LYNN CASSAN, Appellant, v. HER MAJESTY THE QUEEN,, 2017 TCC 174

Dockets: 2013-355(IT)G 2013-3488(IT)G BETWEEN: LYNN CASSAN, Appellant, and HER MAJESTY THE QUEEN, Respondent . Appeal heard on common evidence with the appeals of Kenneth Gordon (2014-384(IT)G), Stephen Chu (2014-802(IT)G), Katherine Lee Sang (2014-803(IT)G), Howard Platnick (2014-804(IT)G), and Dana Tilatti (2014-806(IT)

G) on February 8 to 12, 2016, February 15 to 19, 2016, February 22 to 25, 2016 and June 29 and 30, 2016, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellants: Al Meghji, Mary Paterson, Pooja Mihailovich and Adam Hirsh Counsel for the Respondent: Daniel Bourgeois, Andrew Miller, and Josh Kumar JUDGMENT In accordance with the attached Reasons for Judgment, the appeals from the reassessments made under the Income Tax Act (“ ITA ”) for the 2009, 2010 and 2011 taxation years are allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that: 1.

The eligible amount of the gift made by the Appellant to TGTFC (as defined in the Reasons for Judgment) in 2009 is nil. 2. The interest paid or payable by the Appellant in the Appellant’s 2009, 2010 and 2011 taxation years on the Unit Loan (as defined in the Reasons for Judgment) is deductible under paragraph 20(1) (

c) of the Income Tax Act (the “ ITA ”) in computing the income of the Appellant for those taxation years. 3. The Fees (as defined in the Reasons for Judgment) incurred by the Appellant in the Appellant’s 2009, 2010 and 2011 taxation years are deductible in computing the income of the Appellant for those taxation years in accordance with the applicable provisions of the ITA . 4.

The 2009 LP (as defined in the Reasons for Judgment) is not deemed by subsection 12(9) of the ITA to accrue as interest any amount in respect of the Linked Notes (as defined in the Reasons for Judgment) for its 2009, 2010 and 2011 taxation years. Signed at Ottawa, Canada, this 8 th day of September 2017. “J.R. Owen” Owen J.

Docket: 2014-384(IT)G BETWEEN: KENNETH GORDON, Appellant, and HER MAJESTY THE QUEEN, Respondent. Appeal heard on common evidence with the appeals of Lynn Cassan (2013-355(IT)G and 2013-3488(IT)G), Stephen Chu (2014-802(IT)G), Katherine Lee Sang (2014-803(IT)G), Howard Platnick (2014-804(IT)

G) and Dana Tilatti (2014-806(IT)

G) on February 8 to 12, 2016, February 15 to 19, 2016, February 22 to 25, 2016 and June 29 and 30, 2016, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellants: Al Meghji, Mary Paterson, Pooja Mihailovich and Adam Hirsh Counsel for the Respondent: Daniel Bourgeois, Andrew Miller, and Josh Kumar JUDGMENT In accordance with the attached Reasons for Judgment, the appeal from the reassessments made under the Income Tax Act for the 2009 and 2010 taxation years is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that: 1. The eligible amount of the gift made by the Appellant to TGTFC (as defined in the Reasons for Judgment) in 2009 is nil. 2.

The interest paid or payable by the Appellant in the Appellant’s 2009 and 2010 taxation years on the Unit Loan (as defined in the Reasons for Judgment) is deductible under paragraph 20(1) (

c) of the Income Tax Act (the “ ITA ”) in computing the income of the Appellant for those taxation years. 3. The Fees (as defined in the Reasons for Judgment) incurred by the Appellant in the Appellant’s 2009 and 2010 taxation years are deductible in computing the income of the Appellant for those taxation years in accordance with the applicable provisions of the ITA . 4. The 2009 LP (as defined in the Reasons for Judgment) is not deemed by subsection 12(9) of the ITA to accrue as interest any amount in respect of the Linked Notes (as defined in the Reasons for Judgment) for its 2009 and 2010 taxation years.

Signed at Ottawa, Canada, this 8 th day of September 2017. “J.R. Owen” Owen J. Docket: 2014-802(IT)G

BETWEEN: STEPHEN CHU, Appellant, and HER MAJESTY THE QUEEN, Respondent. Appeal heard on common evidence with the appeals of Lynn Cassan (2013-355(IT)G and 2013-3488(IT)G), Kenneth Gordon (2014-384(IT)G), Katherine Lee Sang (2014-803(IT)G), Howard Platnick (2014-804(IT)

G) and Dana Tilatti (2014-806(IT)

G) on February 8 to 12, 2016, February 15 to 19, 2016, February 22 to 25, 2016 and June 29 and 30, 2016, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellants: Al Meghji, Mary Paterson, Pooja Mihailovich and Adam Hirsh Counsel for the Respondent: Daniel Bourgeois, Andrew Miller, and Josh Kumar JUDGMENT In accordance with the attached Reasons for Judgment, the appeal from the reassessments made under the Income Tax Act for the 2009 and 2010 taxation years is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that: 1. The eligible amount of the gift made by the Appellant to TGTFC (as defined in the Reasons for Judgment) in 2009 is nil. 2.

The interest paid or payable by the Appellant in the Appellant’s 2009 and 2010 taxation years on the Unit Loan (as defined in the Reasons for Judgment) is deductible under paragraph 20(1) (

c) of the Income Tax Act (the “ ITA ”) in computing the income of the Appellant for those taxation years. 3. The Fees (as defined in the Reasons for Judgment) incurred by the Appellant in the Appellant’s 2009 and 2010 taxation years are deductible in computing the income of the Appellant for those taxation years in accordance with the applicable provisions of the ITA . 4. The 2009 LP (as defined in the Reasons for Judgment) is not deemed by subsection 12(9) of the ITA to accrue as interest any amount in respect of the Linked Notes (as defined in the Reasons for Judgment) for its 2009 and 2010 taxation years.

Signed at Ottawa, Canada, this 8 th day of September 2017. “J.R. Owen” Owen J. Docket: 2014-803(IT)G BETWEEN: KATHERINE LEE SANG, Appellant, and

HER MAJESTY THE QUEEN, Respondent. Appeal heard on common evidence with the appeals of Lynn Cassan (2013-355(IT)G and 2013-3488(IT)G), Kenneth Gordon (2014-384(IT)G), Stephen Chu (2014-802(IT)G), Howard Platnick (2014-804(IT)

G) and Dana Tilatti (2014-806(IT)

G) on February 8 to 12, 2016, February 15 to 19, 2016, February 22 to 25, 2016 and June 29 and 30, 2016, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellants: Al Meghji, Mary Paterson, Pooja Mihailovich and Adam Hirsh Counsel for the Respondent: Daniel Bourgeois, Andrew Miller, and Josh Kumar JUDGMENT In accordance with the attached Reasons for Judgment, the appeal from the reassessments made under the Income Tax Act for the 2009 and 2010 taxation years is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that: 1. The eligible amount of the gift made by the Appellant to TGTFC (as defined in the Reasons for Judgment) in 2009 is nil. 2.

The interest paid or payable by the Appellant in the Appellant’s 2009 and 2010 taxation years on the Unit Loan (as defined in the Reasons for Judgment) is deductible under paragraph 20(1) (

c) of the Income Tax Act (the “ ITA ”) in computing the income of the Appellant for those taxation years. 3. The Fees (as defined in the Reasons for Judgment) incurred by the Appellant in the Appellant’s 2009 and 2010 taxation years are deductible in computing the income of the Appellant for those taxation years in accordance with the applicable provisions of the ITA . 4. The 2009 LP (as defined in the Reasons for Judgment) is not deemed by subsection 12(9) of the ITA to accrue as interest any amount in respect of the Linked Notes (as defined in the Reasons for Judgment) for its 2009 and 2010 taxation years.

Signed at Ottawa, Canada, this 8 th day of September 2017. “J.R. Owen” Owen J. Docket: 2014-804(IT)G BETWEEN: HOWARD PLATNICK, Appellant, and HER MAJESTY THE QUEEN, Respondent.

Appeal heard on common evidence with the appeals of Lynn Cassan (2013-355(IT)G and 2013-3488(IT)G), Kenneth Gordon (2014-384(IT)G), Stephen Chu (2014-802(IT)G), Katherine Lee Sang (2014-803(IT)

G) and Dana Tilatti (2014-806(IT)

G) on February 8 to 12, 2016, February 15 to 19, 2016, February 22 to 25, 2016 and June 29 and 30, 2016, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellants: Al Meghji, Mary Paterson, Pooja Mihailovich and Adam Hirsh Counsel for the Respondent: Daniel Bourgeois, Andrew Miller, and Josh Kumar JUDGMENT In accordance with the attached Reasons for Judgment, the appeal from the reassessments made under the Income Tax Act for the 2009 and 2010 taxation years is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that: 1. The eligible amount of the gift made by the Appellant to TGTFC (as defined in the Reasons for Judgment) in 2009 is nil. 2.

The interest paid or payable by the Appellant in the Appellant’s 2009 and 2010 taxation years on the Unit Loan (as defined in the Reasons for Judgment) is deductible under paragraph 20(1) (

c) of the Income Tax Act (the “ ITA ”) in computing the income of the Appellant for those taxation years. 3. The Fees (as defined in the Reasons for Judgment) incurred by the Appellant in the Appellant’s 2009 and 2010 taxation years are deductible in computing the income of the Appellant for those taxation years in accordance with the applicable provisions of the ITA . 4. The 2009 LP (as defined in the Reasons for Judgment) is not deemed by subsection 12(9) of the ITA to accrue as interest any amount in respect of the Linked Notes (as defined in the Reasons for Judgment) for its 2009 and 2010 taxation years.

Signed at Ottawa, Canada, this 8 th day of September 2017. “J.R. Owen” Owen J. Docket: 2014-806(IT)G BETWEEN: DANA TILATTI, Appellant, and HER MAJESTY THE QUEEN, Respondent. Appeal heard on common evidence with the appeals of Lynn Cassan (2013-355(IT)G and 2013-3488(IT)G), Kenneth Gordon (2014-384(IT)G), Stephen Chu (2014-802(IT)G), Katherine Lee Sang (2014-803(IT)

G) and Howard Platnick (2014-804(IT)

G) on February 8 to 12, 2016,

February 15 to 19, 2016, February 22 to 25, 2016 and June 29 and 30, 2016, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellants: Al Meghji, Mary Paterson, Pooja Mihailovich and Adam Hirsh Counsel for the Respondent: Daniel Bourgeois, Andrew Miller, and Josh Kumar JUDGMENT In accordance with the attached Reasons for Judgment, the appeal from the reassessments made under the Income Tax Act for the 2009 and 2010 taxation years is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that: 1. The eligible amount of the gift made by the Appellant to TGTFC (as defined in the Reasons for Judgment) in 2009 is nil. 2.

The interest paid or payable by the Appellant in the Appellant’s 2009 and 2010 taxation years on the Unit Loan (as defined in the Reasons for Judgment) is deductible under paragraph 20(1) (

c) of the Income Tax Act (the “ ITA ”) in computing the income of the Appellant for those taxation years. 3. The Fees (as defined in the Reasons for Judgment) incurred by the Appellant in the Appellant’s 2009 and 2010 taxation years are deductible in computing the income of the Appellant for those taxation years in accordance with the applicable provisions of the ITA . 4. The 2009 LP (as defined in the Reasons for Judgment) is not deemed by subsection 12(9) of the ITA to accrue as interest any amount in respect of the Linked Notes (as defined in the Reasons for Judgment) for its 2009 and 2010 taxation years.

Signed at Ottawa, Canada, this 8 th day of September 2017. “J.R. Owen” Owen J. Citation: 2017 TCC 174 Date: 20170908 Dockets: 2013-355(IT)G 2013-3488(IT)G BETWEEN: LYNN CASSAN, Appellant, and HER MAJESTY THE QUEEN, Respondent; Docket: 2014-384(IT)G, AND BETWEEN: KENNETH GORDON, Appellant, and HER MAJESTY THE QUEEN,

Respondent; Docket: 2014-802(IT)G, AND BETWEEN: STEPHEN CHU, Appellant, and HER MAJESTY THE QUEEN, Respondent; Docket: 2014-803(IT)G, AND BETWEEN: KATHERINE LEE SANG, Appellant, and HER MAJESTY THE QUEEN, Respondent; Docket: 2014-804(IT)G AND BETWEEN: HOWARD PLATNICK, Appellant, and HER MAJESTY THE QUEEN, Respondent; Docket: 2014-806(IT)G AND BETWEEN: DANA TILATTI, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Owen J. I.

Introduction [ 1 ] These are appeals by Lynn Cassan, Kenneth Gordon, Dana Tilatti, Howard Platnick, Steven Chu and Katherine Lee Sang (collectively, the “ Appellants ”) of reassessments fixing the income tax consequences of their participation in a structure called the EquiGenesis 2009-II Preferred Investment Limited Partnership and Donation Program (the “ Program ”) that was created and marketed by EquiGenesis Corporation (“ EquiGenesis ”) in 2009.

The appeals were heard on common evidence. [ 2 ] The basic components of the Program vis-à-vis the Appellants are an investment, substantially funded by a loan, in limited partnership units of a limited partnership and a transfer of money to a charitable foundation, also substantially funded by a loan.

EquiGenesis promoted the Program on the basis that a participant in the Program would be entitled to a non-refundable charitable donation tax credit for the 2009 taxation year and to deductions from income for interest and fees payable over 19 years. [ 3 ] The Minister of National Revenue (the “ Minister ”) reassessed the 2009 and 2010 taxation years of the Appellants [1] to deny the

non-refundable charitable donation tax credit claimed in respect of the Program for the 2009 taxation year and to deny the deductions from income claimed in respect of the Program for the 2009 and 2010 taxation years. The Minister also included in income each Appellant’s proportionate share of income the Minister says was deemed by subsection 12(9) of the Income Tax Act (Canada) (the “ ITA ”) [2] and paragraph 7000(2)(

d) of the Income Tax Regulations (the “ ITR ”) to be realized by the limited partnership. II. The Evidence [ 4 ] The parties filed a statement of agreed facts (partial), a copy of which is attached as Appendix A to these reasons. The structure of the Program is shown graphically in Appendix B to these reasons. [ 5 ] Six fact witnesses and three expert witnesses testified for the Appellants: 1. Kenneth Gordon, the sole shareholder of EquiGenesis, a participant in the Program and one of the Appellants; 2. Dana Tilatti, a participant in the Program and one of the Appellants; 3.

Howard Platnick, a participant in the Program and one of the Appellants; 4. Steven Chu, a participant in the Program and one of the Appellants; 5. Katherine Lee Sang, a participant in the Program and one of the Appellants; 6. Lynn Cassan, a participant in the Program and one of the Appellants; 7. Howard Rosen, a principal of FTI Consulting Inc. (“ FTI ”), who was qualified as an expert in business valuation and corporate finance; 8.

Jerrold Marriott, the president of Eastmount Financial Consulting Limited (“ Eastmount ”), who was qualified as an expert in credit rating and structured finance capital markets; and 9. Andrew Scott Davidson, the managing Director of Duff & Phelps (“ D & P ”), who was qualified as an expert in business and security interests. [ 6 ] Three fact witnesses and one expert witness testified for the Respondent: 1. Mary Zhang, a private banker working with TD Wealth private clients; 2. Louis Tilatti, the spouse of Dana Tilatti and a participant in similar programs offered by EquiGenesis in 2005, 2010 and 2012; 3.

Christine Spettigue, an auditor with the Canada Revenue Agency (the “ CRA ”) involved in the audit of the Program; and 4. Howard Edward Johnson, a corporate finance advisor with Campbell Valuation Partners Limited (“ CVPL ”), who was qualified as an expert in the valuation of debt instruments, in the valuation of equity securities and in corporate finance. A. The Fact Witnesses

(1) Kenneth Gordon [ 7 ] Mr. Kenneth Gordon testified first for the Appellants. He is the president, sole owner, sole shareholder, sole director and senior officer of EquiGenesis. [3] Mr. Gordon is a lawyer and a member of the Law Society of Upper Canada. Mr. Gordon is also one of the 59 taxpayers who participated in the Program (I will refer to these 59 taxpayers collectively as the “ Participants ” and individually as a “ Participant ”). [ 8 ] Mr. Gordon described the role of EquiGenesis and himself in connection with the Program as follows: Q. . . .

What is EquiGenesis’s role in connection with the ‘09 program? A. EquiGenesis played a variety of rules [ sic ]. It was the creator, the structurer, the distributor, and it was the manager. So we played all those functions and we –– we did so and we have a compliment [ sic ] of people in our office who are specifically trained to be able to properly implement and manage these programs throughout their entire life. Q. Let’s talk about you in particular, what has your role been day-to-day in these programs? A.

My role has been to specifically oversee everything that happens related to from beginning to end of these programs. So I am intimately involved in the structuring, in the reviewing and drafting of documents and overseeing drafting of documents by counsel, in the preparation of marketing materials, in overseeing the marketing process with clients and potential clients and their advisors and I am extremely involved on a day-to-day basis in the ongoing management of these programs, some of which extend like the one today, the ‘09 program, for up to 20 years. [4] [ 9 ] Mr.

Gordon described the history of the Program and the structure and operation of the Program. The basic structure used in the Program was first employed in 2003 and then again in 2004, 2005 and 2006. According to Mr. Gordon, no program was offered in 2007 or 2008 because the 2005 and 2006 programs were under audit by the CRA and it was not considered prudent to offer new programs

until these audits were completed. [5] [ 10 ] In early 2009, the taxpayers participating in the 2005 and 2006 programs, including Mr. Gordon, were advised in writing by the CRA that the audit of those programs had been terminated and that no reassessments were to be issued. [6] [ 11 ] After meeting with the auditor to obtain an understanding of the reasoning behind the decision not to reassess, Mr. Gordon decided to proceed with the creation of the Program on the basis that it should follow the structure of the 2005 and 2006 programs as closely as possible. [7] Mr.

Gordon stated that EquiGenesis offered further programs in 2010, 2011 and 2012 on the same basis. [8] [ 12 ] In cross-examination, Mr. Gordon testified that the term of the program for 2010 had been shortened to 10 years and that an additional option on maturity had been added. [9] The additional option involves an exchange of the limited partnership units issued to participants in the 2010 program for mutual fund trust units and a donation of the latter to a charity. [10] Mr.

Gordon stated that this option could not be added to the Program because of conditions laid down in paragraph 38(a.3) of the ITA . [11] [ 13 ] Each Participant in the Program was required to purchase a minimum of ten limited partnership units (the “ LP Units ”) in the EquiGenesis 2009-II Preferred Investment Limited Partnership (the “ 2009 LP ”) for $36,140 per LP unit.

Of the total purchase price of $36,140 per LP Unit, $32,000 was funded by a loan (a “ Unit Loan ”) from aIncome 2009 Finance Trust (“ FT ”) and the balance of $4,140 was funded by the Participant from the Participant’s own resources. [ 14 ] FT acquired the funding for the initial advances of the Unit Loans from a credit facility provided by third-party lenders. [12] In cross-examination, Mr.

Gordon stated that at the time each of the Unit Loans was advanced he was not aware of either the identity of the third-party lenders or the details of the loans made by them to FT. [13] [ 15 ] To obtain a Unit Loan, a Participant was required to complete a unit loan application and assignment form (a “ ULAA Form ”). [14] The ULAA Form was prepared by FT’s counsel in consultation with EquiGenesis’ counsel. [15] The form required the Participants to disclose within ranges specified on the form the Participants’ gross personal annual income, their gross household annual income, their assets and their liabilities. [16] [ 16 ] In cross-examination, Mr.

Gordon stated that he was not required to provide any document to support his income or net worth as disclosed on his ULAA Form. [17] Mr. Gordon also stated that he did not disclose liabilities associated with his participation in previous programs on the basis that these liabilities would not have any impact on the net worth he disclosed on the form and on the basis of his belief that FT was focussing on the borrower’s ability to meet the cash flow requirements with regard to the loan. [18] [ 17 ]

Article 2.02 of the ULAA Form provided for additional advances to the Participant that would be added to the principal amount of that Participant’s Unit Loan. Mr. Gordon explained the purpose of this provision as follows: The purpose of that

section is to provide the opportunity for the lender at its sole discretion to make annual additional advances which would be added to the principal of the outstanding loan and would be used to pay interest from the prior year. . . .

The intention was that interest -- there was a mechanism in place at the sole discretion of the lender that would allow it the opportunity to, if appropriate, to make additional advances to fund the interest from the prior year, and this would happen every year before the end of February to satisfy the Income Tax Act requirement that interest was paid within 60 days of year end. [19] [ 18 ] Articles 2.03 and 2.06 of the ULAA Form stated that the principal amount of the Unit Loan bore interest at 7.85% per annum and that the Unit Loan matured on February 15, 2019.

Articles 2.04 and 2.05 of the ULAA Form described the loan arrangement fee and the loan maintenance fee respectively.

Article 2.07 of the ULAA Form stated that the Unit Loan would be evidenced by a promissory note, and Mr. Gordon testified that each Participant executed a promissory note. [20] The form of promissory note used stated that the Unit Loan matured on February 15, 2019. [21] [ 19 ] Mr. Gordon explained the February 15, 2019 maturity date of the Unit Loans as follows: Q. You said that the loan matures at February 15th, 2019, earlier in your evidence? A. Yes. Q. We see that at

article 2.06 on page 26 [of the ULAA Form]? A. Correct. Q. What happens at maturity? A. At maturity the loan becomes fully payable, both all principal and accrued interest to that date, and must be paid in full. Q. It’s a 20-year program so why is it designed so that the loan matures halfway through? A.

Although the program was intended to potentially reach 20 years it’s essential from a tax perspective that the debt mature in a period within the first 10 years so there had to be bona fides terms of re-payment [ sic ] within 10 years, and that was what drove the requirement to have the debt paid in full by that date. [22] [ 20 ] Mr. Gordon testified that the Participants were advised that the Unit Loan had to be repaid on maturity and that they were not given any written or verbal assurance that the loan would be renewed or extended. [23] He pointed to statements to this effect made in

Article 5 of the ULAA Form and in the confidential offering memorandum for the Program (the “ COM ”). [24]

[ 21 ] With respect to EquiGenesis’ role on the maturity of the Unit Loan, Mr. Gordon stated: Q. What did EquiGenesis tell participants about EquiGenesis’s role in potentially refinancing the loans? A. We told them that there was the potential at 10 years prior, just prior to the date the loan matured, that we would, to the extent possible, investigate options, but no options had been, have been investigated yet and no options have been considered at the time. [25] [ 22 ] In cross-examination, Mr.

Gordon stated that if a sufficient number of Participants wanted to refinance the Unit Loan, EquiGenesis would do what it could on a best efforts basis to assist in finding a replacement lender. [26] Mr.

Gordon also stated that on maturity the loans for the 2003, 2004, 2005 and 2006 programs had been replaced with new loans from special-purpose entities and that over 90% of the participants in the 2003 program had refinanced. [27] [ 23 ] Under the terms of the Unit Loan, the 7.85% annual interest had to be paid by the Participant no later than February 28 of the year following the year in which the interest accrued. For example, the interest that accrued on a Unit Loan during 2011 had to be paid by February 28, 2012.

If the interest was not paid by a Participant by a certain deadline, the Participant was deemed to have requested an additional cash advance from FT equal to the amount of that interest, subject to the discretion of FT to refuse the additional advance. [ 24 ] Mr. Gordon explained the intention behind the additional advances and the means employed to make the advances as follows: Q. Mr. Gordon, can you explain for the Court how these additional advances work? A.

The additional advances are intended to facilitate the participants’ obligation to fund interest every year within 60 days of year end so as to avoid violating the Limited Recourse Debt Rules and creates [ sic ] a mechanism that provides the ability of the lender to -- on an annual basis -- determine whether or not the client or the participant or I should say the borrower is creditworthy enough or at least not in default of any of its obligations and therefore entitled to receive an advance.

To the extent that the lender has approved the participants for the advance, then, every year prior to February 28th, the lender will make two advances. One advance in an aggregate amount in respect of the participants who borrowed in respect of the partnership loan and that advance is made on an aggregate basis from the lender to the general partner of the partnership, which is authorized under the loan documentation as an agent to receive those funds on behalf of each of the participants.

The amount the GP will receive is an aggregate amount equal to the combined amount of interest owing on each of the borrowers pursuant to their partnership loans for the prior fiscal period. The lender will advance that amount to the general partner. The general partner will receive that amount and re-pay [ sic ] it back to the lender on behalf of each of the borrowers who have borrowed under the loan agreements.

The lender will receive that amount, account for it as a payment on account of the prior 12 months’ interest during the prior fiscal period and then will immediately increase the loan amount, the principal of the borrower’s loan amount to account for that additional advance. That is how the interest is paid annually within 60 days of year end for each of the borrowers who purchased limited partnership units. [28] [ 25 ] Mr.

Gordon stated that while a request to FT for an advance was made automatically if a Participant did not pay the prior year’s accrued interest by the deadline, the advance itself was not automatic but was at the discretion of FT. [29] Mr. Gordon provided a detailed explanation of the steps taken to effect each year’s advances, including the role played by TD Canada Trust, which was described as follows: Q. Tell us about the bank and the bank’s role in this process? A.

The bank played a significant role in this process in that the funds and the transaction for this closing all took place in the early years at the branch of the TD Canada Trust here in Toronto. All of the parties involved in the transaction have bank accounts at the same branch of the TD Canada Trust. What would happen is the representatives of Finance Trust would initially deposit the advance amount in cash from Finance Trust into their account at the TD Bank.

Then the TD Bank would walk those funds through the appropriate transaction paying them from the lender, Finance Trust, to either EquiGenesis or the GP as the case may be and then paying those funds back to the lender and documenting the entire process on a manual basis, the deposits, the transfers, the receipts, and so on.

The process is fully documented as the cash originating from Finance Trust flows through each of the relevant parties and eventually back to Finance Trust. [30] [ 26 ] In more recent years, the bank has employed electronic processing managed by FT, which eliminates the need for the parties to attend at the bank branch to effect the annual advances. [31] [ 27 ] Each Participant pledged to FT his or her LP Units as security for the Unit Loan and this security interest was perfected by delivery of the LP Unit certificates to FT.

In addition, the 2009 LP and its general partner, the EquiGenesis 2009–II Preferred Investment GP Corp. (the “ GP ”), entered into a priority agreement with FT that gave FT priority over the 2009 LP and GP with respect to any claim over the LP Units. [32] [ 28 ] Each Participant was required to pay to FT a one-time loan arrangement fee of $125 per LP Unit purchased by the Participant (the “ LA Fee ”).

Commencing on February 1, 2011, each Participant was required to pay to FT an annual loan maintenance fee of $30 per LP Unit purchased (the “ LM Fee ”) and to pay to the GP an annual administration fee of $95 per LP Unit purchased (the “ Admin Fee ”). Of this $95, $25 was an agent service fee paid to the individuals who sold the Program to taxpayers and $70 was retained by the GP for the ongoing administration of the Program. [33] I will refer to the LA Fee, the LM Fee and the Admin Fee collectively as the “ Fees ”.

[ 29 ] For each LP Unit issued to the Participants, the 2009 LP used $1,565 to cover issue costs for the LP Units and invested $34,575 in debt instruments (the “ Linked Notes ”) [34] issued by Leeward Alternative Financial Asset 2009 Corporation (“ Leeward ”), a corporation formed under the laws of the British Virgin Islands (“ BVI ”). [ 30 ] On the maturity of the Linked Notes on December 31, 2028, Leeward is required to pay the 2009 LP the principal amount of the Linked Notes (i.e., $34,575 per LP Unit issued to Participants) and a return on the principal amount determined at that time as the greater of two amounts.

Each such amount is calculated by reference to a notional portfolio of assets, which I will refer to as “ Portfolio A ” and “ Portfolio B ”. As security for its obligations under the Linked Notes, Leeward granted the 2009 LP a security interest over all of its assets pursuant to the terms of a general security agreement. [ 31 ] For each LP Unit issued, Leeward lent $32,000 of the amount received from 2009 LP for the Linked Notes to aIncome 2009 Deposit Trust (“ DT ”) and DT immediately lent the same amount to FT. Each of these loans bears interest at 7.85% per annum and matures on December 31, 2028.

DT granted Leeward a security interest over all its assets and FT granted DT a security interest over all its assets. [ 32 ] Although Mr. Gordon stated that he did not have knowledge of FT’s activities, he agreed that since FT was a special-purpose entity created to participate in the Program it was logical to assume that FT used the proceeds of the loan from DT to repay the third-party lenders. [ 33 ] In cross-examination, Mr.

Gordon stated that the funds advanced by FT passed sequentially through each party’s bank account at TD. [35] Rather than each Participant having a bank account, the General Partner received the funds advanced by FT in its capacity as agent for the Participants. [36] [ 34 ] For each LP Unit issued, Leeward invested $2,575 in Class D notes (the “ Man Notes ”) issued by AHL Investment Strategies SPC, a Cayman Islands corporation managed by Man Investments Limited (“ Man ”).

The return on the Man Notes was dependent on the return realized on an underlying pool of assets managed by Man. [ 35 ] A Participant who agreed to acquire LP Units was given the opportunity to borrow from FT a second amount equal to $10,000 per LP Unit purchased by the Participant (the “ TGTFC Loan ”) on the condition that the amount of the TGTFC Loan be transferred by the Participant to The Giving Tree Foundation of Canada (“ TGTFC ”).

Of the 59 Participants in the Program 58 chose to take advantage of this aspect of the Program (I will refer to these 58 Participants collectively as the “ TGTFC Participants ” and individually as a “ TGTFC Participant ” and I will refer to this aspect of the Program as the “ TGTFC Program ”). [ 36 ] The TGTFC Loan matured on February 15, 2019 and bore interest at 7.85% per annum. Each TGTFC Participant was required to pay to FT in respect of this loan a one-time loan arrangement fee of $35 per LP Unit purchased by that Participant.

FT acquired the funding for the initial advance of the TGTFC Loans from the credit facility provided by the third-party lenders. [ 37 ] Of the total interest on the TGTFC Loan of 7.85% per annum, each TGTFC Participant was required to pay 3.75% per annum in cash from his or her own resources no later than February 28 of the following year. The balance of 4.1% per annum was also payable no later than February 28 of the following year.

However, if the 4.1% was not paid by a TGTFC Participant by a certain deadline, that participant was deemed to have requested an additional cash advance from FT equal to the amount of that interest, subject to the discretion of FT to refuse the additional advance. [ 38 ] Mr. Gordon stated that the only substantive difference between the Unit Loan and the TGTFC Loan was the requirement that a TGTFC Participant pay a portion of the interest accruing on the TGTFC Loan from his or her own resources and not from an advance by FT. [ 39 ] In cross-examination, Mr.

Gordon was asked about his understanding of the credit review conducted by FT prior to advancing Unit Loans or TGTFC Loans. He stated that his understanding at the time of the closings in 2009 was that FT conducted credit checks and PPSA searches of all Participants. [37] However, after his first examination for discovery he was advised by a representative of FT that FT did not perform credit checks of the Participants with respect to the first two of the four closings for the purchase of LP Units.

Instead, credit checks were being performed by FT by the end of October 2009, which was after the first two closings, for which PPSA (Personal Property Security Act) searches were done in the absence of credit checks. [38] He was also advised by FT that it had not performed credit checks prior to making additional advances to Participants in 2010 and 2011. [39] Mr.

Gordon stated that he had no personal knowledge of FT performing credit checks [40] and was not able to provide documentary evidence of credit checks performed by FT. [41] [ 40 ] Each TGTFC Participant transferred the amount of his or her TGTFC Loan and a further $200 per LP Unit purchased by the TGTFC Participant (for a total of $10,200 per LP Unit purchased by the TGTFC Participant) to TGTFC under the terms of a pledge executed by the TGTFC Participant and TGTFC (I will refer to the total amount transferred to TGTFC by the TGTFC Participants as the “ Transferred Property ”).

TGTFC issued each TGTFC Participant a charitable donation receipt in an amount equal to the face value of the amount transferred by that Participant to TGTFC. [ 41 ] The pledge required TGTFC to invest 98.04% of the face amount transferred to it by a TGTFC Participant in debt obligations (the “ TGTFC Notes ”) issued by Leeward. This equated to an investment in TGTFC Notes of $10,000 per LP Unit purchased by the TGTFC Participant. [ 42 ] As well, the pledge required TGTFC to hold the TGTFC Notes until maturity on December 31, 2028. In cross-examination, Mr.

Gordon stated that the agreement of TGTFC to lend Leeward 98.04% of the Transferred Property was essential to the structure. He also stated that by participating in the Program TGTFC recognized that it was a closed structure: The charity always had an option to take funds that it received as a donee and invest the way they wanted to. By participating in this

structure they recognized it was a closed structure. It was a structured finance vehicle and as such it was intended to match the elements of two earlier versions previously done. So in respect of that element, to the extent that the charity received donations through this structure, they agreed to invest them as laid out in the original memorandum of understanding. [42] [ 43 ] Leeward issued TGTFC two TGTFC Notes, on December 15, 2009 and December 30, 2009 respectively. [43] The TGTFC Notes each bore interest at the rate of 4.75 % per annum.

Leeward was required to pay TGTFC an amount equal to 1.75% of the TGTFC Notes in December 2010 and an amount equal to 3.75% of the TGTFC Notes on December 31 of each subsequent year until maturity. [44] The balance of the interest payable on the TGTFC Notes accrued and was payable by Leeward to TGTFC on maturity. In cross-examination, Mr. Gordon confirmed that the amount of Leeward’s liability to TGTFC for every $102,000 transferred to TGTFC by a TGTFC Participant (that is, per 10 LP Units purchased by a TGTFC Participant) would be $134,402 (or $13,440.20 per LP Unit). [45] [ 44 ] Mr.

Gordon explained how the 3.75% per annum (or $375 per $10,000 of TGTFC Loan) was paid to TGTFC, as follows: Q. What happens to the $375 in respect of the donation loan interest? A. Two separate things happen in respect of that money. First, I will walk you through the legal flow of those funds as anticipated by the diagram. Then I will secondarily tell you exactly how those funds flow from a practical perspective. The $375 of the $500 is intended to flow from the donor directly to Finance Trust.

Finance Trust will receive that money and account for it to reduce the interest owing on an annual basis on the donation loan. Finance Trust then immediately, at the same time, has a matching obligation to pay that $375 to Deposit Trust on account of the loan agreement entered into between Finance Trust and Deposit Trust. Similarly, Deposit Trust has a matching obligation to pay $375 to Leeward on account of the loan agreement entered into between Deposit Trust and Leeward.

Then immediately Leeward has a matching obligation to pay the same $375 through to The Giving Tree on account of its commitment by issuing the charity investment note which requires a 3.75 percent annual payment. The 3.75 percent on a $10,000 original investment is exactly 3.75 percent. It means that notionally the $375 flows through each of these parties.

What actually happens is, after the funds are collected and they are aggregated in EquiGenesis’s trust account, each of the relevant parties –– being the lender –– sorry, Finance Trust, Deposit Trust, and Leeward sign what we refer to as an omnibus direction. [46] [ 45 ] To secure its obligations under the TGTFC Notes, Leeward granted TGTFC a security interest over all of its assets, which had priority over any other security interest granted by Leeward, with the result that the TGTFC Notes ranked ahead of the Linked Notes. [47] Mr.

Gordon explained the importance of the security provided to TGTFC as follows: A. . . . We felt it was essential when this structure was put together that there be very specific security arrangements in place that would put the charity in first position and would put the partnership in second position to be certain they would be able to receive what they are entitled to be paid under their contracts. This document outlines all of those security arrangements. Q. Why is it important that the charity be in first position? A.

The parties agreed that, by the charity participating in this structure and by agreeing to commit to entering into a contract with Leeward, in return the charity would be the first entity entitled to be paid out of all of the assets incorporated into this structure. That would provide the charity sufficient certainty to be able to realize on the full value of what they were owed under the charity note. [48] [ 46 ] Each TGTFC Participant executed a direction which instructed TGTFC how to disburse 90% of its annual cash income from the TGTFC Notes purchased using that participant’s transfer to TGTFC.

The direction included a list of charities and each TGTFC Participant was required to pick a maximum of four charities from that list and designate the percentage to be paid annually by TGTFC to that particular charity. Mr. Gordon stated that to the end of 2015 TGTFC had received cash payments under the TGTFC Notes totalling $2.3 million and that TGTFC had retained $232,000 and distributed the balance as set out in the directions from the TGTFC Participants. [49] [ 47 ] Leeward lent to DT the proceeds from issuing the TGTFC Notes and DT immediately lent the same amount to FT.

These loans have a maturity date of December 31, 2028 and bear interest at 7.85% per annum. As stated above, Mr. Gordon agreed that it was logical to assume that FT used the proceeds of the loan from DT to repay the third-party lenders. [ 48 ] A Participant could exit the Program in one of three ways: on the maturity of the Program on December 31, 2028, by requesting the redemption of the LP Units after the ninth year of the Program, or by selling the LP Units to a third party approved by the 2009 LP and FT. [50] Mr.

Gordon described exit on maturity as the “ expected route ”. [51] The redemption route was available to Participants once annually after the ninth year of the Program. [ 49 ] With respect to selling the LP Units, Mr. Gordon pointed to language in the COM indicating that there was no market for LP Units and that it may be difficult or even impossible for unit holders to sell them. [52] Mr. Gordon stated that no Participant had sold LP Units but that participants in earlier programs had on a few occasions sold partnership units.

He described four situations in which participants in earlier programs sold partnership units on their own and two situations in which EquiGenesis was able to find purchasers for the limited partnership units. [53] He further stated that EquiGenesis did not have arrangements with any entity to buy the LP Units at any time. [54] [ 50 ] Mr. Gordon noted that although Participants were not told to expect a capital gain on the disposition of their LP Units, one of the two disposition scenarios (Scenario

B) in the term sheets for the Program provided to Participants contemplated a capital gain on the disposition of LP Units. Mr. Gordon described the two scenarios as follows: Scenario A was intended to provide an analysis as to the financial repercussions on maturity if a unit holder held the units to maturity. Scenario B was designed to indicate the financial repercussions or results for somebody who was able to sell their units prior to maturity.

In that case, it was assumed that the units themselves were treated as capital property. As a result, the disposition of [ sic ] the sale of those units to a third party would trigger a capital gain income inclusion as opposed to a full income inclusion. [55] [ 51 ] Mr. Gordon described the cash flow results set out on two versions of the term sheet provided to Participants resident in Ontario. The first version assumed a donation to TGTFC while the second version assumed no donation.

In light of the various assumptions made in each term sheet, the two scenarios suggested that on the maturity of the Program a taxpayer that transferred property to TGTFC as part of the Program would be cash positive in the amount of $218,000 while a taxpayer that did not transfer property to TGTFC would be cash positive in the amount of $436,000. [56] [ 52 ] In cross-examination, Mr. Gordon was asked about a computer model of the Program that allowed the user to test a variety of variables. During this questioning, Mr.

Gordon confirmed that if the Man Notes held by Leeward had an average return of 9.61% per annum to maturity on December 31, 2028 then the value of that investment would be $134,470 per 10 LP Units, which would provide Leeward with sufficient funds to discharge its $134,402 obligation to TGTFC under the TGTFC Notes. [57] [ 53 ] Mr.

Gordon also summarized what would be paid on maturity by Leeward to the 2009 LP, as follows: The first calculation you do on maturity is you take the value of the notional value owing under the contract and you compare that with the actual value of assets that Leeward has on liquidation, reduce the actual assets that Leeward has on liquidation by the amount owing to the charity to satisfy its obligations on the charity note and the lessor [ sic ] of those two remaining amounts is what will be paid to the partnership. [58] [ 54 ] Accordingly, on the maturity of the Linked Notes on December 31, 2028, the amount that will be paid by Leeward to the 2009 LP will never be greater than the assets of Leeward at that time less the amount payable by Leeward to TGTFC regardless of the amount Leeward owes to the 2009 LP under the Linked Notes.

In addition, if the Man Notes perform above the historical return of 18.1% per annum, the potential shortfall appears to increase rather than decrease. [59] If Leeward does not pay the full amount of the return owing to the 2009 LP under the Linked Notes, the 2009 LP is expected to claim a deduction from income under paragraph 20(1) (

p) equal to the shortfall. [60] [ 55 ] In cross-examination, Mr. Gordon stated that there were two authorized representatives of the Participants: EquiGenesis and Osler, Hoskin & Harcourt. [61] He agreed that the costs incurred in assisting the Participants had been quantified in an answer to an undertaking. [62]

(2) Dana Tilatti [ 56 ] Dana Tilatti is a manager for contracts and billing with Unisys Canada. [63] Mrs. Tilatti testified that she and her husband, Louis Tilatti, make their investment decisions jointly and that they participated in similar programs offered by EquiGenesis in 2005 and 2006. [64] She stated that, after the CRA had audited the previous programs and decided not to reassess, she and her husband decided to participate in the Program. [65] [ 57 ] Mrs.

Tilatti understood that the Program was closely modelled after the 2005 and 2006 programs offered by EquiGenesis and she believed that she had a fairly good understanding overall of what the Program involved, and this was based on her review of the documents provided by EquiGenesis, which included opinions from FTI and a law firm. [66] In cross-examination, Mrs. Tilatti stated that she had no direct contact with anyone from EquiGenesis and that she obtained information about the Program from her husband, who in turn obtained the information from a representative of EquiGenesis. [67] EquiGenesis provided Mr.

Tilatti with a spreadsheet to calculate the optimal number of units to purchase but he instead used a tax preparation program to determine that 10 LP Units satisfied their requirements. [68] [ 58 ] Mrs. Tilatti described the Program as involving two components: an investment component and a charitable donation component. Mrs. Tilatti and her husband decided that she would purchase 10 LP Units, which was the minimum investment allowed. [69] [ 59 ] In cross-examination, Mrs.

Tilatti testified that she funded the $361,400 purchase price of 10 LP Units with $41,400 of her own money and a $320,000 loan. [70] She signed both the subscription form for the 10 LP Units and the application for the Unit Loan on December 1, 2009. [71] The Unit Loan and the subscription for LP Units were both approved on December 30, 2009. [72] Mrs. Tilatti understood that the interest over the term of the Unit Loan would be approximately $229,000 but that she would not have to use her own money to pay that interest.

Instead, the lender would automatically advance an amount to pay the interest on an annual basis. [73] Mrs. Tilatti did not try to negotiate a lower rate of interest for the Unit Loan because “ that’s how the program was structured ” and it was a take it or leave it arrangement. [74] [ 60 ] Mrs. Tilatti’s counsel asked her what the 2009 LP did with the money provided by investors and she answered: The investment that was provided by the investors and the units, they were –– the units were used as a pledge for a loan that was taken out for financing of these units. [75] [ 61 ] Mrs.

Tilatti testified that a second loan was provided to her to fund the donation component of the Program and that the LP Units were also used to support that loan. [76] [ 62 ] Mrs. Tilatti described what she hoped to accomplish by participating in the Program: . . . my husband and I were looking for an investment component to realize some tax savings, but at the same time were looking to be able to donate to a charity which EquiGenesis allowed us to do. [77] [ 63 ] Mrs.

Tilatti’s counsel asked her about Scenario A and Scenario B and her intention with respect to the length of time she would participate in the Program:

Q. What is your understanding of what those scenarios depict? A. The scenario A assumes that the participants in the program will stay with the program until the program is dissolved at its maturity. Scenario B assumes that the participant does not stay till the end of maturity, that he will exit prior to the maturity date at some point. Q. What is your understanding of what scenario –– at least back in 2009 when you decided to participate, what was your understanding of what scenario was more likely? A.

Based on the discussions between my husband and I the most likely scenario was scenario A, that we stay with the program till its maturity. Q. Regardless of your understanding of the likelihood, at the day you decided to participate in the ‘09 program what was your intention with respect to the length of time you participated in the program? A. We would have been the total length as it was presented to us in terms of the exhibit that we’re looking at. Q. Are you aware of anyone who would be interested in purchasing the units from you? A. I am not. [78] [ 64 ] In cross-examination, Mrs.

Tilatti stated that she intended to hold the investment for 20 years and that the capital gain contemplated by Scenario B was not considered as a possibility because Scenario B addressed early redemption. [79] [ 65 ] Mrs. Tilatti testified that most of the investment decisions made by her and her husband are long-term decisions and that the 20- year time horizon of the Program fit into the time horizon they had set for themselves. [80] [ 66 ] Mrs. Tilatti’s counsel asked her a series of questions regarding the LP Units and her investment in the 2009 LP: Q. . . .

When you decided to participate in the program had anyone told you that the units would be resold or repurchased? A. That was not my understanding. Q. Had anyone told you that the price that you paid would be refunded to you? A. No. Q. Had anyone told you what the future price or value of the units would be? A. No. Q. Was it your understanding when you decided to participate in the program that the outcome was certain or uncertain? A. Since there were some investments made there was a certain element of risk involved in the EquiGenesis 2009 program. [81] [ 67 ] Mrs.

Tilatti’s counsel asked her about the Unit Loan and the TGTFC Loan (collectively, the “ Program Loans ”) and her understanding of her responsibility concerning those loans: A. We were certainly responsible for both loans. Every year in the month of February we had to make a payment, which was shown in the previous exhibit in the amount of $5,000 and, as I said, we were responsible for all the interest payments. It was all on us. It’s in our name. Q. What would happen if you failed to pay? What was your understanding of what would happen if you failed to make a required payment? A. We were on the hook.

We have to pay. We were responsible and we would have to liquidate assets. We are the ones who are responsible for the loans. [82] [ 68 ] Mrs. Tilatti’s counsel asked her about the ULAA Form and the fact that she did not list the loans taken out for prior EquiGenesis programs as liabilities: The reason why we did not include them here is because the loans that we have taken out for the EquiGenesis programs in the past were offset by the investment in the program. So the net impact was a zero as far as we were concerned and that’s why they’re not listed here. [83] [ 69 ] Mrs.

Tilatti’s counsel asked her what would happen if the Unit Loan was not refinanced after 10 years: If we could not refinance the loan then we would be on the hook to pay the loan back ourselves. So there was a certain element of risk to it. [84] [ 70 ] In cross-examination, Mrs. Tilatti was asked to reconcile the non-disclosure of the loans from the earlier programs with the potential personal liability for the amount of the Unit Loan: Q. You also said that to the extent the investment didn’t pay off the way you hoped you would be on the hook for it?

A. That’s correct. Q. To me that doesn’t make sense. If you understood there was a chance you’d be on the hook for it why did you think you shouldn’t list it on this credit application form? A. This is part of EquiGenesis so they know what our, the loan and the investment are, that’s why. It’s not something they didn’t know. It’s not information that wouldn’t be known to them. They’re aware of all the items and the programs we participated in. Q. The lender wasn’t EquiGenesis; right? A. The way it’s structured the lender knows as well, the way the program is structured.

This is nothing new to them, so-to-speak. [85] [ 71 ] Mrs. Tilatti’s counsel asked her about the refinancing of a loan provided to her as part of the 2006 program offered by EquiGenesis. After consulting the package of documents provided to her by counsel (Exhibit A-16), she stated that the original loan was from “ Income Finance Trust ” and that it bore interest at 7.25 percent per annum. In 2016, the original loan was refinanced by a loan from CB 2016 Income Finance Corporation, which bore interest at 6.45 percent per annum. [ 72 ] Mrs.

Tilatti’s counsel then asked her how she planned to repay the Unit Loan on the maturity of the Program: A. There is an investment note that is offsetting this loan, so at maturity the note will generate hopefully enough income that will offset the loan so the net amount will be zero. So we will be breaking even. That’s the assumption we are investing under and participating in the program. Q. If the investment does not perform well such that it’s not a break-even how do you propose to repay the shortfall? A.

We as the investor in the EquiGenesis program would be responsible for any shortfalls at the maturity date. We will have to pay from our own pocket, in other words. Q. At this point in time, sitting here today, are you aware of any reason why you wouldn’t be able to meet your obligations under the ‘09 program? A. I’m not aware of any at this time. [86] [ 73 ] Mrs. Tilatti stated that the above information about the refinancing of the Unit Loan also applied to the TGTFC Loan. [87] In cross- examination, Mrs.

Tilatti stated that she expected EquiGenesis to assist in the refinancing of the Program Loans. [88] [ 74 ] Mrs. Tilatti’s counsel asked her about the donation component of the Program. Mrs. Tilatti testified that she elected to have her donation split among four charities after being told not to select more than four. [89] She explained her reasons for picking the four charities as follows: The Make-A-Wish Foundation Canada is a very well-known Canadian charity that helps out many sick children and so that’s the one that I have selected because of the helping of children and it’s a national charity.

So that is the reason for selecting that. And the other charity, the Bloorview Kid’s Foundation, that I was familiar with. My former co-worker’s daughter was born with a certain condition and she was looked after at the Bloorview Children’s Hospital which is not too far from where I work so I knew very specifically about what kind of work they did. And the other two charities had presence in Ontario and that’s what we were looking at, to help kids in Ontario. [90] [ 75 ] Mrs.

Tilatti stated that, if the list of charities had related to causes that she did not want to support, she would not have participated in the Program. [91] In cross-examination, Mrs. Tilatti stated that she signed the pledge to TGTFC on December 1, 2009 but that it was “ quite possible ” that she was not aware of the list of charities until December 20, 2009. [92] [ 76 ] Mrs.

Tilatti stated that TGTFC would distribute the money it received to the charities. [93] When asked by her counsel why 98.04% of the amount given to TGTFC was described as a “ separate giving of enduring property ”, she stated that the structure required the money to stay with TGTFC through its investment in Leeward and that the charities get annual payments from the investment. [ 77 ] In cross-examination, Mrs. Tilatti was asked about the donations listed in her 2006 through 2008 and 2010 through 2013 income tax returns. [94] Counsel also asked about the magnitude of her self-funded charitable donations: Q.

Is that a fair statement that you have never given –– outside of taking on a loan to give to a charity you’ve never given $50,000 or $100,000 or anything above that from your own pocket to a charity; is that correct? A. I think so. [95] [ 78 ] In cross-examination, Mrs. Tilatti testified that she applied for the TGTFC Loan on December 1, 2009 and that the loan was approved on December 30, 2009. [96] Mrs.

Tilatti understood that the interest rate on the TGTFC Loan was the same as on the Unit Loan – 7.85% – and that her LP Units were posted as security for the TGTFC Loan. [97] She also understood that the total cost of borrowing under the TGTFC Loan was $71,639.32. [98] She confirmed that, as with the Unit Loan, the terms of the TGTFC Loan were offered on a take it or leave it basis. [99] [ 79 ] With respect to the dates of the pledge to TGTFC and the approval of the TGTFC Loan, Mrs. Tilatti had the following exchange with counsel for the Respondent: Q.

My question is if you made a donation to the charity on December 1st, or how could you have made a donation to the charity on

December 1st of $102,000 if your loan hadn’t been approved until December 30th? A. I understand your question, but this program was handled through EquiGenesis and that’s why the documents have been addressed the way they have. I’m sure if it was turned down I wouldn’t have been able to make that donation and it would have been withdrawn. [ 80 ] Mrs. Tilatti testified that she made an annual payment of $5,000 and that part of this payment was applied to pay 3.75% annual interest on the TGTFC Loan, or $3,750.

The remainder of the interest on the TGTFC Loan was paid “ from the investment ”. [100] She stated that she had never defaulted on the payments she was required to make. [ 81 ] In cross-examination, Mrs. Tilatti agreed that EquiGenesis filed notices of objection on her behalf for her 2009 and 2010 taxation years. She understood that the payment for this service was covered by the annual fees paid to EquiGenesis. [101] Mrs. Tilatti also stated that EquiGenesis had recently asked her to contribute to the cost of legal fees. [102]

(3) Howard Platnick [ 82 ] Dr. Platnick is a medical doctor. He purchased 65 LP Units in the Program on the recommendation of his accountant. [103] The number of LP Units was picked by his accountant and was based on advice from EquiGenesis. [104] Dr. Platnick understood the number of LP Units to have been based on his projected income for 2010. [105] [ 83 ] Dr. Platnick subscribed for the 65 LP Units on July 30, 2009. The subscription price of the 65 LP Units was $2,349,100. Dr.

Platnick understood that to purchase the LP Units he had to apply for a loan, which he did on July 30, 2009, the amount of the loan being $2,080,000. The subscription for the LP Units was approved by EquiGenesis on August 12, 2009 and the Unit Loan was approved by FT on the same date. [106] [ 84 ] Dr. Platnick testified that he met with and received materials from a representative of EquiGenesis and forwarded those materials to his accountant. He made sure that his accountant talked directly to the representative and that his accountant and the representative conversed back and forth.

He also forwarded the materials to a relative who is tax lawyer and talked with him to “ see what he thought about it ”. However, he did not read all the documents himself before signing. [107] [ 85 ] Dr. Platnick explained why he decided to participate in the Program as follows: I participated in the program for several factors; one, I had previous experience that was excellent with EquiGenesis. I was happy with their service and product. I had the past experience I just talked about. I won’t go into it again. I had high income those years. I liked the design of the program.

I liked the fact that there was a charity component where I could give back money directly to some charities that I was comfortable with. And again, putting it together I didn’t –– I saw this as an opportunity but I sat down with my accountant and I let him make the ultimate decision. I was going by his recommendations. [108] [ 86 ] Dr. Platnick understood that there were two components to the Program – the investment component and the donation component – and that the donation component was optional.

He also understood that each component was funded by a loan and that the two loans would mature about halfway through the term of the Program and would have to be refinanced or be paid off. [109] He stated that if the loans were not refinanced he would be responsible for them and would have to pay them off. [110] [ 87 ] In cross-examination, he acknowledged that the interest on his Unit Loan would be approximately $1.5 million over the term of that loan but he stated that “ the investments over the period of time would hopefully perform well enough to cover the interest payments ”. [111] With respect to his knowledge at the time he applied for the loan, he had the following interchange with counsel for the Respondent: Q.

When you say “now” –– at the time, you didn’t know that? A. I didn’t know all the exact workings of all the loans and everything. I had a general understanding. I assumed there was some type of security, yes. Q. If I said you had to put your unit loan that you were purchasing up as security, is that your understanding? A. Yes, the units. Q. Is it fair to say you didn’t have any knowledge of the lender in this case, Finance Trust? A. Correct. Q. Prior to signing on to this loan, you didn’t do any independent research of this lender? A. No. [112] [ 88 ] In addition to his $2,080,000 Unit Loan, on July 30, 2009 Dr.

Platnick applied to FT for a TGTFC Loan of $10,000 per LP Unit or $650,000. The application was accepted by FT on August 12, 2009. [113] The interest that would be payable over the term of the TGTFC Loan was $467,752.47. [114] [ 89 ] In cross-examination, Dr. Platnick testified that he did not try to negotiate with FT the terms and conditions of the two loans, that the interest rate on the Unit Loan was higher than on his personal lines of credit but did not stand out as unusual, that he probably could not have financed the amount of either loan with his own funds and that he did not seek either loan from a bank.

He acknowledged that he simply accepted the deal as presented by EquiGenesis. [115]

[ 90 ] At the time he applied for the Unit Loan and the TGTFC Loan, Dr. Platnick had obligations in respect of the 2004, 2005 and 2006 EquiGenesis programs totalling $2,895,489.55. [116] [ 91 ] Dr. Platnick’s counsel asked him why he did not disclose loans from earlier programs in his credit application for the Program: The way I understood it with the earlier programs is there were loans in an amount let’s say a hundred thousand that was invested for a similar amount and it would grow over time, so I viewed it as I wasn’t including the hundred thousand invested in my net worth.

I wasn’t including the loan in the net worth. I looked at it look a wash. [117] [ 92 ] In cross-examination, Dr. Platnick further explained why he did not disclose these amounts on his loan application: Q. You didn’t view it as you would a personal loan? A. I viewed it as a personal loan, but I didn’t –– because there was the corresponding investment that I knew –– I was hoping would grow over time, it would cover it off. I didn’t include the investment

part in my net worth statement. I didn’t include the debt showing on the liability side because they would cancel each other out. Q. Let me just stop you there and ask you what you mean by you didn’t include the investment component in your net worth. What does that mean? A. I would view it that if you borrowed the money and I took that money –– the units I had had value at least equal to the loan. That is what I am saying. With the loan, I purchased the units which have equal value to the loan.

When this –– years later when this thing would wrap up and finish there would be enough in the investment side to cover off the loan. Q. You viewed your investment being valued as –– it was just over 2 million. That is what you borrowed for the units? A. Yes. [118] [ 93 ] Dr. Platnick stated that he was not personally aware of any credit check performed by FT either at the time he applied for the loans or after that time. [119] [ 94 ] Dr. Platnick’s counsel asked him what the 2009 LP did with the funds he invested: A.

I don’t know the exact amounts, I think the funds, some are used for fees for the program but I think the bulk of it, the majority of it, was used for a donation to charity and some of it might have been invested. I don’t know the exact numbers. Q. What do you know about the investment? A. My understanding is the investment was put in a mutual fund called Man and that that was the main investment vehicle. [120] Dr. Platnick testified that he researched Man on the Internet to determine its long-term investment returns and concluded that they were “very good, excellent”. [121] [ 95 ] Dr.

Platnick’s counsel asked him about the refinancing of the Unit Loan: Q. At the time when you entered into the program what did EquiGenesis tell you about the refinancing process? A. At the very beginning? Q. Yes? A. I don’t remember specifically that we had a long conversation on that, but what I did know from the early programs is that, well –– well, let me re-phrase. I understood there would be refinancing at some point and EquiGenesis would assist with it.

It wouldn’t be my responsibility to start going out to banks or looking for a new mortgage or loan myself. [122] [ 96 ] The foregoing also represented his understanding of the refinancing of the TGTFC Loan. [123] [ 97 ] Dr. Platnick’s counsel asked him what his understanding was of the donation component of the Program: The donation component, what I understood is similar, there’s also a donation loan and the charity doesn’t necessarily get the funds immediately, their funds are invested and every year they’re getting a percentage similar to like an endowment fund. [124] [ 98 ] Dr.

Platnick explained why he participated in the donation aspect of the Program: Q. Let’s turn to the donation program. You told us earlier that the donation program was optional; did you participate in that aspect of the program? A. Yes. Q. Why? A. I –– that was one of the things that attracted me to this product was that there was a large donation to a charity. So although there was an investment and some tax minimization, but there was also a large amount of the, money actually getting through to charities and that was important to me in choosing this program.

Q. Before participating in the EquiGenesis programs had you made donations to charity? A. I donate to charity every year. Q. Is there any difference between the charities you –– sorry, the donations you made outside of the EquiGenesis program and the donations you made within? A. I would say no difference except the amount was larger through the EquiGenesis program. Q. Why was it larger? A. Because of the structure of the program and the loans. [125] [ 99 ] In cross-examination, counsel suggested to Dr.

Platnick that the cash flow associated with participation in the Program was his main motivation for participating in the Program. He responded as follows: I disagree with that. I did this program knowing there was a large charitable donation. Although I didn’t necessarily have the name The Giving Tree or the specific charities at the time, I had worked with EquiGenesis on the other programs. They had come through with reputable charities I was comfortable with. I knew in my conversations with Cori Simms there were going to be reputable charities I could donate to.

That was an important component of the program to me. I would say it is not true or accurate that it was mainly the tax savings or deferrals that drew me to this program. [126] [ 100 ] Dr. Platnick’s counsel asked him what he knew about TGTFC on July 30, 2009 when he signed the donation loan application: Q. If you turn to page 90, this is the last page of the donation loan application and assignment form before the exhibits, can you tell us around what date you signed this document? A. July 30, 2009. Q. At that time did you know the name The Giving Tree? A.

I didn’t specifically know the name The Giving Tree at that time. Q. What did you know at that time? A. I knew that I had done other programs with EquiGenesis prior, very similar in structure and they brought me an excellent roster of charities to collect [ sic ] from, so having that knowledge gave me comfort that they would come through with a similar situation of excellent charities to choose from and I was told that they were working on it and they were going to have the list soon. Q. How was that information communicated to you? A. That was communicated directly by Miss Sims [ sic ]. Q. By e-mail?

In a letter? In a meeting? A. I’m not sure. I mean, I think it was maybe more than once it was communicated. Might have been face-to-face. May have been a phone call as well. Q. When did you learn the name The Giving Tree? A. I think that was later in the fall, possibly December, early December. [127] [ 101 ] Dr.

Platnick testified that he received the list of charities at a later date, that he thought that it was an excellent list of charities and that he would not have participated if the list had contained charities that he did not think should be supported. [128] He testified that the charities would receive funds from the Program over the 19-year term of the Program. [129] [ 102 ] In cross-examination, Dr. Platnick confirmed that at the time he signed the pledge to TGTFC, on July 30, 2009, he was not aware of the name of the foundation and he was not aware of the list of charities. [130] Dr.

Platnick signed the direction to TGTFC, in which he selected charities, on December 14, 2009. [131] He could not recall when he learned of the name of TGTFC but he believed it was in late November or early December 2009. He stated that he received the list of charities after the December 1, 2009 date inserted in the pledge to TGTFC that he had signed on July 30, 2009. [132] [ 103 ] Also in cross-examination, Dr. Platnick confirmed that his charitable donations for 2004, 2005, 2007, 2008, 2010 and 2011 were as set out in Exhibits R-34, R-35, R-36, R-37, R-38 and R-40. [ 104 ] Dr.

Platnick described his understanding of Scenario A and Scenario B: I understood that when the program finished or wrapped up 19 years later that there’s two possible outcomes labelled scenario A and scenario B. Scenario A would be an outcome where the investment, some of the investment increase would be taxable as an income. So I would be scenario A paying a higher amount of tax compared to scenario B where there might be a buyer or somebody that purchases the units prior to the end of the program which would generate a capital gains which would be taxed at a different rate. [133] [ 105 ] Dr.

Platnick testified that when he entered into the Program he understood that Scenario A would be more likely even though Scenario B was better from a financial and tax perspective. [134] He “ understood that there might not be a buyer for the units at the end,

that was – – that was an unknown, a bit of a risk ”. [135] In cross-examination, Dr. Platnick agreed that he was hoping for Scenario B. [136] [ 106 ] With respect to risks associated with his participation in the Program, Dr. Platnick had the following exchange with his counsel: Q . . . did anyone ever tell you that the units you were purchasing would be resold or repurchased? A. No. Q. Did anyone ever tell you the price you paid would be refunded to you? A. No. Q. Did anyone ever tell you what the future price or value of the units would be? A. No. Q.

When you decided to participate in this program was it your understanding that the outcome was certain or uncertain? A. Uncertain in the final scenarios, yes. [137] [ 107 ] Counsel asked Dr. Platnick about the refinancing of the 2004 and 2005 EquiGenesis programs in which he participated. [138] [ 108 ] Dr.

Platnick confirmed that he owed $853,889.63 at the time of the refinancing of the 2004 program and suggested that, while it was a large number, he could have refinanced this amount on his own but that it would have taken time. [139] In fact, he was given options by EquiGenesis and he elected to have the debt refinanced by a new lender with the assistance of EquiGenesis. [140] The new financing was in place by September 24, 2014. The interest rate on the new debt was 1.25% higher than on the debt it replaced (7.25% versus 6%). [ 109 ] Dr.

Platnick selected the same option to refinance his debt under the 2005 program. The interest rate on the new debt was 0.13% lower than on the debt it replaced (6.62% versus 6.75%). [141] [ 110 ] Dr. Platnick testified that he made annual payments under the Program and that the majority of each payment was used to pay some of the interest on the TGTFC Loan, with the balance being used to pay fees. He stated that he had not defaulted on these annual payments. [142] [ 111 ] In cross-examination, Dr.

Platnick testified that he authorized EquiGenesis to file two notices of objection on his behalf. [143] He agreed that he left the filing of the notices of objection to EquiGenesis. [144] He also stated that in 2015 he had sent a cheque to EquiGenesis for legal representation in response to a letter but he could not recall the amount or any other details. [145]

(4) Steven Chu [ 112 ] Dr. Chu is a dentist who purchased 10 LP Units. Dr. Chu appeared to have a very limited understanding of the Program, which he summarized as follows: To me, it was just a program that would return over that period of time and your primary deduction would be at the beginning and then there are residuals at the end, subsequent to that. Aside from that, I don’t really understand the program. [146] [ 113 ] With respect to the donation component of the Program, Dr.

Chu testified: If the charity were to receive money and I would receive a tax receipt where both parties benefited, I thought it would be a good thing to do. A lot of the dentists nowadays, they set up –– what do you call it –– professional corporations which, if I was probably not involved with donating to the charities, I would probably do that. Because I was already a part of this, I never set up a corporation. I think about three-quarters or two-thirds do that nowadays.

I just like the idea that charity got the money just like I liked the idea that the film industry got their money to do –– it is something like –– if both parties benefited, I just liked the idea. I have done the deals with EquiGenesis before. I was comfortable with them. [147] [ 114 ] Dr. Chu testified that he knew nothing about Scenario A or Scenario B.

With respect to the risk, he testified: You have to sign for a loan for a period of time and your worst case scenario is –– they would use the money to invest which in the end would pay off the loan and if there was a short fall [ sic ] you would be responsible for the shortfall. [148] [ 115 ] Dr. Chu suggested that if there was a shortfall he would address it by working or by selling one of his properties. He also understood that, if he refused to pay, “ someone would come and collect it ”. [149] [ 116 ] Dr. Chu testified that he received a package of documents and signed where indicated by tabs.

He did not review the documents or understand their contents. He explained his approach as follows: Q. Do you often sign documents without reading them or understanding them? A. With this program, yes, because either you are part of it or you are not part of it. I think it would be equivalent to, for example, if you buy a house or condo and they give you a stack of 12 or 15 pages to sign. If you trust your lawyer, you just sign them. The same thing with this program, it was the same as before. I would just sign them. [150]

[ 117 ] Dr. Chu testified that no one told him that his 10 LP Units would be resold or repurchased, that the purchase price of the LP Units would be refunded to him or that the LP Units would have a certain value in the future. [151] [ 118 ] At the time he signed the documents to participate in the Program, Dr. Chu understood that there was at least one loan and that the loan bore interest, which he described as being part of the Program. [152] He also understood that the loan was for the entire term of the Program but that at some point it would have to be renewed or refinanced. [153] [ 119 ] Dr.

Chu recalled picking two charities but he did not recall his reasoning for his choices. [154] He did not know when the charities he picked were to receive money from his donation. [155] He did understand that he would not receive anything back from the charities but that he would be given a tax receipt for $102,000. [156] [ 120 ] Dr. Chu did not understand the reporting he received from EquiGenesis and he simply passed everything on to his accountant. [157] Dr. Chu confirmed that he made annual payments as requested by EquiGenesis but he did not know what the payments were for. [158]

(5) Katherine Lee Sang [ 121 ] Dr. Sang is a medical doctor who purchased 10 LP Units in the Program because that was the minimum purchase allowed. [159] Dr. Sang understood that she was giving money to charity and would be receiving a tax receipt. She described the tax receipt as a major reason for participating in the Program and indicated that she used the tax savings to help fund a trip to Africa. [160] [ 122 ] In cross-examination, she agreed that she had an understanding of th

[…]