Defective advice of pre-dealing representative leads to tax liability for senior spouse

Based on Russell’s recommendation, the two clients decided to invest $600,000 in the fund, which they held in their individual TFSAs and in their joint unregistered account.

But his advice was wrong: any portion of the distribution investors receive from a fund that exceeds the 5% annual return on capital in the year those amounts are received. The husband observed that in May or June 2017, when he received tax slips stating that some distributions received by him from the fund in 2016 were taxable. He complained to Russell, who said he would look into it.

In accordance with the policies of his employer branch and MFDA rules, Russell should have informed his employer within two days of receipt of the investor’s complaint. However, he did not inform his branch of the complaint.

The husband did not get any taxable distribution in 2017. But in May or June of 2019, he received another tax slip, stating that some distributions received from the fund are taxable. He complained to Russell that he had a tax liability of about $1,900, and said he was considering a lawsuit against Russell and his employer branch because of it.

Russell did not immediately report that complaint to his employer. Instead, he wrote a check to two clients to pay directly for the tax liability incurred in respect of distributions received from the fund in 2018.