Criminal Law News
By Geoffrey Read
MORE COVID CHANGES
Check The Marshall Project article by Eli Hager, published in partnership with USA Today, that you can find at https://www.themarshallproject.org/2020/07/20/your-zoom-interrogation-is-about-to-start for a look at how COVID-19 is changing how police question suspects and witnesses. It’s American but one would expect that Canadian police are reacting similarly. It’s reported that police departments are rapidly changing how they conduct interrogations because during a pandemic, being within six feet of a stranger—especially for a prolonged period of time in a small, under-ventilated space—can be deadly. Police have traditionally extracted confessions by getting right up in the suspect’s face in confined interrogation rooms but now they are increasingly conducting interviews of suspects, witnesses and victims out in the street and six feet apart, instead of indoors.
Incidentally, let’s start calling them interrogations rather that the milder “interviews” that the police invariably use. Remember that when they speak to their witnesses and alleged victims they use a “soft” room with homey furniture, windows and so forth, but when it comes to suspects or accused it’s the windowless “hard” room with barren walls and spartan furnishings. Police use euphemisms to help their case, like when they say they “assist” the accused they’ve just frog-marched to the police car, or describe their forcible entries as “dynamic”. Nomenclature matters, so don’t acquiesce to the police vocabulary when advocating for your client.
Whether they’re doing it by telecommunications like ZOOM or a couple of metres apart on the street or at opposite ends of conference tables, Mr. Hager reports that some police miss physical proximity that they rely on to intimidate suspects into ostensible tell the truth, or to read their facial expressions and eye contact for what they claim are clues as to whether they are lying, not to mention the masks that are now largely required during interrogations which further hamper this sort of nonverbal information-gathering. Interrogators are taught to present known facts—to tell the suspect that it is known that they were at a certain place at a certain time—and then to see if the person reacts by finger-tapping, toe-tapping, looking away, or getting evasive or angry, but without those signals it can be more difficult to know where to go with the next question.
On the other hand, Mr. Hager notes that studies have shown police are not as good at reading as they think they are and that there is expert opinion that this conventional wisdom about interrogations, widely taught at police academies and passed down among cops, is mostly pseudoscience. He quotes James L. Trainum, a former long-time homicide detective in Washington, D.C., and an expert and consultant on interrogations and confessions as saying “Police have a confirmation bias going on: They’re looking at a suspect as a suspect. A person could be experiencing anxiety for a completely different reason, like the fact that they are being interrogated by the police.”
Mr. Hager makes the point that beatings that were once a legally acceptable interrogation method gave way to the prevailing Reid interrogation technique in which the interrogator starts with the assumption of a guilt and then work to corner the suspect physically and psychologically. It was pointed out in the April 2017 Journal that Wicklander-Zulawski & Associates, one of the largest police consulting firms in the United States, announced that it will stop training detectives in the method and only use it to educate police on the risk and reality of false confessions. Mr. Hager now reports that it is accelerating its ongoing transition to teaching more non-confrontational methods of questioning suspects, quoting Wicklander vice president of operations Dave Thompson as saying that cops were historically trained to invade someone’s physical space to increase their anxiety: “That style was hopefully already beginning to be eradicated, but what’s happening with COVID is accelerating that”. He noted that manipulative tactics meant to make interviewees feel physically vulnerable and therefore dependent on their interrogator’s mercy are more likely to make them feel they need to make a false confession.
Now, more outdoor interrogations could mean more public oversight of police which in turn promotes ethical conduct and accountability. Chief Inspector Frank Vanore In Philadelphia says the department’s practice now is to take many statements in the field with a body camera recording, in order to preserve people’s statements and that “We’ll probably continue this practice even after the pandemic is over, because we’re getting to question people on the scene when their memory is fresh and before they clam up about coming in to talk to us”. He noted the main exception is in the most sensitive cases that need to be inside to be sure of confidentiality. Likewise, greater reliance on videoconferencing between the rooms of a police station should leave little legal excuse for not recording and thus let courts to see for themselves just what was said and whether a confession was fairly obtained, not to mention that the police can use their best interrogators even when they can’t be there in person.
The provincial and federal Crown have revised their policies for a lot of offences to reduce the incidence and the severity of prosecution. This started when the pandemic hit and has now been reduced to writing. The principal driver was – and no doubt remains - to alleviate the congestion in the courts wrought by the postponement of cases due to Covid-19 and to mitigate the adverse effects of the resulting delays.
Provincially, take a look at the Ontario Ministry of the Attorney General’s “Covid-19 Recovery” policy, effective August 14, 2020, that can be found at page 153 of the Crown Prosecution Manual. You can find it at https://files.ontario.ca/books/mag-crown-prosecution-manual-en-2020-08-14.pdf. Amongst other things, it says:
re charge screening
The Prosecutor should also consider the following: 1. the impact of the COVID-19 pandemic on an accused, victim or witness in light of their age, physical health, mental health or special vulnerability 2. the disproportionate impact of the COVID-19 pandemic on racialized, marginalized, and Indigenous communities (e.g. an increase in the frequency of discriminatory or hate-related offences during the COVID-19 pandemic) 3. the disproportionate impact of the COVID-19 pandemic on vulnerable accused persons, including racialized, marginalized and Indigenous accused (e.g. not having access to accommodations or supports that normally exist) 4. whether the offence was motivated by the COVID-19 pandemic (e.g. taking advantage of closed businesses or people’s fear of infection) 5. whether the charge is an offence against the administration of justice, such as a breach of court order, where the restrictions imposed by the COVID-19 pandemic impacted an accused’s ability to comply with the court order 6. the length, delay and expense of a trial when considered in relation to the seriousness of the offence and specifically taking into consideration the current COVID-19 court restrictions and future limitations on court operations.
The Prosecutor and Crown Attorney or designate should also consider the following factors: 1. impact of the COVID-19 pandemic on the accused, including loss of job, health consequences, additional child-care and education responsibilities, working from home or significant financial constraints 2. the disproportionate impact of the COVID-19 pandemic on vulnerable accused persons, including racialized, marginalized and Indigenous accused (e.g. not having access to accommodations or supports that normally exist) 3. whether the offence was motivated by the COVID-19 pandemic (e.g. taking advantage of closed businesses or people’s fear of infection) 4. frailties in the prosecution e.g. staleness of the case, including the delay in prosecution as a result of the COVID-19 court limitations 5. whether a just result is accelerated by a referral to a community-based sanction taking into particular consideration any delays caused by the COVID-19 pandemic.
In reviewing alcohol impaired driving cases, Prosecutors may consider the impact of the COVID-19 pandemic as an exceptional circumstance justifying the withdrawal of the Criminal Code driving offence in exchange for a guilty plea to the Highway Traffic Act (HTA) offence of careless driving.
Federally, check section 5.13 “Prosecution of Possession of Controlled Substances Contrary to s. 4(1) of the Controlled Drugs and Substances Act” in the Public Prosecution Service of Canada Deskbook. You can find it at https://www.ppsc-sppc.gc.ca/eng/pub/fpsd-sfpg/fps-sfp/tpd/index.html. Amongst other things, it says:
1. Resort to a criminal prosecution of the possession of a controlled substance contrary to s. 4(1) CDSA should generally be reserved for the most serious manifestations of the offence (described in paragraph 3 below).
2. In all instances, alternatives to prosecution should be considered unless they are inadequate to address the concerns related to the conduct, including in the following circumstances:
a. The possession relates to a substance use disorder. In particular, alternatives to prosecution should be pursued where the offender is enrolled in a drug treatment court program or a course of treatment provided under the supervision of a health professional, including those involving Indigenous culture-based programming, peer counselling, and abstinence-based recovery centres;
b. The offender’s conduct arises from a violation of a bail condition and can be addressed adequately through a judicial referral hearing;
c. The offender’s conduct can be adequately addressed through an approved alternative measure or a measure that is consistent with the principles contained in Chapter 3.8 of the PPSC Deskbook governing alternative measures;
d. The offender is an Indigenous person and their conduct can be addressed through an Indigenous restorative justice response; or
e. The offender’s conduct can be addressed through a restorative justice response.
CELL PHONE SEARCHES
The Supreme Court of Canada held in R. v. Fearon that police may, incident to arrest, search a cell phone that is not password-protected or otherwise locked to a limited extent and in accordance with some strict judicially imposed Charter s. 8 requirements. What about password-protected or otherwise locked cell phones?
The American courts have been divided on the question of whether a person can be compelled to disclose the code to access the contents of the phone. Timothy B. Lee recently wrote an article on this, which can be found in the Ars Technica Web site at https://arstechnica.com/tech-policy/2020/06/indiana-supreme-court-its-unconstitutional-to-force-phone-unlocking/.
He was commenting on the Indiana Supreme Court case of Katelin Eunjoo Seo v. State of Indiana, Supreme Court Case No. 18S-CR-595, decided June 23, 2020 and that can be found at https://www.eff.org/document/state-v-seo-opinion. The Chief Justice succinctly the ruling in the first two paragraphs of his opinion:
“When Katelin Seo was placed under arrest, law enforcement took her iPhone believing it contained incriminating evidence. A detective got a warrant to search the smartphone, but he couldn’t get into the locked device without Seo’s assistance. So the detective got a second warrant that ordered Seo to unlock her iPhone. She refused, and the trial court held her in contempt.”
“We reverse the contempt order. Forcing Seo to unlock her iPhone would violate her Fifth Amendment right against self-incrimination. By unlocking her smart phone, Seo would provide law enforcement with information it does not already know, which the State could then use in its prosecution against her. The Fifth Amendment’s protection from compelled self-incrimination prohibits this result. We thus reverse and remand.”
Mr. Lee wrote that:
“The courts are divided on how to apply the Fifth Amendment in this kind of case. Earlier this year, a Philadelphia man was released from jail after four years of being held in contempt in connection with a child-pornography case. A federal appeals court rejected his argument that the Fifth Amendment gave him the right to refuse to unlock hard drives found in his possession. A Vermont federal court reached the same conclusion in 2009—as did a Colorado federal court in 2012, a Virginia state court in 2014, and the Massachusetts Supreme Judicial Court in 2014.”
“But other courts in Florida, Wisconsin, and Pennsylvania have reached the opposite conclusion, holding that forcing people to provide computer or smartphone passwords would violate the Fifth Amendment.
Lower courts are divided about this issue because the relevant Supreme Court precedents all predate the smartphone era...”
He drew specific attention to the U.S. Supreme Court case of United States V. Hubbell (99-166) 530 U.S. 27 (2000) that can be found at https://www.law.cornell.edu/supct/html/99-166.ZO.html.
The key issue was that the prosecutor’s subpoena to Hubbell lacked particularity. It asked for broad categories of documents and relied on Hubbell to figure out which documents met the criteria prosecutors provided. By combing through the documents Hubbell provided, prosecutors were able to find evidence to charge Hubbell with mail fraud and tax evasion. Hubbell argued, and the court agreed, that the prosecution violated his Fifth Amendment rights, since he’d been compelled to provide the evidence used to prosecute him. Indiana’s Supreme Court says the same principle applies when a suspect is compelled to unlock a smartphone. By unlocking her phone, Katelin Seo would be giving prosecutors access to files they didn’t know existed and might not be able to access any other way.
We would do well to be mindful of, and learn from, this developing U.S. jurisprudence, for it was said in Vespoli v. Canada, 1987 CarswellNat 548, 1987 CarswellNat 892,  1 C.T.C. 25,  2 F.C. 125, 15 F.T.R. 128, 8 A.C.W.S. (3d) 6 that
“Finally, the U.S. precedents submitted by counsel for the respondent must be considered in the manner described by Chevrier, J in Hall v. Campbellford Cloth Co.,  O.W.N. 202 at 206 (Ont. High Court):
American decisions ... might be considered, not as binding authority, but as “intrinsically entitled to the highest respect”, as said by Parker J in Doe d DesBarres v. White (1842), 3 N.B.R. 595 (quoted by Ritchie C.J. in Sherren v. Pearson (1877), 14 S.C.R. 581 at 587).”
PRE-TRIAL DETENTION NOT TO EXCEED SENTENCE
Finally, notwithstanding that Hamilton Criminal Lawyers Association members were already told about it by Michael Puskas, it’s such a useful practice case that R. v. G.P., 2020 ONSC 3240 (CanLII) bears mentioning again in the Journal. It was a detention review pursuant to s. 525 of the Criminal Code.
Schreck J. asked (in para. 1) “What happens when there are secondary ground concerns about an accused person but he or she has already spent time in custody that is equivalent to or greater than any sentence he or she would receive if convicted?”. His answer (in para. 3) was “The following reasons explain why I am granting the application. Although I have secondary ground concerns and concerns about the adequacy of the proposed plan, in my view there is a significant risk that if he is not released, the applicant will serve more time in custody than he would be sentenced to if found guilty. The principle of proportionality in sentencing requires that a sentence be as long as necessary to make it proportionate to the gravity of the offence and the moral blameworthiness of the offender, but no longer. In my view, that principle is an important factor in this case which tips the balance in favour of release.”
Geoffrey Read is a sole practitioner in Hamilton. He is certified by the Law Society of Ontario as a Specialist in Criminal Law.
He can be reached at:
20 Hughson Street South, Suite 612
Family Law News: A “Beneficial and Meaningful” Decision on post-extended care access
By Imran Kamal, Catholic Children’s Aid Society of Hamilton
Before the Child, Youth and Family Services Act, 2017, S.O. 2017, c. 14, Sched. 1 (“CYFSA”) came into force in 2018, in Ontario there was a legislative presumption against access after a grant of Crown Wardship. The old legislation, the Child and Family Services Act, R.S.O. 1990, c. C.11 (the “CFSA”), required that once an Order for Crown Wardship was made, a person seeking access had to establish that the relationship “is beneficial and meaningful” to the child, and that the access would not impair the child’s opportunities for adoption. The onus was on the person(s) seeking access.
In 2018, the CFSA was repealed and replaced with the CYFSA. The new Act still requires the court to consider whether the relationship is “beneficial and meaningful” to the child, however, that is just one of numerous considerations for determining whether access would be in the child’s best interests. The overarching test is now best interests and a holistic approach is taken. The Court of Appeal in Ontario recently released a decision which clarifies various interpretations through case law since the new legislation came into effect.
In Children’s Aid Society of Toronto v. J.G., the trial judge (Justice Sherr) applied the new approach to the determination of access and ordered access at the discretion of the Children’s Aid Society. The appeal judge (Justice Shore) in the SCJ applied the older and more restrictive test (even though the legislation has the same wording), allowed the appeal, and overturned the decision.
At the initial hearing, the mother ultimately consented to an extended society care order, and the only issue before the Court was the mother’s access to the child. Access was ordered.
The appeal became the interpretation of the words “beneficial and meaningful”. Did the new legislation change the meaning of that phrase?
The Society’s position asked the Court to follow the cases under the CFSA that narrowly interpreted the words “beneficial and meaningful” – the old case law.
Justice Sherr rejected that position and found that a more expansive inquiry was required given the new statute and recent Court of Appeal decisions (namely Kawartha-Haliburton Children’s Aid Society v. M.W. (2019), 24 R.F.L. (8th) 32 (Ont. C.A.), and in L.M. v. Peel Children’s Aid Society (2019), 33 R.F.L. (8th) 288 (Ont. C.A.). Based on that more expansive analysis, the OCJ concluded that the benefits of the mother’s relationship with the child outweighed any detriments and that the relationship was beneficial and meaningful for the child. His Honour found that it was, presently and in the future, in the child’s best interests to have continued access with the mother at the discretion of the Society.
The OCJ Order was appealed by the Society to a single judge of the Ontario Superior Court of Justice - the Honourable Madame Justice Sharon Shore.
Justice Shore concluded that the trial judge had erred in assigning a “new definition” to the “same words” - “beneficial and meaningful” under the CYFSA. Her Honour reviewed the case law on the interpretation of “beneficial and meaningful” and concluded that the previous interpretations still applied. Her Honour also found that the trial judge had erred by considering the potential for a future relationship because the court is called upon to consider whether the relationship “is” beneficial and meaningful, not whether it may become so in the future.
The Respondent mother then further appealed to the Court of Appeal, where the main issues were 1) is there a new meaning of the term “beneficial and meaningful” relationship for access under the CYFSA? And 2) Can the benefits of a future relationship be considered in the “beneficial and meaningful” consideration?
Since the CYFSA came into force, two lines of cases developed with respect to access for a child in extended care: one school following the old test from the CFSA and the other taking a more expansive approach.
The Honourable Justice Benotto started with the proposition that the words of a statute are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the statute, the object of the statute and the intention of Parliament. That is a fundamental principle of statutory interpretation. To meet that objective, the Honourable Justice Benotto moved on to consider the objectives and scheme of the CYFSA.
The Honourable Justice Benotto relied on two recent Court of Appeal decisions in child protection law that broadened the interpretations of the CYFSA. As the Court of Appeal said in Kawartha-Haliburton Children’s Aid Society v. M.W. and in L.M. v. Peel Children’s Aid Society, the new Act reflected a significant change for children in care, including replacing some stigmatizing terms “Crown ward” with “extended society care”, making services more culturally appropriate for all children and youth in the child welfare system, particularly First Nations, Inuit, Métis, to ensure that they receive the best possible supports, focusing on early intervention, to assist in preventing children, youth and families from reaching crisis situations in the home; and improving review of service providers to ensure that children and youth receive consistent, high-quality services across Ontario.
In the context of access for children in extended care, the Court of Appeal changed the criteria for access by removing the presumption against access and making the child’s “best interests” paramount. As the Court of Appeal noted in Kawartha and Peel, the change was not “just semantics”, but represented “a significant shift in the approach to access for children in extended care.”
Considering these expansive changes and the previous decisions of the Court of Appeal in Kawartha and Peel, the Honourable Justice Benotto determined that the test for access under the CYFSA changed the meaning of a “beneficial and meaningful” relationship.
The Court of Appeal made it clear that as a result of the changes to the CYFSA, it was no longer appropriate to apply older cases that simply applied a dictionary definition to important words “untethered from the context of the Act.” As remedial legislation with the purpose of protecting Society’s most vulnerable children, the CYFSA must be liberally interpreted and applied to the benefit of the child. The new access test is no longer just a “beneficial and meaningful” test. Rather, it is now a best interests test with a statutory requirement to consider whether the relationship is beneficial and meaningful for the child as but one aspect of that analysis. More interesting, now, when a court considers a child’s best interests, it will consider all relevant factors including past, present and future. The new post-extended care access test now takes a holistic and comprehensive analysis of the best interests of the child.
The Court of Appeal found that the SCJ appeal judge erred in concluding that the trial judge had erred in law when he said that a child’s best interests include “all relevant factors, ‘whether they be past, present or future considerations’” (at para. 81). The “beneficial and meaningful” test is no longer a separate pre-condition as it was under the previous legislation. Now, it is just one consideration in the best interests analysis.
To think of it this way, the best interests of a child are not static. This is confirmed by the wording of s. 74(3), which requires the court to consider “any other circumstance of the case.” According to Justice Benotto, “[t]here is simply nothing in the plain wording of the current Act to suggest that access should be decided without reference to the future.”
This case is a binding authority on all OCJ and SCJ decisions in Ontario and significantly shifts the interpretations of many previous decisions relating access after Extended Care. This case puts to rest the interpretation of the new test as we were all operating with two lines of cases with different interpretations.
In contrast, some jurisdictions, such as New Brunswick, for example, continue a statutory and common law presumption against access after a grant of Society Guardianship. This presumption was recently affirmed by the New Brunswick Court of Appeal in J.C. v. Minister of Families and Children, 2020 CarswellNB 162 (C.A.), additional reasons at 2020 CarswellNB 252 (C.A.).
We are now in a time where post-Extended Care access considerations are very different than they were a couple of years ago, or even a few months ago.
Imran Kamal is legal counsel with the Catholic Children’s Aid Society of Hamilton. He can be reached at:
905-525-2012 ext 3237, or by email at Imran.Kamal@hamiltonccas.on.ca.
Commercial Law News
By John Loukidelis
The “pipeline” is a planning technique that can reduce the taxes payable by a deceased taxpayer and her estate where she is a shareholder of a Canadian-controlled private corporation (a “CCPC”, as defined in the Income Tax Act (Canada) (the “Act”)). This article outlines why a pipeline might help a taxpayer to reduce taxes, the mechanics of a pipeline reorganization, and the CRA administrative positions that make the pipeline possible. This article also discusses why pipeline planning might not always be a useful tool and why it might not be available to taxpayers forever. (Spoiler: The Department of Finance appears not to like them very much.)
Taxes on Death
“Jane Smith” dies when she is the sole shareholder of a CCPC that is a corporation (“Holdco”) under the Business Corporations Act (Ontario) (the “OBCA”). Holdco holds a portfolio of publicly-traded securities. At the time of Jane’s death, her Holdco shares have a fair market value of $1 million and a tax paid-up capital (“PUC”) and tax cost that are nominal. Jane is deemed to have disposed of the shares immediately before her death. The resulting gain is not eligible for a rollover or the capital gain exemption. As a result, her executor must report a deemed capital gain in her terminal return of about $1 million.
The executor might consider causing Holdco to redeem the shares that Jane held. If the executor did that, Jane’s estate would receive a deemed dividend because her deemed disposition of the Holdco shares immediately before death increased their tax cost but not their PUC. The estate would also realize a capital loss on the redemption of the shares equal to the deemed capital gain reported in Jane’s terminal return. If the estate realizes the capital loss in the year following Jane’s death, it can elect to carry the loss back to her terminal return to offset the gain that was reported in it.
If Jane and her estate were subject to income tax in Ontario at the highest marginal rate, then the estate would likely have paid tax of about $267,000 on the deemed gain reported in her terminal return. That tax will be refunded as a result of the loss carryback, but the estate will pay tax of about $477,000 on the deemed dividend (assuming that the entire amount is non-eligible).
The “pipeline” might provide a better tax result.
The Pipeline Reorganization
Instead of causing Holdco to redeem its shares, the estate could undertake the following reorganization.
The estate would incorporate Newco under the OBCA. Newco would also be a CCPC. Newco’s authorized share capital would entitle it to issue ordinary voting Common Shares and Preferred Shares. The Preferred Shares would be non-voting, entitled to non-cumulative annual dividends of 5% and be redeemable and retractable at a price equal to $1.00 per share. The estate, when it organizes Newco, would subscribe for 100 Common Shares in its capital for $100 in total.
The estate would transfer all of its shares in the capital of Holdco to Newco, and in exchange Newco would issue to the estate :
a demand note (the “Note”) with a principal amount and fair market value equal to the tax cost of the shares less $100; plus
some Preferred Shares with a total redemption amount and a fair market value equal to $100 plus the amount, if any, by which the fair market value of the Holdco shares at the time of the transfer exceeds $100 plus the principal amount of the Note.
The foregoing assumes that the Holdco shares have not declined in value since Jane’s death.
The estate and Newco would elect under section 85 of the Act so that the transfer of the Holdco shares to Newco would occur on a tax-deferred basis under the Act (in case the value of the shares has increased since Jane’s death).
Holdco would continue to carry on its “investment business” for at least twelve months following the transfer of the Holdco shares to Newco.
Twelve months after the transfer of the Holdco shares to Newco, Holdco and Newco would amalgamate to form Amalco. As a result, all of the property and all of the liabilities of Newco and Holdco immediately before the amalgamation, including the Note, would become property and liabilities of Amalco.
After the amalgamation, Amalco could begin to repay the Note. In general, to comply with the CRA requirements for a pipeline, the amount paid in any quarter after the amalgamation should not exceed something like 15% of the principal amount of the note when it was first issued.1
Amalco would continue to carry on the Holdco investment business for the foreseeable future.
As a result of the foregoing planning, the estate would pay tax only in respect of the deemed disposition of Jane’s shares in the capital of Holdco. The Note (the “pipeline”) would permit the estate to receive the assets formerly held by Holdco without additional tax at the shareholder to the extent of the principal amount of the Note.2 The estate might save as much as $210,000 of taxes as a result of undertaking a pipeline.
Some tax issues
Why must Amalco continue to carry on the Holdco “business”? Why must Amalco wait twelve months before beginning to repay the Note? Why must the note be repaid over time and not all at once? Subsection 84(2) of the Act provides in part that
[w]here funds or property of a corporation resident in Canada have … been distributed or otherwise appropriated in any manner whatever to or for the benefit of the shareholders of any class of shares in its capital stock, on the winding-up, discontinuance or reorganization of its business the corporation is deemed to pay a dividend equal to the amount distributed or appropriated less the PUC of the issued shares of the corporation.
Recall that, in Holdco’s case, Jane’s deemed disposition of her shares increased their tax cost but not their PUC. If subsection 84(2) applies to the reorganization undertaken with Newco, then the estate will be deemed to receive a dividend from Holdco in respect of the shares transferred to Newco, which would negate any benefits from the reorganization. Subsection 84(2) could apply to Jane’s estate to deem it to have received a dividend, if the estate transfers Holdco shares to Newco for the Note, and Holdco (through Newco) winds-up its business and immediately distributes its net assets to the estate.
The CRA, however, has issued numerous advance tax rulings for pipelines that confirm subsection 84(2) will not apply, if CRA guidelines are followed. The CRA will generally “bless” a pipeline where the note is paid off gradually and the Holdco “business” continues for the foreseeable future. In fact, the CRA recently issued a ruling that approved an earlier repayment of the pipeline note, if the money were to be used for paying taxes.3
What constitutes a “business” for the purposes of a pipeline is beyond the scope of this article, but the CRA has taken the position that a corporation that holds only cash cannot take advantage of pipeline planning. It is possible, however, for investment holding companies to undertake pipelines.
Pipelines Always and Forever?
A pipeline might save hundreds of thousands of dollars of taxes, but it does not always do so. For example, in Jane’s case, Holdco might have large amounts of refundable taxes on hand, in which case a redemption of shares might trigger relatively little additional tax and the loss carryback method could be preferable. Moreover, implementing a pipeline means living with the restraints imposed by the CRA guidelines, which is not always possible. Every situation must be analyzed in detail to determine the costs and benefits (tax and non-tax) of the pipeline compared to other planning techniques.
Interestingly, the CRA has continued to issue pipeline rulings although it appears the Department of Finance thinks they embody bad tax policy. When it introduced the new split income rules in 2017, Finance also took aim at pipelines: proposed section 246.1 of the Act, among other things, would have ended them. Finance stated at the time that it believed estates should be taxed on surpluses received from corporations at (the higher) dividend rates and not at the capital gain rate.4 It withdrew the proposal after a storm of protest from small business owners and their advisers who were concerned about its effect on small business transition planning.
Perhaps, however, Finance will use another tool, if not to kill pipelines, then to make them less attractive. The pipeline saves tax because of the difference in rates applicable to dividends and the rate applicable to capital gains. The federal government has now incurred enormous additional debt in its fight against the health and economic effects of COVID-19. Some are speculating that the government, to collect more revenue, might increase the portion of a capital gain that must be included in income from 50% to 75%.5
If the government had implemented this change immediately before Jane died, then the tax her estate would have paid in respect of the gain would be about $401,000 instead of only $267,000. The pipeline savings would be reduced from $210,000 to only $76,000. The pipeline might still be worth implementing, but its savings would be greatly reduced.
Advice to Clients
Smart clients and their advisers create estate plans that take into account post-mortem tax planning. The pipeline is a key tool for that kind of planning that clients should know about and consider. A lawyer should not advise a client to die sooner so that he or she can take advantage of pipeline planning. The lawyer should outline pipeline planning, its savings and its limitations. The lawyer should also mention that its utility could be reduced or eliminated by government action in the near future.
John Loukidelis provides tax advice to business owners, accountants and other lawyers. John’s Tax Court experience includes dealing with complex tax litigation on behalf of public and private corporations. He can be reached at:
Loukidelis Professional Corporation
20 Hughson Street South, Suite 707
Hamilton ON L8N2A1
1 In fact, the appropriate percentage is a bit of a mystery because recently the CRA has taken to redacting this percentage in the rulings it has issued. In the author’s experience, 15% seems typical, but the CRA has not chosen to provide firm public guidance on this point.
2 Of course, transfers of assets from Amalco in satisfaction of the note could give rise to capital gains in Amalco on which it might be required to pay tax. It might be possible to combine the pipeline with a “bump” for income tax purposes that would increase the tax cost of Amalco’s assets. Bump transactions are quite complex, however, and well beyond the scope of this article.
3 CRA ruling 2018-0789911R3.
4 Manu Kakkar “The Pipeline Comes Back to Life (But for How Long?)” 18:1 Tax for the Owner-Manager (January 2018).
5 The capital gain inclusion rate in early 2000 was 75% before it was lowered by the Chretien Liberals.
Personal Injury News
By Andrew Spurgeon, Ross & McBride
Three Points of Interest: Stirrett v. Cheema
In this edition of the Personal Injury Update I want to consider a case decided by the Court of Appeal in May of this year: Stirrett v. Cheema1 which is fascinating to me on three levels. It involves the death of a man who was in a clinical study of the use of insulin to prevent restenosis of clogged arteries in the heart after angioplasty. He died during a follow-up angiogram procedure to measure the impact of insulin use as a preventative measure against the re-clogging of his arteries.
My first point of interest arises for me as I am a member of a Research Ethics Board which assesses, approves, defers or denies applications of physicians to do research on human subjects so this piques my interest. The plaintiff’s surviving spouse asserted that the principal investigator in the study was negligent and breached his fiduciary duty to her late husband in inducing him to participate and stay in the study.2
My second point of interest arises from an interesting question concerning the divergence and overlap of law and equity. The allegations of both negligence and breach of fiduciary duty created some interesting problems in this regard.
My third point of interest in this case comes at its most fundamental level – the issue of factual causation as in a medical malpractice case. Proof of causation in the medical negligence context is a daunting and obscure precinct of law despite regular re-consideration by higher courts.
The Facts of the Case
Mr. Stirrett was a middle-aged man who was a non-insulin dependent diabetic. He had heart problems and went to hospital to have an angiogram and possible angioplasty. An angiogram is a study of the heart done by inserting a line in the veins up to the heart releasing dye to visually show the circulation and identify blockages in the blood vessels of the heart. Mr. Stirrett’s heart had a 90% blockage at the left circumflex artery. As a result, an angioplasty was done successfully to open up the artery and improve circulation.
When Mr. Stirrett arrived for the angiogram he was asked if he wanted to participate in a study. The study was set to determine whether for non-insulin dependent diabetics the use of insulin could reduce the risk of restenosis (re-blockage) after an angiogram. The subjects would be divided into two groups, one would take insulin and the other would not. After six months subjects would return for a follow-up angiogram to see how much, if any, re-blockage there was in the area of the repaired – reopened artery after angioplasty. Mr. Stirrett was in the control group. He received no insulin – which was the standard of care and consistent with his diabetic profile.
Unfortunately, the study’s Principal Investigator, Dr. Strauss had difficulty fully enrolling the study and funding was partially curtailed. A Data Safety Monitoring Board was not constituted. Lastly, these changes to the study had not been revealed to Research Ethics Boards overseeing the research. Essentially the study was floundering. None of these facts were revealed in the Consent form signed by Mr. Stirrett at the time he agreed to participate; as well as at the time he underwent the second angiogram.
Six months post-angioplasty, Mr. Stirrett, who had been suffering from chest pain for approximately one month, attended for the follow-up angiogram. Had Mr. Stirrett not been in the study, he would not have had the second angiogram. He died in the course of having the angiogram. Mr. Stirrett’s autopsy revealed that the area of the previous angioplasty had suffered from very significant restenosis (it had clogged back up again quite badly).
Mr. Stirrett’s wife commenced a claim alleging not only negligence but also breach of fiduciary duty on the part of the investigators in the study. The theory of the plaintiff’s case is if Dr. Strauss had been more up-front and open about the fact that the study was floundering, and had Mr. Stirrett received full and complete disclosure of the facts of the study outlined above, he would not have entered the study or at least not submitted to the second angiography. Alternatively, it was asserted that the Research Ethics Board (had the negative facts been revealed to it) would have shut the study down and the second angiography would not occurred because the study would not have ended.
The Result at Trial
In respect of the allegations of negligence brought in law, the jury determined that the angiogram itself was not done in a manner below standard of care. However, Dr. Strauss, in his capacity as Principal Investigator administering the study, did fall below standard of care in four ways relating to how he administered the study. However, the jury concluded that none of those four breaches of duty caused the injury suffered by Mr. Stirrett, holding that within the tort of negligence no cause in fact was proven linking any of the breaches of duty in the administration of the study to the ultimate outcome of Mr. Stirrett’s death.
But that was not the end of the story at trial. Ms. Stirrett further alleged that Dr. Strauss owed and breached an ad hoc fiduciary duty to Mr. Stirrett. Fiduciary duty is a concept that arises in equity and determinations of claims for equitable relief are not to be tried by a jury pursuant to s. 108(2) of the Courts of Justice Act. On this point – the point of equitable relief – Ms. Stirrett won at trial as the trial judge awarded damages to her on the basis that:
“Equity has always held trustees strictly accountable in a way the tort of negligence and contract have not.… The physician is pledged by the nature of his calling to use the power the patient cedes to him exclusively for her benefit. If he breaks that pledge, he is liable”.3
On this basis the trial judge held the defendant physician liable to pay equitable relief to the plaintiff without the plaintiff having to prove a causal connection in fact between a breach of fiduciary duty and the occurrence of injury.
The defendant appealed asserting two grounds of appeal.
That there was no ad hoc fiduciary duty owing by the physician to the patient that was breached and consequently, the court erred in finding liability against the defendant, Dr. Strauss; and
If there indeed was a breach of ad hoc fiduciary duty by the physician to the patient, the plaintiff (patient) had not proven that his injury was in fact causally related to such breach of duty and further, the trial judge erred in concluding that no causal connection was necessary to establish liability.
The Court of Appeal only addressed the second ground of appeal. Because of their answer to the second question, the court concluded it did not need to address the first issue.
The Court of Appeal held – assuming a breach of fiduciary duty was proven – that the trial judge erred in concluding that such a breach could result in liability on the part of the defendant without proof that the breach of fiduciary duty in fact caused the injury. In other words, the court concluded, causation-in-fact is a necessary element of proving entitlement to recovery for breach of fiduciary duty.
On this point, the Court of Appeal held that the factual determination by the Jury in the tort (common law) component of the case that there was no causal connection between breaches of duty of care and injury to Mr. Stirrett was controlling. Those breaches of duty of care were the same as the breaches of ad hoc fiduciary duty alleged by the plaintiff in the case. Given that causation had not been proven, it was superfluous and unnecessary to determine whether there indeed was any ad hoc duty of care owed to Mr. Stirrett breached by Dr. Strauss.
My Three Points of Interest
As mentioned above, the particular facts in this case pique my interest on three levels. Let’s look at each.
a. Research Ethics
The Court of Appeal in this case gives a good overview of the legal framework in which research studies on human subjects are undertaken in Canada. It outlines the role of the governing Tri-Council Statement4 and the regime in which ethical determinations concerning research on human subjects are made.
Dr. Strauss, the Principal Investigator of the Study in which Mr. Stirrett was enrolled, clearly made errors and was sloppy in observing his obligations to disclose facts to both Mr. Stirrett and to the Research Ethics Board about his study. He failed to disclose the lack of uptake on the study; the withdrawal of funding; the lack of updating the overseeing Research Ethics Board on the status of the study, and the lack of constituting of a Data Safety Management Board (DSMB).5
The Jury appeared to conclude that none of these breaches of care by Dr. Strauss in point of fact caused Mr. Stirrett’s injury – they did not have any material impact upon whether the second angiography (the one in which he died) would have occurred. The difficulty one has with this conclusion is that it is one drawn by a jury and therefore is without explanation. There is no treatment of the question of materiality and the subjective – objective test for informed consent found in Reibl v. Hughes.6 This essentially is the flaw with jury verdicts, they are conclusions of a group of people with unreported and likely divergent reasons.
b. The Juxtaposition of Law and Equity
I find the continued inter-relationship of Law and Equity fascinating. In this case, there is the vestigial distinction between the two where juries exist in law but not in equity. In a fused court structure like our own, arguably, the decision-maker in a single case – in respect of the facts should be the same for both matters in law and equity. But in this case, that proposition is both true and not true at the same time. As the Court of Appeal noted, as per the Courts of Justice Act s. 108(2)1.xi. trials may not be conducted by a jury if the remedy sought is: “[o]ther equitable relief”. Fiduciary duties are duties which are recognized not in common law, but in equity. A court may provide equitable relief for the breach of a fiduciary duty. The question is what would that relief be and how would it be determined to be owing?
In the circumstances of Mr. Stirrett’s case, the trial judge faced with a Jury Notice proceeded with a jury trial in respect of the claims made in the tort of negligence which is a common law cause of action but reserved to himself determination of:
Whether a fiduciary duty was owed to Mr. Stirrett by Dr. Strauss;
If one existed, whether Dr. Strauss breached that fiduciary duty; and
If a fiduciary was breached, what remedy, if any would be provided to Mr. Stirrett.
Such a procedural cleavage between law and equity within the same case invites the prospect of inconsistent findings of fact as between the jury and the judge. As in this case, the duties of care found in the tort of negligence owed by Dr. Strauss to Mr. Stirrett would be similar, if not identical to the fiduciary duties he arguably owed to Mr. Stirrett. The question was however, would the causational requirements for compensation in tort also apply in equity? If so, how?
The Court of Appeal’s answer to those questions was “yes”. The factual causational issue of but for a breach of duty “X” occurring, would injury “Y” result – was an issue which applied equally in law and equity. In order for the court to avoid the possibility of inconsistent findings of fact on the causation question, the Court of Appeal held that the Jury’s findings of fact regarding causation in the common law tort of negligence were “controlling” in respect of any potential causational question regarding any possible breach of a fiduciary duty as well.
The question is whether the Court of Appeal is right on this? If the Courts of Justice Act prohibits jury trials in respect of “other equitable relief” how can findings of fact a jury be controlling in respect of the determination of whether equitable relief ought to be given in light of section 108(2) of the Courts of Justice Act? I confess, I do not know what the answer to this question is but it is interesting and it suggests that the Court of Appeal in seeking to prevent inconsistent outcomes within a single proceeding are squaring the circle by negating the differences between law and equity.
Causation is an area of law over which “has become complicated, convoluted and confused.”7 This is especially true in respect of how it applied in medical negligence in Ontario.8 The general rule is but for the occurrence of the breach of duty, would the impugned injury have occurred? Courts are advised to take a common sense, robust and pragmatic approach to assessing whether as a matter of fact, the breach of care and duty proven in fact caused the injury alleged.9 A trier of fact is to ask: but for the wrong committed by the defendant – would the plaintiff’s injury have occurred? This proposition is one the plaintiff must prove on the balance of probabilities. In the Stirrett case, the Court did not grapple with this question independently. To avoid an inconsistent finding of fact, the Court of Appeal simply looked to the jury’s factual determination in the common law side of the case and grafted that factual conclusion upon the question of an assumed breach of fiduciary duty. On that basis the court concluded that the case of the plaintiff failed.
Once that decision was made, the court decided it did not need to analyze the question of whether the trial judge was right in finding an ad hoc fiduciary duty owed by the Principal Investigator of the study to the subject of the study, Mr. Stirrett.
The conclusions of the Court of Appeal in this case were disappointing on three levels. First, in choosing not to grapple with the question of ad hoc fiduciary duty the Court failed to provide guidance to scientific researchers in respect of their duties to the human subjects they study. Second, in the same vein, by choosing not to address the issue of ad hoc fiduciary duty and by simply resorting to the jury verdict on the element of causation in the negligence claim, the Court of Appeal forfeited an opportunity to flush out the contours of the interaction of collateral causes of action in law and equity. Third, in not more fulsomely exploring the issue of factual causation the Court left the law in as confused a state as it found it. Perhaps in a few years another case will come along in which some of these issues will present themselves so that they can be faced squarely.
Andrew J. Spurgeon is a partner at Ross and McBride. He is also an Elected Bencher of the Law Society of Ontario, and the Chairman of the Board of Directors LawPRO, which is the sole insurance company providing primary liability coverage to all 28,000 lawyers in private practice in Ontario.
He can be reached at:
Ross & McBride
1 King St W, Hamilton, ON
1 2020 ONCA 288
2 With Covid-19 and the very public pursuit of a vaccine in the headlines daily, the oversight role of Research Ethics Boards and the management of safety protocols of clinical studies involving human subjects has come into sharp focus for the public of late. There are many concerns and debates about the politicization of scientific inquiry. Research Ethics Boards are a pillar in the edifice of institutions designed to protect the health and well-being of people involved in scientific research and ensure the integrity of the results of research studies.
3 Norberg v. Weinrib  2 SCR 226 at paragraphs 95 and 98.
4 The Tri-Council Policy Statement: Ethical Conduct for Research Involving Humans, 2nd edition (TCPS 2 (2018)) is the official human research ethics policy of the federal research granting agencies being: The Canadian Institutes of Health Research (CIHR), the Natural Sciences and Engineering Research Council of Canada (NSERC), and the Social Sciences and Humanities Research Council (SSHRC).
5 A DSMB is a Board of outside experts whose job is to monitor the overall safety of a study. Many studies are blind or double blinded. A blind study is one where the subject does not know if they are getting the intervention therapy or placebo. A double-blinded study is one where neither the treatment provider nor the subject knows if they are getting the intervention treatment or the placebo. DSMB’s are charged with overseeing the data generated in the study to ensure safety of participants, especially where the investigators do not know which of the subjects are getting what treatment. Studies can be stopped by a DSMB where the data reveals that it would be unethical to continue the study because of negative outcomes for subjects in the study.
6  2 SCR 880.
7 S. Green, Causation in Negligence, Hart Publishing, Oxford (2015) at p. 1.
8 The Court of Appeal in the last few years has come out with two contradictory cases on causation in medical negligence. They are: Surujado v. Melady, 2017 ONCA 41 and Sacks v. Ross, 2017 ONCA 773.
9 Snell v. Farrell,  2 SCR 311
New Lawyers’ Update: Navigating the Pandemic as a New Lawyer
Zachary Peachey, Sullivan Festeryga
The advent of COVID-19 has forced the legal profession and the rest of the world to do things in other ways. Offices have been replaced by spare bedrooms and kitchen tables. Mediators and reporting centres are operating almost entirely by audio and videoconferencing. The Ontario Court of Justice and the Superior Court of Justice in Ontario have been operating at a reduced capacity, and how they will manage the backlog of matters remains to be seen. We are all figuring things out at the same time, and it is easy to be overwhelmed.
Being a new lawyer during this period comes with advantages and disadvantages. Each day is met with insecurities and a new notice to the profession. Although there is light at the end of the proverbial tunnel, there remains great uncertainty for new lawyers trying to grow their practice. While new lawyers may have to actively seek out mentorship more now that most of us are working from home, there are also benefits to the remote nature of today’s proceedings. New lawyers also have the benefit of not being stuck in their ways – or hung up on the way that things have always been done, especially when it comes to technology. Use your common sense. Be creative. This may be an opportunity to help your not-so-new colleagues through new challenges.
Finding and Maintaining Mentorship
Completing my articles and starting my practice in Hamilton was a great experience. There were weekly events and countless opportunities to mingle with my peers. Without sounding like a seasoned veteran of the profession as I enter my fifth year as a lawyer, the experience is going to be a lot different for new lawyers than it was “back in my day.”
As new lawyers, a lot of our learning comes from serendipitous conversation. If there is one thing lawyers like to do, it is talk about their files. Being around senior lawyers, overhearing their triumphs or struggles and listening to them strategize has taught me about the areas of law that I practice, practice management, how to negotiate with other lawyers, you name it. Not being in the office daily has yielded less organic one-on-one time, but with proper planning these conversations can still continue. Setting up a weekly video call with a senior lawyer or a group of lawyers is an easy and effective way to stay connected and work out problems. If you show initiative as a young lawyer you will find that senior members of the bar are quite receptive and willing to help. It can be an opportunity to have real questions answered, however it is important for the new lawyer to facilitate the discussion and be prepared with real issues. My firm started biweekly meetings where we have the opportunity to discuss files, ask questions and review new case law – all things that used to happen organically. While it is important to be prepared and not waste the time of other lawyers, maintaining the facetime is actually worthwhile on its own.
The lack of face-to-face interaction will undoubtably hinder direct mentorship for new lawyers. However, the virtual world promotes inclusion at a reduced cost to clients and your firm. The ability for an articling student or a new lawyer to shadow a senior lawyer while conducting an examination for discovery or mediation is easier than ever. Removing the commute and physical attendance at a specific location will allow students and new lawyers to easily tag along to continue their learning. As a new lawyer, perhaps you have not conducted a discovery on your own, or you have a mediation coming up that is more complicated than usual. Take the opportunity to “shadow” a senior lawyer at a mediation or discovery. It is easy to tune into the parts relevant to you and then excuse yourself and turn your camera/microphone off. You no longer need to sacrifice 8 billable hours to get the experience you’re looking for because you do not have to sit there in person. It is also an easy way to meet clients – stop in virtually, say hi, introduce yourself and let the client know you are using your colleagues discovery/mediation to assist in preparing for your own.
Effective Use of Technology
I have noticed that lawyers are more interested in settling matters given the uncertainty and limited operations of the court system. The paradox of court closures is that it requires counsel to get creative with their methods of negotiation and implement new techniques. A lawyer’s favourite piece of technology continues to be the fax machine. Multiple pieces of correspondence are traded between counsel, with the true tone of the message getting lost in translation. This often leads to a breakdown in settlement discussions between the parties. Since I do not have a fax machine readily available at home, I have reverted back to forgotten technology. The telephone is an underrated and efficient method for negotiations and to aid in reaching settlement.
Telephone conversations with opposing counsel generally start the same way for me lately. The first few minutes are usually spent discussing the current situation and our coping mechanisms, connecting us as human beings with a common ground. I have found that this connection has made negotiations easier by separating the people from the problem and I encourage new lawyers to continue to pick up the phone.
The culture of our profession has certainly slowed down. Our inability to gather and conduct in-person hearings has compelled a much-needed change to the technological inefficiencies in the court system. This is particularly beneficial to new lawyers as they are generally technologically savvy. It is important for new lawyers to continue to utilize these skills and increase their knowledge of technology. Use this as an opportunity to make yourself indispensable. Stay current on the changes in technology, learn how to use it, and offer to assist others. Many clients of mine are shocked by how simple it was to conduct a meeting virtually, or how efficient it was to execute a document over Zoom. I am sure the senior lawyers in your firm will appreciate how easy it is as well. Continuing to find ways to streamline the process and adopt new methods to serve clients without in-person meetings will increase efficiency while decreasing costs, making you a valuable piece of your firm.
The new practice directions also allow for electronic filing. No more squandered days at the courthouse, so that is a bonus. It is important for new lawyers to keep on top of the Notices to the Profession and Practice Directions. The Law Society of Ontario and the courts are constantly trying to facilitate moving matters forward. It is critical to read these notices and pass along the information. Given the quantity that we all receive daily, some go overlooked.
Around the country we have seen many industries step up with their gracious contributions to the pandemic. The generosity of the Hamilton legal community should not be overlooked. One firm (Findlay Law) has offered free Wills for frontline workers, another firm (McCourt Law) has offered free bail hearings for people detained while participating in peaceful protests, and the Family Law Bar has remained connected through weekly Zoom meetings. The pandemic has seen many firms and lawyers work together to overcome the obstacles in our current world. Lawyers in Hamilton should be proud.
Someday our courts will reopen and we will return to our offices, but we should remember the generosity and collaboration of those in our community. If we can all remember that opposing counsel are human beings and we are in this together, the practice of law will benefit.
Real Estate News
By Greg Mallia, Regency Law Group
Assignee-Purchasers: Eligibility for a GST/HST New Housing Rebate Where a Purchase and Sale Agreement is Assigned.
A frequent question among new housing purchasers is how the GST/HST (“HST”) new housing rebate applies to the sale of the new home. Generally, the purchaser enjoys a rebate of a portion of HST payable on the purchase of a newly built home if he or she intends to occupy the property as a principal residence.
Where the agreement of purchase and sale for new housing is assigned, the assignee-purchaser remains eligible for a rebate of HST; however, how and when the rebate application is made could mean a difference of thousands of dollars in tax savings to your client, depending on the circumstances.
The excerpt below is taken from the Canada Revenue Agency’s publication on new housing rebates of HST when the Agreement of Purchase and Sale is assigned.
If the first purchaser (the assignor) makes a taxable sale of an interest in a house, i.e., the first purchaser is a builder and assigns the purchase and sale agreement to an assignee purchaser, the first purchaser would not be eligible for either a GST/HST new housing rebate or provincial new housing rebate as they did not acquire the house for use as their primary place of residence.
Even if the sale of the interest in the house by the first purchaser is not subject to GST/HST (i.e., in situations where the first purchaser is not a builder of the house), the first purchaser would generally not be eligible for either a GST/HST new housing rebate or a provincial new housing rebate as the conditions for claiming the rebates are not met (e.g., ownership of the house would not transfer to the first purchaser, but to the assignee purchaser).
The assignee purchaser, if an individual, may be eligible for a GST/HST new housing rebate, and where applicable a provincial new housing rebate, where the assignee purchaser receives an assignment of a purchase and sale agreement for a new house. The assignee purchaser would have to meet the eligibility conditions for the rebates as set out in Guide RC4028.
Where a purchase and sale agreement for a new house is assigned, there may be two builders of the house – the original builder (Builder A) and the first purchaser (the assignor). If that is the case, an assignee purchaser would generally have to pay the GST/HST to Builder A for the purchase of the new house and to the first purchaser for the purchase of the interest in the new house.
Where an agreement of purchase and sale is assigned, only one new housing rebate application can be made for each new house. Therefore, an assignee purchaser cannot submit a rebate application through a builder (Builder A) for the tax paid to Builder A on the purchase of the house and submit a second rebate application through the first purchaser (the assignor), or directly to the CRA, for the tax paid to the first purchaser on the purchase of the interest in the house. In such cases, the assignee purchaser may want to file their new housing rebate application directly with the CRA rather than through Builder A. In this way, the assignee purchaser can include in the new housing rebate application the tax paid to Builder A and the tax paid to the assignor in determining the amount of their GST/HST new housing rebate and, where applicable, a provincial new housing rebate.
This poses an interesting quandary for assignee-purchasers of newly built homes who desire the full benefit of the HST rebate that is available.
To maximize the amount of the rebate, payment of the full purchase price including HST must be made to the builder on closing. As builders commonly include the net HST only in the purchase price (under the condition the purchaser occupies the property as a principal residence), this means an increase of tens of thousands of dollars to the purchase price that the assignee-purchaser may not have budgeted for on closing.
The common result is that the assignee-purchaser loses the ability to include in their application for the HST rebate the portion of HST paid on the purchase price to the assignor-purchaser for the assignment.
Many purchasers are unaware of the HST rebate implications when entering into agreements of purchase and sale and assignments for new housing. If your assignee-purchaser client has flexibility with financing, the payment of the HST in full on closing will allow the client to apply for the full amount of the HST rebate that is available, subject to meeting the other eligibility qualifiers that are required by CRA.
One of the founding Partners of Regency Law Group, Gregory Mallia drives a diverse practice that is centered around real estate and litigation.
He can be reached at:
Regency Law Group
25 Main Street West, Suite 2010,
Estates Law News
By Karen Watters, Gowling WLG (Canada) LLP
Beneficiary Designations Now Subject to Pecore?
It is understandable if the decision in Calmusky v. Calmusky1 slipped by you unnoticed amidst the impacts of the COVID-19 shutdown. The decision in Calmusky was released March 16, 2020 and has raised some challenges for estate planners and financial institutions. It will also likely be relied upon by family members who believe that mom or dad did not intend to benefit one of their children more than the others on death.
In Calmusky, the Court applied the presumption of resulting trust as set out by the Supreme Court of Canada in Pecore v. Pecore2 and Saylor v. Madsen Estate3. This is hardly ground-breaking except for the fact that the presumption was applied to a beneficiary designation on a Registered Income Fund (RIF), in addition to typical joint bank accounts.
As a refresh, the Pecore and Madsen Estate decisions hold that the presumption of resulting trust applies where there is a gratuitous transfer of assets from a parent to a non-dependent adult child. In those cases, the law presumes that the adult child holds the assets in trust for the parent unless the adult child can establish that the assets were intended to be a gift at the time of the transfer.
Many of the facts in Calmusky will be familiar to estates practitioners. Henry Calmusky (“Dad”) died at the age of 94. He was predeceased by his wife, Mary Calmusky (“Mom”), and one of his sons. Dad was survived by his other two sons, Gary Calmusky (“Gary”) and Randy Calmusky (“Randy”). Two days after the death of Mom, Dad changed his last will and testament and shortly thereafter, he added Gary as joint account holder on two of his bank accounts and sole beneficiary of his RIF. Gary and Randy were appointed Executors of Dad’s Estate. However, the residuary beneficiaries were not Gary and Randy; rather, a nephew and a grandson (a son of Randy). Gary and Randy were not receiving any gifts under the Will. Or so it seemed on its face.
Gary argued that the nephew and grandson were “placeholders” for him and Randy respectively and were holding a share of the residue for each of them in trust. Gary led evidence that he and Mom each lost a considerable sum of money after investing in Randy’s failed business. Gary asserted that Dad named two placeholder beneficiaries to protect the gifts to Gary and Randy from creditors of Randy’s business. In addition, Gary asserted that his parents had historically treated Gary and Randy equally when it came to financial gifts and loans. Gary argued that, by gifting Gary the balance in the joint accounts and RIF, Dad was “equalizing” the money which had been given to Randy through investing in his business.
Randy disagreed that the named residuary beneficiaries were placeholders and asserted that the nephew and grandson were intended by Dad to be the beneficiaries of the Estate. Randy argued that Gary was holding the monies in the joint accounts and the RIF in trust. Randy acknowledged the failed business and loss of money by Mom and Gary. Randy also acknowledged a conversation between him and Dad during which Randy suggested that someone else be a beneficiary of Dad’s Will because of Randy’s creditors. However, Randy denied that he suggested a placeholder beneficiary or that he had ever agreed to that arrangement.
After considering the evidence on the joint accounts, the Court held that Gary did not rebut the presumption of resulting trust. The Court noted that some of the same evidence Gary led in support of beneficial ownership of the joint accounts was similar to the evidence proffered in support of beneficial ownership of the RIF, for example the bank’s documentation of the beneficiary designation.
The Court considered McConomy-Wood v. McConomy,4 a decision of the Ontario Superior Court two years after Pecore which dealt with the funds in a RIF. In McConomy the Court easily found, based on the evidence, that the deceased intended for her daughter to hold the RIF monies in trust for her Estate. The Court made the finding without the need to consider the presumption of resulting trust. In obiter dicta, the Court commented that if it had been necessary to consider whether the presumption of resulting trust or the presumption of advancement applied, it would have followed Pecore and decided against the presumption of advancement.
The Court also considered a decision of the Manitoba Court of Appeal5 which was decided several years before Pecore and Madsen Estate. In Dreger the assets in issue were an RRSP annuity and life insurance policies. As was common in the pre-Pecore cases, the Court in Dreger considered whether it was the presumption of advancement or resulting trust that applied. It held that the former applied; however, based on the evidence the presumption was rebutted and the funds were being held in trust for the estate.
Randy argued that the Manitoba Court of Appeal was correct in considering which presumption was applicable in cases of gratuitous transfer but that, post-Pecore, the correct presumption is one of a resulting trust.
The Court ultimately agreed with Randy and found that the RIF funds were held by Gary in trust for Dad’s Estate. Gary was ordered to pay the proceeds of the RIF to the Estate. In setting out its reasons, the Court stated that, even though Pecore dealt with joint accounts, the principles in Pecore “apply more generally to other gratuitous transfers of property interests”.6 The hearing judge stated:
I see no principled basis for applying the presumption of resulting trust to the gratuitous transfer of bank accounts into joint names but not applying the same presumption to the RIF beneficiary designation. In both cases, the transfer of interest is gratuitous, as would be necessary for the presumption of resulting trust to apply. Gary was not the source of funds for either type of account. In both cases, the same evidentiary challenge arises – the difficulty in determining the deceased transferor’s intention at the time he transferred legal (as opposed to beneficial) entitlement to the funds, whether the transfer is effective immediately (the joint accounts) or on the transferor’s death (the RIF): see Pecore, at para. 5. In these circumstances, it makes sense from a policy perspective that the evidentiary burden be on the transferee or designated RIF beneficiary, since the transferee/RIF beneficiary “is better placed to bring evidence of the circumstances of the transfer”: Pecore, at para. 26. On that basis, I agree with the trial judge’s obiter comments in McConomy that the principles in Pecore should apply to the RIF designation as well.7
The Court’s comments in Calmusky regarding the evidentiary burden on the transferee makes sense in the context of joint accounts. With joint accounts the transferee will often, if not always, be required to attend the bank with the transferor and sign the requisite bank documents adding his or her name to the account. The jointing of such assets requires the transferee’s knowledge and consent and, therefore, the transferee ought to have contemporaneous evidence of the circumstances of the transfer.
In contrast, a beneficiary designation may be done unilaterally by the transferor. The transferee takes no part in the designation and may not have any knowledge of it until after the death of the transferor. Equally possible is that the transferee may learn of the designation long after it has been made. In either case, the transferee will have no contemporaneous evidence of the circumstances of the transfer in order to rebut the presumption of resulting trust.
For financial institutions, the issues are whether they should delay the release of funds to a designated beneficiary until the green light is received from the Estate’s representative. Or, will the form signed by the transferor be enough to satisfy any onus on the financial institution to pay the funds to the proper recipient? What about the designated beneficiary of the plan who receives the funds: should he or she postpone spending the funds in case there is a challenge as to who is the beneficial owner? If so, how long should the beneficiary wait? Any postponing could cause financial difficulties for beneficiaries who are liable for the tax burden but cannot use the proceeds to pay the tax.
Estate planners will know that beneficiary designations are a common estate planning tool which is recognized in statute in Ontario. The Succession Law Reform Act provides that designations under certain plans, including a retirement savings plan and a retirement income fund, can be made either through the plan administrator or through a designation in a Will.8 The relevant provisions of the SLRA also establish that the later designation revokes the earlier designation.9
Clients may well prefer to designate a beneficiary of a RIF or RRSP through the plan administrator because: (i) the gift will not be known to the beneficiaries in the Will; (ii) it provides them with the flexibility to change the beneficiary designation in the future without executing a new Will; and (iii) does not require them to execute a new Will if the plan administrator changes in the future. With respect to the last comment, a designation in a Will applies only to the registered plan(s) that exist at the time the Will is executed. If a client should change financial institutions and transfer his or her RIF after the Will is executed, the designation in the Will is not applicable.
In light of Calmusky, estate planners may be wise to recommend to their clients that designations be made through their Will and not the plan administrator. A designation through the Will is evidence of the gift. The tax treatment of the registered fund can also be addressed in the Will. Clients would need to know the risk of any subsequent designation through the plan administrator. If clients prefer to make the designation through the plan administrator then they ought to be advised that the standard form documentation will likely not be enough for the designated beneficiary to rebut the presumption of resulting trust. It remains to be seen what will satisfy the evidentiary burden that the transferor intended a gift but clients ought to have something more, a note or letter perhaps, which explicitly states their intention to make a gift to the beneficiary.
Karen is an associate with Gowling WLG (Canada) LLP. She has a combined practice of estate litigation and estate planning and has focused her expertise on matters relating to estates, wills and trusts. She can be reached at Karen.Watters@gowlingwlg.com or 905-540-2503.
1 Calmusky v. Calmusky, 2020 CarswellOnt 6539, 2020 ONSC 1506 [Calmusky].
2 Pecore v. Pecore, 2007 SCC 17, 2007 CarswellOnt 2752 [Pecore].
3 Saylor v. Madsen Estate, 2007 SCC 18, 2007 CarswellOnt 2754 [Madsen Estate].
4 McConomy-Wood v. McConomy, 46 E.T.R. (3d) 259 (S.C.), 2009 CanLII 7174 (ON SC) [McConomy].
5 Dreger (Litigation guardian of) v. Dreger, 1994 CanLII 16643 (MB CA),  10 W.W.R. 293 (C.A.) [Dreger].
6 Calmusky, supra note 1, at para 56.
8 Succession Law Reform Act, R.S.O. 1990, c. S.26, at s. 51 [SLRA].
9 Ibid, at s. 52.