Date: 20010410
Docket: 2000-2990-IT-I
BETWEEN:
GUY NADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] This is an appeal for the 1998 taxation year and it concerns a charitable gift of $2,095 supported by a receipt issued by the Fondation du Collège de la région de l'Amiante ("the foundation").
[2] Starting in the early 1980s, the foundation worked in co-operation with the Collège de la région de l'Amiante ("the college"). It was a foundation that collected funds through a variety of activities, such as fundraising, direct solicitation, bingo and breakfasts. The available funds were used to create various scholarships, to help carry out specific projects and to meet any significant and strategic needs that the college might have from time to time.
[3] When the computer age became an inescapable reality, especially in schools, authorities at the college-faced with budgetary limitations and constraints - wanted to set up a program whereby all of the school's staff could have a computer and whereby this would be achieved in a way that would provide good value in terms of the outlays required.
[4] To facilitate accessibility and support members of the college's staff who wanted a computer at their disposal, some people had the idea of calling upon the foundation. Extensive evidence was adduced concerning the objectives and goals of setting up the program and the benefits associated therewith. It was stated that the program's creation had made it possible for teachers to provide superior-quality education while keeping on the leading edge in the field of computer information and providing students with better supervision.
[5] In view of the emphasis placed on the context in which the program was set up, I told the appellant several times that easier access to computers for the college's staff, while certainly beneficial, was in no way what was at issue here.
[6] The nobleness of the goal and objectives and the outstanding results achieved have absolutely nothing to do with the point at issue here, which, I repeat, is basically whether the appellant made a charitable gift that had the necessary characteristics to be deductible from his income.
[7] A brief overview of the procedure followed is an appropriate starting point. The college had formed a committee in charge of the computer acquisition program. When a staff member wanted to take advantage of the program, he or she completed a formal application and stated the desired configuration. The committee assessed and analysed everything, and the application was then approved or denied. In actual fact, three applications were denied over the years, which was what led the college's representative to state that 10 percent of applications had been refused; he added that that percentage did not include people who had not ventured to apply given the conditions and the complexity of the procedure.
[8] Once an application was accepted, the person concerned had to sign a cheque or authorize his or her employer to withhold the appropriate amounts from his or her salary. When payment was made, a charitable gift receipt was issued by the foundation. The amount of the receipt corresponded to the purchase price of the computer and the computer equipment minus 20 percent to take account of personal use. In other words, 20 percent of the total outlays was not covered by the receipt.
[9] That was the standard set by the committee, and it was a mandatory one. On this point, the appellant said that he had accepted and complied with that standard even though his use of the computer for personal purposes was not actually 20 percent.
[10] Once the computer was purchased, it became the responsibility of the subscribing user, who used it at home and assumed responsibility for it. It was therefore strongly recommended that an insurance policy be taken out to cover the computer equipment for loss, fire and theft. The costs associated with the use of the computer, such as repair and replacement costs and fees for connecting to networks such as the Internet, also had to be paid by the user.
[11] To ensure consistency and above all to strengthen the logic of their view of things, the college and the participant who had been issued charitable gift receipts signed a memorandum of understanding (Exhibit I-3).
[12] The memorandum of understanding contained various items, including a section headed [translation] "Characteristics of a program providing an alternative to PÉDAMICRA". There was:
· a chapter entitled [translation] "Computer technology investment program" containing information on the program and a [translation] "miscellaneous provisions" portion;
· another chapter on the administrative process, including three forms that had to be completed and attached to the application to participate; and
· another chapter on identifying the configuration (desired computer equipment), completed by the memorandum of understanding.
[13] The agreement (Exhibit I-3) provided that the computer equipment would be at the participant's disposal until it became obsolete and that the participant could use it at the place he or she chose. In practice, they used the computers at home and this was also true of the appellant.
[14] These facts alone are more than sufficient for one to conclude that the participants, including, of course, the appellant, received a definite and real benefit as a result of their participation in the college's program. The fact that a percentage was subtracted to take account of personal use of the equipment is of no relevance. Whether the use made thereof was limited or not has nothing to do with the question of whether a genuine donation was made.
[15] Simply being able to use the equipment for personal purposes was in itself a consideration and an advantage and benefit. These elements are totally inconsistent with the existence of a genuine donation. Such deficiencies and/or flaws cannot be made to disappear by disguising verbally, or even in writing, the reality whereby the recipient borrower and/or possessor could use the equipment placed at his or her disposal for personal purposes.
[16] A gift for which a receipt is issued and which entitles the donor to a tax benefit is subject to a number of conditions, which are set out in the Income Tax Act ("the Act") and the Income Tax Regulations ("the Regulations").
[17] Before analysing the conditions applicable to the form of the receipt, it must be decided whether a genuine gift was made.
[18] The Act does not define what is meant by a gift. The courts have often had to address this question and, over the years, they have shed light on the matter, making it possible, I believe, to identify the limits and scope of the concept of gift.
[19] I see no point in expatiating on the meaning to be given to the word "gift", since my colleague the Honourable Judge Lamarre Proulx of this Court has set out the necessary conditions for a genuine gift very clearly in Dupriez v. The Queen, [1998] T.C.J. No. 452 (Q.L.).
[20] In this regard, subsections 118.1(1) of the Act and 3501(1) of the Regulations provide as follows:
The definitions of "total gifts" and "total charitable gifts" are to be found in s. 118.1(1) of the Act and are as follows:
"total gifts"of an individual for a taxation year means the total of
(a) the lesser of
(i) the individual's total charitable gifts for the year, and
(ii) 1/5 of the individual's income for the year,
(b) the individual's total Crown gifts for the year, and
(c) the individual's total cultural gifts for the year.
"total charitable gifts" of an individual for a taxation year means the total of all amounts each of which is the fair market value of a gift (other than a gift the fair market value of which is included in the total Crown gifts or the total cultural gifts of the individual for the year, or would have been so included for a preceding taxation year if this section had applied to that preceding year) made by the individual in the year or in any of the 5 immediately preceding taxation years (other than in a year for which a deduction under subsection 110(2) was claimed in computing the individual's taxable income) to (Emphasis added.)
(a) a registered charity . . .
(g) a charitable organization outside Canada to which Her Majesty in right of Canada has made a gift during the individual's taxation year or the 12 months immediately preceding that taxation year,
Section 118.1(2) of the Act concerns proof of the gift, and reads as follows:
(2) Proof of gift - A gift shall not be included in the total charitable gifts, total Crown gifts, total cultural gifts or total ecological gifts of an individual unless the making of the gift is proven by filing with the Minister a receipt therefor that contains prescribed information.
The phrase "official receipt" is defined in s. 3500 of the Regulations as follows:
"official receipt" means a receipt for the purposes of subsection 110.1(2) or (3) or 118.1(2), (6) or (7) of the Act, containing information as required by section 3501 or 3502.
Section 3501(1) of the Regulations describes what an official receipt must contain:
3501. Contents of receipts - (1) Every official receipt issued by a registered organization shall contain a statement that it is an official receipt for income tax purposes and shall show clearly in such a manner that it cannot readily be altered,
(a) the name and address in Canada of the organization as recorded with the Minister;
(b) the registration number assigned by the Minister to the organization;
(c) the serial number of the receipt;
(d) the place or locality where the receipt was issued;
(e) where the donation is a cash donation, the day on which or the year during which the donation was received;
(e.1) where the donation is a gift of property other than cash
(i) the day on which the donation was received,
(ii) a brief description of the property, and
(iii) the name and address of the appraiser of the property if an appraisal is done;
(f) the day on which the receipt was issued where that day differs from the day referred to in paragraph (e) or (e.1);
(g) the name and address of the donor including, in the case of an individual, his first name and initial;
(h) the amount that is
(i) the amount of a cash donation, or
(ii) where the donation is a gift of property other than cash, the amount that is the fair market value of the property at the time that the gift was made; and
(i) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge donations.
[21] In the case at bar, was there a charitable gift of $2,095?
[22] The appellant explained the process that led him to make the outlay for which he was issued the disputed receipt. He said that he applied to take advantage of the program through which he could obtain a computer; upon being accepted, he wrote a cheque.
[23] He therefore wrote his cheque because his application had been accepted; had it not been accepted, he would not have written a cheque and would therefore not have made a gift. If the acceptance had turned out to involve a higher amount because the cost of the computer equipment had increased, or even a lower amount because of certain changes, the amount of the cheque and thus of the receipt would have been based on the adjusted amount, whether higher or lower. Is this not proof of the absence of gratuitousness? Is it not proof that the appellant acted out of self-interest and was motivated essentially by the desire to have the benefit of a computer?
[24] This alone is ample ground for concluding that no genuine gift was ever made; what was involved was basically an outlay whose size depended on the value of the computer equipment, which, moreover, the appellant was fully assured of being able to use for the entire life of the machines.
[25] The quantification of the time the computer was to be used for personal purposes does not in any way enhance the nature of the juridical act. The mere possibility of using the computer equipment for which the payment was made was more than sufficient in itself to eliminate one of the essential elements of a gift; in other words, all the facts preceding and surrounding the issuance of the charitable gift receipt are contrary to the very existence of a genuine gift.
[26] It was basically something done out of self-interest that was made to look like a gift in order to derive a tax benefit therefrom. Moreover, the evidence showed that the Pédamicra program, in both its original form and its improved version, was a separate, special and isolated activity in the foundation's day-to-day business.
[27] The reason the foundation was turned to in order to ensure the smooth functioning of the program was basically that it had been accredited to issue receipts that were presumed to be valid.
[28] The foundation was never involved in developing the program; it acted essentially as a receipt issuer. It did not derive any advantage or benefit from issuing the receipts ordered by the college to those who had laid out money to obtain the use of a computer.
[29] There is no evidence-the burden of proof being on the appellant-that the appellant made a genuine gift of $2,095 to the foundation. Admittedly, he made an outlay of that amount, but the evidence showed rather clearly that the foundation was turned to so that the appellant could have a computer that he had chosen and laid out money for and that he used.
[30] The receipt issued by the foundation was nothing other than a subterfuge the goal of which was to indirectly reduce the cost of the computers made available to the college's staff, including the appellant.
[31] The fact that the appellant, his co-workers, the staff and the college's officials racked their brains to come up with a system that would enable any staff member to have the use of computer equipment in return for minimal outlays is in no way reprehensible in itself. It was a normal, legitimate reaction. The persons involved thought they were doing nothing wrong, especially since, as the appellant said, programs to provide access to computer equipment exist in a number of businesses. However, this did not justify making use of the foundation in the way that they did.
[32] The appellant was very insistent in arguing that the respondent's representatives had, as it were, accepted and accredited the system. The evidence, however, provides no basis for such a conclusion; on the contrary, the weight of the evidence shows that the scheme was identified as dubious and as liable to be questioned or even rejected. This is made very clear by the letter sent to the foundation on October 29, 1998, which I consider it helpful to reproduce (Exhibit I-1):
[TRANSLATION]
Jean Dagnault
Fondation du Collège de la région de l'Amiante
671 Boulevard Smith Sud
Thetford Mines, Quebec
G9G 1N1
October 29, 1998
Dear Sir:
Subject: Charity audit
We have now completed our review of the receipts issued to professors by the Fondation du Collège de la région de l'Amiante (hereinafter "the charitable organization") for gifts made under the "Pédamicra" program. The results of our audit indicate that the charitable organization issued official receipts totalling $57,954 and $41,575 during the 1994 and 1995 fiscal years.
According to the information obtained during the audit, the charitable organization set up a program called "Pédamicra" to finance the purchase of computer equipment that it would not otherwise have been able to purchase at that time of budgetary constraints. The purpose of the program was to facilitate access to modern, efficient work tools. However, no brochure describing the program was provided during the audit. Most of the amounts collected came from employees of the charitable organization and the Collège d'enseignement général et professionnel de la région de l'Amiante (hereinafter "the college").
Our audit shows that the equipment purchased remains the college's property and seems to be used exclusively by its employees, who may even use that computer equipment at home. No equipment loan agreement is signed by the college and its employees. Moreover, no written assessment of the need to purchase computer equipment for a specific position is prepared.
In 1989, the Department sent you a directive prohibiting this type of program (a copy of which is attached to this letter). However, the Department's 1989 directive did not in any way change or add anything to the definition of gift recognized by law. It was issued merely as a reminder of the existing rules regarding the definition of gift.
Legally, a gift is defined as a voluntary transfer of property whereby the donor receives no benefit or advantage in return. In the present case, the transfer of money is not a gift because the donors know even before paying that they will receive a benefit in return, namely the use of computer equipment. Although the benefit is not monetary, it is nevertheless an advantage that the donor receives solely by virtue of making the payment. That benefit is what removes from the payment the gratuitous nature required by law and precludes the payment's being recognized as a gift. Your argument that the college and its employees have access to new technology at a time when budget cuts in the field of education would make this impossible in no way alters the fact that the employees have also received a benefit in return for their payment.
We therefore suggest that you stop issuing official receipts in such circumstances as of the date you receive this letter.
We would ask you to send us, within 30 days of the date of this letter, a written undertaking stating how the organization plans to resolve the above-mentioned problems. Please send the undertaking to Rhéal Dorval, Assistant Director, Audit Section, Charities Division, at 320 Queen Street, 18th Floor, Ottawa, Ontario K1A 0L5.
If you have any questions concerning this matter, you can contact Mr. Dorval at (613) 954-0939 or me at (613) 946-2400.
If you choose to be represented by a third party in this matter, please let us know in writing in order to ensure that the confidentiality of the charity's affairs with the Department will be protected.
. . .
Particularly telling is the copy of the letter attached to that cited above:
[TRANSLATION]
. . .
Dear Sir or Madam:
I am writing to you to explain the Income Tax Act's requirements as regards the issuance of tax receipts by universities and colleges registered as charities under the Act.
A registered charity may not issue tax receipts except in recognition of gifts received. Legally, a gift is a voluntary transfer of property without consideration. For there to be a gift, there must be a donor who freely disposes of property and a donee who receives it. The donor must not receive any right, privilege or material benefit whatsoever as a result of the disposition. (For more information on "Deductible Gifts and Official Donation Receipts", please refer to the Department's Interpretation Bulletin IT-110R2, a copy of which is enclosed.)
As an example, it seems that some universities or colleges registered as charities receive money from an employee and then use that money to purchase property, such as a computer. The university or college then issues a tax receipt to the employee for the amount in question-on the basis that it is a gift-and also gives the employee the computer for the employee's own use. The employee then claims a tax credit for a charitable gift.
In such circumstances, the Department's view is that it is unlikely that the gift is valid, since the employee has received a benefit in exchange for his or her payment. While the value of the benefit received may be lower than the amount paid by the employee, the fact that the employee received some actual benefit invalidates the gift. Such claims for tax credits for charitable gifts will not be accepted, as they are supported by improperly issued receipts.
. . .
[33] The appellant argued that he was in good faith, saying that he never wanted to violate any provision whatsoever and adding that a very large number of businesses have set up all kinds of procedures to provide their staff with access to computers.
[34] He also asked the Court to state in its judgment what approach the college and the foundation would have had to take in order for everything to be accepted by Revenue Canada.
[35] Good faith and ignorance of the law are not factors that can be taken into account by this Court in the instant case.
[36] As for the approach that would be acceptable to Revenue Canada, I have nothing further to add except to say that the college and the foundation had or have to comply with the provisions of the Act.
[37] Under those provisions, a charitable gift receipt is to be issued only when a genuine gift is made, which implies gratuitousness, a disinterested donor and the absence of any consideration. Furthermore, all of the provisions concerning form must also be complied with, failing which the receipt may not be valid or acceptable.
[38] The appellant has not proven that he made a genuine gift; that being so, the receipt that was issued was worthless and the appellant therefore did not meet the fundamental requirements of the Act.
[39] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of April 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true on this 25th day of October 2002.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-2990(IT)I
BETWEEN:
GUY NADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 12, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Michel Lemaire
Counsel for the Respondent: Michel Lamarre
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1998 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 10th day of April 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true on this 25th day of October 2002.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]