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Docket: 2004-43(IT)I |
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BETWEEN: |
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MARK DOUBININ, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeal heard on June 4, 2004 at Vancouver, British Columbia
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Before: The Honourable Justice Diane Campbell |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Robert Carvalho and Gavin Laird |
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JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 22nd day of June 2004.
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"Diane Campbell" |
Campbell J.
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Citation: 2004TCC438 |
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Date: 20040622 |
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Docket: 2004-43(IT)I |
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BETWEEN: |
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MARK DOUBININ, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Campbell J.
[1] For the 1996 taxation year, the Appellant claimed a charitable donation of $27,548.00 in respect to an organization called The Association for the Betterment of Literacy and Education ("ABLE"). ABLE was a registered charity in 1996 and had been registered for several years prior to this. In December 1996 the Appellant paid amounts to ABLE totalling $6,887.00. He was issued a receipt for his donation in the amount of $27,548.00, which was equal to four times the amount he actually donated. The additional "top-off" amount was to be paid to ABLE by a benefactor group called Publishers' Philanthropic Fund of Bermuda ("PPF"). There was no evidence to support that this additional amount was ever paid to ABLE. ABLE was deregistered as a charity on September 25, 1999. The Minister of National Revenue (the "Minister") disallowed the entire deduction because it was not a charitable gift as defined in subsection 118.1(1) of the Income Tax Act (the "Act") and therefore the Appellant was not entitled to a tax credit for donations and gifts pursuant to subsection 118.1(3) of the Act.
[2] At the hearing, the Appellant advised that for the purpose of computing his tax payable, he was requesting deduction for the amount of $6,887.00 only, being the actual amount he paid to ABLE in 1996.
[3] The issue is whether the Appellant made a gift to ABLE in the amount of $6,887.00 which he can deduct in the 1996 taxation year.
[4] The Appellant testified that in 1996 he approached Larry Williams, a financial planner, to oversee his investments and to minimize his taxes. A statutory declaration of Mr. Williams was introduced as Exhibit A-5. The Respondent objected on the basis that Mr. Williams was not present to cross-examine. The Appellant stated he had no personal relationship to ABLE, or to any of its officers or directors, and that he was not familiar with ABLE until Williams suggested it as a potential investment in his portfolio. He was told ABLE's main activity was to promote and improve literacy through distribution of educational materials. He was also advised that PPF was a private philanthropic entity administered by directors which received donations and distributed the money to individuals who supported educational programs through donations to those charities. Once an individual became a member of ABLE, that individual was then eligible to receive a gift from PPF. He testified that Williams told him he could be chosen by PPF, at its discretion, and if chosen, PPF would donate money to ABLE equal to three times the amount of his donation. He would also receive a tax receipt equal to four times the amount of his actual donation. However there was no guarantee. He stated that he had no expectation that he would be chosen to receive an additional benefit through PPF. When he was chosen, he testified that he thought PPF actually topped off his donation to ABLE and that ABLE did receive the money from PPF. He therefore felt he could use the receipt issued to him for $27,548.00.
[5] It was his evidence that after Larry Williams first recommended ABLE as part of an overall investment strategy, he took further steps to ensure the legality of this organization by first checking with the Canada Customs and Revenue Agency (the "CCRA") to ensure that ABLE was granted tax exempt status and registered as a recognized charity, which it was, and second, by obtaining an independent legal opinion dated September 25, 1996 from the Law Firm of Bennett Jones Verchere (Exhibit A-3).
[6] He believed what he was told about ABLE - that it was engaged in literacy and educational pursuits. He said Williams showed him excerpts of brochures on ABLE's programs and the work it was doing. He was prepared to donate up to $8,000.00 to this charity but he testified that it was Williams who decided upon the amount he would donate as a means of minimizing his tax payable. He knew there was an opportunity that PPF could donate money in his name and that he would receive a receipt for the larger amount for tax purposes, but that there was no guarantee of this in either ABLE's documents or the information Williams gave him.
[7] As part of this plan, the Appellant signed two pledge forms; the first dated August 28, 1996 for $4,000.00 and a second undated one for $23,548.00. He stated that this second one was probably signed in October 1996. On cross-examination he said he did not know why there were two forms. Williams completed these pledge forms for the Appellant. He testified that these forms were pledge forms only and that they were required by PPF, so that this organization could consider whether to donate an amount in his name. He stated that Williams advised him these forms were to be used by PPF if there was additional money available that this group could donate to ABLE. If PPF donated the money, then he would receive a tax receipt for four times his cost outlay. However he did not expect or know if PPF would donate. He also stated that he did not request, and Williams did not advise him, what his chance might be of receiving this PPF donation. The Appellant stated despite these problems that he has continued to place confidence in Williams and that Williams was still providing financial advice to him.
[8] The Respondent's witness, Larry Kuhn, a tax auditor with CCRA, reviewed ABLE's promotional material as well as the two variations of donating to ABLE. These both involved providing donors with tax receipts for amounts in excess of the amount actually donated. He testified that ABLE had issued 6.4 million dollars in receipts over four years but had distributed only speed reading courses to high schools, which he characterized as "window dressing". On cross-examination, he did admit that there was nothing in ABLE's documents to suggest that a scheme existed of moving money through several corporations. Mr. Kuhn also admitted that the documents contained no guarantee of tax savings but that individuals would be motivated by the tax profit, due to the method of promotion contained in the documents.
[9] The Respondent argued that ABLE was at all material times controlled and promoted as a tax shelter by Henry Thill. Most of the case law provided by the Respondent documented other questionable schemes promoted by Mr. Thill since the 1980s. The basis of the Respondent's argument was that the Appellant made the donation to ABLE in consideration of PPF making a payment to ABLE equal to three times the payment made by the Appellant and that the Appellant would receive a charitable donation tax receipt in an amount equal to four times the Appellant's actual payment. The onus is on the Appellant to establish that the transaction was conducted without the expectation of receiving any material benefit. The Respondent argues that he has not done so. The Respondent submits that the Appellant's declarations of subjective intent do not overcome the objective evidence which supports that the transaction was promoted as a means to profit and that the Appellant entered it on this basis without regard to the needs of the charity or the ability of PPF to pay. Therefore this transaction cannot be characterized as a gift, because the Appellant expected a tax benefit and receipt based on the amount PPF was to contribute. The Appellant's mere expectation of receipt of this "gift" from PPF alone would negate the Appellant's entitlement to any donation credit.
Analysis:
[10] Pursuant to subsection 118.1(3) a deduction is allowed for "total charitable gifts", as defined in subsection 118.1(1). This includes an "... amount of a gift made by an individual ... to a registered charity". Under subsection 118.1(2) proof of the gift in the form of a receipt must be filed with the Minister.
[11] The word "gift" is not defined in the Act but it is one of the requirements of eligibility for the credit. In The Queen v. Friedberg, 92 DTC 6031 (F.C.A.), Linden J.A. discussed the term "gift" in the following manner:
The Income Tax Act does not define the word "gift", so that the general principles of law with regard to gifts are utilized by the Courts in these cases. As Mr. Justice Stone explained in The Queen v. McBurney, 85 DTC 5433, at p. 5435:
The word gift is not defined in the statute. I can find nothing in the context to suggest that it is used in a technical rather than its ordinary sense.
Thus, a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor (see Heald J. in The Queen v. Zandstra [74 DTC 6416] [1974] 2 F.C. 254, at p. 261.) The tax advantage which is received from gifts is not normally considered a "benefit" within this definition, for to do so would render the charitable donations deductions unavailable to many donors.
The definition of the term "gift" as stated in Friedberg has been accepted in numerous cases.
[12] Eligibility for the donation credit under subsection 118.1(3) requires that a gift be made. It is clear that the value of the donation cannot include any portion of the PPF donation as there is no evidence it was ever paid to ABLE. The Appellant abandoned that portion of his appeal in any event. As for the money actually paid by the Appellant, it would appear from the case law that revocation of the registration of a charity's status (which for ABLE occurred in 1999) will not have the impact of automatically disallowing donations that were made while it was registered, provided receipts were properly issued and donations properly made.
[13] The Respondent has challenged the Appellant's payment to ABLE on the basis that the intent to give does not exist here because the Appellant was motivated by the expectation of receiving a material benefit via a significant tax advantage. Generally if consideration is received, the transfer is not considered a gift. However as stated by Linden, J.A. in Friedberg, generally a tax advantage connected to a gift is not normally considered a benefit. The Respondent argues that there is no evidence of any other motivation on the part of the Appellant except for the increased tax benefit. This argument is based upon the view that a gift can only occur where an individual voluntarily impoverishes himself. In The Queen v. Burns, 88 DTC 6101 at page 6105 it was stated:
I would like to emphasize that one essential element of a gift is an intentional element that the Roman law identified as animus donandi or liberal intent (see Mazeaud, Leçon de Droit Civil, tome 4ième, 2ième volume, 4ième edition, No. 1325, page 554). The donor must be aware that he will not receive any compensation other than pure moral benefit; he must be willing to grow poorer for the benefit of the donee without receiving any such compensation. [emphasis added]
Justice Dussault made a similar comment in Dutil v. The Queen, 95 DTC 281 where he stated at page 287:
. . . it may be seriously doubted whether such a gift even exists in the true sense when the taxpayer's sole motivation is clearly to enrich himself, not impoverish himself.
But enrichment may occur in some cases where a taxpayer for example donates art that was purchased at a price below its fair market value. The Act deems the value of the donation to be the fair market value, not the valuation paid by a taxpayer.
[14] The Respondent has attempted to differentiate between those cases where enrichment occurs due to a difference between the cost and fair market value and those where enrichment occurs because of an inflated tax benefit. The Respondent suggests this difference is due to the form of the transaction. For example instead of buying property at a fair market value of $1.00 at 25 ¢ , the Respondent suggests that in essence a donation of 25 ¢ was made with the expectation that a tax receipt would issue for $1.00. In the former case the gift was purchased at 25 ¢ because of the expectation of donating at its higher fair market value. In both cases the taxpayer makes a donation with a value yet to be determined. Where art, for example, is donated, the value falls between what is paid and a higher value generally based on appraisals. Here the Appellant made a gift of $6,887.00, but the ultimate value of this gift would be determined by PPF's actions and would be either the actual amount donated or the amount donated plus the additional gift contributed by PPF. The Appellant's donation therefore of $6,887.00 was potentially worth $27,548.00.
[15] The problem arises here because the Appellant's receipt was for the higher of the two amounts but in actual fact no additional amount was paid by PPF. The true value of the gift here is equal to the amount donated by the Appellant or $6,887.00.
[16] I accept the Appellant's evidence that he had no expectation of receiving any material benefit or consideration or that the ABLE documentation gave him any such guarantee. He hired a financial advisor in 1996 who advised, as part of an overall personalized financial plan, that he donate an amount of money to ABLE. The advisor chose an amount less than the amount he was prepared to donate. He was clearly at arm's length in dealing with ABLE. He is not implicated in any fraudulent scheme, although Henry Thill and ABLE may be part of a fraudulent tax shelter. The first time he heard of ABLE was when Williams suggested he donate to this charity.
[17] He did not rely solely on the advice of his financial advisor. He took the additional steps of verifying the tax exempt status of ABLE through CCRA and he sought and obtained an independent legal opinion from his solicitor. After receiving professional advice he followed Williams' recommendation and made his donation in the form his financial advisor suggested. His actions were reasonable and prudent. I do not see where he could have done more in the circumstances. The Respondent argued that ABLE's pamphlet information and the Appellant's history of very small charitable donations overcome the Appellant's statements that he would have donated the $6,887.00 even if he had received a receipt for only that amount. I must reject Respondent's arguments. There was no guarantee set out in the pamphlet information other than a calculation of tax savings based on receiving a PPF gift. I do not believe the Appellant's history of charitable donations has any bearing on his actions taken in 1996 under the coaching of a financial advisor.
[18] He is not part of a tax evasion scheme and although he may have been motivated by potential tax benefits, I do not believe this can be equated to consideration for a gift because tax benefits are not considered a benefit. I accept the Appellant's evidence that he did not expect a benefit based on an amount four times in excess of what he contributed or in fact on any amount. On the evidence I believe in making the donation of $6,887.00, he expected a receipt and benefit in that actual amount. He was aware that PPF could choose his donation to "top off" the amount to ABLE and that he might benefit by a receipt and benefit in excess of his actual contribution but there was no guarantee given to him orally or in writing. If he received it, I believe he considered that PPF donation to be a bonus, not only for himself, but for ABLE. His evidence was that he believed PPF would actually pay that amount to ABLE if he was chosen and that ABLE would then have a gift of four times his donation. If he was not chosen by PPF then he would receive a receipt and benefit for his "full gift" which was the amount he donated of $6,887.00. This in essence would be the fair market value of his donation.
[19] I conclude that based on these facts and my acceptance of the Appellant's evidence he had the requisite intent that his donation of $6,887.00 was a charitable donation to a registered charity for which he would receive a benefit. It was a genuine gift and not given with the expectation of receiving a material benefit or any other type of consideration from PPF. The PPF donation was a mere possibility which should not operate to deny the Appellant his entitlement to a deduction in these circumstances.
[20] For these reasons, the appeal is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment.
Signed at Ottawa, Canada, this 22nd day of June 2004.
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"Diane Campbell" |
Campbell J.
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CITATION: |
2004TCC438 |
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COURT FILE NO.: |
2004-43(IT)I |
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STYLE OF CAUSE: |
Mark Doubinin and
Her Majesty the Queen |
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PLACE OF HEARING |
Vancouver, British Columbia |
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DATE OF HEARING |
June 4, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice Diane Campbell |
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DATE OF JUDGMENT |
June 22, 2004 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Robert Carvalho and Gavin Laird |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |