Toews – Tax Court of Canada finds that an assessment to deny a leveraged donation was statute-barred because CRA could not now substantiate s. 237.1(7.4) penalties

The Minister assessed the taxpayer to fully deny his charitable donation claim for his 2008 taxation year respecting his participation in a leveraged donation scheme (the “Scheme”). This assessment was made in reliance on s. 237.1(6.1), which prohibited a claim by a person in respect of a tax shelter where any person was liable to a penalty under s. 237.1(7.4) which was unpaid (here, four persons had been so assessed) and was made beyond the normal reassessment period in reliance on s. 237.1(6.2), which provided that otherwise statute-barred assessments could be made as necessary to give effect to s. 237.1(6.1). S. 237.1(7.4) provided that every person who, whether as principal or as agent, sells, issues or accepts consideration in respect of a tax shelter before the issuance of a tax shelter identification number (here, none was ever issued) is liable to a specified penalty.

Bodie J found that the Scheme was a tax shelter and, in particular, a gifting arrangement for which the taxpayer incurred a “limited-recourse debt”, as determined under s. 143.2(6.1) given that a certain Mr. Ciccone had told the taxpayer that he would not have to repay the loan made to him. However, although all of the four persons had been assessed for the s. 237.1(7.4) penalty, Bodie J found that the Crown had failed to establish that they were “liable” for such penalty, i.e., had fulfilled the requirements for its imposition.

In particular, although Mr. Ciccone may have promoted the Scheme, there was not real evidence of him (or the other three) “selling” anything, a word which should be “limited to a transfer or exchange for a price and should not encapsulate a meaning comparable to the word ‘promotes’.” There also was a paucity of specific evidence as to the involvement of the four in “issuing anything” or “accepting consideration.”

As the Crown had not established that any of the four was liable to the s.237.1(7.4) penalty, the Minister had not been entitled to rely on s. 237.1(6.2) to reassess beyond the normal reassessment period – so that the taxpayer retained his credit for the full leveraged donation amount.

Neal Armstrong. Summary of Toews v. The King, 2025 TCC 123 under s. 237.1(7.4).