Chen v. TD Waterhouse Canada Inc., 2020 ONSC 1477

The taxpayer, Mr. Chen, who maintained margin accounts with TD Waterhouse, had employment income of only $9,655 in 2009 and sustained a net loss from his trading active trading in 2009. His accountant advised him that it was unnecessary for him to file a 2009 return, until he had gains against which he could use his capital losses.

In early 2010, TD Waterhouse reported each sale of shares made by Mr. Chen to CRA in a separate T-5008 form. Box 20 of the T-5008 form provided for the cost of the shares to be reported. TD Waterhouse left that box blank in all of its T-5008 forms for all of its customers at all material times, consistent with the industry practice at the time. However, also in early 2010, TD Waterhouse provided to Mr. Chen a T-5008 Summary which provided the cost, sale price, and gain/loss figures for each series of securities in the aggregate, providing all the necessary information to file his T-1 income tax return to properly claim his capital gains and losses for the 2009 taxation year.

As Mr. Chen did not file such return, CRA assessed him in October 2012, by looking only at the proceeds that he received from his many share sales, so that it assessed his total income of as $5,219,671 and, with penalties and interest, assessed his taxes due at $4,121,880.43. Mr. Chen ultimately filed his 2009 income tax return and had the erroneous tax assessment corrected. However, Mr. Chen argued that TD Waterhouse was liable to him in negligence for failing to correctly fill-in the T-5008 forms that it filed with the CRA to report the cost associated with each sale transaction for which it reported the proceeds.

After noting (at para. 47) TD Waterhouse’s argument that s. 150(1.1)(b)(ii) “requires taxpayers who dispose of capital property within the year to file tax returns even if they had no net income and would otherwise be exempted under s. 150(1.1),” Myers J stated (at paras. 51-52) in rejecting Mr. Chen’s submissions and finding no cause of action:

Mr. Chen offers no basis to argue that the law might recognize a duty of care on stockbrokers to provide cost information in T-5008 reporting slips to protect the customers from the risk of harm if they unlawfully failed to file their income tax returns and then CRA took aggressive enforcement positions. TD Waterhouse provided Mr. Chen with all applicable cost information in its T-5008 Summary so that he could file his income taxes as required by law.

That is, despite the possible breach of regulatory or statutory duty, it is still not reasonably foreseeable on any evidence adduced before me that Mr. Chen would have suffered compensable injury by the manner of TD Waterhouse’s tax reporting. Moreover, even if TD Waterhouse owed a duty of care in filing T-5008 forms, the evidence is uncontested that it met the prevailing industry standard at the time.

Consistent with the industry practice, TD Waterhouse sent to CRA individual T-5008 forms for each sales transaction of the taxpayer (Mr. Chen) that showed the securities’ proceeds but did not complete the box for the securities’ cost. However, TD Waterhouse provided Mr. Chen with a T-5008 Summary which provided the cost, sale price, and gain/loss figures for each series of securities in the aggregate, thereby providing the information he needed to prepare his tax return for the year in question (2009). However, in that year he had net trading losses and minimal employment income, so that his accountant advised him that it was unnecessary to file a return for that year (2009), contrary to the return-filing requirement of s. 150(1.1)(b)(ii). CRA then used the information in the individual T-5008 forms to assess Mr. Chen for $4.1M in tax and interest (i.e., effectively treating the securities as having a nil cost). Mr. Chen ultimately filed his 2009 income tax return and had the erroneous tax assessment corrected, but nonetheless sued TD Waterhouse.

In finding that Mr. Chen had no cause of action, Myers J stated (at para. 51):

Mr. Chen offers no basis to argue that the law might recognize a duty of care on stockbrokers to provide cost information in T-5008 reporting slips to protect the customers from the risk of harm if they unlawfully failed to file their income tax returns and then CRA took aggressive enforcement positions. TD Waterhouse provided Mr. Chen with all applicable cost information in its T-5008 Summary so that he could file his income taxes as required by law.