Charity wins in investor class action

A class action on behalf of RRIF investors — alleging that they suffered damages from the way tax was withheld in connection with their accounts — has been settled for $1.95 million, but the investors won’t be seeing any of that money.

The Ontario Superior Court of Justice approved a proposed settlement with BMO Trust Co. and BMO Investorline Inc. on behalf of RRIF investors over the firms’ approach to calculating tax withholding amounts for these accounts.

According to the court’s decision, the plaintiffs in the case alleged that, by calculating investors’ withholding taxes payable based on the total amount withdrawn from a RRIF for the year, certain investors lost out on some tax-free growth in their accounts by having too much tax withheld. They argued that the tax should be calculated based on each transaction, which would have resulted in lower withholding amounts.

The firms rejected these claims, arguing that their approach to calculating withholding amounts for RRIFs was correct — and that, even so, investors could invest any tax refund in a tax-sheltered account (TFSAs), so they didn’t suffer any damages.

While the firms continued to deny liability, they ultimately agreed to settle the case for $1.95 million.

However, investors won’t be getting any of that money.

After legal fees, disbursements and HST, the settlement only leaves just over $1 million for investors. However, the costs of distributing those funds to individual investors was deemed to be too costly.

The court noted that there are estimated to be between 1,000 and 1,500 investors covered by the settlement. However, about one third of investors’ accounts have been closed, and with the average age of affected investors at 81 years of age (dating back to 2014) many of the investors have since died.

Given these complications, it was estimated that it would likely cost more than $550,000 to administer a claims process — eating up more than half of the money available to investors.

The court noted that the firms wouldn’t agree to a settlement that resulted in hundreds of thousands of dollars being spent on administration, and instead proposed a cy-près distribution — a payment to an agreed charity or non-profit — as the only realistic approach.

The two sides agreed to jointly propose HelpAge Canada — a national charity dedicated to improving the lives of older people — as the recipient of the settlement funds.

“HelpAge Canada is an appropriate cy-près recipient in that they are national in the scope of their operations, and they are related to the issues in this action. Their use of settlement funds can reasonably be expected to benefit the class members, virtually all of whom are retirees, and those in similar circumstances to them,” the court concluded.

On Feb. 17, the action was certified as a class proceeding for settlement purposes.

Now, the settlement itself has been approved, along with the proposed legal fees and disbursements.

“The proposed settlement terms and conditions are within the zone of reasonableness,” the court noted — adding, “A cy-près distribution is appropriate in the unusual circumstances of this case.”