You Reap What You Sow

Several different groups were involved in the packaging and marketing of the Banyan Tree Program to potential participants. Some of these marketers used a favourable tax opinion letter from Fraser Milner Casgrain LLP, a prominent national law firm, to market the program. Now, many of these participants are banding together in a class action lawsuit to sue these actors and Fraser Milner Casgrain LLP for damages of over $50M.
As taxpayers lose case after case on charity tax shelters, it is not surprising that having lost to the CRA, many would look to promoters to recoup tax losses.
For the past few years the attention of many high income taxpayers has been focused on the various tax shelter programs taking place within the charitable sector. One such program is the Banyan Tree Foundation Gift Program (�Banyan Tree�). The Banyan Tree Program has been operating since 2003 and is still in operation. Like most other tax shelter programs the CRA has aggressively targeted it and is currently in the process of disallowing tax receipts claimed as a result of donations made in those years. As a result, participants in the Banyan Tree Program are being reassessed and must repay the tax owing as well as interest on the reassessed tax amounts. To add insult to injury, as part of the Banyan Tree Program, participants were required to place some amounts into a promissory note and security deposits. These amounts have apparently evaporated and one of the key individuals involved in the Banyan Tree Program is charged with fraud and theft relating to management of the security deposits.
Several different groups were involved in the packaging and marketing of the Banyan Tree Program to potential participants. Some of these marketers used a favourable tax opinion letter from Fraser Milner Casgrain LLP, a prominent national law firm, to market the program. Now, many of these participants are banding together in a class action lawsuit to sue these actors and Fraser Milner Casgrain LLP for damages of over $50M. The damages are calculated to include the amounts paid in now missing security deposits, the disallowed tax credits and interest payable on the tax owing as a result of the reassessment. The class action suit is being handled by Hamilton law firm Scarfone Hawkins LLP, which has significant experience in handling class action claims.
To many in the industry, this class action suit was only a matter of time. Many people believe these tax shelter programs to be, at best, aggressive, and at worst, fraudulent. So, it was inevitable that some individual or group of individuals tried to sue the promoter of these plans and the law firm which provided a favourable tax opinion. As the CRA has no authority to go after the promoters it falls to the participants of the program to try and exact some measure of compensation in order to make themselves whole again. While one feels for these participants and it is not unlikely that the layman was led astray by sophisticated tax promoters, one has to wonder how this balances with the old maxim of caveat emptor. Ultimately, that is the question for the Courts.
The groups which launched the suit has a web site which can be found at http://www.classactionlaw.ca/content/claims/Rochester/Rochester.htm. All the legal documents can be reviewed by checking it out.
ABOUT THE AUTHOR: Adam Aptowitzer
Adam Aptowitzer has been practicing tax law since graduating from the University of Ottawa law school in 2001. He completed his articles at a tax litigation boutique firm in Toronto and has been practicing law with a special emphasis on charities ever since. He now practices at Drache LLP in Ottawa and has passed the Ontario Provincial Life Licensing Qualification Exam and the Canadian Securities Course.
Adam has been speaking and writing on the topic of charity law for several years. He has been published in several publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and is the contributing editor of both the charity tax law bulletin and the charitytax.com website.