Avoiding that enemy

My Networkers colleague, Mr. John Simpson of the Sutton Group, has a "Preferred Client Update" which he regularly sends to current and former customers, professional colleagues and others. I don't have time for most such pamphlets but I always make the time for John's because it almost always has something worth knowing about homes, housing and odd-and-ends. A recent one is no exception, having this excellent quote from Sophocles:

"No enemy is worse than bad advice."

It struck me that in a profession such as mine or John's, 99% of what we do boils down to making sure that we are the client's ally, the one who makes sure that they get good advice and looking to ensure that the enemy of bad of advice is kept away from their gates. If you take it seriously like John and I do your clients do well.

What is an “affidavit of execution”?

First of all, one must define an “affidavit”! An affidavit is a document which attests to facts under oath or affirmation before a person who has authority to administer that oath or affirmation. It is intended to be a solemn, truthful statement of the facts at issue, and is intended to become evidence before a Court, if necessary.

(Note: an “affirmation” can be called the non-religious form of taking an oath. Like an oath it is a solemn and formal declaration that the statements contained in an affidavit are true; unlike an oath one does not swear before God on a bible or other holy book. One need not be religious to use an oath, or non-religious to use an affirmation, because the test that the court will administer for both is the same: is the swearing or affirmation binding on the conscience of the person giving it. Some non-believers still use oaths, for example, because of the more familiar form and perceived greater solemnity.)

What, then, is an “affidavit of execution”? It is a document whereby a witness swears or affirm) that they saw a given person sign a given document on a given day, in front of the witness and perhaps others. The affidavit of execution therefore “proves” that the document in question is what it purports to be. This is especially important in cases such as wills (where the genuineness of the will and its contents might be a hotly contested issue) or business contracts (where it may be in one party’s financial interest to deny their signature on a document, thus freeing themselves from an now-unwanted obligation).

The basic component parts of an affidavit of execution are:

1. The document must be under oath, or affirmed. In Ontario this is usually done before a Commissioner of Oaths or a Notary Public. (Every practicing lawyer is, by virtue of their status as a lawyer, a Commissioner of Oaths; most but not all lawyers are Notaries.)

2. The witness confirms that the witness was present at the signing of the legal document in question.

3. The witness attests by their signature that the witness personally knows the signer of the legal document in question and the signer of the legal document in question is of the age of majority. (With the proliferation of different kinds of identity theft it is becoming increasingly common that the identity of the person signing the document is confirmed by the witness, and sometimes that the witnesses themselves must provide acceptable identification.)

The following is a dummy example of an affidavit of execution (in this case, for a Power of Attorney for Property):

I, David Matthew Sanders Barrister of the City of London, in the County of Middlesex in the Province of Ontario MAKE OATH AND SAY:
1. I am one of the subscribing witnesses to the Power of Attorney for Property of the grantor, Joseph Fictional Client.
2. The Power of Attorney for Property is dated the 31st day of June, 1999, and is marked as Exhibit “A” to this Affidavit.
3. When the grantor signed the Power of Attorney for Property, I believe the grantor
(a) was 18 years of age or more
(b) understood that the document being signed was the grantor's Power of Attorney for Property; and
(c) was competent to sign the Power of Attorney for Property.
4. The grantor, myself, and the other witness to the Power of Attorney for Property, Jane Doe, were all present together when the witnesses and the grantor signed the Power of Attorney for Property.
5. That no interlineations, alterations, erasures, or obliterations were made to the Power of Attorney for Property before the grantor and the witnesses signed the Power of Attorney for Property.

There oughta be a law?

"People want to think that there's always legal accountability where there should be moral accountability. But in the criminal context, you should always err against overextending the law."

Alan Dershowitz
Harvard law professor, in Slate magazine.

HST and Nonprofits

"GST/HST Information for Non-Profit Organizations"

Canada Revenue information circular RC4081(E) Rev. 09.

What's a Lawyer's Job?

"The lawyer's job in practice is to be on one hand the impassioned representative of his client to the world, and on the other the wise representative to his client of the legal system and the society, explaining and upholding the demands and restrictions that system places on them both."

Scott Turow

Henson Trusts

A Henson trust (sometimes called an absolute discretionary trust) is one designed to benefit disabled persons by protecting ensuring that the assets of a disabled person can still be used to their benefit without compromising their right to collect government benefits and entitlements. This is done by ensuring that the trustee’s discretion in the operation of the trust is absolute, even to the extent of whether or not the trust assets are used (and, if used, to what extent) to provide assistance to the beneficiary. Such a power means that the assets do not vest with the beneficiary and thus cannot be used to deny means-tested government benefits. There are also possible income tax relief elements because of taxation at a lower marginal rate. They are also sometimes used to shield assets from matrimonial division in case of divorce of the beneficiary. In most cases, the trust assets are immune from claims by creditors of the beneficiary. Henson trusts can operate as either living trusts (i.e. for the benefit of the beneficiary when you are still alive) or as a testamentary trust (i.e. for the benefit of the beneficiary after your death).

Further information can be found in this paper:
"What Can You Do To Enhance The Quality of Life For a Family Member with a Disability: Consider a Henson Trust",
a document produced by Reena, (“a non-profit social service agency dedicated to integrating adults with developmental disabilities into the mainstream of society”) and The Law Foundation of Ontario:
"What Can You Do To Enhance The Quality of Life For a Family Member with a Disability: Consider a Henson Trust".
a document produced by Reena, (“a non-profit social service agency dedicated to integrating adults with developmental disabilities into the mainstream of society”) and The Law Foundation of Ontario:
Henson Trust

I feel the same way

"I believe in coincidences. Coincidences happen every day. But I don't trust coincidences."

James Crocker

Noise?

A client of mine and I were discussing various options for a new corporation, resulting in the following exchange.

Me: "Have you considered bringing on other investors as silent partners?"
Client: "Yes, but I'm not going to do that. They could handle the investment part, but they're no good at silent."

[Quoted with the kind permission of the client.]

Some thoughts on things creeping north 2

"The Real Interrobang", a London blogger, has a keen eye for apt quotes. As you will recall a quoted comment on American policing prompted a blog post here last week. I stumbled across another today which continued that "I'm glad our police aren't like that! thought:

In my experience, serious commercial plane crashes are generally the result of a chain of very minor factors that align sufficiently to result in an accident. The apologies an compensation for the victims is certainly the decent thing to do, but the more telling difference here is that there is an enormous effort made by the airline, manufacturers and government to determine what caused the crash, and (often very expensive) remedial steps to prevent that problem from ever happening again. If police departments took this approach whenever they screw up and cause injury or death to innocent people, I would find it a lot easier to cut them some slack. I'm thinking that a good analogy here is the difference between private and commercial aviation. The accident rates for commercial carriers are so low that they are almost statistically insignificant, and are still trending down. The accident rates for general aviation (that is, amateur pilots like me) have been pretty static for many years. The sad thing is that the private pilots still regularly kill themselves because of rookie mistakes like failing to properly preflight an aircraft, or stalling and spinning from a low altitude. These would be analogous to the kinds of mistakes we're seeing the police make on these raids. In my opinion, law enforcement agencies in North America are still acting like amateurs despite the years of experience they should have amassed by now. If they took an approach that was more like commercial aviation, we would all be a lot safer, and probably more likely to trust police officers we interact with day to day.
"GXT, Dispatches from the Culture Wars, comments".

I honestly don't think that the "North American" descriptor is fair, simply because Canadian police forces are, in the main, still far superior to their American counterparts in their handling of the citizenry and in their respect for the law and proper process. No doubt my colleagues in the criminal bar might have some cutting things to say about some forces or invidudal police (and it is, for example, difficult to ignore the shocking institutional failings in the RCMP, problems which which seem to be ongoing) but the fact remains that we have a better chance of retaining excellent policing if we also note the many things they do right; I don't accept the notion that treating them as if they were indistinguishable from their oft deeply troubling and increasingly authoritarian American counterparts is at all productive or just.

True

In the long run, luck is given only to the efficient.

Helmuth von Moltke.(Molte the Elder is, in my opinion, one of the best sources of military quotes out there, probably because most of them can apply so effectively to day-to-day life.)

Some thoughts on things creeping north

I personally have a fairly high opinion of Canadian police in general. They are, taken as a breed, far more sensible, far less violent, far less paranoid and certainly far less hostile to the citizenry than their American counterparts who in many, many instances have spent the better part of the last three decades sliding downhill in their regard for the law or obedience to any limits on their authority.

I ponder this issue because when one looks south one sees the increasing use of the Taser to ensure "compliance". This is disturbingly often not about a response to someone genuinely resisting lawful arrest or being a threat to public or personal safety but more to do with not kowtowing rapidly or obsequiously enough to the officer's authority, whether or not the exercise of that authority is right or wrong, lawful or unlawful, rational or arbitrary. One commenter has noted,

I’m sure that [the Taser] makes the cops’ jobs easier and safer for themselves if they Tase more people instead of wrestling them to the ground; I don’t care. ... The police do not have a right to a completely submissive citizenry and they should be prevented from trying to create one.

-- Scarshapedstar, “Today in Tasering: And the Beat Goes On,” Correntewire, quoted at "You Still Can't Do That On Slashdot", "The Real Interrobang", August 11, 2008

That's the key, isn't it? A citizen should be compliant with the law, not necessarily with police authority. The latter is in service to the former, not synonymous with it and certainly not the determinant of it. Indeed, one of the hallmarks and safeguards of a truly free and just society is the ability of a citizen to stand up to an officer when the officer is wrong or breaking the law.

When officers feel that they have a right to Taser somebody who is problematic -- as in the Robert Dziekański case, where four trained, fit, young and armoured RCMP officers Tasered and killed one middle aged man -- as opposed to a genuine threat then we have a disturbing Americanization of our police methods of problem-solving. [Note: I'm forty-four and of about the same height, weight and build as Mr. Dziekański was. It will be a sad, sad day for policing when it takes more than one or two unarmed officers to subdue me or somebody like me, so much so that the use of four officers was ludicrous and the use of Tasers was monstrous.]

Police work is often dangerous, but so is giving men guns, Tasers and body armour and sending them out amongst their fellow citizens. The key to a democratic society is the balancing of our need for safety and policing with our need to be free citizens. For the most part we've balanced that in Canada, thanks in great deal to the good sense of the individual coppers involved. I'd hate to see that go. I like the Americans fine, but I don't want their society and I certainly don't want their policing problems and, frankly, I don't think that any sane person does.

A non-profit board risk management checklist

Sitting on a non-profit board: A risk management checklist for lawyers
© 2010 Lawyers’ Professional Indemnity Company.

Serving as a director of a charitable or not-for-profit corporation can be a rewarding but potentially risky experience. A director can be held personally liable for his or her own actions or failures to act, as well as jointly and severally liable with the other members of the board of directors.
Directors with specialized knowledge and expertise, such as lawyers, are held to a higher standard of care. LAWPRO’s standard professional liability insurance policy provides coverage only for the “professional services” that a lawyer provides as a lawyer. It does not provide coverage for liability arising as a result of a lawyer’s actions as a director.

Accordingly, here are some questions you should ask yourself before serving as a director on the board of a charity or not-for-profit organization.

1. How well do I know this organization? Does it engage in activities that have an especially high risk of attracting legal liability?

2. What are my motivations for joining this board – business, personal, community service, etc.?

3. Will I be able to devote my time and energy to ensure that I fully meet my obligations in this role?

4. Do I understand the risks and responsibilities that come with directorship? Am I aware of the statutory and common law liabilities that I may be exposed to?

5. Does my firm have a policy regarding its lawyers serving on the boards of charities and not-for-profits?

6. Is the charity or not-for-profit organization a client of my firm? If so, does my firm have a policy regarding its lawyers serving on the boards of charities and not-for-profits that are clients of the firm?

7. Will the charity or not-for-profit organization agree to indemnify me for liability arising out of my role as director?

8. Does the charity or not-for-profit organization maintain directors and officers (D&O) insurance to protect me from personal liability arising out of my role as director?

9. If so, what are the details of this D&O insurance? What policy terms, conditions and exclusions are likely to apply? What are the limits of liability per claim and in the aggregate?

10. Is there an outside director liability (ODL) insurance policy in place that may respond to claims against me arising out of my directorship? If not, should I purchase such insurance, whether from the Canadian Bar Insurance Association (CBIA) or through my insurance broker?

11. Is there any other insurance in place or optional coverage that may be purchased that may cover my activities as director? Have I consulted my insurance broker? (Note: LAWPRO’s optional excess insurance policy does not provide incidental D&O coverage, but some excess professional liability insurance policies may do so. If so, does that coverage “drop down” to afford primary protection?)

GAAR

Every now and again an acronym is also onomatopoetic, and I would think that "GAAR" qualifies. The acronym means the "General Anti-Avoidance Rule" and the onomatopoeia comes with the noise made by a taxpayer who has had a tax plan disallowed by the Canada Revenue Agency [CRA] under the GAAR despite the plan's technical compliance with the tax laws.

What is the GAAR, according to the CRA?

The GAAR is really just Part XVI "Tax Avoidance" of Canadian Income Tax Act, (ss. 245 and 246).

In that Part the government creates the concept of an "avoidance transaction", which it defines as "a single transaction or one that is a part of a series of transactions where the single transaction or the series results directly or indirectly in a tax benefit, unless the transaction is carried out primarily for bona fide purposes other than to obtain the tax benefit". (CRA IC88-2, "General Anti-Avoidance Rule - Section 245 of the I.T.", an information circular "to provide guidance with respect to the application of the general anti-avoidance rule". )

What exactly is the GAAR, in non-legalese?

The best description I've ever seen is that provided by Osgoode Hall Law Student Mr. Ankur Bhatt:

A fundamental tenet of Canadian tax law...is that a taxpayer is entitled to make any lawful arrangement that he or she sees fit in order to reduce his or her liability to tax. The General Anti-Avoidance Rule (”GAAR”), at s. 245 of Canada’s Income Tax Act, has greatly confused this once-clear principle. While “tax evasion” is the general term for efforts to not pay taxes by illegal means, what is known as “tax avoidance” is the otherwise not illegal navigation of the tax regime to reduce tax payable. The GAAR, as its name would suggest, stands as a general damper on the latter. The rule entails that, even if one follows to the letter the (other) rules as laid out, the government may feel fit to disregard such compliance and levy the tax that it deems would otherwise have been payable had such (other) rules not been taken advantage of. Specifically, the benefit of a tax avoidance transaction may be denied if, pursuant to s. 245(4), the transaction constitutes a “misuse” or “abuse” of the tax-related provisions it utilized.

Noted tax law scholar Vern Krishna related the gist of general anti-avoidance legislation at a recent lecture competition:

The law allows you to do something. You do it according to the law, and take advantage of the law, and then somebody says, “No… that was not very nice. You went too far.” And you say, “How far is ‘too far’?” And [they] say, “Well, we’ll tell you when we find out.” (Laughter.) But you say, “I need to know, because I need to plan in advance!” And they say, “No, you’ll find out in the fullness of time.” (Laughter.)

Thus, general fairness concerns of uncertainty, unpredictability, and retroactivity arise. Furthermore, having to do with but a property interest, general anti-avoidance legislation is not subject to Charter scrutiny under s. 7. As expected, the courts are left to divine the meaning of “misuse” and “abuse” under s. 245(4), demarcating the line between valid and non-valid arrangements of financial affairs.

[The quote is from "Copthorne Holdings: “Series of transactions” under the GAAR", "The Court", Osgoode Hall Law School, February 2nd, 2010. The "s.7" reference is to Section 7 of the Charter of Rights and Freedoms, which states: "7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice".]

A problem: two not-in-sync SCC cases

The Supreme Court of Canada is there, amongst other reasons, to clarify the law. Unfortunately it has done rather the opposite on the GAAR.

In 2005 the Court, (in Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601) "effectively sanctioned the well-worn practice of tax avoidance, saying transactions structured to minimize what is owed to Caesar, as it were, don't per se constitute a breach of the law" ["General Anti Avoidance Rule - GAAR - CRA Loses Catch-All Case", Wednesday, October 26, 2005 from The Globe and Mail, reprinted at "Canada Offshore"], permitting "aggressive" tax planning. (Truth be told, such complex plans are rarely available to small businesses, who even more rarely have the time, volume of gross income, or piles of cash to hire the platoons of hyper-specialist tax accountants and lawyers necessary to even come up with the avoidance schemes.)

In 2009, however (in Lipson v. Canada, 2009 SCC 1, [2009] 1 S.C.R. 3) "the Supremes" (as they are often cheekily known) stood for instead of against application of the GAAR: "The approach to determining whether a transaction resulted in a misuse and an abuse for the purposes of s. 245(4) of the Act required the court to first interpret the provisions at issue to determine their essential object, spirit and purpose. The second step in the s. 245(4) analysis was to determine whether the avoidance transaction frustrated the object, spirit or purpose of the provisions. Where a tax benefit resulted from a series of transactions, any individual transaction became relevant in ascertaining whether it gave rise to an abuse of the provisions of the Act. The GAAR applied even where abuse was an indirect result of a transaction. Thus, a court had to refer to the `overall result' of the transactions, rather than the `overall purpose', which may incorrectly imply that the taxpayer's motivation or the purpose of the transaction was determinative."

There are two things of interest to me in the Lipson decision.

First, the decision was an odd and narrow (4-2-1) split decision with a short bench of seven, made without the benefit of the Chief Justice MacLachlan, who is arguably the Court's best tax specialist: please see "Supreme Court Hands CRA Biggest Ever GAAR Victory In A Cliff-Hanger", (19 January 2009, Article by William I. Innes, Chia-yi Chua and Carman R. McNary, Fraser, Milner, Casgrain, LLP) for further details and commentary.

Second and worse: unlike the Canada Trustco case, Lipson was an "aggressive" tax plan that was created by ordinary taxpayers: a taxpayer and his wife who structured a loan transation for a family residence using financing arranged around the purchase of shares in a family corporation; the share loan was $562,500 and the mortgage was $562,500. (Please see the Lexis-Nexis/Quicklaw Digest for the Lipson case to obtain a useful summary. The explanatory quotation above is from that Digest.) Canada Trustco, by contrast, was a "complex sale-leaseback transaction" of high value and potentially wide application. I can't shake the concern that one judicial standard is being applied to rich corporate taxpayers while a more rigid and demanding one is being applied to ordinary people. What will be of interest will be to see whether the harsher Lipson standard will be applied to future corporate tax arrangements such as the one found in Canada Trustco; if it is then the class bias concern will be negated. What will also be worth following is whether or not the law will alter course for a third time: it is possible that the SCC will accept a GAAR case to clarify any uncertainty.

Until the matter is clarified, however, I will be wary of an American-style tax standard where the tax avoidance tune is okay if done with complex scores played by expensive orchestration, and impermissible if done in simple chords.

What can you do to avoid a problem?

If you are engaged in aggressive tax planning, one option is to go to the CRA, where "Revenue Canada, Taxation will issue advance rulings with respect to the application of the general anti-avoidance rule to proposed transactions and will publish summaries of the facts and rulings in those cases that will provide further guidance where the rulings themselves are not published. In order to ensure that the rule is applied in a consistent manner, proposed assessments involving the rule will be reviewed by Revenue Canada, Taxation Head Office." One should, however, consult with a tax law and accounting specialists to ensure that (a) the proposed tax arrangement meets the laws as they stand, and (b) whether it is prudent to obtain a predetermination at all.


Further reading:

"Anti-Avoidance Provisions, Including GAAR" - CA School of Business

"The Year in GAAR", Fasken Martineau Taxation Group presentation by Alan Schwartz and Louis Tasse

Quite. So.

TD Bank CEO Ed Clark [made]the following comments ... at a TD Ameritrade management conference in Florida last week:

"It will astound you, but there's a group called the Canadian Council of Chief Executives and we had a meeting two weeks ago, and almost every single person said, 'Raise my taxes, get this deficit done.' "

Nothing warms the hearts of Canadians more than hearing the CEO of a major corporation, especially a bank, calling on the government, as if on behalf of all Canadians, to "raise my taxes."

"CEOs unite for GST hike", Terence Corcoran, Financial Post. Saturday, February 13, 2010

When can you not fire an employee?

Well, the truth is you can fire any employee at any time for any reason .... if you are willing to pay the price that a court may award that employee for wrongful dismissal or such other cause of action. Most small business naturally don't have that kind of convenience money, and have better things to spend it on even if they did.

One of the better known and well-published labour law lawyers is Mr. Howard Levitt of Lang Michener, LLP.

He recently wrote a Law Note on "Dealing with Malcontents" in the workplace.

In that article he recommends a number of key points that employers "should consider ... before firing staff for subordination"

Is the order lawful? ...
How reasonable is the directive? ...
Is the instruction within the employee’s job functions? ...
Is the order clear? ...
Is it related to a significant issue? ...
Is there a reasonable excuse? ...

The full article is well worth a read.

Why do we have law at all?

"Law is born from despair of human nature."

José Ortega y Gasset

A good writer ponders a bad jury

“In the McFarland case, the defendant set up a plea of insanity and succeeded in proving himself a fool. And he was acquitted by a jury of his peers.”

Ambrose Bierce,
in a comment on a San Francisco case.

An interesting thought on statutory limitation

I’ve often thought there out to be a quota on the size of a state’s entire statutory code. Something on the order of 10-20 million characters. This would include not only the laws, but any rule or regulation created by any state agency (often published in something called an Administrative Code).

Those laws and rules would only get to be so large, and then, before anything new was added, they’d have to get rid of something else. The legislature would also be responsible for figuring out each agency’s “budget”, that is, how many characters that agency could use for its rules.

If this were in effect, maybe they’d keep only what was really important.

Commenter "Ahcuah" at theagitator.com, an American libertarian website, January 2nd, 2010

Sanity on Social Policy

"I don't believe that suffering is morally edifying. I'm in favor of more happiness and less suffering wherever possible, which is apparently a radical position."

"KevinBaker", Shakesville, comments, h/t to "The Real Interrobang"