https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/349744/index.do
Morrison v. The Queen (November 7, 2018 – 2018 TCC 220, Owen J.).
Précis: Since the Klotz decision (2004 TCC 147) the Tax Court has lived through a seemingly never-ending series of charitable gift cases. Morrison may well be the last. The plan involved an alleged donation in kind of pharmaceuticals to a registered charity. The unusual wrinkle was that the donors did not purchase the pharmaceuticals, rather they acquired them as beneficiaries of a discretionary trust thus circumventing the anti-avoidance rules put in place when these plans first surfaced. Unfortunately for Mr. Morrison the Tax Court found that, on the facts, he never acquired title to the pharmaceuticals and therefore never made a gift of them. He was however entitled to the cash donated to the charity since the Tax Court held that there was no obligation to make a cash donation in order to participate in the plan. No costs were awarded in the Morrison appeal since he was partially successful. In the companion Eisbrenner appeal the cash was not at issue and his appeal was dismissed with costs.
Decision: The facts of these appeals are complex and intricate and set down in great detail in Justice Owen’s reasons. I do not intend to reproduce them here since the decision turns on two very narrow points, the rest being essentially historical artifacts.
These appeals turned on a failure to dot “i’s” and cross “t’s” not on the efficacy (or lack thereof) of the discretionary trust structure:
[152] Based on the totality of the evidence of Mr. Monahan regarding the results of the audit of the CHT [Canadian Humanitarian Trust] Program and the absence of any evidence to the contrary, I conclude that the certificates received by the Appellants from CHT are not reliable evidence that pharmaceuticals were acquired by CHT and were distributed by CHT to the Appellants. I find as a fact that the certificates were simply worthless pieces of paper used by WHI [World Health Initiatives Inc. – the promoter of the plan] to give participants in the CHT Program the impression that pharmaceuticals passed from CHT to the participants and from the participants to the in-kind charities when in fact the pharmaceuticals associated with the CHT Program were sold by the manufacturers of those pharmaceuticals directly to offshore entities, were accumulated in a warehouse in Holland and were then distributed to charities in various countries to provide a veneer of charitable activity which WHI (through CDL [Canadian Donations Limited – the plan marketer]) could use to market the CHT Program.
[153] Accordingly, I conclude that Mr. Morrison did not make a gift in kind of pharmaceuticals to MCF [Meoroth Charitable Foundation] in 2004 or to CKF [Choson Kallah Foundation] in 2005 and that Mr. Eisbrenner did not make two gifts in kind of pharmaceuticals to CKF in 2005 because the third requirement for a common law gift of property that there be a sufficient act of delivery or transfer of the property is not met. Simply stated, regardless of the representations of WHI in the CHT Program materials (including the certificates), the Appellants had no pharmaceuticals to gift to MCF and CKF.
Justice Owen’s decision to allow the cash portion was based on a finding that the cash donation was not a prerequisite for taking part in the pharmaceutical donation plan:
[162] I reject the Respondent’s position that the cash donation was a fee payable to participate in the CHT Program. The participants in the CHT Program may have been encouraged to make a cash donation but the documents do not suggest that there was an obligation to make such a donation and the uncontradicted evidence of the Appellants is that neither was told that they had to make a cash donation. WHI created a structure which might have led Mr. Morrison to believe that it was more likely that he would be appointed a Class A beneficiary if he made a cash donation but there is no evidence that he was obligated to make a cash donation, that the cash donation was a condition precedent to appointment as a Class A beneficiary or that the cash donation was a fee payable for appointment as a Class A beneficiary. Mr. Miller testified that individuals had been appointed Class A beneficiaries even though their cheques had bounced. Counsel for the Respondent suggested this was due to administrative expediency, but Mr. Miller stated that he did not recall that being the case.
[163] Mr. Morrison claimed a charitable donation tax credit for a cash donation to Beauvallon Adventist Community Services Society (“BACSS”) in 2004. The cheque for Mr. Morrison’s cash donation in 2004 is made out to D&H LLP in trust for ADRA. Mr. Morrison did not know whether ADRA had changed its name to BACSS and he could not explain why he issued a cheque in trust for ADRA but was issued a receipt by BACSS. However, the Morrison 2004 Reply states in paragraph 14(tt) that the Minister assumed as a fact that ADRA was registered for charitable purposes as BACSS and the Respondent did not pursue the discrepancy.
[164] Based on the foregoing, I conclude that Mr. Morrison made a cash gift of $15,350 to BACSS/ADRA in 2004 and is entitled to the charitable donation tax credit available under section 118.1 of the ITA in respect of that gift.
[Footnotes omitted]
No costs were awarded in the Morrison appeal since he was partially successful. In the companion Eisbrenner appeal the cash was not at issue and his appeal was dismissed with costs.
Comment: Justice’s Owen’s factual finding on whether the taxpayer acquired title to the pharmaceuticals seems unassailable. His conclusion on the cash portion seems more suspect. The Crown’s suggestion that the cash portion was a fee for participating in the plan seems an almost irresistible inference from the facts – presumably the plan promoter and marketers were not doing this out of the goodness of their hearts.