CEAF lawsuit settles after two-year battle

One point five million. A third of that to lawyers. The litigation over the CEAF tax fiasco appears to be at an end.

Two years ago, the Ontario-based Christian Economic Assistance Foundation (CEAF) was forced to shut its doors after Canada Revenue Agency (CRA) revoked its charitable status. CEAF provided “arms-length, third-party grants to Christian schools” through its School Support Program, which involved accepting donations from parents that impacted their charitable donation tax credits. In 2013, more than 4,000 families received reassessment notices from CRA informing them of tax monies owed (see “Christian school supporters hit with unexpected repayments,” Sept. 23, 2013). This led to litigation when some of the affected Christian school parents decided to challenge CEAF to compensate for damages. The case has finally been settled out of court with CEAF denying any liability.

How much will each participating parent get from this pool of funds? Up to 46 percent of the face amount of the CEAF tuition tax credit which the parent claimed. Let’s use as an example Mr. Terry Emms, the lead class action plaintiff in this case. In 2010, he paid tuition of $9,500. Of this, CEAF generated him a tax credit receipt for $7,600. Canada Revenue Agency (CRA) said nice try and reduced it to $400. After being reassessed, Mr. Emms paid back $7,200. Mr. Emms now stands to obtain an amount equal to 46 percent of that $7,600, or $3,496. If parents prefer, they have the right under the deal to redirect their share of the settlement to their local Christian school instead.

As with all class action settlements, if you do not formally opt out of the class action settlement, you are deemed to be covered by it, though there are still forms you need to fill out to obtain your cash (see the Notice of Settlement on page 19). The settlement covers all CEAF receipts issued for 2009, 2010, 2011 and 2012. Some caveats apply. If more people sign up with more claims than anticipated, the 46 percent figure could drop. As well, if sufficient people opt out (highly unlikely), the deal folds. It is for all practical purposes a done deal.

To remind the reader, since 1985 CEAF issued tax receipts for a large part of a Christian School tuition bill, grossly inflating the allowable charitable donation. It was arguably endorsed by the Ontario Alliance of Christian Schools (OACS). The CRA caught wind of the scheme and nixed it. Since a statute of limitations applies, they could not go back further than 2009. So we had a really good run, you might say.

Lessons learned
When this mess first broke, I wrote in these pages that I had repeatedly asked the heads of CEAF and OACS for one simple thing: proof that CRA had baptized the scheme in the past (“CEAF needs to take responsibility,” Sept. 23). No documents were provided. It appears that there still is not a single scrap of paper, email, voice message or other indication from CRA that they approved the plan. The court settlement documents contain no indication or proof and the most that CEAF is able to say for itself is that CRA “arguably” had given the plan its “tacit approval.” This was negligence on the part of an organization whose main purpose was to issue receipts to reduce taxes. It remains simply remarkable, in my opinion, that no express written CRA approval was obtained.

CEAF did one thing right, though. Years ago, it bought a $2 million policy of insurance. Of this, $1.4 million is being used to fund the settlement and another $100,000 came out of its cash accounts. OACS had an equivalent amount of insurance but the settlement reflects that the odds of success against OACS were slim to none. It can rightly claim to be off the hook. What appears to have gelled the settlement was a threat by CEAF’s lawyers to name over 30 individual Christian schools as third party defendants in the lawsuit, claiming that the schools actively promoted the CEAF scheme to parents and that they should have known this tax dodge was not going to fly. An effective threat, that.

This is the second of two successful class actions against Ontario Christian educational institutions in the last few years. The first involved Redeemer Christian University College. The reputational harm to Christian education has been substantial, as news of these tax avoidance schemes leaked out into the Hamilton community in particular. As one National Post reader reflected, when the story first broke, “I guess the Christians don’t realize that ‘Thou shalt not steal’ probably covers ‘Thou shalt not try to cheat on one’s taxes.’”
 

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