http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/71057/index.do
David et al. v. The Queen (April 15, 2014 – 2014 TCC 117) was another case involving taxpayers purchasing alleged charitable receipts for a fraction (10%) of their face value from a tax return preparer.
The unusual aspect of this decision is that the taxpayers succeeded in claiming the cash they paid and the court vacated any penalties levied against them.
The point that seems to differentiate this decision from a number of recent cases involving the purchase of charitable receipts is that the Crown based its argument on the suggestion that the mere receipt of an inflated receipt was a “benefit” that vitiated the entire transaction. The Tax Court rejected this line of argument:
[59] Since this issue was not clarified by the Federal Court of Appeal in
Berg, it is useful to consider other judicial decisions. The respondent referred to several decisions of the Tax Court of Canada, and I have also found guidance in
The Queen v Doubinin, 2005 FCA 298, which is a decision of a higher court.
[60] Although the facts in
Doubinin are very different from the facts in these appeals, the Court’s comments on whether an inflated tax receipt is a benefit are helpful. In this regard, Sexton J.A. writes:
[14] The Appellant argues that the receipt of the “inflated tax receipt” was a benefit. We do not agree.
[15] It was impossible for the Respondent to benefit from the inflated tax credit on the specific facts of this case because even if PPF had made the donation to ABLE, ABLE could not have validly issued a charitable receipt in the Respondent’s name for the amount donated by PPF. Section 118.1 of the
Income Tax Act does not allow one individual to claim a charitable tax credit for a gift made by some other person.
[16] Thus, it cannot be said that the Respondent received any actual benefit from the “inflated tax receipt”. In fact, it might well be described as a burden. If he had not received it, he would have not experienced the difficulty he later faced in claiming a credit for the $6,887, which he actually contributed to a registered charity.
[17] The Appellant also relies upon the case of
Webb v. The Queen, 2004 TCC 619 where the taxpayer was denied a tax deduction in any amount. That case involved a donation to the same charity, ABLE. However, there, the Tax Court found that the taxpayer had knowingly participated in the issuance of false receipts and in addition that the taxpayer made the donation in anticipation of the future return of a large portion of the gift back to him, either from ABLE or through an indirect channel. This is not the case here. In the present case there is no evidence that the Respondent had any knowledge of any wrongdoing. Indeed, he was advised by Revenue Canada that ABLE was a registered charity at the time of his contribution. Further, there was not the expectation of a benefit which the Tax Court had found in Webb.
[61] Based on these comments, I would conclude that the issuance of an inflated tax receipt should not usually be considered a benefit that negates a gift.
[62] The Court in
Doubinin seems to leave open the possibility, however, that there may be extraordinary circumstances in a particular case that should be taken into account.
[63] Are there particular circumstances in these appeals that would justify a conclusion that the inflated tax receipts are a benefit that negates the gifts? In my view there are no such circumstances.
[64] Unlike many of the cases dealing with so-called leveraged charitable donations, the transactions in these appeals are not complex and do not involve a series of inter-related transactions to which the cash is connected. The appellants simply paid cash, and perhaps household goods, as a donation to CanAfrica and received greatly inflated tax receipts. The appellants likely knew that they were claiming inflated tax credits, but this is not a sufficient reason to deny the tax credits altogether.
[65] In my view, on the facts of these appeals the appellants did not receive a benefit that negates the gifts.
The Crown raised at trial, but had not pleaded, that the taxpayers lacked “donative intent” such that the transactions could not be regarded as real gifts. The court also rejected this argument on the basis of fairness:
[66] Before concluding on this issue, I would comment that the respondent raised another argument at the hearing that was not mentioned in the replies. It was submitted that the appellants did not establish (except perhaps Mr. David) that they had donative intent. The appellate court decision in Berg confirms that this is a requirement to have a valid gift (at paragraph 29).
[67] In my view, it would not be fair to decide the appeals based on this argument. The appellants did not have prior notice of it, and accordingly they did not have a chance to prepare and introduce evidence on the point.
While the court rejected the taxpayers’ claim for interest relief on the basis of want of jurisdiction, the court did relieve against penalties:
Waiver of penalties
[69] The appellants also seek a waiver of penalties, on the basis that the CRA should have provided a warning about donations to CanAfrica.
[70] The issue of penalties is troubling because the respondent submits that no penalties were imposed and most of the appellants disagree with this. Despite the differing positions, none of the parties introduced sufficient evidence to support their position.
[71] Since this issue was clearly raised in the appellants’ notices of appeal, and I do not have sufficient evidence to determine whether penalties have been imposed, the judgments in these appeals will provide that penalties, if any, should be deleted.
This aspect of the decision appears to rest on the fact that the onus was on the Crown to sustain the penalties and the Crown appears to have introduced no evidence one way or the other.
In the result the taxpayers were successful as to the cash component of their donations and penalties, if applicable:
Conclusion
[72] The result in all the appeals is that the appellants should be allowed the charitable tax credit with respect to 10 percent of the face amount of the tax receipts, and any penalties imposed should be deleted.
Comment: A number of recent cases have completely disallowed charitable tax credits where the receipts were acquired from a tax return preparer for a fee (usually 10% of their face value):
Vo: –
http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/64468/index.do 
Dhillon: –
http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/66564/index.do
Johnson: –
http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/67312/index.do
Holst: –
http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/70885/index.do
In fact two of these decisions (Vo and Holst) were by the same Judge who decided the David decision blogged above (although, in fairness, one of those decisions involved receipts from a unregistered charity – Vo, supra, para. [13]).
This is probably an area that would benefit from a review by the Federal Court of Appeal. It would seem somewhat difficult to accept testimony from a taxpayer of the making of a gift when there appears to be a compelling inference that the intention was rather to purchase a fraudulent instrument.