The Queen v. Zandstra, 74 DTC 6416, [1974] CTC 503 (FCTD)

Heald, J:—This is an appeal by the plaintiff from the judgment of the Tax Review Board dated June 26, 1972 wherein the defendant’s appeal was allowed in respect of the assessment for income tax made by the Minister of National Revenue for the 1967 and 1968 taxation years.

The trial of this appeal was heard before me in conjunction with the plaintiff’s appeal in respect of the following other taxpayers:

Reinder Jonas Jacobi — file T-3043-72

lt was agreed by counsel that all of the above appeals and subject appeal should be tried together on common evidence.

The question at issue in these appeals is whether certain sums of money paid by each of the defendants in the taxation years 1967 and 1968 to the Canadian Christian School at Jarvis, Ontario are deductible from their income under the provisions of subparagraph 27(1)(a)(i) of the Income Tax Act.*[1]

It is admitted by the plaintiff that said Canadian Christian School at Jarvis, Ontario (hereafter the Jarvis School) is a registered Canadian charitable organization within the meaning of said subparagraph 27(1)(a)(i).

It is also admitted that during the 1967 taxation year, the defendant paid the Jarvis School $499 and claimed $299 thereof as a charitable deduction under the authority of said subparagraph 27(1)(a)(i). It is also admitted that during the 1968 taxation year, the defendant paid the Jarvis School the sum of $590,. claiming $390 thereof as a charitable donation.

So far as the other above taxpayers are concerned, the amounts paid in 1967 and 1968 vary but the amounts paid and the amounts claimed as deductions from income are not in dispute. In all of the cases, the common denominator is that the first $200 paid to the Jarvis School was not deducted from income as a charitable donation. The balance paid by each taxpayer to the Jarvis School in each of the years 1967 and 1968 was deducted from income as a charitable donation.

The defendants, in their statements of defence, allege that the Jarvis School, with the advice and consent of the Department of National Revenue, set tuition fees on a family basis in the amount of $200 for all families having children in attendance at said school. They further allege that it was agreed that anything in excess of $200 was to be treated as a donation. The plaintiff, on the other hand, contends that the sums of $400 paid by the defendant in each of the years 1967 and 1968 to the Jarvis School were paid as consideration for the education of his two children attending said school and were not paid by way of gift with the consequence that these amounts are not deductible under paragraph 27(1)(a) of the Income Tax Act.

The other above named defendants were assessed on the same basis, ie, that $200 per student attending the school was paid as consideration for the education of that student, and only the amount paid to the school in excess of $200 per student was a gift and deductible under paragraph 27(1 )(a).

In short, the defendants have treated $200 per family as tuition, and the balance given as a gift. The plaintiff has treated $200 per student attending as tuition, and the balance given as a gift. Only in the case of families having one student attending the Jarvis School would the different approaches taken by the parties produce the same result for assessment purposes. In the case of all of these defendants, more than one student per family attended the school so that in all of these cases, the resultant assessment is different.

The Jarvis School was organized by the Canadian Christian School Society at Jarvis (hereafter Jarvis Society). The purpose of the Society was to establish and maintain a separate Christian school so as to carry out the principles of the Society. The basis and principles of the Society are set out in Article 2 of its constitution which reads as follows:

The basis of this society is the infallible Word of God as interpreted by the Belgic Confession, the Heidelberg Catechism, the Canons of Dort and the Westminster Confession.

Our fundamental principles are:

That our children are a heritage of the Lord and should be reared for Him:

That the parents are responsible for the education of their children in accordance with the Word of God;

That such an education requires a separate Christian School.

The Jarvis School is a member of the Ontario Alliance of Christian Schools (hereafter the Ontario Alliance) which counts some 49 Christian day schools in Ontario as members. There are about 8,500 full-time day students in these 49 schools. Most of these schools were organized in the 1950’s at a time when Dutch immigrants to Canada decided that they had a unique contribution to make to Canada in gratitude to God and in keeping with their belief that they should serve their neighbours and society as a whole. The Society membership comes largely from members of the Christian Reform Church, a Protestant denomination, although membership in the Society is open to anyone who agrees with its purposes and objectives.

Mr John Olthuis, Policy and Research Director of the Ontario Alliance gave evidence. He said that he was a consultant to the Ontario Alliance on governmental and legal matters (he is a member of the bar of Alberta). He said that one of his tasks was to attempt to persuade the Government of Ontario to enact legislation permitting parents and supporters of the Alliance’s member schools to allocate tax dollars in support of said schools. He described the Ontario Alliance as a service organization and as a central public spokesman for the member schools. He described the purpose of the school societies as being in furtherance of the desire of their members to make a contribution to society by training Christian students, thus ensuring that they would become law-abiding and morally upright citizens of Canada. He said that secular education was not the fundamental aim of these schools; that secular education was adequately attended to in the tax-supported public and separate schools already established; that paramount priority was given in the Christian schools to Christian education; and that said Christian education was available as a service not only to members but to the community as a whole.

In December of 1965 and in January of 1966 negotiations and correspondence took place between the Hamilton Christian School Society and the Hamilton District Office of the Income Tax Department concerning a ruling by the Department as to what income tax deductions could be made with respect to contributions made to the School Society.

A misunderstanding as to what was agreed upon seems to have arisen subsequently. The Income Tax Department considered that the tuition fees should be based on the approximate cost per student which at that time amounted to something over $200 per student. On the other hand, the Society had the opinion that the Income Tax Department had agreed on a tuition fee, for tax purposes, of $200 per family. Mr Olthuis testified that he was questioned about this tax problem at the annual meeting in November of 1967 of the Ontario Alliance. He said that based on his understanding of the arrangement reached between the Department of National Revenue and the Hamilton School, he advised said annual meeting that all member schools could proceed on the basis of treating $200 per family as tuition and the balance received as a donation. Pursuant to that advice, the member school societies proceeded accordingly and those of their members who contributed in excess of $200 per annum claimed such excesses as donations under subparagraph 27(1)(a)(i). All of these defendants made such claims for their 1967 and 1968 taxation years.

Four of these defendants (Messrs Zandstra, Stelpstra, Deweger and Visser) gave evidence at the trial. Their testimony was basically the same in respect of the issues in these actions. They all had more than one child attending the Jarvis School during the years in question; they all subscribed to article 2 of the constitution of the Society (supra) stating that the contents thereof were in harmony with their personal faith. Mr Zandstra said that he viewed the school as an extension of their home life as set out in said article 2. He also said that he saw the school “. . . as an instrument for furthering God’s kingdom for own family and for our country”. They all indicated that they felt a moral obligation to children other than their own which was reflected in their donations to the School Society. The financial statements of the Jarvis School for the subject years were received in evidence. Included in said statements were proposed annual budgets for the financial years July 1, 1967 to June 30, 1968 and July 1, 1968 to June 30, 1969. In the 1967-68 proposed annual budget, revenue was projected as follows:

these defendants to the Jarvis School were “gifts” as that term is used in subparagraph 27(1)(a)(i).

“Gift” is defined in Halsbury Laws of England, 3rd ed, Vol 18, 364 at 365, as follows:

A gift inter vivos may be defined shortly as the transfer of any property from one person to another gratuitously*[2] while the donor is alive and not in expectation of death....

Then in Black's Law Dictionary, revised 4th ed, 1968, West Publishing Co, 817 at 818 “gift” is defined as:

A voluntary transfer of personal property without consideration.

and:

A parting by owner with property without pecuniary consideration. . . .

The Shorter Oxford Dictionary defines “Giving” as:

... A transfer of property in a thing, voluntarily and without any valuable consideration....

Applying the above dictionary definitions of “gift” to the facts of these cases, I have concluded that the payments made by these parents to the Jarvis School were not payments made without consideration and cannot therefore be considered “gifts” under subparagraph 27(1)(a)(i).

These defendants have all expressed their concurrence with and belief in the fundamental principles set out in article 2 of the constitution of the Jarvis School Society (supra). Included therein is a belief that parents “. . . are responsible for the education of their • children in accordance with the Word of God” and “. . . that such an education requires a separate Christian school”. It seems to me they received consideration from the Jarvis School in the form of education of their children in a separate Christian school in discharge of their duties as parents as they conceived them to be.

The meaning to be given to the word “gift”, as the same was used in the Income Tax Assessment Act of Australia, was considered by the High Court of Australia in the case of Commissioner of Taxation of the Commonwealth v Mc-Phail (1967-68), 41 ALJR 346 at 348, where Owen, J said:

But it is, I think, clear that to constitute a “gift”, it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return. . . . If, however, the payment should be regarded as a voluntary payment, the taxpayer made it in the expectation that in return he would receive, and he did in fact receive, a substantial concession in the fees charged for the education of his son. In neither event did he make a “gift” within the meaning of s 78(1).

The rationale of that case applies equally here. Even accepting the evidence of the defendants in these cases that subject payments were voluntary and not pursuant to a contractual obligation, it seems clear that each parent here received a consideration, ie, the Christian education of his children.

It seems clear from the evidence of most of the witnesses that they considered they had a primary duty to their own children to provide them with a Christian education in a separate Christian school and that obligation has been discharged by the payments to the Jarvis School. Such a factual situation clearly, in my view, removes these payments from the “gift” category.

I was not referred to nor did I find any decisions of this Court in a similar situation. However, I was referred to several decisions of the Tax Appeal Board*[3] in which the meaning of “gift” as used in subparagraph 27(1)(a)(i) was considered in circumstances similar to those here being considered. In all of those cases, the claim for gift was disallowed because of the presence of consideration for the payment.

For the foregoing reasons, I have concluded that the Minister of National Revenue was correct in deciding that payments made by these defendants were not gifts to the extent of at least $200 per child attending the school per year. The figure of $200 per child used by the Department was an arbitrary figure in the sense that it is lower than the actual cost per child established by the evidence. The evidence as to the number of children attending the Jarvis School during the years under review was not too satisfactory although the defendant, Stelpstra, the school’s bookkeeper said it would average 200, . . give or take 10 students either way”. On this basis, the cost per student based on the actual operating cost of the school approximates $236 in the 1967-68 school year and $250 in the 1968-69 school year.

Thus, the arbitrary figure of $200 selected by the Minister is on the low side. This is not a case however where the assessments should be referred back to the Minister since that course of action would result in an increase in the assessments. This would have the effect of allowing an appeal by the Minister from his own assessment. On a taxpayer’s appeal to the Court, the matter for determination is basically whether the assessment is too high.t[4] In the case at bar, the assessor has acted on the correct principle but his assessments are slightly on the low side. In these circumstances, it seems clear that the assessments should be affirmed.

During the course of argument, I directed the attention of both counsel to the two recent judgments of the Federal Court of Appeal in the case of Frank H Galway v MNR, [1974] CTC 313; 454; 74 DTC 6247; 6355, and invited their comments as to the applicability of the rationale of those decisions to the facts in the cases at bar. After considering the submissions of counsel thereon, l have concluded that the Galway case (Supra) is distinguishable on its facts. In that case, the Court was being asked to implement a compromise settlement rather than to implement an agreement between the parties as to how the assessment should have been made by application of the law to the true facts. The Court of Appeal said (p 456 [6357]).

, ... In our view, the Minister has a statutory duty to assess the amount

of tax payable on the facts as he finds them in accordance with the law as he understands it. It follows that he cannot assess for some amount designed to implement a compromise settlement and that, when the Trial Division, or this Court on appeal, refers an assessment back to the Minister for reassessment, it must be for reassessment on the facts in accordance with the law and not to implement a compromise settlement.

In the cases at bar, the impugned assessments are not “compromise” assessments as that term is used in the Ga/way case (supra). Subject assessments were based on the assessor’s best estimate at the time of the actual cost of educating each student at the Jarvis school based on the information available to him at that time. It now transpires that said estimates were on the low side. In my view, such a circumstance cannot operate to invalidate subject assessments. To hold otherwise would be to invalidate every assessment that was on the low side, whether it be for arithmetical error or on the basis of later discovered facts. The Income Tax Act does not, in my view, require such a result.*[5]

Subject assessments are accordingly affirmed. The plaintiff’s appeals are therefore allowed. Pursuant to subsection 178(2) of the 1973-74 Act, I direct that the Minister shall pay to the solicitor for the defendants the sum of $5,000 as fees and the sum of $150 as disbursements as the defendants’ reasonable and proper costs in connection with all of subject nine actions.