Date: 20101028
Docket: A-494-09
Citation: 2010 FCA 287
CORAM: BLAIS
C.J.
EVANS
J.A.
SHARLOW
J.A.
BETWEEN:
F. MAX E. MARÉCHAUX
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE
COURT
(Delivered from the Bench at Toronto, Ontario, on October 28, 2010)
EVANS J.A.
[1]
F. Max E.
Maréchaux participated in a “leveraged donation” scheme. The essence of the
scheme was that, for an expenditure of $30,000, he received a charitable
donation tax receipt for $100,000, and claimed a tax credit of $44,218, a
potential return on his outlay of nearly 50% in a matter of months. Very little
of the money was retained by charities to advance their purposes.
[2]
Mr
Maréchaux appeals to this Court from a decision of the Tax Court of Canada
(2009 TCC 587), in which Justice Woods dismissed his appeal against his tax
reassessment for the 2001 taxation year. The Judge concluded that the Minister
of National Revenue had correctly disallowed Mr Maréchaux a tax credit of
$44,218 that he had claimed under section 118.1 of the Income Tax Act,
R.S.C. 1985 (5th Supp.), c. 1 in respect of a gift of $100,000 to a charitable
foundation. The Judge’s reasons contain an agreed statement of facts describing
the scheme’s pre-determined and interconnected transactions, which need not be
repeated here.
[3]
The basis
of the Judge’s decision was that Mr Maréchaux had not made a “gift”, a term
which is not defined in section 118.1 but has its general legal meaning. She
adopted a definition by Linden J.A in The Queen v. Friedberg, 92 DTC
6031 (FCA) at 6032:
… 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.
She held that Mr Maréchaux had not made a “gift” within the
meaning of section 118.1, because he made the payment to the foundation
expecting to receive, and in fact did receive, a significant benefit, namely an
interest-free loan of $80,000 from a lender (not the foundation), repayable in
twenty years.
[4]
In
addition, Mr Maréchaux paid $10,000 of his $30,000 outlay to the lender for a
security deposit, an insurance policy, and the lender’s fees: the “put option”.
He exercised his right under the scheme to assign to the lender the security
deposit and the insurance policy in full discharge of the loan.
[5]
Mr
Maréchaux argued that the Judge made four errors in concluding that he had not
made a gift and was therefore not entitled to a tax credit in respect of his
$100,000 payment.
[6]
First, he
says, a benefit provided in return for a payment only prevents it from being a
gift if the benefit is provided by the donee. In the present case, the benefit
received by Mr Maréchaux – the interest-free loan and the “put option” – were
provided by the lender, not the donee (that is, the foundation), and the Judge
made no finding that the lender and the donee were not at arm’s length.
[7]
This is a
question of law on which the standard of review is correctness. However, we
are not persuaded that the Judge got the law wrong. Counsel cited no authority
for the proposition that only a benefit provided to an alleged donor by the
donee can prevent a payment to a charity from being a gift for the purpose of
section 118.1. Nor do we see any principled reason in the present context for
disregarding a benefit simply because it was provided by a third party,
particularly where, as the Judge found in this case, the “donation” was
conditional on the provision of the benefit.
[8]
Second, Mr
Maréchaux submits that the interest-free loan did not constitute a significant
benefit so as to prevent the payment to the charitable foundation from being a
gift. Since this is a question of fact or mixed fact and law, the Court will interfere
with the Judge’s conclusion only if satisfied that it is vitiated by palpable
and overriding error.
[9]
In our
opinion, there is ample evidence in the record to support the Judge’s finding
that the $80,000 interest-free loan was a significant benefit to Mr Maréchaux
and that it was provided in return for the “donation” to the foundation. It
seems to us self-evident that a person who has the use of borrowed money,
repayable in twenty years time, without having to pay interest has thereby
received a significant benefit. The interest-free loan in this case enabled Mr
Maréchaux to transfer $100,000 to the foundation without having to use more
than $30,000 of his own assets or to pay interest on a commercial loan for the
balance.
[10]
Third, Mr
Maréchaux says that the Judge erred in regarding the “put option” as a benefit
that disqualified the payment from being a gift because there was no guarantee
that he would be issued an insurance policy payable in the event that the
invested security deposit had not grown after twenty years to the amount of the
loan. Hence, any benefit was speculative.
[11]
We
disagree. Even if the promoters did not undertake that a policy would be
issued, participants in the scheme, including Mr Maréchaux, had good reason to
believe that it would. Further an insurance policy was in fact issued to Mr Maréchaux
who assigned it and the security deposit to the lender in full satisfaction of
the $80,000 loan. On these facts, the Judge cannot be said to have committed a
palpable and overriding error in finding that the “put option” was a
significant benefit provided to the donor by the lender in return for the
payment.
[12]
Fourth, Mr
Maréchaux argues that, if the Court concludes that he obtained a benefit in
return for the payment to the foundation, he should still receive a tax credit
in respect of his cash “donation” of $20,000. The Judge rejected this argument
as well (at para. 49):
There is just
one interconnected transaction here, and no part of it can be considered a gift
that the appellant gave in expectation of no return.
We see no reviewable error in this conclusion.
[13]
For these
reasons, the appeal will be dismissed with costs.
“John
M. Evans”
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