Citation: 2010 TCC 109
Date:20100224
Docket: 2007-4657(IT)G, 2007-4659(IT)G
2007-4673(IT)G, 2007-4684(IT)G
2007-4672(IT)G, 2007-4677(IT)G
BETWEEN:
RICHARD WAYNE COLEMAN,
TITAN CONSTRUCTION CONTRACTORS LTD.,
GERALD BALLARD, DAVID W. HARDER,
IRIS HIEBERT, MONICA NEVILLE
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1] According to the Appellants’ counsel, the future of
charitable giving in this country rests upon my shoulders. The Respondent’s
counsel attempted to alleviate that weighty burden by suggesting this case was
no different from any other: I apply well established law to the particular
facts and out will pop the answer. Nothing is that simple. This case explores
the very nature of charitable giving.
[2] These appeals were heard on common evidence as they
all involve the question of the nature of monies provided to the National
Foundation for Christian Leadership ("NFCL"). The Appellants’
position is that monies were donated to this registered charity, which should
result in a successful claim for a charitable donation deduction pursuant to
section 118.1 of the Income Tax Act (the "Act"). The
Minister of National Revenue’s (the "Minister") position is that
the monies were not a gift to the charity, as they were paid with an
expectation of return.
Facts
[3] I
will first describe the program offered by NFCL before looking into each of the
Appellant’s particular circumstances. The parties agreed to a number of facts
regarding NFCL and the nature of the program – Christian Higher Education
Assistance Fund ("CHEAF") – offered by it. While somewhat lengthy,
these agreed facts do set the stage for reviewing the testimony of Mr. Forrester,
a former director of NFCL, as well as of the Appellants themselves. I have done
some editing of the agreed facts by deleting what I consider redundant or
irrelevant statements.
1.
At all times material to these appeals, the National
Foundation for Christian Leadership
("NFCL") was registered with the Canada Revenue Agency (the
"CRA") as it is now, as a charitable organization.
2.
In the 2002 year NFCL provided financial assistance in
the form of bursaries, scholarships and
Foundation Awards to qualified students at certain Canadian Christian colleges
and universities, to help them advance their education in Christian
academic environment.
3.
TWU West University ("TWU") was one such university. Other such schools (the "Other Schools") were ACTS
Seminaries, Briercrest Bible College, Briercrest Biblical Seminary, and Columbia Bible College.
4.
During 2002, NFCL solicited
donations, encouraged students to solicit donations to NFCL and provided bursaries, scholarships and
Foundation Awards to students at TWU pursuant to a program referred to as
the Christian Higher Education Assistance Fund
("CHEAF").
5.
During 2002, NFCL solicited donations, encouraged students to solicit donations to NFCL, and provided
bursaries, scholarships and foundation awards to students at the Other Schools
pursuant to a program referred to as the
Partners in Education ("PIE"). The PIE program and the CHEAF Program
appear to be substantially the same.
6.
NFCL designated 80% of funds received through donations to be awarded as
bursaries with the remaining 20% going to scholarships, Foundation
Awards and NFCL's
program and administrative costs.
7.
In order to then be eligible to
apply for a bursary and scholarship under the CHEAF Program students at TWU
had to:
a) apply to NFCL using
the application form attached to the CHEAF pamphlet;
b) pay a fee to NFCL of
$25 for each semester;
c) be pre-registered at
TWU to take at least 9 semester hours of courses;
d) have
a cumulative grade point average (GPA) of at least 2.0 (65%); and
e) according
to one of the CHEAF application pamphlets, be in need of or be currently receiving financial
assistance.
8.
NFCL,
calculated each student's eligible amount (the "Maximum Eligible Amount") as the total of a student's tuition
and other miscellaneous fees, book costs, and allowable housing costs less any
scholarships, bursaries or grants received by the student from other
sources.
9.
Once accepted in the CHEAF Program
by meeting the criteria outlined above, in order to
qualify to receive a bursary or scholarship from NFCL under the CHEAF
Program students were required to raise donations for NFCL. Donations were to be collected by the soliciting
student and then sent to the NFCL office.
10.
These donations were pooled by NFCL and used to fund
individual bursaries, scholarships and foundation awards to qualifying
students accepted into the CHEAF Program at TWU and the PIE program at
other Christian colleges and universities.
11.
NFCL stipulated in writing to both students and
prospective donors that donations were not to
be designated to any specific individual. Their literature represented
that no particular donation could be directly tied or designated to any particular student, but instead that all donations
went into a common pool of funds out of which awards were made to all
qualifying students.
12.
Students applying to the CHEAF Program were encouraged
to solicit donations to NFCL from anyone, including their families, friends,
relatives, churches, organizations and businesses or any other supportive
person. Individuals, corporations,
foundations, institutions and churches could all donate to NFCL.
13.
According to the CHEAF Program, students
who met the requirements set out above were eligible to receive a bursary
calculated by reference to 80% of the lesser of the amount of donations raised by that student
and the student's Maximum Eligible Amount.
14.
Although a student had to have a
GPA over 2.0 or 63% to qualify for a bursary
their GPA did not factor into the amount of the bursary they received.
15.
Students who met the requirements
of the CHEAF Program set out above were also
eligible to receive a scholarship calculated by reference to 10‑20%
of the lesser of the amount of
donations raised by that student and the student's
Maximum Eligible Amount, if that student:
a) maintained a
cumulative GPA of at least 2.5% (69%); and
b) raised
a minimum of at least $1,000 in donations to NFCL from at least 5 different donors.
16.
The formula
utilized by NFCL to calculate a student's entitlement for a scholarship takes into account both the student's
GPA and the value of donations solicited by that student.
17.
Mr. John Martens was the principal
of NHII, a company that administered the CHEAF Program for NFCL under contract. In representations
made to the Minister while NFCL was
under audit with respect to the CHEAF Program, Mr. Martens stated that NFCL regarded itself as having
the discretion to award whatever amounts they saw
fit to any individual they deemed worthy.
18.
NFCL represented to the Minister that it used the following factors in
the determination
of the bursaries:
a) the
number of semester hours a student was taking;
b) the amount of funds a
student raised;
c) the amount of
tuition fees the student would he paying;
d) the living costs
incurred by the student;
e) the
amount of miscellaneous fees associated with the various courses the student
was taking;
f) the
amount of bursaries, scholarships and grants the student was receiving from
other sources;
g) the
accumulative GPA of the student;
h) funds that NFCL may hold back
from previous semesters and assign to that semester;
i) any
other adjustments that NFCL deems as applicable; and
j) the
cost of books associated with the courses the student was taking.
19.
NFCL represented to the Minister that it used the following factors in
the determination
of the scholarships in addition to the ten factors for the bursaries listed
above:
a) that
no student exceed the maximum scholarship allowed by the program;
b) the
GPAQ — is a Grade point average quotient and is an arbitrary number inserted
into the formula that reflects to some degree the average GPA of all participating students as
well providing a variable that allows the program to generate sufficient funds
to maintain the Foundation Award Program;
c) the
FRQ (Funds Raised Quotient) is a variable that is put into the formula that reflects to some degree the average funds
raised by all the participating students. Like the GPAQ the FRQ provides
a variable that is also used to insure the Foundation Award Program has
sufficient funds;
d) another variable
that has been put into the program is determined by the program (PIE or CHEAF)
that the student is participating in; and
e) the
number of donors that a student raises funds from.
20.
Students must apply for Foundation Awards in a separate application form and are not subject to the same
requirements as participants in the CHEAF Program.
21.
Students were eligible to apply for Foundation Awards if they:
a) were
registered with the CHEAF Program;
b) made some effort to
raise funds for NFCL;
c) had shown some
leadership ability; and,
d) had financial need;
e) were approved by the
TWU financial awards office; and
f) had
missionary or parachurch parents or who were new Christians whose background
did not lend itself to raising donations for Christian education.
22.
The maximum bursary and scholarship an applicant student could receive was
based on his or
her Maximum Eligible Amount.
23.
Students and donors were advised that funds raised in excess of the students Maximum Eligible Amount would be available for
distribution to other TWU students with financial need.
24.
NFCL represented in its pamphlets that if a student
raised 125% of their Maximum Eligible Amount
there would likely be enough funds available in the CHEAF Program for
the student to receive bursaries and scholarships equal to the full amount of
their financial needs.
25.
NFCL informed students by letter, also copied to the
student's parents, unless the student requested otherwise, how much funding
they would need to cover the tuition
and living costs of each semester. This letter also informed students and parents how much they would need to
raise in donations to NFCL in order to be eligible to receive the maximum
bursary and scholarship which would never
exceed 100% of their Maximum Eligible Amount.
26.
This letter also stated that:
a) if they dropped
below 9 semester hours, their bursary and scholarship would be returned to
NFCL;
b) they needed to
report any bursaries, scholarships or grants the student would be getting from
other sources because it would affect his or her eligibility and that if these
awards were not reported that bursaries and scholarships in excess of the
student's eligibility had to be returned to the NFCL office; and
c) if credit hours were
changed, the funds raised for the dropped credit hours would be carried forward
to a subsequent semester, but could not be carried forward into the next school
year.
27.
Some NFCL material described the CHEAF Program to
students planning to attend TWU as making a significant difference to persons
financially supporting them as donors because they would receive tax deductible
charitable donation receipts and tax credits of up to 40 to 45% of the amounts
donated to NFCL.
28.
To qualify a student for bursaries or scholarships in a
particular semester, donations he or she had solicited pursuant to the CHEAF
Program were required to be received by NFCL according to strict deadlines
which dates correspond to the deadlines for the payments of tuition and other
school fees. Generally, those deadlines were
sometime in the first week of August for the fall semester, the first
week of December for the spring semester and the first week of April for the
summer semester. Any donations received after the specified deadlines for the
fall semester could be applied to the spring semester,
but could not be carried forward to a subsequent school year.
29.
NFCL
provided students with helpful hints to use in sending letters to prospective donors. Students were prompted to
stress their own "need" or if they had difficulty in asking for money for themselves, to emphasize
they were raising money for others in need. They are also prompted to
thank donors and to send them a note or phone them to let them know "how
you are doing throughout the year."
30.
A
fundraising ideas sheet provided to students by NFCL also advised student
canvassers:
a) that God does not want to see students graduate
with huge burdensome
student loans;
b) to personalize their
letters and reflect their relationship with
the person they are writing to;
c) one
of the main reasons that people give to any cause is because they believe in the person who is
asking for the donation;
d) their solicitation letter should answer the question
"why should I give to NFCL";
e) to not change the
message that "ALL GIFTS BY LAW MUST BE UNDESIGNATED";
f) their
own name "MUST NOT" be anywhere on the cheque or it would be
returned;
g) to put their name, school and school I.D.
number on the donor form ahead of time; and
h) if
the student had a key supporter to consider asking them to send the student's canvassing letter to others who might he
interested in helping to support this project, or alternatively to ask
them if they know of someone who believes in the school and
would not mind getting a similar letter.
31.
In the
fundraising letter template for the CHEAF Program, students were presented with some guidance on what to say in
their letters to prospective donors. One of the suggested paragraphs
states: "In order to be eligible for a charitable donation receipt, gifts
to NFCL cannot be designated to any one individual.
All donations go into a general fund and are distributed to students such as myself based on my acceptance into the
program, my accumulative grade point average, my needs and also the amount of
donations I raise for NFCL".
32.
Payments to NFCL in respect of the CHEAF Program had to be accompanied by the
forms completed by the donor, which forms indicated the name of the soliciting student, his or her
student number and the name of the school.
33.
Prospective donors and students were specifically and repeatedly advised
in NFCL
literature:
a) not
to designate their donation cheques to any particular student and further, that any cheques referencing a specific student
would be sent back to them;
b) that NFCL would only accept donations that were
completely unrestricted and undesignated;
c) that
once deposited all donations were non refundable;
d) any
changes the student made to information relevant to their Maximum Eligible
Amount would affect the amount of the award he or she might receive;
e) if
the student dropped below 9 semester hours her or she would not be eligible for any NFCL award and
would be required to return all funds received;
f) if
he or she maintained full time status but dropped credit hours or made changes to living accommodation, any excess funds
received must be returned to NFCL; and
g) students would
receive a T4A slip for the amount of their bursary and scholarship paid to them
under the CHEAF Program.
34.
Students were advised to collect
all their donation cheques and accompanying forms
and submit them to NFCL.
35.
NFCL literature contained a warning that the CRA may
not consider donations to NFCL as deductible
and states that NFCL does not represent or warrant that any donation to
it is tax deductible.
[4] The timing of the steps in the CHEAF program is
critical in understanding how it functioned. Students and parents received
materials from NFCL which set out the eligibility requirements (see # 7 of the
above agreed facts) and also indicated that each student accepted into the
program will receive a bursary of 80% of monies raised by the student,
and a further 10 to 20% for those with a Grade point average ("GPA") of
2.5, who raised a minimum of $1,000.00 and had at least five donors. Students
who meet those eligibility requirements apply to NFCL for funding. They and
their parents then receive an acceptance letter from NFCL confirming acceptance
in the CHEAF program, and also setting out the maximum amount the student will
be eligible for, indicating the amount the student needs to raise to cover his
or her full eligibility. At this point, (August for the fall semester and
December for the winter semester) "donors" write a cheque and submit
it, along with the donor form identifying the student, to NFCL. NFCL then
writes a cheque to the student and Trinity West University ("TWU"), jointly, which
the student signs over to TWU for deposit in a student account at TWU.
[5] Much was made of the funding of the Foundation
Awards. I find, however, this was a very small element of the NFCL work: the
vast majority went to bursaries and scholarships. The $500 to $1,000 foundation
awards for the more needy were very limited. The funding for those awards came
mainly from funds earmarked for administration costs (five percent), but not
needed, unsolicited donations (which were a few) and any excess funding raised
by students but not used.
[6] Three times a year, corresponding with the
University semester start dates, the NFCL Board would meet to review the
recommendations of Mr. Martens’, the administrator of the CHEAF program,
regarding bursary, scholarship and Foundation Awards and consider any special
cases or appeals brought forward by Mr. Martens or NFCL student applicants. The
Board reviewed the list of recipients though were not made aware of the names
of the donors connected to the recipients. There were a few adjustments by the
NFCL Board to amounts paid to students. Mr. Martens handled all but some
special cases himself. There were though some adjustments that were brought to
my attention:
i) if
a student subsequently received another scholarship, bursary or loan, that
would result in the reduction of the amount of NFCL funding for which the
student was eligible;
ii) if
the student’s eligible expenses changed, for example, because the student moved
home from residence or he or she had reduced the course load resulting in a
reduction to course fees, again there would be an adjustment; and
iii) if
the student, for health reasons, had to withdraw, NFCL would be refunded funds,
without any corresponding refund to the student.
[7] If a student ended the fall semester with a GPA
below 2.5 for the purpose of the scholarship or below 2.0 for the purposes of
the bursary, the student would not have to pay back amounts they had already
received for the fall semester through the program. However, they may not be
eligible for their scholarship in the spring semester in the first case or for
their bursary in the second case. The NFCL Board was relatively strict in the
application of its policies. Mr. Forrester cited the example of a student with
a 1.99 GPA not being successful on his application to the program.
[8] All of the students receiving NFCL awards received
T4A forms from NFCL requiring them to include the bursaries and scholarships
they received in income. The Minister has not reassessed any of the student
recipients of NFCL awards named in these appeals to remove the amounts of the
awards from their income.
Richard Coleman
[9] With respect to Mr. Coleman and Titan Construction
Contractors Ltd. ("Titan"), the parties agreed as follows:
43. Richard Wayne Coleman ("Mr. Coleman")
is the father of Josh Coleman ("Josh").
44. Josh was born on April 16, 1983. Josh became 19
years old on April 16, 2002.
45. Mr.
Coleman is the owner of 51% of the shares of Titan Holdings Ltd.
46. Titan Holdings Ltd. is
the sole shareholder of Titan Construction Co. Ltd. ("Titan").
47. Mr.
Coleman is a director of Titan and Titan Holdings Ltd.
48. Carla Ohman is the
daughter of Mr. Coleman's cousin.
49. In 2002 Josh and
Carla Ohman were students at TWU and applied to participate in the CHEAF
Program.
50. In 2002 Josh and Carla Ohman solicited donations
to NFCL in accordance with the CHEAF Program.
51. In
2002 Mr. Coleman caused Titan to donate the following
amounts to NFCL:
a) a
$2,500 donation on July 29, 2002 solicited by Carla Ohman;
b) a $7,000 donation on
July 30, 2002 solicited by Josh; and
c) a
$7,000 donation on November 28, 2002 solicited by Josh.
52. Titan received a donation receipt from NFCL
dated January 15, 2003 for the total of the above three payments in
the amount of S16,500. This total was included
in Titan's 2002 claim for charitable donations.
53. The
Minister disallowed Titan's claim of $7,000 of the $16,500 claimed. The
remaining $9,500 was not reassessed as it pertained to Titan's 2002 taxation
year ended July 31, 2002, which year was statute-barred at the time of the reassessment.
54. The Minister included
the $16,500 in Mr. Coleman's income.
55. From June to October 2002, Josh successfully
canvassed $7,250 in donations to NFCL and from November to
December 2002, Josh successfully canvassed $7,000 in donations to NFCL for
total donations of $14,250.
[10] I did not find Mr. Coleman to be particularly
forthcoming; for example, when asked if his son Josh, who was a student
enrolled at TWU in 2002, was financially dependent on him, he said no, though
later in his evidence described how he not only helped with Josh’s rent, but
paid him a regular $600 a month allowance. Mr. Coleman was adamant that the
money paid by Titan was a donation to NFCL, yet in cross-examination he denied
even having reviewed any materials from NFCL: how did he know what the money
was for, other than for Josh attending TWU? No, I do not put much stock in Mr.
Coleman’s answers. I am guided more by his actions.
[11] While Mr. Coleman indicated he felt no obligation
to support Josh, it was evident that he did support him by providing the
allowance, making occasional payments to TWU and also making payments for
registration fees, books, rent for the "Soccer House" where Josh
lived. He acknowledged Josh needed assistance and he could not leave Josh
destitute. It was Josh’s decision to go to TWU where he played for the Varsity
soccer team. Mr. Coleman was clearly pleased with Josh’s choice of TWU as it
was both a Christian based institution and had a good soccer team.
[12] Mr. Coleman, while suggesting he had not reviewed
NFCL’s materials, testified that he was aware it was a charity supporting
Christian education. He knew nothing about the CHEAF program, though admitted
that by making a donation, there was a possibility Josh could qualify for a
bursary: he hoped Josh would qualify, but there was no guarantee. He said he
was never told what happened to Titan’s donation. He further understood that he
was not to put Josh’s name on the cheque from Titan, as he understood this was
to be a general donation, not a specific student directed donation. He could
not recall why Titan wrote separate cheques, rather than one donation cheque.
He also could not recall why Titan, and not he personally, made the donation.
[13] Mr. Coleman was reassessed by the Minister pursuant
to subsection 246(1) of the Act to include in his income for 2002 the
amounts of the donations from Titan to NFCL as benefits conferred on him by Titan.
By letter dated April 1, 2009, pages 9 and 10, counsel for the
Respondent advised that:
Mr. Coleman was not assessed a shareholder’s benefit
under Section 15. He is not a (direct) shareholder of Titan.
Accordingly, subsection 246(1) which deals with any
benefit conferred upon a taxpayer by any person was applied to assess the
benefit received by Mr. Coleman from Titan.
It is the view of the Canada Revenue Agency (the
"CRA") that subsection 15(1) of the Act is not the appropriate
provision to assess Mr. Coleman for the benefit he received for the payment
(Titan) made to NFCL. Subsection 15(1) requires that the person assessed be a
shareholder of the corporation. Mr. Coleman does not own any shares of Titan.
David Harder
[14] The parties agreed as follows:
69. David
W. Harder ("Mr. Harder") is the
father of Breanne Harder ("Breanne") and Jaclyn Widenmaier,
nee Harder ("Jaclyn")
70. Breanne
was born on February 5. 1983 and Jaclyn was born on June 4, 1984. Breanne became 19 years old on February 5, 2002
and Jaclyn became 18 years old on June 4, 2002.
71. In 2002 Breanne and
Jaclyn were both students at TWU and applied to participate in the CHEAF
Program.
72. By
letter dated May 6, 2002, Breanne was accepted into CHEAF for the fall semester and was advised that
she needed to raise approximately $10,900 in donations
if she wished to cover her full eligibility of $10,175.
73. By letter dated September 1, 2002, Breanne was
advised that she had qualified for a
CHEAF award of $10,175 which was deposited into her account at TWU.
74. By letter dated September 1, 2002 Jaclyn was
advised that she had qualified for a
CHEAF award of $9,795 which was deposited into her account at TWU.
75. By letter dated October 23, 2002, Breanne was
advised that she was accepted into the CHEAF for the Spring
2003 semester and that she needed to raise approximately
$11,300 if she wished to cover her full eligibility of $10,450.
76. By letter dated November 6, 2002, Jaclyn was
advised that she was accepted into the CHEAF for the Spring
2003 semester and that she needed to raise approximately $10,700 if she wished to cover her full eligibility
of $10,078.
77. By letter dated January 4, 2003 (misdated
January 4, 2002), Jaclyn was advised
that she qualified for a CHEAF bursary/scholarship in the amount of $10,038 which amount was deposited into her student
account at TWU.
78. By letter dated January 4, 2003 (misdated
January 4, 2002), Breanne was advised
that she qualified for a CHEAF bursary/scholarship in the amount of $10,077 which amount was deposited into her student
account at TWU.
79. In 2002 Breanne and Jaclyn solicited donations
to NFCL in accordance with the CHEAF Program.
80. In 2002 Mr. Harder
donated the following amounts to NFCL which were solicited by Breanne:
a) a $10,600 donation
on August 1, 2002; and
b) a $10,650 donation
on December 1, 2002.
81. In 2002
Mr. Harder donated the following amounts to NFCL which were solicited by Jaclyn:
a) a $10,000 donation
on August 1, 2002; and
b) a $10,550 donation
on December 1, 2002.
82. Mr. Harder
also donated the following amounts to NFCL:
a) $100
on July 17, 2002 which was solicited by James Wegenast, who was also a TWU student;
b) $100
on July 17, 2002 which was solicited by Daniel Wagner, who was also a TWU student;
c) $50
each on July 17, 2002 which was solicited by Jeff Thiessen, who was also a TWU student;
d) $50 on July 17, 2002
which was solicited by Greg Thiessen who was a student at Columbia Bible College,
e) $100 on July 17,
2002 which was solicited by Alyssa Froese who was a student at Briercrest Bible School; and
f) a general donation
of $200 on March 4, 2002 to NFCL.
83. These
donations from Mr. Harder referenced James Wegenast, Daniel Wagner,
Jeff Thiessen, Greg Thiessen and Alyssa Froese to assist them to obtain donations from at least
5 donors in order to qualify for a scholarship in accordance with the
terms of the CHEAF Program and the PIE program.
84. On various dates between
July 15 and 23, 2002:
a) a parent of each of James Wegenast, Daniel Wagner,
Alyssa Froese and Jeff Thiessen each severally donated $50 to NFLC which
was solicited by Breanne and another $50 each
which was solicited by Jaclyn.
85. These donations from the parents of James
Wegenast, Daniel Wagner, Jeff Thiessen,
Greg Thiessen and Alyssa Froese referenced Breanne and Jaclyn to assist
them to obtain donations from at least 5 donors in order to qualify for a
scholarship in accordance with the terms of the CHEAF Program.
86. Mr. Harder received donation receipts from NFCL
dated January 15, 2003 for the total
of all the above payments in the amount of $42,400. This total was included
in Mr. Harder's 2002 claim for charitable donations.
87. Of the $42,400 claimed in respect of donations
to NFCL, the Minister allowed only $200 respecting the $200
general donation to NFCL.
88. From
June to October 2002, Breanne solicited $10,900 in donations to NFCL and from
November to December 2002, she solicited $10,700 in donations to NFCL for total donations of
$21,600.
89. From
June to October 2002, Jaclyn solicited $10,300 in donations to NFCL and from
November to December 2002, she solicited $10,600 in payments to NFCL for total donations of
$20,900.
90. In his tax return for 2002, Mr. Harder reported
total income of $364,534. Mr. Harder
reported that his spouse Marianne earned net income of $28,387 in that
year.
[15] Both Mr. Harder and his wife went to TWU and
encouraged their daughters to do likewise. Indeed, Mr. Harder has endowed a
scholarship to TWU, the Missionary Kids Scholarship. He testified that he
attempted to donate generally 10% of his income each year to charities.
[16] Mr. Harder felt no obligation to pay for his
daughters’ secondary education and expected them to contribute what they could,
but did want them to come out of their degree without debt, so was prepared to
help if needed. Mr. Harder believes TWU was more expensive to attend as it did
not receive similar funding as the University of British
Columbia or Simon
Fraser for example. He was aware of the NFCL program, either directly or from
his daughters, and appreciated that students needed to fundraise. He presumed
the funds raised went to scholarships for eligible students, and felt that by
supporting NFCL he was supporting students at TWU. He had not reviewed NFCL’s
brochures, as he was not familiar with CHEAF or the statement in NFCL’s
brochure that students would get 80% of the funds raised, up to the eligible
amount. He did know of his first daughter’s successful NFCL funding in 2001,
however, prior to making the 2002 donations for both daughters. He was also
aware of the five-donor requirement for eligibility for scholarships and
acknowledged the parents would make cross-contributions to assist each others’
children meet that requirement. Indeed, he made five donations in smaller
amounts for others.
[17] What was most telling from Mr. Harder’s evidence,
was his reliance on the acceptance letter his daughter received from NFCL,
which indicated how much he needed to raise to meet her financial requirements.
He acknowledged that he wrote a cheque for $10,000 after considering the amount
suggested in that acceptance letter. The letter of May 6, 2002, from NFCL to
Breanne Harder read in part as follows:
This letter confirms that you have been accepted
into the CHEAF program for the fall semester. TWU has confirmed that you will
be taking 17 credit hours. Based on the following information, the maximum
amount you will be eligible to receive for the fall 2002 semester is $10,175.
P.S. If you wish to cover your full
eligibility, you will need to raise $10,900.
[18] Mr. Harder claimed he donated a greater amount on
the request of his daughter than the five others, as he is inclined to support
fundraising of those closest to him, and that he knew the level of fundraising
was a factor in the level of scholarship. I should note that Mr. Harder seemed
to draw a distinction between scholarship and bursary. Mr. Harder stated he did
not pay much attention to the details of the program, though likely saw the
brochure which stated qualifying students will receive 80% of funds raised. He
was certainly aware in 2002 of his daughter’s receipt of the bursary the
previous year. As he said, he hoped the program would continue to work well.
[19] Mr. Harder explained he could have donated directly
to TWU, but that may have gone to bricks and mortar, and he was more interested
in donating to help students, which is what a donation to NFCL accomplished.
According to Mr. Harder, his wife was not as enthusiastic about the donation,
as they may still have to come up with more money for their daughter’s
education.
Gerald Ballard
[20] The parties agreed as follows:
59. Gerald Ballard
("Mr. Ballard") is the grandfather of Paul Ballard
("Paul").
60. Paul
was born on August 20, 1982. Paul became 20 years old on August 20, 2002.
61. In
2002 Paul was a student at TWU and applied to participate in the CHEAF Program.
62. In 2002 Paul
solicited donations to NFCL in accordance with the CHEAF Program.
63. In 2002 Mr. Ballard
donated the following amounts to NFCL:
a) a general donation
of $50.00 on May 9, 2002, to which the accompanying donation form stated was to
“help students in need”;
b) a $500 donation on
July 13, 2002 solicited by Kristin Ball ("Kristin"), the daughter of
a family friend; and
c) a $3,400 donation on
July 20, 2002 solicited by Paul.
64. By cheque dated July 20, 2002 Kristin Ball's
grandfather William Ball made a $500 donation to NFCL solicited
by Paul.
65. Mr. Ballard's $500 donation to NFCL referenced
Kristin and William Ball's $500 donation to NFCL
referenced Paul to assist Paul and Kristin to obtain donations from at
least 5 donors in order to qualify for a scholarship in accordance with
the terms of the CHEAF Program.
66. Mr.
Ballard received a donation receipt from NFCL dated January 14, 2003 for
the total of the above three donations in the amount of $3,950. This total was included in
Mr. Ballard's 2002 claim for charitable donations.
67. Of the $3,950 claimed in respect of donations to
NFCL, the Minister allowed only $50 respecting the general
donation to NFCL on May 9, 2002.
68. From June to October 2002, Paul solicited $4,000 in
payments to NFCL and from
November to December 2002, Paul solicited $4,500 in payments to NFCL
for total payments of $8,500
[21] Mr. Ballard came into Court like a breath of
fresh of air. Mr. Ballard had been giving to Christian Education for many
years and tried to give about 30% of his income annually to charities. He was
clearly delighted that his grandson had chosen to go to TWU, as had Paul’s
father, Mr. Ballard’s son.
[22] After being approached by Paul, Mr. Ballard
contacted NFCL for more information. From a review of their brochures and from
conversation with Ms. Martens at NFCL, he determined a donation to NFCL would
not be to any individual student, who would only receive funds at NFCL’s
discretion, if the requirements were met. He acknowledged that he knew Paul
would get something in 2002 – likely around 80% of his financial needs as that
is how the program worked, though he never knew for certain that Paul actually
got the bursary. He was aware though that Paul did get funding in his first
year and believed he had the necessary grades to qualify in 2002. He determined
the amount of $3,400 based on advice by Ms. Martens as to what Paul needed. He
understood that NFCL needed to keep track of each student’s fundraising as it
would impact on their level of bursary. He felt no obligation to support Paul.
[23] Mr. Ballard testified it was crystal clear to
him that once he wrote the cheque to NFCL it was out of his hands: he was not
giving the money to Paul at all, though he wanted Paul to benefit. If Paul did
not get the bursary, Mr. Ballard was still happy to support TWU, though he
acknowledged he did want Paul to benefit.
[24] Mr. Ballard relied on NFCL to properly
implement the program, which would result in a tax receipt. Due to the connection
with TWU, in whom Mr. Ballard had a great deal of
trust, he felt no need to investigate the program further. He likened the NFCL
program to something with which he had more familiarity – Christian Camps. Kids
are asked to raise money for the camp and if enough is raised, the child’s camp
costs may be covered.
Iris Hiebert
[25] The parties agreed as follows:
91. Iris Hiebert
("Ms. Hiebert") is the mother of Angela Hiebert ("Angela").
92. Angela was born on March 13, 1984. Angela
became 18 years old on March 13, 2002.
93. In 2002 Angela was a
student at TWU and applied to participate in the CHEAF Program.
94. Ms.
Hiebert was provided with NFCL pamphlets and other materials.
95. In
2002 Angela solicited donations to NFCL in accordance with the CHEAF Program.
96. Angela
graduated from secondary school with an average of 77.8% (total marks of 142 divided by number
of courses (18) = 77.888).
97. In
2002 Ms. Hiebert and her spouse, Gerald, donated the following amounts to NFCL which were solicited by Angela:
a) a $6,100
donation on July 22, 2002; and
b) an
$8,700 donation on December 1, 2002.
98. Ms.
Hiebert and her spouse also donated the following amounts to NFCL:
a) $100
on July 8, 2002 which was solicited by Janelle Baerg, who was also a TWU student; and
b) $25
on July 29, 2002 which was solicited by Cheryl Doerksen, who was also a TWU student.
99. This
donation from Ms. Hiebert and her spouse referenced Janelle Berg and Cheryl
Doerksen to assist them to obtain donations from at least 5 donors in order to
qualify for a scholarship in accordance with the terms of the CHEAF Program
100. On
July 19, 2002 Albert and Marilyn Baerg, relatives of Janelle, donated $100 to NFCL which was solicited by
Angela.
101. This
donation from Albert and Marilyn Baerg referenced Angela to assist her to obtain
donations from at least 5 donors in order to qualify for a scholarship in accordance with the terms of
the CHEAF Program.
102. Ms. Hiebert and her spouse Gerald received a
donation receipt from NFCL dated January 15, 2003 for the
total of the above four donations in the amount of $14,925.
This total was included in Ms. Hiebert's 2002 claim for charitable donations.
103. The Minister disallowed the $14,925 claimed in
respect of all of the donations to NFCL.
104. From
June to October 2002, Angela solicited $10,800 in donations to NFCL and from
November to December 2002, she solicited $8,700 in donations to NFCL for total donations of
$19,500.
105. In
2002 Ms. Hiebert declared total income of approximately $96,000 and showed Gerard's net income as
approximately $105,000.
[26] Ms.
Hiebert testified that she and her husband would give approximately $30,000 a
year to charity, citing her church and World Vision as a couple of the types of
charities to whom they gave. She acknowledged that she and her husband funded
Angela’s education, but with the expectation that she was to repay them: she
described this as a loosey-goosey arrangement and she admitted that she
eventually forgave that debt.
[27] Ms.
Hiebert gave more to her daughter than the others who solicited funds, as she
wanted to ensure Angela would receive the maximum amount of the bursary. The
amount was determined from a letter she received from NFCL. She was aware
Angela had the qualifying grades for her NFCL eligibility, but was not
confident she would maintain her grades for the full academic year. At the time
of the donation, she knew Angela met the criteria. It was her hope that Angela
would benefit though she acknowledged that Angela would get 80% of the
fundraising and an additional 20% if she met the criteria.
[28] While
she could not specifically recall discussions with parents of other students
regarding cross-donations in order to meet the five donor criteria, she did
recall having spoken to at least one of the other parents.
[29] Ms.
Hiebert went over Angela’s student account from TWU, a statement which looks
very much like a bank statement. It showed NFCL payments into the account of
$10,122 in August and $8,195 in early January 2003. Ms. Hiebert acknowledged
paying the enrolment deposit of $150 and dormitory deposit of $200.
Monica
Neville
[30] The
parties agreed as follows:
106. Monica
Neville ("Ms. Neville") is the mother of Lavonne Neville ( Lavonne").
107. Lavonne was born on July 16, 1984. Lavonne became
18 years old on July 16. 2002.
108. In
2002 Lavonne was a student at TWU and applied to participate in the CHEAF Program.
109. In 2002 Lavonne solicited donations to NFCL in
accordance with the CHEAF Program.
110. In 2002 Ms. Neville and her spouse, Ken, donated
the following amounts to NFCL which were solicited by
Lavonne:
a) a $4,000
donation on July 9, 2002; and
b) a $2,250
donation on December 1, 2002.
111. Ms.
Neville and Ken received a donation receipt from NFCL dated January 15, 2003 for the total of the
above payments in the amount of $6,250. This total was included in Ms.
Neville's 2002 claim for charitable donations.
112. The
Minister disallowed the $6,250 claimed in respect of all of the payments to NFCL.
113. In
2002 Ms. Neville declared total income of $56,984 and Ken reported net income of $45,891.
114. From
June to October 2002 Lavonne solicited $4,200 in donations to NFCL and from
November to December 2002 she solicited $2,250 in donations to NFCL for total
donations of $6,450. NFCL issued Lavonne a T4A in the amount of
$4,200 in 2002 and in respect of the $2,250 in 2003.
[31] Similar
to the other Appellants, Ms. Neville suggested that her daughter, upon
graduating high school, was an independent young adult free to make her own
decisions, but with parental guidance. It was Lavonne’s decision to go to TWU.
While she was to be fully responsible for herself, it was clear in the family
that Mom and Dad would help out where needed and when able. Lavonne did receive
income from helping her mother in her mother’s business, as well as receiving
scholarship funding from TWU directly and from the Boilermakers. Lavonne lived
at home while attending TWU as it costs less to do so.
[32] The
Nevilles learned about NFCL from its materials, received through TWU, and also
from friends who had children familiar with the program. Ms. Neville
testified that she made the donation as she believed Lavonne would continue in
school and would have a good opportunity for funding. She stated that she
hoped, anticipated and expected Lavonne would do all that was necessary to get
the scholarship. She also stated that she felt the money to NFCL was a
donation, and, once given, there was no claim on it by her.
Issue
[33] The
issue is whether the payments to NFCL made by the Appellants in 2002 were gifts
to a charity such that they qualify for deduction as charitable gifts in
accordance with section 118.1 of the Act. There is an additional issue
in connection with the Coleman appeal and that is whether the donations from
Titan are taxable benefits to Mr. Coleman, pursuant to subsection 246(1) of the
Act.
Analysis
[34] In
Canadian Taxation of Charities and Donations, Arthur Drache succinctly
identified the conundrum presented by a case such as this:
The fact of
the matter is that most, if not all, donors to charities get some benefits or
advantages from making a contribution. Also, linked to that factor is the
undeniable truth that people are more likely to make a contribution to a
charity which is doing something they approve of or which may eventually be of
benefit to them or to their friends or family, even if the benefit simply is to
make their locality a better place to live.
One
distinction, of course, is that the benefit is not direct enough to disqualify
the gift, but this in turn is a subjective test.
While there
will be some obvious cases where there is clearly a quid quo pro between
a donor and a charity and no receipt can be issued, there remain many grey
areas where individual decisions will have to be made.
[35] I
would like to commence the analysis by stating how impressed I was with the
Appellants’ pattern of charitable giving. These people are generous and clearly
understood what it meant to make charitable donations. Apart from some concerns
with Mr. Coleman’s testimony, which was not at times as forthcoming as it might
have been, I find the Appellants and Mr. Forrester to be open, direct and
thoughtful in their testimony. I listened intently for any evidence of a nudge
nudge, wink wink – we really know what the tax receipt is all about – attitude.
There was none. These people believed that they had gifted funds to NFCL. Their
subjective evidence could not have been clearer. What is disturbing is that the
objective evidence points so very clearly to an understanding, indeed a
knowledge, at the time of donation, that 80 to 100% of monies they donated
would go to cover the education cost of those students who solicited the funds
– primarily their offspring. The Appellants used words such as hope,
anticipation, expectation. I find the truth is that they knew, they had to have
known. The program was set up so that they would know. Once I reached that
inescapable conclusion and accepted the objective over the subjective, the link
becomes stronger and the answer becomes easier.
[36] The
application of section 118.1 of the Act centers on the finding that
there is a gift. The parties are agreed that for the purposes of the Act
the definition of "gift" found in Friedberg v. R. is the appropriate
starting point. It calls for three elements:
I. Property owned by the donor;
II.
A voluntary transfer of that
property; and
III.
With no benefit or consideration
flowing to the donor.
There
is no dispute with respect to the first two elements. The issue is the third.
In the case of The Queen v. Burns.
that issue was described as follows:
The donor must
be aware that he will not receive any compensation other than the pure moral
benefit; he must be willing to grow poorer for the benefit of the donee without
receiving any such compensation.
[37] The parties referred to many cases
addressing this issue, but I would like to focus on four: The Queen v.
Zandstra,
McBurney v. Canada,
Woolner v. the Queen,
and The Queen v. Burns.
[38] In
Zandstra, the appellants paid monies to the Jarvis School,
organized by the Jarvis Society to establish and maintain a separate Christian
school. The appellants all indicated that they felt they had a moral obligation
to children other than their own. Justice Heald concluded that they therefore
received consideration from the Jarvis School in the
form of a Christian education for their children "in discharge of their
duties as parents as they conceived them to be".
[39] The
Federal Court of Appeal in McBurney, another case of parents considering
it a duty to educate their children in the Christian environment, found that
payments were made in pursuance of that duty. The Court of Appeal stated:
…
I cannot
accept the argument that because the Respondent may have been under no legal
obligation to contribute, the payments are to be regarded as "gifts".
…payments made
by the Respondent in 1976 and 1977 were directly related to the presence of his
children at this school where they received the Christian education he felt in
conscience bound to secure for them.
…
[40] In
the more recent Federal Court of Appeal decision of Woolner, a case of
contributions to the First Mennonite Church towards
their student aid program (a program provided a bursary to every child of a
member who applied), the Court could not distinguish the case from Zandstra:
…
In the present
case, it is clear that the contributions were voluntary. The main issue for
determination is whether or not the contributions were made with the
anticipation of a benefit or advantage of a material nature. In our view, the
circumstances of this case are very similar to those in the The Queen v.
Zandstra 74 DTC 16 (TD), which Stone J.A. followed in McBurney. In Zandstra,
the taxpayer made contributions to a school called the Canadian Christian School.
…
In our view,
the Zandstra case cannot be distinguished from the circumstances of this
case. The taxpayers in this case made their contributions to the church with
the anticipation that their children would be provided with a bursary. ... The
taxpayers have argued there is no link between the contributions made and the
bursaries awarded. There is clear evidence that such a link existed. When
bursaries were being applied for, a request was made that a pledge form also be
filled out at the same. Further, in a report made by the student aid committee
it is stated "it is assumed that student and/or parents will contribute as
much as they are able to fund". In addition, after pledges were made
donors were reminded of their pledge when it had not been fully fulfilled. …
These taxpayers desired to have their children schooled in a particular way.
Their contributions guaranteed that result. This constituted a material benefit
to the taxpayers.
…
[41] Finally,
in the Burns case, the Federal Court Trial Division, in dealing with
payments made by Dr. Burns to the Canadian Ski Association, found that such
payments were not gifts, as they were made for the purpose of securing a
material advantage for the defendant. The Court adopted the language of the McBurney
case suggesting that there must be a link between the benefit and the payments:
…
The securing
of the kind of development and training the defendant desired for his daughter
and the making of the payments to the operating organization according to its
expectations "went hand-in-hand ".
…
[42] I
make the following observations from a review of these cases:
I. The benefit to the
donor need not arise as a result of meeting a legal obligation.
II.
Anticipation of the benefit may be
sufficient to deny a gift.
III.
There must be a connection or link
between the donor’s payment and the benefit. The cases actually refer to a
"link" or "hand-in-hand" or "directly related".
[43] The
Appellants argue that the education cases stand for the proposition that a
person cannot claim a charitable deduction for a donation to a school that
their minor child is attending when such donation reduces the tuition fees or
costs which the parents would otherwise be obligated to incur. I do not read those
cases nearly as restrictively.
[44] What
is key is the connection. In other areas of the law (for example see the
application of the Indian Act
and paragraph 81(1)(a) of the Act) the Courts have developed a
connecting factors test to assist in determining a taxpayer’s liability to tax.
Here, in determining whether a payment constitutes a "gift" for
purposes of the application of the charitable donation credits (subsection
118.1(3)) it appears the case law is likewise suggesting a review of connecting
factors.
[45] This
is a two-stage inquiry. First, was there a benefit to the donor? Second, was
there a sufficiently strong link between that benefit and the donation that it
fails to meet the third element of the Friedberg definition of gift?
Identify
the benefit
[46] When
a taxpayer, whose spouse is suffering from Alzheimers, makes a donation to the
Canadian Alzheimers Society, and, as a result of the Society funding research
into the disease, the taxpayer’s spouse is prescribed new medication which slows
down the rate of deterioration for the disease, there has clearly been a
benefit to the taxpayer. It may be difficult to put a value on that benefit;
indeed, the taxpayer might suggest it is priceless, but no one would deny there
is a benefit. In the education cases (Zandstra, McBurney and Woolner)
the Courts state the benefit is the Christian education of the children. I see
no reason why that same benefit would not be applicable in the cases before me.
The Appellants all saw real benefit to a Christian education. That was clear.
It is also clear the children benefited. The benefit could be put in monetary
terms – by providing funds to NFCL, the Appellants significantly reduced the responsibility
of paying tuition and other University related expenses directly to their
children or to the University, a responsibility the Appellants took seriously.
[47] The
first step of identifying a personal benefit will not be an onerous one: it
must be distinguished from pure moral benefit. In the case of Curlett v. Minister
of National Revenue,
the donor of funds to the Salvation Army (to be used specifically for two
people in need of help,) received no personal benefit but did receive a moral
benefit. As intimated in Burns, pure moral benefit will not be
sufficient to vitiate a gift. Where the only benefit from a donation is for
pure moral benefit, it is unnecessary to proceed to the second stage of
inquiry, as by its nature there is no substantive personal link between a
donation and the resulting pure moral benefit. We give to the Haitian Relief
Fund to benefit those in need: there is no personal element to the benefit.
Strength
of link
[48] It
is at the second stage of the inquiry into the connection between the donation
and the benefit that the true character of the payment as a gift will more
often be determined. So, what are the factors I should consider? I am not
suggesting any one factor is conclusive, nor that my list is exhaustive. This
is a matter of looking at the factors objectively, weighing them and applying a
good dose of common sense.
I.
Is there a relationship between
the donor and ultimate beneficiary?
II.
Is there any correlation between
the amount of the donation and the amount received by the beneficiary?
III.
What are the circumstances
surrounding the donation:
a)
what did the donor know or expect
would happen to the donation?
b)
what did the beneficiary know or
expect would happen to the donation?
c)
what did the charity know or
expect would happen to the donation?
d)
what was the donor’s intention?
e)
how was the amount of the donation
determined?
f)
how was the money donated?
g)
was the donor under any moral or
legal obligation to the beneficiary?
IV.
Did the donor have any control
over the charity’s use of the money?
I Is there a relationship
between the donor and ultimate beneficiary?
[49] If
the Appellant donors are considered the ultimate beneficiaries by virtue of
being relieved by NFCL of having to pay education costs of family members, then
naturally there is a relationship – they are one and the same. If the students
are the recipients of the benefit, then again there is clearly a non-arm’s
length relationship with the donor. There is a personal link. The Appellants
argue that by considering the non-arm’s length relationship a factor, we are
demotivating the very people who would otherwise be motivated to make
charitable donations. At first blush this response may sound valid, but on
reflection it does not hold up to scrutiny, as it ignores the very essence of
the inquiry: how close is the connection? It is akin to saying that because the
Appellants would not get a charitable donation credit, they would not pay for
their children’s education. The only ones to be demotivated from making a
charitable donation, would be those who adhere to the philosophy that charity
begins at home and seek to turn a personal gift into a charitable gift, which
is exactly the point of this case and the point in this stage of the analysis.
Those who give to the Cancer Society because a loved one has cancer, run no
risk of being denied the credit. Those who designate their loved one to
directly receive the benefit of a "donation" do run that risk. I see
nothing demotivating in this. It goes to the core of what is charitable giving
for tax purposes.
II Is
there a correlation between the amount of the donation and the amount of benefit?
[50] Yes,
there is a direct correlation between what the Appellants gave and what the
students to whom they are related received. The CHEAF program was designed that
way: the students would get a minimum 80% and a maximum 100% of what they could
raise. Although the Appellants and Mr. Forrester testified the donations all
went into a pool, and bursaries, scholarships, awards and administrative
expenses would come out of that pool, the fact was, for example, that of
Mr. Harder’s $10,600 donation on August 1, $10,175 was deposited to his
daughter’s account at TWU by NFCL on September 1. The correlation could not be
any more apparent: it is a significant link.
III What are the circumstances
surrounding the donation?
a)
what did the donor know or expect
would happen to the donation?
[51] There
is more than one element to this issue of expectation or knowledge. I find
that the Appellants knew, upon making the donation to NFCL, they would not
personally ever be entitled to a refund of that payment. They uniformly acknowledged
they had no entitlement to any return of the money. But they also knew their
donation would go to their children (or grandchildren). I found there was
something of a disconnect between reality and the nature of the Appellants’ testimony.
The Appellants talked in terms of anticipating or expecting their children
would get funding: none would acknowledge that, in fact, they knew their
children would get funding. These were intelligent, honest folk, who clung
steadfastly to the notion that the eligibility requirements cast some doubt on
the availability of funding. As one put it, nothing in life is certain. But how
uncertain was the likelihood of the students getting the funding? There was, I
find, no uncertainty with respect to the 80% bursary, and very little
uncertainty with respect to the scholarship. The GPA requirement and course
load requirement were the only real stumbling blocks. But at the time the
Appellants made the donations, they knew these requirements were met. It was
only if, after the money had been credited to the student’s account, the
student then, for example, dropped out, would there be a credit back to NFCL.
There were examples of adjustments made to other students’ accounts. But I do
not have those circumstances in these appeals. In these appeals, the Appellants
knew the students would get the money, the students did get the money and in no
cases were monies returned to NFCL.
[52] Knowing
one’s child would get the benefit is a strong link: anticipating the child will
get the benefit is also a connecting factor, though not as determinative.
However, if I accept that there was an element of uncertainty in the granting
of a scholarship for the winter term, as the first term marks would not yet
have been available at the time of the donation, and that the donors could say
there was only an anticipation or expectation, that still creates a link,
albeit not as strong, but a connection nonetheless that will be required to be
put in the context of the other factors. I do not accept the argument that some
element of risk or uncertainty renders the anticipation or expectation a
non-factor. It is a matter of degree, a matter of balancing the factors.
b) what did the beneficiaries,
presuming the students are beneficiaries, know or expect would happen to the donation?
[53] None
of the students were called to testify. The students solicited major donations
from families and nominal donations from four others to qualify for the
scholarship. They would have known that by doing so they would be funded to the
tune of 80 to 100% of such donations. Unlike the needy in Curlett, who
knew nothing of the donation, the knowledge by the students is a significant
connecting factor. Even without their testimony, I have no hesitation in
concluding the students sought funding solely for their own benefit. That is
how the program was designed to work. There was no evidence to support the notion
that students sought funding to help others get NFCL funding. I find this is a strong
connecting factor.
c) what did NFCL know or expect?
[54] First,
what NFCL did not know. According to Mr. Forrester, the Board did not know who
gave what. The Board simply received a list showing the student’s name,
qualifications and amount raised. Yet, Mr. Martens would have known, as NFCL
received the donor forms along with the cheques. The information was within the
possession of NFCL notwithstanding the Board may not have tapped into it.
NFCL
implemented the CHEAF program and knew, as did the participants, as it was all
part of NFCL’s materials, that once accepted the students would receive
80 to 100% of donations solicited by them. NFCL knew exactly what it was
going to do with the money raised by the student. Minor adjustments and special
circumstances do not alter this overarching element of the CHEAF program. This
is a significant connecting factor.
d) what was the donor’s intention?
[55] The
parties agree that determination of intention must be an objective exercise.
The Appellants argued "it should not be based on a subjective inquiry into
the taxpayer’s motivation". In Friedberg, the Federal Court of
Appeal emphasized that evidence of a subjective intention should not be used to
determine the "true" intent behind a purported gift transaction.
In tax law,
form matters. A mere subjective intention, here as elsewhere in the tax field,
is not by itself sufficient to alter the characterization of a transaction for
tax purposes. If a taxpayer arranges his affairs in certain formal ways,
enormous tax advantages can be obtained, even though the main reason for these
arrangements may be to save tax (see The Queen v. Irving Oil 91 DTC
5106, per Mahoney, J.A.). If a taxpayer fails to take the correct
formal steps, however, tax may have to be paid. If this were not so, Revenue Canada
and the courts would be engaged in endless exercises to determine the true
intentions behind certain transactions. Taxpayers and the Crown would seek to
restructure dealings after the fact so as to take advantage of the tax law or
to make taxpayers pay tax that they might otherwise not have to pay. While
evidence of intention may be used by the Courts on occasion to clarify
dealings, it is rarely determinative. In sum, evidence of subjective intention
cannot be used to 'correct' documents which clearly point in a particular
direction.
[56] While
I heard the Appellants profess an interest in assisting the provision of
Christian education, and a stated intention to assist others, an objective view
of the facts and documents suggest the overriding intent was to fund family
members’ Christian education. This conclusion is inescapable; the nature of the
public NFCL materials, the timing of the students acceptance into the CHEAF
program, the knowledge of all concerned at the time of the donation, the
identification by NFCL of funds required, the matching of that number by the
donation, a desire of the donor for their offspring to get a Christian
education, and a family understanding that the family would help financially, all
point to one intention by the participants to fund their childrens’ education
through NFCL.
[57] The
Appellants argue that motivation is irrelevant in making gifts to NFCL,
providing they did not receive a benefit in return. I have two comments: first,
I have concluded they did receive a benefit; second, I draw a distinction
between a donor’s motivation and a donor’s intention. The donor may be
motivated by a loved one with cancer, but intend to benefit all those touched
by the disease. Intention, I suggest, remains an important factor and here
it is a strong connecting factor.
e) How was the amount of donation
determined?
[58] Upon
acceptance into the CHEAF program, NFCL would advise a successful applicant
what that student’s financial needs would be, and further would advise how much
they needed to raise to meet those needs. This acceptance letter was copied to
the student’s parents. Effectively, we have a charity advising Mom and Dad
how much their child needs to raise to get the Christian education everyone
wants them to get. Again, in isolation perhaps, this could be equated to a
World Vision request for $500 as that amount could be used specifically to
purchase a goat for a family in Papua that could drastically improve that
family’s life. Identifying the needs of the charity in and of itself is not
determinative, but when considered in light of the addressee being the parent
of the recipient, the link becomes stronger. A directed letter to Mom and Dad
telling them their child needs a certain amount for University education is a
far cry from a general request to the public for a certain amount to assist
strangers in need. Further, the public may fund enough for goats for two or three
Papuan families. The Appellants, though generally generous in their charitable
giving, did not fund the several thousand dollar needs of other students: they
were not even advised of others’ needs. I find this is, in the overall scheme
of the program, an important connecting factor.
f) How was the money donated?
[59] The
Appellants were united in stressing that they did not put the name of the
student on the cheque. Indeed, materials from NFCL strongly advised against
this practice and would return any cheques that made this unfortunate error.
Yet, to keep track of the amount of donations raised by a student, the cheque
was always accompanied by the donor form, which provided the student’s details.
So, although the program was structured so that there could not be a specific
designation, all the information was certainly available to NFCL with the
receipt of the cheque and the donor form. The Appellants argued that because
the donor could not direct NFCL to make a gift to the student, this falls
within the same league as in Curlett where a donor approached the
Salvation Army and identified two people in need of help. The Salvation Army
agreed that helping the two was within its general charitable welfare work. The
donor made a donation, which the Minister challenged on the basis the money was
really going to private individuals. The Court held the taxpayer had a bona
fide charitable gift because the Salvation Army was "under no
compulsion or no direction from the Appellant". These cases are
significantly different. As mentioned previously, it would be difficult to find
any personal benefit in Curlett, but even assuming we should take Curlett
to this second level of inquiry to see if there is any connection, the
connection in Curlett is minimal. Bear in mind what this stage
of the analysis is addressing – connecting factors. It is a matter of weighing
this factor. In Curlett, little, if any, weight would have been attached
to this factor. In this case, I put some weight on it, though in isolation it
is not as significant as some of the other factors.
[60] I
also consider the timing of the donation. There is no evidence of these
Appellants donating to NFCL other than when family members would be attending TWU.
Donations were made to coincide with the requirement for their family members
to meet their financial obligations to TWU.
g) Was the donor under any moral
or legal obligation to the beneficiary?
[61] The
Appellants drew a distinction between a legal obligation of parents to pay for
their children’s post-secondary education and a moral obligation. The
Appellants argued that because the Appellants had no legal obligation to pay for
the post‑secondary education, the Appellants were not enriched by the
NFCL bursaries and scholarships. The Appellants went on to distinguish
situations between students over and under 19 years of age, as well as students
who were children of donors versus those who were not; for example, Mr. Ballard
donated on the solicitation of his grandson. Again, these distinctions all go
to the strength of the connection between the donation and the benefit. No
doubt, if there is a legal obligation for Mom and Dad to fund their offspring’s
post-secondary education, and they meet that obligation by "donating"
to NFCL, there is a very strong nexus. There is no such legal obligation in British Columbia
under the Family Relations Act.
What I am dealing with are:
a) parents admitting the
understanding in the family was that Mom and Dad would financially help
the children with post‑secondary education. I find relieving that
responsibility by making the donation is a link between the two, though not as
strong as fulfilling a legal obligation.
b) a parent directing a company
under his control, "Titan", to donate on the solicitation of the
parent’s child. This may be a step removed from a direct donation by Dad, but
it is a small step and I still find some connection.
c) a grandfather, Mr. Ballard,
looking to help his grandson. The Appellant argues there is no support
obligation when not in a parental relationship with a student. I agree there is
no obligation, that is too strong a word. But there is something there. The
question perhaps is – would Mr. Ballard have contributed to his grandson’s
education in any event?
[62] To
summarize on this point, simply because there is no legal obligation on the
donors does not mean there is no relief of payment the Appellants would
otherwise have paid. The evidence indicates otherwise. The connection is not as
strong as relieving a legal obligation but there is an important link still.
Certainly, with respect to Mr. Ballard the connection is relatively weak, but he
knew Paul was dependent on family and knew that at the time of donation, Paul
had been accepted in the CHEAF program.
IV Did
the donor have any control over the charity’s use of the donation?
[63] No,
the donors were unanimous in their understanding that once a donation was made,
it was absolute and they had no say in what the Board decided to do with money.
That is correct. But both they and the Board knew what the Board would do.
[64] I
conclude, on balance, that taken together these connecting factors create a
sufficiently strong link between the donation and the benefit, such that I find
the Appellants have not met the Friedberg test that there can be no
benefit flowing to the donor.
[65] The
connecting factors in Mr. Ballard’s case are not as strong as in the other
cases as there was no parental relationship although he did acknowledge that he
determined the amount based on what NFCL advised him was needed. His is the
only situation that might be called borderline, but I find there are too many
other significant connecting factors; I conclude there was no charitable gift.
[66] With
respect to Titan and Mr. Coleman, the Appellants conceded that if I found
there was no charitable gift, that Mr. Coleman would be caught by subsection 246(1)
of the Act as having received a taxable benefit.
[67] The
Respondent made an argument that the CHEAF program flew in the face of the
scheme of the Act, regarding the tax treatment of the post-secondary
education expenses, suggesting this was an attempt by this program to
circumvent such rules. I need not decide on that basis. It smacks to be more of
a General Anti‑Avoidance Rule type argument, though I was
assured it was not. I feel no compulsion to comment further.
[68] In
writing these reasons, I have tried to imagine a variety of borderline
situations to which I could apply the framework I have relied upon. That has
been a helpful exercise, but it highlighted for me that there will always
remain an element of subjectivity. It is unavoidable. This is an area of human
interaction where a formulaic approach can only take the law so far.
[69] The
appeals are dismissed with one set of costs to the Respondent.
Signed at Ottawa, Canada, this 24th day of February, 2010.
"Campbell J. Miller"
Email this Content