Published: November 17, 2025
Overview – You’re Reassessed for Tax Beyond the Normal Period: Lessons from Toews v. The King
In Toews v. The King, the Tax Court of Canada examined whether the Canada Revenue Agency (CRA) could reassess a taxpayer’s 2008 taxation year beyond the normal tax reassessment period in connection with a leveraged charitable donation arrangement. The taxpayer participated in a program that involved a $10,000 cash donation and a $40,000 loan from the same promoter, with no bona fide terms for repayment. Several years later—well beyond the normal tax reassessment period—the CRA reassessed the taxpayer, disallowing the charitable donation tax credit and invoking subsection 237.1(6.2) of the Income Tax Act to justify the extended reassessment.
Under the Income Tax Act, the normal CRA reassessment period is generally three years for individual taxpayers (and four years for most corporations). Within this timeframe, the CRA may review a return and issue a reassessment if it identifies an error or omission. Once the period expires, however, the taxation year becomes statute-barred, meaning that the CRA can reopen it only in limited cases—typically where it can prove misrepresentation, fraud, or another statutory exception that extends the reassessment window (subsection 152 (4)).
Subsection 237.1(6.2) operates as one of these statutory exceptions. It authorizes a CRA Notice of Reassessment “as is necessary to give effect to subsection 237.1(6.1),” which denies deductions or credits related to a tax shelter when a penalty under subsection 237.1(7.4) has been assessed and remains unpaid. In effect, this provision allows the CRA to reopen a taxation year that would otherwise be statute-barred—but only where the preconditions for a valid tax penalty under subsection 237.1(7.4) are met.
The CRA in Toews v. The King relied on such an exception. It argued that, because certain individuals linked to the charitable donation program were allegedly liable for a penalty under subsection 237.1(7.4), it was entitled, under subsection 237.1(6.2), to reassess the taxpayer beyond the normal limitation period.
Subsection 237.1(7.4) imposes a 25% penalty on any person who “sells, issues, or accepts consideration” in respect of a “tax shelter” before the CRA has issued a tax identification number. The provision is intended to deter non-compliant or abusive tax-shelter arrangements by penalizing those directly involved in their sale or issuance, not the participants who merely claim deductions.
The CRA argued that the term “sells” in subsection 237.1(7.4) should be read broadly to capture the promotion or marketing of tax shelters. The Court disagreed, noting that Parliament deliberately omitted the word “promotes” from subsection 237.1(7.4), even though it appears in the definition of “promoter” under subsection 237.1(1). This omission, the Court held, was intentional—“promotion” and “sale” are distinct legal acts, and the former cannot be implied into the latter.
Since the CRA’s position rested on speculation about individuals’ roles rather than proof that anyone actually sold, issued, or accepted consideration for the Arrangement, it failed to meet its evidentiary burden.
Because “promotion” was not part of the statutory language, the CRA’s argument collapsed at its foundation. Without evidence that anyone had actually sold or issued the tax shelter as required by subsection 237.1(7.4), no valid penalty could exist—and without a valid penalty, subsection 237.1(6.2) could not apply.
In simple terms, the CRA tried to reopen a closed year based on assumptions, not proof. The Court made clear that such procedural shortcuts and speculative reasoning cannot justify an extended reassessment.
This decision serves as a timely reminder that even in aggressive tax-shelter contexts, the CRA must operate within both its evidentiary burden and the boundaries of its statutory authority. The Tax Court reaffirmed that fairness and procedural integrity lie at the core of Canada’s self-assessment system—no tax reassessment can stand where the CRA cannot prove its case within the limits set by Parliament.
For taxpayers, this underscores the importance of consulting an expert Canadian tax lawyer who can navigate these complex provisions and safeguard their rights when faced with reassessments or disputed charitable donation claims.
The Anatomy of the Charitable Donation Arrangement
The dispute in Toews v. The King stemmed from a leveraged charitable donation Arrangement promoted by Canadians Care Humanitarian Corporation (the “Arrangement”). The taxpayer, Mr. David Toews, a senior underwriting consultant for a Canadian insurance company, was introduced to the promoter, Vincent Ciccone, through his church community. Ciccone appealed to Mr. Toews’s charitable values, presenting the Arrangement as a legitimate method to increase charitable donations while gaining a tax benefit.
Under the program, Mr. Toews was instructed to contribute $10,000 in cash to GEMS Capital Management Services Inc. (“GEMS”), which would then coordinate a $40,000 loan in his name. This loan was never intended to be repaid and lacked bona fide terms for repayment—making it a limited recourse debt under subsection 143.2(7) of the Income Tax Act.
The total $40,000 amount was then purportedly donated to a registered charity, Trinity Global Support Foundation, which issued a donation receipt for the full amount. Based on that receipt, Mr. Toews claimed a charitable donation deduction of $39,398 in his 2008 return.
At trial, Mr. Toews testified that he was genuinely motivated by charitable intent and had consistently donated to charities both before and after 2008. He stated that he only learned of concerns about similar programs in 2009, when another Arrangement—the Universal Donation Program (“UDP”)—was exposed as fraudulent. At the time of his own participation, however, he had no reason to distrust Mr. Ciccone or question the legitimacy of the arrangement.
The Court found Mr. Toews to be a credible and forthright witness, emphasizing that his testimony aligned with the limited documentary evidence available—primarily a Pledge Form referencing his $40,000 commitment to the Foundation. Even the CRA acknowledged difficulties in reconstructing the flow of funds, as many of the entities and individuals involved were either unavailable or uncooperative.
Ultimately, the Court noted that the CRA issued the reassessment more than five years after the 2008 taxation year — well outside the normal three-year limitation period — and that the passage of time made it impossible for the CRA to meet its evidentiary burden. The outcome illustrated why limitation periods exist: to prevent stale claims and ensure fairness when evidence, witnesses, and documentation inevitably fade with time.
How the Law Works: Reassessment and Penalty Provisions Explained
The Toews v. The King decision required the Tax Court to interpret a highly technical interaction among subsections 237.1(6.1), 237.1(6.2), and 237.1(7.4) of the Income Tax Act —provisions that regulate the registration of tax shelters and the scope of the CRA’s reassessment authority.
1. Operation of Subsection 237.1(6.1)
Subsection 237.1(6.1) provides that no amount may be deducted or claimed by a person in respect of a tax shelter if any person is liable for a penalty under subsection 237.1(7.4) or 162(9) in connection with that shelter, and that penalty remains unpaid.
In practice, this means that even a taxpayer who participated in good faith can lose a deduction if another party involved in the shelter has incurred an unpaid penalty under subsection 237.1(7.4). The CRA, however, argued that the scope of this penalty was broad enough to include persons who promoted or marketed the shelter.
The Tax Court rejected that position, holding that Parliament deliberately confined liability under subsection 237.1(7.4) to three specific acts: selling, issuing, or accepting consideration in respect of a tax shelter. Because the word “promotes” does not appear in the provision, mere promotion or administrative involvement is not sufficient to trigger the penalty.
This narrow reading reflects Parliament’s intent to impose penalties only on those directly engaged in the commercial aspects of a tax shelter, while ensuring that ordinary participants are not punished based on speculative assumptions about others’ conduct.
2. Reassessment Authority under Subsection 237.1(6.2)
Ordinarily, the CRA cannot reopen a statute-barred taxation year unless it can show fraud, misrepresentation, or another statutory exception under subsection 152(4). However, subsection 237.1(6.2) provides a distinct and powerful exception: it allows the CRA to issue reassessments “as are necessary to give effect to subsection (6.1)”—even beyond the normal reassessment period.
In practical terms, this provision enables the CRA to reassess taxpayers connected to a tax shelter if a valid penalty under subsection 237.1(7.4) has been assessed and remains unpaid. Once that precondition is met, the reassessment can extend beyond the usual limitation period, regardless of when the year would otherwise have become statute-barred.
3. Penalty Provision under Subsection 237.1(7.4)
Subsection 237.1(7.4) imposes a penalty of 25% of the amount received or receivable by any person who sells, issues, or accepts consideration regarding a tax shelter before the Minister issues an identification number for that shelter.
Commonly referred to as the “promoter penalty,” this provision is designed to sanction those directly involved in the commercial distribution of tax shelters prior to registration—not those who merely promote or advertise them.
In Toews, the Court made a pivotal interpretive clarification: Parliament’s deliberate omission of the word “promotes” from subsection 237.1(7.4) must be given full effect. Promotion or marketing activity alone does not constitute “selling” or “issuing” within the meaning of the provision. Accordingly, the CRA could not extend liability to individuals merely for organizing, publicizing, or facilitating the Arrangement.
This strict textual interpretation ultimately undermined the CRA’s position that unpaid penalties against alleged promoters justified reopening Mr. Toews’s 2008 taxation year under subsection 237.1(6.2). Because no evidence established that anyone had actually “sold, issued, or accepted consideration” within the statutory meaning of subsection 237.1(7.4), there was no valid penalty on which to rely—and therefore, no lawful basis for reassessment beyond the normal limitation period.
Every Word Counts: Doctrinal Interpretation and Legislative Intent
One of the most significant aspects of Toews v. The King is the Court’s disciplined approach to statutory interpretation. Drawing on Ruth Sullivan’s The Construction of Statutes and authoritative lexical sources such as Black’s Law Dictionary and the Canadian Oxford Dictionary, Justice Bodie reaffirmed that in tax law, words are limits on power, not instruments of policy.
The dispute centred on whether subsection 237.1(7.4) extends to the promotion of a tax shelter, or only to its sale, issuance, or acceptance of consideration. The CRA urged a broad, purposive reading, arguing that “promotion” was implicit in “sells.” The Court rejected that reasoning, citing Sullivan’s principle that every word in a statute carries independent meaning and cannot be treated as surplus. Parliament’s omission of “promotes” in subsection (7.4)—despite its explicit inclusion in the definition of “promoter” under subsection (1)—was deliberate. As Justice Bodie explained, promotion and sale are distinct legal acts; the former cannot be implied into the latter.
This interpretive discipline anchored the Court’s reasoning in legislative intent rather than administrative convenience. Definitions from Black’s Law Dictionary (“to transfer property by sale”) and the Canadian Oxford Dictionary (“exchange of goods or services for money”) reinforced that “sell” involves an actual transfer for value, not mere marketing. The Court thus confined liability under subsection (7.4) to those who genuinely transact, not those who simply advocate or advertise.
By adhering to linguistic precision and the rule of implied exclusion, the Tax Court preserved the principle of legislative supremacy—that the reach of taxation and penalties must be defined by Parliament, not by administrative inference. For taxpayers facing complex reassessments, this case underscores the value of consulting an expert Canadian tax lawyer with experience in statutory interpretation and tax litigation.
The Court’s Decision and Broader Implications
In Toews v. The King, the Tax Court ruled that the CRA could not rely on subsection 237.1(6.2) to reopen a year barred by statute because no valid penalty under subsection 237.1(7.4) had been proven. The Court reaffirmed that statutory language—not administrative convenience—limits the CRA’s authority.
This decision exemplifies the fundamental principle that taxation authority must be exercised strictly within legislative limits. The intentional omission of the word “promotes” from subsection 237.1(7.4) was crucial: Parliament did not intend to penalize mere promotional activities, and courts will not interpret a statute to include what legislators explicitly excluded.
Beyond its technical outcome, Toews signals that textual precision and evidentiary discipline remain the cornerstones of Canada’s self-assessment system. The CRA cannot extend tax reassessment periods or impose penalties without clear statutory authority and proof that statutory preconditions are met. For taxpayers, the case serves as a reminder that careful statutory interpretation is often the strongest defence against administrative overreach—a principle every top Canadian tax lawyer relies upon in practice.
Pro Tax Tips – When Procedure Defines the Outcome
Toews v. The King underscores that in tax litigation, process can be as decisive as substance. The CRA’s tax reassessment power is strictly bound by statutory language and evidentiary requirements. Even a potentially valid tax argument cannot succeed where the tax agency oversteps its procedural limits or relies on assumptions rather than proof.
For taxpayers and their advisors, the key takeaway is that every procedural safeguard matters—from verifying reassessment timelines to challenging unsupported CRA assumptions. Once the normal reassessment period has expired, the CRA cannot rely on policy arguments or speculation to reopen a closed year. As this case shows, a taxpayer’s strongest defence may rest not on the merits of the underlying transaction but on the CRA’s failure to meet the procedural and evidentiary thresholds prescribed by Parliament.
FAQs – CRA Reassessments and Tax Shelter Penalties
Can the CRA reopen a statute-barred taxation year for a tax-shelter participant?
Only under limited circumstances. The CRA may reassess beyond the normal three-year period if a valid statutory exception applies—such as fraud, misrepresentation, or a penalty under subsection 237.1(7.4) that remains unpaid. In Toews, the Court held that without proof of an actual sale, issuance, or acceptance of consideration for the shelter, the CRA could not invoke subsection 237.1(6.2).
What is the “promoter penalty,” and who does it apply to?
The promoter penalty under subsection 237.1(7.4) equals 25% of the amount received or receivable by any person who sells, issues, or accepts consideration for a tax shelter before it is registered. It targets those directly involved in the commercial distribution of shelters—not those who merely promote or advertise them.
How can taxpayers protect themselves if reassessed under tax-shelter rules?
Taxpayers should promptly request full disclosure of CRA assumptions, documentation, and evidence linking them to any unregistered shelter. Knowledgeable Canadian tax lawyers can evaluate whether the tax reassessment falls within the allowable time limits and whether the CRA has satisfied its evidentiary burden. Engaging an expert Canadian tax lawyer early ensures that statutory deadlines, evidentiary rights, and procedural fairness are fully preserved.
DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
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