Law360 Canada (June 10, 2026, 3:58 PM EDT) -- The Ontario Superior Court has approved a $1.95-million settlement of a proposed class action alleging BMO overwithheld taxes on withdrawals from registered retirement income fund (RRIF) accounts, finding that a cy-près payment to charity was justified because direct compensation to class members was impractical.

In Hunter v. BMO Trust Co., 2026 ONSC 3330, released on June 5, Justice Benjamin Glustein held that there were no practicable alternatives to a cy-près distribution given the facts of the case.

“Given that the net balance after payment of legal fees, HST, and disbursements would be just over $1 million, a claims-based process with a cost of $550,000 would result in $1 being spent for every $1 paid to a class member,” the judge noted.

The defendant, BMO InvestorLine Inc., offers RRIF accounts to the public. These accounts are structured as trusts, with the defendant BMO Trust Company acting as trustee.

The plaintiff, Kenneth Hunter, commenced a class action against the defendants alleging that they had, in certain circumstances, withheld amounts for tax that exceeded the requirements of the Income Tax Act (ITA).

The defendants calculate the withholding taxes payable based on the total amount withdrawn from the RRIF during a year. The plaintiff alleged that withholding taxes should be paid based on the separate amounts withdrawn for each transaction, which would have resulted in a lower amount of funds being withheld.

The defendants submitted that their policy was correct and that, in any event, class members suffered no damages because they could have invested the tax refund from the Canada Revenue Agency in a tax-free investment vehicle.

Based on expert assessments and aggregated data from the defendants, class counsel was satisfied that the maximum potential damages for the case would likely be in the range of $5 million if several assumptions favourable to the plaintiff were accepted.

In February 2025, the parties agreed in principle to settle the action for an all-inclusive amount of $1.95 million.

However, class counsel concluded that the cost of identifying class members and administering the claims process would likely exceed $550,000.

Both the plaintiff and class counsel formed the view that direct payments to class members were impracticable and disproportionate in the circumstances of the settlement and that a cy-près payment of settlement funds would likely best achieve the objectives of the CPA.

The parties proposed HelpAge Canada, a charity dedicated to improving the lives of older persons, as the cy-près recipient.

The defendants also agreed to implement certain operational enhancements related to withholding taxes as part of the settlement agreement.

The plaintiff brought a motion seeking approval of the agreement.

Justice Glustein observed that there were significant risks in proceeding with the action, noting that the defendants intended to rely on a statutory bar that prohibits an action against any person for withholding money in intended compliance with the ITA.

The judge also noted that class counsel was not aware of case law that definitively supported the plaintiff’s theory of liability.

The court further highlighted that costly damages calculations would risk making the claim uneconomical given the relatively modest recovery for each class member if the proceeding were successful.

The judge noted that under the Class Proceedings Act, a cy-près award can be approved if the court is satisfied that, using best reasonable efforts, it is not practical or possible to compensate class or subclass members directly.

Justice Glustein observed that the defendants had taken the position that they would not agree to a settlement involving a claims process and that they could be successful at trial.

He held that the test for a cy-près settlement was met in the case at bar.

The judge also approved a class counsel fee of 30 per cent of the settlement fund in accordance with the retainer agreement between the plaintiff and class counsel.

Counsel for the parties were not immediately available for comment.

Counsel for the plaintiff was Paul Davis of Paliare Roland Rosenberg Rothstein LLP.

Counsel for the defendants were Shane D’Souza and Chris Puskas of McCarthy Tétrault LLP.

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