http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/142711/index.do
French v. Canada (February 29, 2016 – 2016 FCA 64, Nöel C.J. (author), Scott, De Montigny JJ. A.).
Précis: This appeal was one of a group of tax cases involving so-called leveraged donations, i.e., donations funded in part by loans from promoters. In the notices of appeal Mr. French and the other appellants argued that they should be at least entitled to the portion of the donation made with their own cash. They argued that since partial gifts are permissible under the laws of Quebec taxpayers in other provinces and territories should be entitled to the same relief. The Crown succeeded before the Tax Court in having this pleading struck. Mr. French and the others appealed to the Federal Court of Appeal. The Court of Appeal reversed the Tax Court and allowed the consolidated appeals to proceed with the partial gift argument. One set of costs was awarded to the appellants. The Crown’s motion to strike in the Tax Court was dismissed with one set of costs there.
Decision: The disputed pleading was as follows:
[5 ] Mr. French’s primary position is that he is entitled to the full amount of the claimed tax credits. He further maintains in the alternative that he is entitled to the tax credits claimed in respect of the portion of the gifts that exceeded the value of any consideration he would have received in the process. In making the latter argument Mr. French invokes the civil law of the Province of Quebec even though none of the purported donations were made in that province. The plea in question reads:
PART III – STATUTORY PROVISIONS AND REASONS
18. The Appellant relies, inter alia, on … article 1810 of the Civil Code of Québec (“CCQ”) and sections 8.1 and 8.2 of the Interpretation Act, R.S.C. 1985, c. I-21 (“Interpretation Act”).
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Partial Deduction
23. In the alternative, the Appellant should be entitled to a deduction for that portion of each of the Donations that exceeded the value of any benefit or remuneration obtained from each of the Donations (excluding the value of any tax advantage).
24. Under the civil law, Article 1810 of the CCQ expressly provides that “a remunerative gift … constitutes a gift … for the value in excess of that of the remuneration”. Consequently, to the extent that the Loans or some aspect thereof may have constituted remuneration to the Appellant, the Donations less the remuneration constituted a “gift” in Québec through operation of sections 8.1 and 8.2 of the Interpretation Act.
25. Had the Appellant been resident of Québec during the Taxation Years, he would unquestionably be entitled under section 118.1 of the Act to a deduction of the portion of the Donations in excess of the remuneration.
26. Parliament did not intend for section 118.1 of the Act to produce radically different results for taxpayers in Québec that would not apply to taxpayers in the rest of Canada.
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PART IV – RELIEF SOUGHT
28. For these reasons, the Appellant asks this Court to:
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REFER the matter back to the CRA for reconsideration and reassessment … on the basis that the Appellant was entitled to deduct the portion of the Tax Credits attributable to the portion of the Donations in excess of any benefit or remuneration received by the Appellant for the Donations;
The Court of Appeal held that the partial gift question had not been resolved by the prior jurisprudence and should be permitted to proceed to trial:
[42] In short, it cannot be said with certainty that the meaning of “gift” prior to the 2002 amendments excluded the notion of split gift in the common law provinces and that the effect of these amendments was to change that state of affairs. Indeed, it is equally plausible that these amendments clarified an area of the law that was uncertain.
[43] Finally, the Tax Court judge found that a quest for uniformity in the application of federal legislation is not, in and of itself, a sufficient reason for disregarding the applicable private law. I agree. The objective of sections 8.1 and 8.2 of the Interpretation Act is to recognize the role of the civil law and the common law in the application of federal legislation which necessarily entails the possibility of diverging results.
[44] However, the appellant does not invoke uniformity for the sake of uniformity. The appellant’s plea is based on the broader proposition that Parliament intended to recognize split gifts, wherever made, in line with the civil law. Given that it would have been open to Parliament to attribute to the word “gift” a meaning which coincides with the civil law and that it is arguable that this is what Parliament intended, there is no basis for striking the appellant’s plea at this stage of the proceedings.
[45] Having reached the conclusion that the Tax Court judge could not strike the impugned plea, it is not necessary to address the alternative grounds advanced by the appellant in support of maintaining the relief sought in paragraph 28 of the Amended Notice of Appeal.
[46] For these reasons, I would allow the appeals with one set of costs in the lead appeal, and giving the order which the Tax Court judge ought to have given, I would dismiss the respondent’s motion to strike, with one set of costs.