Decision Date: October 29, 2012
Link: Case Summary Document
Citation: [2012] ONSC 6101 (Superior Court of Justice Ontario, Divisional Court, Sanderson, J.)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.


This was an application for leave to appeal a preliminary decision on the same matter in January 2012 (see 2012 ONSC 399; or casenote). This case dealt with the Donations for Canada gift program for charity (the gift program), which was allegedly a scam. The selling point of the gift program was that a tax deduction of $10,000 could be obtained for a ‘donation’ of $2,500 to charity. Around $144 million had been invested in the gift program in total.

The Canada Revenue Agency (CRA) took the view that the gift program was nothing more than a fraudulent scheme, in which the funds of ‘donors’ flowed ultimately into the pockets of the promoters of the scheme. The CRA said that donors involved in the gift program lacked ‘donative intent’ because there was no element of impoverishment in the so-called charitable donation. Rather, the donor expected to be enriched by receiving a tax credit well in excess of his or her donation. Thus, the ‘donation’ could not be characterised as a gift, and there was no allowable tax deduction for tax purposes. The full amount deducted had to be repaid to the CRA with interest.

Charities were involved in the gift program. In return for participating in the gift program, the charities involved received 1% of the total money donated and the promoters’ promise of a 20-year income stream from an investment that the promoters would make, using a fraction of the gift program donations. The Funds for Canada Foundation (FFC Foundation) was established in the second year of operation of the gift program as an umbrella organisation to receive donations and to disburse them to qualified charities.

Cannon was the representative in a class action (the class comprised 9,926 persons) against the gift program. His Honour certified the action as a class action at the January hearing, and dismissed certain applications for summary judgement. His Honour found that there was a sufficient common class to proceed with the class action. This was the class of persons who were participants (as Canadian residents) in the gift program between 2005 and 2009.

In the January hearing, Strathy J certified the class action with causes of action against some or all of the defendants on the grounds of negligence, negligent misrepresentation, fraud and fraudulent misrepresentation, conspiracy, various breaches of the Consumer Protection Act 2002 (Canada), breach of contract, and unjust enrichment and constructive trust. Some of the matters were inadequately pleaded, but His Honour took the view that this was a matter for the trial judge. His Honour dismissed applications for summary dismissal of the action by two of the defendants.

In this case, the Court had to decide whether to grant leave to appeal against that preliminary decision. The test for granting leave to appeal from an interlocutory order of a judge was set out in Rule 62.02(4) of the relevant court rules. This permits leave to appeal where:

(a)    there is a conflicting decision on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

(b)   there appears to the judge hearing the motion to be good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

The issues raised must be of general importance, relevant to the development of the law and the administration of justice, warranting resolution by a higher level of judicial authority. They must transcend the immediate interests of the parties.

His Honour engaged in an exhaustive review of the arguments raised by the defendants. He held that all the conclusions reached by Strathy J in the January hearing were valid. He held also that the public importance issues (negative effects on the charity sector and on the legal profession) raised by the defendants were not sufficient to warrant leave to appeal. The application for leave to appeal from the certification order and the summary judgments was dismissed.

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Implications of this case

This case has still to go to a full trial, but is of some importance to the charity sector in Canada. There were several of these charity tax ‘scams’ operating in Canada in recent years. All have been uncovered by the CRA, and litigation has been proceeding. This case is a class action in which the participating tax-payers who have had to repay taxation and interest to the CRA are seeking redress from the scheme operators. Since leave to appeal the preliminary points has failed, the class action against the operators can proceed on the grounds listed in the certification.