Non-Party Donative Program Promoter Ordered To Pay Costs In Tax Court Appeal

In Mariano et al v. Her Majesty the Queen (2016 TCC 161) ("Mariano"), the Tax Court of Canada ("TCC") continued signalling its disdain for so-called "buy-low donate-high" arrangements, by holding the non-party promoter of a charitable donations scheme ("Program"), Global Learning Gift Initiative Inc. ("Promoter"), liable for costs in a lead case on behalf of Program participants. The TCC determined that the Promoter's integral role in funding and supporting the litigation warranted holding it liable for costs. This appears to be the first time the TCC has awarded costs against a non-party. The ruling has ramifications for interpreting Rule 147(1) of the Tax Court of Canada Rules (General Procedure) ("Rules") and for payment of costs by non-parties in the future.

At trial, Pizzitelli J held that Juanita Mariano and Douglas Moshurchak ("Appellants") lacked the required donative intent for their donations to qualify for a credit under subsection 118(1) of the Income Tax Act (Canada). Rather than intending to impoverish themselves through their donations, they intended to enrich themselves, thus vitiating their donative intent and disqualifying them from receiving tax credits.

The Crown was entirely successful after a 25 day trial and submitted a Bill of Costs seeking Tariff B fees of $41,075 and disbursements in the total amount of $491,136. Fortunately for the Appellants, the Crown claimed only Tariff costs. Pizzitelli J said he would have awarded costs higher than the Tariff costs based on the factors in Rules 147(3)(a) to (i.l), had the Crown sought them. The TCC also held that the five individuals who agreed to be bound by the decision ("Bound Appellants") were also liable for costs and ruled against allocating the costs instead amongst the thousands of other Program participants who were similarly assessed.

The TCC's expansive interpretation of Rule 147(1) was the most striking development. Rule 147(1) grants the TCC jurisdiction to determine the amount of costs in any proceeding and "the persons required to pay them." The TCC interpreted the "plain wording" of Rule 147(1) as granting the Court discretion to make an award against non-parties. The TCC relied on 155569 Canada Ltd. v. 248524 Alberta Ltd. (43 Alta LR (3d) 189) and Richards v. Minister of National Revenue (2005 FC 24), two cases recognizing a court's jurisdiction to award costs against a person funding an action.

The TCC found that the Promoter not only funded the appeals, but...