Tax Court of Canada Allows Charitable Gift Treatment for Taxpayer’s Cash Contribution: Berg v. The Queen

by Dentons
Contact

[author: ]

On November 19, 2012, the Tax Court released its decision in Berg v. The Queen (2012 TCC 406), which dealt with donative intent in the context of a donation scheme involving inflated charitable donation receipts. The Tax Court held that, although the taxpayer received documentation reflecting a valuation about nine times greater than the fair market value of the donations, the cash contributed by the taxpayer could effectively be segregated from the rest of the scheme and, thereby, constitute a “gift” for purposes of subparagraph 118.1 of the Income Tax Act.

Facts

In 2002 and 2003, Mr. Berg purchased 68 timeshare units, for which he paid $375,950 in cash and the remainder via low-interest financing. The taxpayer subsequently donated the units, and the recipient charity issued donation receipts for amounts approximately nine times higher than the fair market value of the units. The taxpayer claimed the inflated charitable donation tax credits. The CRA reassessed and disallowed the claimed charitable gifts of $2,420,000 for 2002, $1,786,000 for 2003 and $718,380 for 2004, including the portions paid by the taxpayer in cash for the units. 

The only issue before the Tax Court was whether the cash paid was a “gift” and therefore eligible for the charitable donation tax credit.

Analysis

The taxpayer argued that since he provided value for the units, and received no benefit from the charity (other than the credits themselves), the cash payments had to constitute a gift. The Crown argued that the inflated receipts conferred an additional benefit to the donor, thereby negating the donative intent of the taxpayer entirely. The Tax Court distinguished Marechaux v. The Queen in the Tax Court and Federal Court of Appeal on the basis that the Crown had conceded in this case:

[35] . . . that the Transaction Documents were pretenses and thereby not legally effective documents. Legally, no tangible or potential benefit to the Appellant, beyond the camouflage afforded by the Inflated Gift Receipts which were needed to enhance the purported gift value beyond the Cash Donation Amounts, can be ascribed to the Transaction Documents which, on admission by the Respondent, gave rise to no legal rights, obligations or benefits.

The Tax Court concluded as follows:

[48] . . . to the extent the Cash Donation Amount related to the Transferred Units, the Appellant was impoverished by, paid valuable consideration for, intended to give, and conveyed the Transferred Units which were, in turn, received by the Charity. Whatever opprobrium may be ascribed to the Donation Program, legally the Cash Donation Amount has met the legal test of a charitable gift. In the absence of some other benefit received beyond the Inflated Tax Receipts, no legal authority suggests donative intent as defined by the case law relevant to section 118.1 of the Act has been vitiated or nullified to the extent of the value of the Cash Donation Amount.

Conclusion

The Tax Court concluded that the taxpayer intended to donate to the charity, even if he was motivated by the possiblility of receiving an inflated tax receipt. This decision takes seriously the words of the Federal Court of Appeal in The Queen v. Friedberg in which it was held that a “gift is a voluntary transfer of property owned by the donor to a donee, in return for which no benefit or consideration flows to the donor.” In certain circumstances, including those found in this case, one may be able to effectively segregate the “gift” amount from the “non-gift” amount provided that the requisite degree of intent is found in connection with the former.  

It is not known whether the Crown will appeal the Tax Court’s decision to the Federal Court of Appeal.

http://www.canadiantaxlitigation.com/tax-court-of-canada-allows-charitable-gift-treatment-for-taxpayers-cash-contribution-berg-v-the-queen

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.