29

26 February 1990 T.I. (July 1990 Access Letter, ¶1343)

The cost to an investor is determined in accordance with GAAP including, in the case of a limited partnership interest, any loans or other financing required by the investor in order to acquire his limited partnership interest.

The reference to prescribed benefits contained in subparagraph (b)(ii) does not limit the calculation to those benefits expected to be received or enjoyed in the initial four-year period. Additional funds which the investor is required to invest in a limited partnership will be included in the cost of his interest provided that the funds are paid within four years after the day the interest was originally acquired.

25 January 1990 T.I. (June 1990 Access Letter, ¶1282)

Interest paid on the loan contracted by the purchaser to finance the acquisition of his share of the shelter, or to make a capital contribution were included in the amount of the expected deductions in light of representations that were made outside the prospectus.

6 December 1989 T.I. (May 1990 Access Letter, ¶1235)

Interest on money borrowed to acquire a limited partnership interest or to provide capital to that partnership will be considered to be a deduction under s.(a)(ii) of the definition where the prospectus alleges that such interest will be deductible.

18 September 89 T.I. (February 1990 Access Letter, ¶1126)

The "cost" of the property will include the purchase price, acquisition costs and deemed adjustments.

89 C.R. - Q28

Interest and other expenses incurred by the investor personally but which are represented to be deductible in computing income or taxable income in respect of an interest in a property will be included under the term "any other amount" in subparagraph (a)(ii). The only exception would arise in cases where it is reasonable to expect that investors would not incur such expenses.

88 C.R. - Q.65

Since s.a(i) refers to a calculation projected by the tax shelter promoter and not the investor, financial counselling fees incurred by the investor typically would not form part of the loss.


Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.

Sale of interest in LNG project potentially a tax shelter (p. 10:25)

[A] proponent of a major construction project seeks to sell all or a portion of its interest in the project to a new investor. If the expected cash flow and tax profile of the investment is communicated to the investor by a promoter, and if the other requisite tests are met, the major construction project or partnership interest divested to the investor could be considered a tax shelter….

Ewens, "Tax Shelter Analysis", The Taxation of Corporate Reorganizations, 1996 Canadian Tax Journal, Vol. 44, No. 4, p. 1207 and Vol. 44, No. 5, p. 1486.

Paragraph (b)

See Also

Krumm v. Canada, 2021 FCA 78

tax shelter rules applied to a private purchase of “Class 12 available-for-use” software with tax deductions not further spelled out

The taxpayer acquired a 50% interest in software after being provided with a valuation report that included a tax opinion indicating that the software was Class 12 property that qualified as being available for use. Before dismissing the appeal, Woods JA stated (at para. 18):

… [T]he valuation report makes it clear that the report was intended to influence prospective purchasers. As for the interpretation of the tax shelter definition, there is nothing in the text or context which suggests that the provisions are intended to be limited to publicly marketed transactions. As for its purpose, the Department of Finance has expressed concern about “abuses through aggressive tax shelter promotions” … The concern expressed by the government would be frustrated if the legislation were applicable only to certain types of promotions.

She went on to find (at para. 25) that even though the tax opinion in the valuation report only explicitly opined that the software was Class 12 property and was available for use - and not that its cost could be deducted over two years:

… The Tax Court did not err when it concluded that prospective purchasers would reasonably consider that the report indicated that they could deduct the purchase price over the period allowed for Class 12 property that is available for use.

It also was of no import that the tax opinion in the valuation report was “qualified” in that it warned that, in relation to any future investments rather than the particular investment, that the tax consequences could be negatively impacted by the terms of the agreement.

Krumm v. The Queen, 2020 TCC 7

tax shelter rules applied on the private purchase of property described as Class 12 available-for-use property

In 1997, Mr. Krumm, after receiving a valuation report from a Toronto valuation firm, purchased a 50% interest in computer application software (the “Software”) from a Canadian-controlled private corporation (“IAC”) for $2.8 million: $700,000 paid by cheque; and $2.1 million payable by promissory note. Mr. Krumm and IAC simultaneously entered into a Joint Venture Agreement by which IAC agreed to pay Mr. Krumm a percentage of net sales over a period of years that would aggregate to not less than 200% of all amounts payable pursuant to the promissory note (the “Represented Amount”); and providing that he would be to the deficiency between the amount received and the Represented Amount from IAC in damages, so that the promissory note effectively was offset. Visser J dismissed Mr. Krumm’s appeal of the disallowance of his capital cost allowance claims of $1.4 million in each of his 1997 and 1998 taxation years. Mr. Krumm’s investment in the Software was an unregistered tax shelter, so that such deductions were not permitted by s. 237.1(6). The mathematical portion of the definition of “tax shelter” was conceded, and the issue was whether the definition was engaged by representations contained in the valuation report.

Visser J stated (at paras 30-31):

…[T]he Valuation Report specified that the Software was Class 12 property and available for use. It did not, however, explicitly specify that a purchaser could deduct the purchase price of the Software for tax purposes. … It is my view that the tax opinions and representations set out in the Valuation Report were intended to advise a prospective purchaser as to the tax treatment they could expect if a purchase of Software was made. It is also my view that the representations were of sufficient detail such that it could reasonably be considered that a prospective purchaser could deduct the full purchase price of the Software over a two-year period.

By providing copies of the Valuation Report to Mr. Krumm, IAC and its agents could each be considered to be a tax shelter “promoter”, as defined in subsection 237.1(1) … .

Visser J also rejected a submission that “the tax shelter rules are intended to apply only to publicly marketed tax shelters and not to private transactions between two parties” (para. 32).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(1) - Promoter provision of valuation report was sufficient to render vendor in private sale a promoter 155


John Tobin, "Infrastructure and P3 Projects", 2017 Conference Report (Canadian Tax Foundation), 10:1-31

P3 project likely flunks the mathematical test at financial close given that costs not yet incurred (p. 19:16)

In regard to the investment in the project agreement, it is not clear how the cost is calculated for the purposes of applying the mathematical test in the tax-shelter rules. On financial close (as defined in the project agreement), the cost of the project agreement is likely to be low (that is, limited to the costs and expenses associated with putting in the bid and negotiating and finalizing the project agreement) compared with the construction payments or the debt amounts. Although the construction expenses continue to increase over the construction phase and get added to class 14 as they are incurred, they have not yet been incurred when the project agreement is acquired. Generally, future costs are not included in the determination of tax-shelter compliance at inception, notwithstanding that Projectco is required to incur the construction costs (and to capitalize those costs). As described below, the prescribed benefits in respect of the project agreement are expected to include the payments from the proponent and the portion of any debt that is not repaid out of the construction payments. Accordingly, the investment by Projectco in the project agreement would likely fail the tax-shelter mathematical test.

Potential requirement to apply mathematical test as each construction expenditure occurs (p. 10:16)

Another interpretive issue relates to whether there is more than one tax shelter. Projectco makes additional “contributions” under the project agreement as amounts are incurred (and are being capitalized). One possible interpretation is that as additional amounts are expended toward the project in the context of the available-for-use rules and other rules in the Act, each such amount should be treated as a new investment when it is incurred, which could cause Projectco to have to satisfy the tax-shelter test during the period that it is capitalizing costs.

Subsection 237.1(5)


Canada v. Scheuer, 2016 DTC 5011 [at 6551], 2016 FCA 7

investors in a gifting tax shelter could not sue CRA for issuing a tax shelter number

The taxpayers, who participated in the same gifting tax shelter as Ficek, sued CRA for negligence in issuing a tax shelter registration number to the promoter and in not warning them of potential problems. In finding that their statement of claim should be struck “for failing to assert a cognizable cause of action,” Dawson JA noted that issuance of a tax shelter number was not discretionary (i.e., was required if the specified information was submitted) and that the “written warning tax shelter promoters are mandated by paragraph 237.1(5)(c)… to display” (that the number does not confirm any tax benefits)

is consistent with Parliament’s intent that taxpayers should participate in a tax shelter at their own peril, not at the peril of Canadian taxpayers generally …The above conclusions… reflect that the performance of statutory duties does not generally give rise to private law duties of care.”

Locations of other summaries Wordcount
Tax Topics - General Concepts - Negligence, Fiduciary Duty and Fault performance of statutory duties not giving rise to private law duties of care 263

Subsection 237.1(2) - Application

Administrative Policy

88 C.R. -"Tax Reform and Tax Administration" - "Shelter Reporting"

An application by one promoter for a tax shelter discharges any other promoter for the same shelter from the obligation to make an application.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(4) 20


Donald H. Watkins, "The Tax-Shelter Rules: An Update", 1998 Conference Report, c.5.

Subsection 237.1(4) - Sales prohibited

Administrative Policy

23 February 1990 Memorandum (July 1990 Access Letter, ¶1344)

Discussion of proposed revisions to IC 89-4, para. 6, 7.

88 C.R. -"Tax Reform and Tax Administration" - "Shelter Reporting"

Preliminary promotions would not offend this provision provided that no actual sales are concluded before the identification number is issued.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(2) 24

88 C.R. - Q.64

Where a taxpayer acquires a tax shelter before the Minister has issued an identification number for the tax shelter, RC will not deny that the acquisition of the tax shelter has occurred if it subsequently issues an identification number.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(6) 16

Subsection 237.1(6) - Deductions and claims disallowed

See Also

Bandi v. The Queen, 2013 DTC 1192 [at 1032], 2013 TCC 230 (Informal Procedure)

The taxpayer participated in a donation scheme whose particulars reflected numerous differences with the program described in the promoters' s. 237.1 application for a tax shelter identification number, including:

  • the identity of parties (e.g. trust settlors and vendors) and their locations (e.g. Belize v. Barbados);
  • the nature of the donated property (e.g. copies of software v. software licences; different versions numbers); and
  • monetary values (e.g. different bulk rates, different alleged fair market values of the software).

The Minister argued that these differences meant that the program in which the taxpayer participated should not be regarded as the program for which the promoter obtained the identification number. Before finding against the taxpayer on the ground that no "gift" had been made, Hogan J found that the changes, although material, did not prevent the taxpayer from claiming charitable receipts. Tax shelter participants do not have the opportunity to compare a program's details to the details disclosed in the s. 237.1 application. Hogan J stated (at para. 9):

A literal interpretation of the provisions relied on by the respondent would impose on promoters of tax shelters an obligation to abandon an existing registration and reapply for a new number each time a change was made to the arrangement. ... In my opinion, if Parliament had favoured a dynamic reporting regime, it would have introduced a registration system that affords taxpayers the possibility of determining whether changes have been properly disclosed to the CRA by promoters.

See also the summary under s. 118.1 - "total charitable gifts."

Administrative Policy

23 April 1990 T.I. (September 1990 Access Letter, ¶1434)

The provisions of ss.237.1(4) and (6) only apply to tax shelters in respect of which a promoter has not been required by s. 237.1(2) to apply for a number.

88 C.R. - Q.64

If an identification number subsequently is obtained, RC will take the necessary corrective action within limits.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(4) 39

Subsection 237.1(7) - Information return

Administrative Policy

IC 89-4 "Tax Shelter Reporting"

Subsection 237.1(7.4) - Penalty


Canada v. O’Dwyer, 2013 DTC 5156 [at 6369], 2013 FCA 200

reply must explain specific basis on which a penalty was imposed

The Minister's Reply was found to be inadequate to support that the taxpayer had sold partnership units constituting an alleged tax shelter (see summary under s. 237.1(1)). The Minister also assessed the taxpayer for penalties under s. 237.1(7.4). The Minister's reply stated that:

The Appellant is liable for a penalty because he acted as principal or agent to sell, issue or accept consideration in respect of the SRLP tax shelter before the Minister issued a tax shelter identification number, pursuant to subsection 237.1(7.4) of the Act.

Webb JA found that it was unnecessary to consider this issue in light of the tax shelter findings, but nevertheless stated (at paras. 27, 31):

Every possible combination enumerated in subsection 237.1(7.4) of the Act is included. There is no clear indication of why the penalty was imposed. The above paragraph 18 would include the allegation that Thomas O'Dwyer, as principal, issued units in the limited partnership. However, only the limited partnership could, as principal, issue units in itself.


In setting out the basis upon which the penalty was assessed, the Minister should clearly identify the role that Thomas O'Dwyer is alleged to have played and not simply reiterate every possible permutation or combination that could satisfy the statutory conditions to impose the penalty. Any taxpayer who has been assessed a penalty should know why the penalty was assessed. Simply reiterating the multiple combinations of possibilities that could result in the imposition of the penalty does not tell a taxpayer what specific act (that would result in the imposition of the penalty) he or she is alleged to have committed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(1) - Tax Shelter Reply must specify "statements or representations" that established tax shelter 177

See Also

Blier c. La Reine, 2003 TCC 505 (Informal Procedure), briefly aff'd 2004 DTC 6726, 2004 FCA 236

Before finding that the appellants, who clearly had promoted what was a tax shelter given that investor paid 32% of the amount invested and deducted the full amount invested as a business loss, had not exercised due diligence for the purposes of avoiding the penalty under s. 162(9) (which since had been repealed and replaced by s. 237.1(7.4)), Lamarre Proulx J. noted that "financial planners have an important role in economic life ... . They must personally ensure that the investments they propose are legal and must exercise the required diligence with respect to the substantial investments that they propose to their clients".