Dockets:
A-255-14, A-249-14, A-251-14,
A-252-14, A-253-14, A-254-14
Citation: 2015 FCA 225
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CORAM:
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STRATAS J.A.
SCOTT J.A.
BOIVIN J.A.
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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RAY CASTRO
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Respondent
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Docket:
A-249-14
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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RUBIROSA TIROY
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Respondent
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Docket:
A-251-14
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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RONALDO DAVID
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Respondent
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Docket:
A-252-14
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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DANILO MAGARRO
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Respondent
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Docket:
A-253-14
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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MARIA S. GRANDE
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Respondent
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Docket:
A-254-14
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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ARIS N. ANI
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Respondent
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REASONS FOR
JUDGMENT
SCOTT J.A.
I.
Nature of the appeals
[1]
Subsection 118.1(3) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) [Act] allows an individual to claim a tax
credit with respect to gifts made to a registered charity.
[2]
The Minister of National Revenue (the Minister) disallowed
the tax credits claimed by each of the respondents for their respective gifts
made to CanAfrica International (CanAfrica), a registered charity, in 2006. As
each of the respondents was issued an inflated tax receipt by CanAfrica, the
Minister took the position that each donation made, in order to be a true gift,
must have been made without any benefit in return.
[3]
The respondents appealed the assessments to the
Tax Court of Canada. For the reasons set out in David v. The Queen, 2014
TCC 117, Justice J. Woods (the Judge) of the Tax Court allowed their appeals. The
Minister now appeals.
[4]
The appeals in files A-249-14 Her Majesty The
Queen v. Rubirosa Tiroy, A-251-14 Her Majesty The Queen v. Ronaldo David,
A-252-14 Her Majesty The Queen v. Danilo Magarro, A-253-14 Her
Majesty The Queen v. Maria S. Grande, and A-254-14 Her Majesty The Queen
v. Aris N. Ani were consolidated by order of this Court dated July
23, 2014, the appeal in file A-249-14 Her Majesty The Queen v. Rubirosa
Tiroy being designated as the lead appeal.
[5]
This Court, at the beginning of the hearing,
noted that no notices of appearance were filed in appeals A-249-14, A-251-14,
A-252-14, A-253-14, and A-254-14. Since files A-249-14, A-251-14, A-252-14,
A-253-14, and A-254-14 were consolidated, the appeals were heard together. Another
file A-255-14 Her Majesty The Queen v. Ray Castro raised the same issues
and was heard with the consolidated files. Counsel on all files agreed that
they would direct their submissions to Castro alone and that the outcome
in Castro would apply mutatis mutandis to all of the appeals. The Court agreed with this approach and has
proceeded in that way. I direct that a copy of these reasons for judgment should
therefore be placed in each Court file.
II.
Facts
[6]
The facts are straightforward. In 2006 each
respondent was independently solicited by their tax return preparer Mr. Rodigo
Layco to make donations to CanAfrica. At that time, CanAfrica was a registered
charity under the Act. It could therefore issue valid donation receipts.
During the same period, the Canada Revenue Agency (CRA) was investigating CanAfrica.
Its registration as a charity was ultimately revoked by the CRA in 2007.
[7]
CanAfrica issued to each of the respondents a
donation tax receipt for tax credits they claimed in their respective income
tax returns for 2006. The amount of the receipts issued by CanAfrica for each
of the respondent is set out in the table that follows:
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Name
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Amount of the receipts
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Rubirosa Tiroy
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$2,500
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Ronaldo David
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$10,000
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Danilo Magarro
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$5,000
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Ray Castro
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$15,000
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Maria S. Grande
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$20,000
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Aris N. Ani
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$5,000
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[8]
In reassessments issued under the Act for
the 2006 taxation year, the Minister disallowed each of those credits in their
entirety.
[9]
In making the assessments, the Minister took the
position that each of the respondents was involved in a scheme with their tax
preparer. In consideration for a charitable receipt issued by CanAfrica, each
respondent paid 10% of the face value of the receipt to CanAfrica, plus an
undetermined commission to the tax preparer Mr. Rodigo Layco.
[10]
All the respondents appealed their reassessments
and testified before the Judge, but none of them had any documents such as
copies of cheques to support their claim that they donated more than 10% of the
sum that appears on their receipts.
[11]
Rubirosa Tiroy was issued a tax receipt in the
amount of $2,500 by CanAfrica. She testified having given either $400 or $800
in cash. On cross-examination, when confronted with a letter she had sent to
the CRA claiming she had made a donation of $400 in cash and some goods, she
changed her testimony. In view of this inconsistency, the Judge determined that
the amount donated by Ms. Tiroy was $250.
[12]
Ronaldo David was issued a donation receipt in
the amount of $10,000 by CanAfrica. He testified that he gave an amount in cash
of approximately $2,500 and some clothing and household goods to CanAfrica.
Having failed to provide any detailed description of his non-cash donations and
an estimate of its actual value, the Judge determined that the amount actually
given by Mr. David as a donation to CanAfrica was $1,000.
[13]
Danilo Magarro was issued a tax receipt in his
spouse’s name in the amount of $5,000 by CanAfrica. Ms. Elisa Magarro testified
that she gave $5,000 in cash to CanAfrica by means of a bag of bills she kept
at her house, even though she was unemployed at that time. In view of these
highly improbable circumstances, the Judge concluded that the amount actually
donated by Ms. Magarro was $500.
[14]
Aris N. Ani was issued a tax receipt by
CanAfrica in the amount of $5,000. He testified that he gave between $2,200 and
$2,700 in cash and also made a donation of clothing and household goods to
CanAfrica. The Judge found Mr. Ani’s testimony to be implausible in view of the
fact that he has four children and a family income of $53,000. She determined
that the amount actually given was $500 in cash.
[15]
Ray Castro and his wife were issued tax receipts
in the aggregate amount of $15,000 as there is a limit of $10,000 by individual.
Mr. Castro testified that he gave an amount of $2,600 in cash. Mr. Castro could
not establish a breakdown between the cash donated and the commission paid to
his tax preparer. The Judge concluded that Mr. Castro donated only $1,500.
[16]
Ms. Grande testified that for every $800 given
to CanAfrica, she would be issued a receipt in the amount of $5,000. The judge
determined that this was consistent with the assumption made by the Minister that
10% was given in cash and a fee of 6 % was paid to the tax preparer. Ms. Grande
also claimed tax credits for goods provided by others, but failed to prove it.
The Judge concluded that she had given $2,000 as a donation to CanAfrica.
III.
Statutory Framework
[17]
The following provisions are relevant to this
case:
•
Pursuant to subsection 118.1(3) of the Act, an
individual may claim a tax credit with respect to a gift made to a registered
charity.
•
Paragraph 118.1(2)(a) of the Act
requires that a gift be evidenced by filing with the Minister a receipt that
contains prescribed information.
•
Subsection 248(1) of the Act specifies
that the term “prescribed” means prescribed by regulation or determined in
accordance with rules prescribed by regulation.
•
Part XXV of the Income Tax Regulations,
C.R.C. c. 945 [Regulations] contains the relevant regulatory provisions.
Sections 3500 to 3505 provide with a framework regulating the issuance of tax
receipts by registered charities in exchange for donations.
•
Under the Technical Tax Amendments Act, 2012,
S.C. 2013, c. 34, subsections 248(30), 248(31) and 248(32) were added to the Act.
These subsections provide that in certain circumstances, the existence of
an advantage or a benefit will not disqualify a transfer of property from being
a gift.
•
Pursuant to subsection 248(32) of the Act, the
term “advantage” is defined broadly. It includes the value of any benefit a
donor has enjoyed in consideration for the gift either immediately or subsequently.
•
Subsection 248(31) of the Act requires
that the eligible amount of a gift be reduced by the amount of the advantage
received as determined by subsection 248(32).
•
Paragraph 248(30)(a) of the Act states
that if the amount of the advantage does not exceed 80% of the fair market
value of the property transferred, then it remains a gift.
•
It is to be noted that paragraph 248(30)(b)
of the Act grants the Minister the power to allow a charitable donation
credit even if the benefit exceeds 80% of the value of the property transferred,
as long as the Minister is satisfied that there was an intention to make a gift.
IV.
Decision of the Tax Court
[18]
The Judge determined the amount given in cash by
each of the respondents and concluded they were gifts. The Minister disputed
this finding on the basis that the respondents expected to gain from their
donations because they were to receive benefits in the form of inflated tax
receipts. The Judge decided that the inflated tax receipts issued by CanAfrica
were not benefits. Consequently, the respondents could claim a tax credit equivalent
to the amount of cash they determined they had given.
[19]
The Judge concluded that each of the respondents
was entitled to a tax credit equal to 10% of the face amount of the charitable
gift receipt provided by CanAfrica.
[20]
I wish to take a closer look at the Judge’s
reasons.
[21]
In allowing the respondents’ appeals, the Judge
found that the Minister had assumed that in consideration of a charitable tax
receipt from CanAfrica, each respondent had paid 10% of the face value that
appears on the receipt, plus a commission to the tax preparer.
[22]
The Judge rejected the Minister’s position that
the amount given by each of the respondents could not be considered a gift
because they expected to receive a benefit in return in the form of an inflated
tax receipt.
[23]
The Judge surveyed the most recent jurisprudence
including this Court’s decision in Canada v. Berg, 2014 FCA 25, [2014]
3 C.T.C. 1 [Berg]. She found that it did not clarify the issue as
to whether an inflated tax receipt constitutes a benefit. The Judge relied on
the pronouncement of Sexton J.A. in Canada v. Doubinin, 2005 FCA
298, [2005] D.T.C. 5624 [Doubinin], at paragraphs 14 to 17, to conclude
that the issuance of an inflated tax receipt should not usually be considered as
a benefit that negates a gift.
[24]
The Judge also concluded that it was not
necessary to consider the application of recent amendments to the Act,
subsections 248(30), (31), and (32), as the inflated tax receipts were not
benefits. The amendments had therefore no application.
[25]
The Judge did not consider whether the receipts
issued by CanAfrica met the requirements of subsection 118.1 of the Act and
all of the prescribed information requirements listed in section 3501 of
the Regulations as this issue was not raised before her.
V.
The appeal
[26]
In this appeal, the Minister asserts that the
Tax Court erred in law, firstly in finding that the respondents made gifts
within the meaning of section 118.1 of the Act in circumstances where they
sought to enrich themselves through cash payments made to their tax preparer in
exchange for inflated charitable gift receipts. Alternatively, the Minister
claims that if the Judge did not err in finding that the respondents made gifts
to CanAfrica, she did err in law by failing to apply subsections 248(30) and (32)
of the Act. She also erred in law by failing to determine whether the respondents’
receipts met the requirements of subsection 118.1(2) of the Act and subparagraph
3501(1)(h)(i) of the Regulations.
[27]
Counsel for Mr. Castro counters by asserting
that the only issue in this case is whether the trial judge erred in finding
that the respondent made gifts within the meaning of section 118.1 of the Act.
As the Minister’s position is based on the premise that the respondent paid an
amount of 10% in cash of the face value of the receipt issued by CanAfrica,
counsel for the respondent claims that the Minister is asking this Court to
make an adverse factual inference that contradicts the record on a crucial point
that was not directed to the respondent regarding his client’s intention to
make a donation. Counsel asserts that Mr. Castro’s donative intent was never
properly introduced as an issue during the hearing before the judge.
[28]
On the issue of the application of sections 248(30)
to 248(32) of the Act, the respondent’s counsel takes the position that
the Judge was correct in her determination that the inflated tax receipts were
not benefits and that these sections did not apply. Otherwise, the very purpose
of the amendments, which is to permit the leveraging of donations, would be
defeated.
[29]
Counsel for Mr. Castro did not object to the
issue of the validity of the receipts being raised for the first time on
appeal. In fact, in oral argument, he made brief submissions on it.
[30]
In order that the Court be confident that it had
all of the parties’ submissions on that issue, during the hearing the Court
asked for further written submissions. Those submissions were received and were
carefully reviewed.
[31]
For the reasons that follow, I would allow this
appeal and the companion appeals on the sole ground that the absence of the correct
cash amount of the donation on the charitable receipts fails to meet the
requirements of subsection 118.1(2) of the Act and subparagraph 3501(1)(h)(i)
of the Regulations. Therefore, the claims to a tax credit in both Mr.
Castro’s appeal and the companion appeals are invalid.
VI.
Issues
[32]
The issues in this appeal are the following:
i.
Did the respondent make gifts within the meaning
of section 118.1 of the Act in circumstances where he received inflated
tax receipts?
ii.
Did subsections 248(30), (31), and (32) of the Act
apply to the gifts made by the respondent?
iii.
Does the absence of the cash amount donated by
the respondent on the receipts issued by CanAfrica invalidate his claim to a
tax credit?
VII.
Standard of review
[33]
It is settled that questions of law are reviewed
on the standard of correctness, while questions of fact or questions of mixed
fact and law suffused by facts are to be reviewed on the standard of overriding
and palpable error (see Housen v. Nikolaisen, 2002 SCC 33, [2002]
2 S.C.R. 235, at paragraphs 8 and 10).
[34]
As stated in Canada Trustco Mortgage Co. v.
Canada, 2005 SCC 54, [2005] 2 S.C.R. 601 at paragraph 44: “[t]he textual, contextual and purposive interpretation of
specific provisions of the Income Tax Act is essentially a question of law but
the application of these provisions to the facts of a case is necessarily
fact-intensive”.
VIII.
Analysis
[35]
The first issue in this appeal is whether the
respondent made gifts within the meaning of section 118.1 of the Act in
circumstances where he received inflated tax receipts.
[36]
An individual can claim a tax credit with
respect to a gift made to a registered charity pursuant to subsection 118.1(3)
of the Act. The amount of the tax credit is determined by the amount of
the gift. A tax credit cannot exceed the amount of the gift. The Minister
disputes the Judge’s finding that the respondents made gifts on the basis that
they expected to gain from their donation because they received a benefit in
the form of an inflated tax receipt. The Judge concluded that the inflated tax
receipts issued by CanAfrica were not benefits. Consequently, the respondents
could claim a tax credit equal to the amount of cash she found they had given.
[37]
The basis for the Judge’s conclusion that the respondents
did not receive a benefit that negates the gifts they made to CanAfrica was
threefold. Firstly, the Judge relied on the respondents’ testimonies concerning
the sum they each donated to CanAfrica and on this Court’s finding in Doubinin,
at paragraphs 14 to 17. The Judge also refused to hear a new argument presented
by the Minister to the effect that the respondents lacked donative intent
because that issue was not clearly identified in the Minister’s reply to the
notice of appeal. This last argument was reargued before us. It must fail again.
[38]
Having reviewed the reply to the appeal, and
considering the applicable standard of review of reasonableness, I must defer
to the Judge’s determination that the Minister’s reply was not sufficiently
clear to place the respondents on notice that they needed to establish their
donative intent. The respondents should have had a chance to prepare and
introduce evidence accordingly. Furthermore the transcript of Mr. Castro’s cross-examination
reveals that counsel for the Minister questioned him on his donation to the
registered charity on several occasions, without even disputing that a donation
was made. This could have led the respondent to conclude that there was no need
to establish his intention to make a gift (Appeal Book, Tab H, page 36, lines 1
to 6, and pages 42 to 48).
[39]
As the hearing before the Judge was conducted
under the Informal Procedure and the respondents were not represented, she was
correct to apply the rule in Browne v. Dunn (1893), 6 R. 67 (H.L.) and disallow
the Minister’s argument on their donative intent since they were not
sufficiently notified and consequently did not prepare to introduce any evidence
on this point.
[40]
In order to make her determination that the cash
donated by the respondents were gifts, the Judge turned to this Court’s decision
in Canada v. Berg, 2014 FCA 25, [2014] 3 C.T.C. 1 [Berg].
[41]
The facts in Berg are as follows. Mr.
Berg participated in a so-called donation program in 2002 and 2003 whereby he
received inflated tax receipts. Mr. Berg purchased timeshare units located in Saint
Vincent and the Grenadines, which he subsequently transferred to a registered
charity. As part of the purchase transactions, Mr. Berg received documents
designed to receive tax credits based on a falsely inflated value of his timeshare
units. These pretence documents were intended to deceive the Minister into
believing that Mr. Berg’s cost of the timeshare units was far in excess of what
he actually paid. One of the pretence documents was a promissory note
establishing that Mr. Berg still owed close to ten times the amount he actually
paid for the timeshare units. Mr. Berg had also paid a substantial fee to the
program promoters, and then transferred his timeshare units to a registered
charity. The charity issued a charitable gift receipt for ten times the value
of the amount he had paid for his timeshare units based on the value actually
paid plus the amount of the promissory note.
[42]
The judge of the Tax Court concluded that the pretence
documents received by Mr. Berg were of no value since they were false and they
could therefore not constitute a benefit. On appeal, this Court overturned that
conclusion. The pretence documents had value since they were used by Mr. Berg
to claim greater tax credits than those he was actually entitled to receive. Furthermore,
this Court determined that on the facts of that case, it was not open to the
judge to conclude that Mr. Berg had the requisite donative intent. Mr. Berg
never intended to impoverish himself by transferring the timeshare units to the
registered charity; on the contrary he wanted to enrich himself by making use
of falsely inflated charitable gift tax receipts. In sum, Mr. Berg did not have
the requisite donative intent for the purposes of section 118.1 of the Act.
[43]
The Judge, having reviewed Berg, concluded
that this Court had determined that receipt of a benefit will negate a gift,
but had not commented on the Tax Court’s conclusion that an inflated tax
receipt is not a benefit.
[44]
She therefore turned to Doubinin, where this
Court found that Mr. Doubinin was entitled to claim a tax credit of $6,887 which
represents the sum he actually gave to a registered charity named ABLE. On
advice from his financial planner Mr. Doubinin believed that if he donated $6,887
to ABLE he would become eligible to receive a charitable donation receipt of
$27,548 if a non–resident trust made a charitable donation on his behalf
equivalent to 3 times his donation. Since a representative of ABLE informed Mr.
Doubinin that the non-resident trust had made the donation, he claimed a tax
credit of $27,548. The Minister took the position that he should not be
entitled to any credit at all because he made his gift hoping to receive an inflated
tax receipt of $27,548, which is a benefit. This Court determined that on the
specific facts of that case it was impossible for Mr. Doubinin to benefit from
the inflated tax receipt since it could not be issued in his name. Section
118.1 of the Act does not allow a taxpayer to claim a tax credit for a
gift made by another person. Consequently, the trial judge’s finding that Mr.
Doubinin did not expect a benefit was upheld by this Court as it was not made
in a perverse or a capricious manner.
[45]
In the case before us, the Minister challenges the
Judge’s conclusion that the inflated receipts in the present case do not
constitute a benefit based on Berg. He argues that the receipts issued
by CanAfrica are equivalent to the pretence documents that negated Mr. Berg’s
gift on the basis that he had obtained a benefit. The Minister also turns to Webb
v. The Queen, 2004 TCC 619, [2005] 3 C.T.C. 2068 [Webb]. In that
case, a person was denied tax credits for charitable donations in excess of
donations actually made on the basis that the receipt of kickbacks of part of
the donation constituted a benefit. Finally the Minister submits that in Doubinin,
this Court distinguished Webb. As the taxpayer did not knowingly
participate in the issuance of an inflated receipt, he could not benefit from it.
The registered charity was not in a position to issue a receipt in his name because
the Act does not allow an individual to claim a tax credit for a gift
made by a third party.
[46]
As I review the Judge’s reasons, the cases cited,
and the parties’ submissions, I cannot accept the Minister’s position for the
following reasons.
[47]
The Judge was correct to find that Berg
did not resolve the question before her, as the Court did not rule that the
inflated tax receipt by itself constituted a benefit. I can find no error in
the Judge’s determination that based on the facts before her, the respondents
were not involved in a leveraged charitable donation scheme in which their cash
donations were connected to pretence documents as in Berg or a kickback
of part of the donation as in Webb. The Judge found that the respondents
made a cash donation through their tax preparer for which they received an
inflated tax receipt, and claimed inflated tax credits.
[48]
The circumstances in the present case are closer
to those in Doubinin. The respondents did not participate in the
issuance of the tax receipts. The Judge’s determination that the respondents
made gifts was not made in a capricious manner; it was based on the
respondents’ testimonies. She did not find that there were extraordinary
circumstances that should be taken into account that would negate their entitlement
to a tax credit for the amount she determined they had given. Doubinin
left such a possibility open to the Judge.
[49]
Turning to the second issue, I must decide if subsections
248(30), (31), and (32) of the Act apply to the gifts made by the respondent
Ray Castro.
[50]
Subsections 248(30), 248(31) and 248(32) apply
only to an instance where a property, including cash, is transferred as a
donation and an advantage is received in return.
[51]
As stated previously, these subsections, enacted
in 2012, created a new regime that allows for leveraging up to 80% of the value
of a gift. The value of a benefit received by the donor is deducted from the
actual amount donated.
[52]
The Judge concluded that the inflated tax
receipts received by the respondents in this case were not benefits. Before us,
the Minister argues that if her determination that the inflated tax receipts
were not benefits is incorrect, then she should have applied subsections 248(30),
(31), and (32) of the Act in respect of the respondents’ gifts made to
CanAfrica in 2006.
[53]
Subsection 248(30) of the Act provides
that in certain circumstances the amount of an advantage received in
respect of a transfer of property will not disqualify the transfer from being a
gift where the amount of the advantage does not exceed 80% of the fair market
value of the transferred property or where the transferor satisfies the
Minister that the transfer was made with the intention of making a gift.
[54]
Subsection 248(32) of the Act defines an
advantage as any benefit the donor receives, obtains or enjoys or to which he
is entitled, either immediately or in the future that is in consideration of
the gift, that is in gratitude for the gift or that is in any way related to
the gift.
[55]
Since the Minister takes the position that the
respondents never intended to make a gift, he considers that the inflated value
of the tax receipts received by the respondents constitutes such an advantage that
was obtained in consideration for the cash gifts made pursuant to subsection
248(32) of the Act.
[56]
In essence, the Minister takes the position that
any amount in excess of the Judge’s finding with respect to the cash portion of
the respective donations made by the respondent constitutes a benefit. As the
amounts of the advantage exceeds 80% of the cash paid, they vitiate the gifts
made by each respondent by application of paragraph 248(30)(a). The
result is that the benefit exceeds 80% of the fair market value of the amount transferred
by each of the respondents. The Minister also takes the position that paragraph
248(30)(b) of the Act, which permits him to allow a charitable
donation even if the benefit exceeds 80% of the value of the transferred
property, is inapplicable because he is not satisfied that the respondents
intended to make a gift.
[57]
Since I agree with the Judge’s finding that the
tax receipts received by the respondents did not constitute a benefit, these
sections cannot apply. The respondents did not receive an advantage within the
meaning of subsection 248(32) of the Act.
[58]
I now turn to the third issue. Does the absence
of the cash amount donated by Mr. Castro on the receipts issued by CanAfrica
invalidate his claim to a tax credit?
[59]
Having reviewed the statutory scheme, I would
observe that the Act states clearly in subsection 118.1(2) that the eligible
amount of a gift must be proven by filing with the Minister a receipt for the
gift that contains prescribed information. That language is unambiguous.
[60]
Subsection 248(1) of the Act specifies
that prescribed information means prescribed by regulation or determined in
accordance with rules prescribed by regulation;
[61]
Sections 3500 to 3505 of Part XXV of the Regulations
contain the relevant regulatory provisions with respect to receipts issued by a
registered charity to attest a gift was made by a taxpayer.
[62]
Section 3500 of the Regulations defines
an “official receipt” as meaning a receipt for the purposes of subsections
110.1(2) or (3) or 118.1(2), (6) or (7) of the Act, containing
information as required by sections 3501 or 3502 of the Regulations;
[63]
Subparagraphs 3501(1)(h)(i) of the
Regulations prescribes that every official receipt issued by a registered
charity must contain a statement that it is an official receipt for income tax
purposes and indicate the exact amount of a cash gift.
[64]
Paragraph 3501(6)(b) of the Regulations,
states that the amount of the cash gift has to be found on the official receipt
form otherwise it is deemed to be spoiled.
[65]
The consequence of producing a spoiled receipt
is stated in subsection 3501(5) of the Regulations: that receipt must be
marked as cancelled.
[66]
The Minister takes the position that the Act
and the Regulations contain strict requirements that are mandatory as to
what information must appear on a receipt before a tax credit can be included
in the total charitable gifts of a taxpayer for a year.
[67]
According to the Minister, if the mandatory
requirements are not met, the deficient receipt does not satisfy the
requirements of section 118.1(2) of the Act and so the taxpayer cannot
claim a credit for a donation made.
[68]
In support of this position the Minister relies
on this Court’s decision in Slobodrian v. Canada (Minister of National
Revenue), 2005 FCA 336, [2006] 1 C.T.C. 35. That case dealt with the
application of section 3501 of the Regulations, and this Court rejected
Mr. Slobodrian’s appeal against a judgement of the Tax Court finding that the
amounts claimed as charitable donations did not meet that description under the
Act. This Court stated at paragraphs 4 and 5:
[4] In addition, the learned Tax Court judge
was of the view "that the donations were not proven by receipts for the
gifts that contained prescribed information, as provided by subsection 118.1(2)
of the Income Tax Act" and section 3501 of the Regulations. The
receipts did not reflect the registration number of the issuer or certify that
the signator is duly authorized to issue such receipts.
[69]
The Minister also based her position on the
recent decision of Sowa v. Canada, 2015 FCA 103, [2015] F.C.J. No. 473
(Q.L.) at paragraph 6 [Sowa], in which this Court confirmed the findings
of the Tax Court of Canada, which had disallowed a charitable donation tax
credit because the receipt did not contain the prescribed information and
because the taxpayer failed to establish that she had donated the full amount
indicated on the receipt.
[70]
Mr. Castro counters that there is no authority
supporting the Minister’s position that the lack of prescribed information on a
receipt will invalidate an otherwise valid gift. The receipt is evidence of a
gift. In the respondent’s view, that is enough. The Regulations are not
a mechanism for overriding all evidence pointing to a gift and Parliament never
intended that a receipt operate as a trip wire to deny a credit for valid
gifts.
[71]
Mr. Castro also cites Mitchell v. Canada
(Attorney General), 2002 FCA 407, [2003] 2 F.C. 767 [Mitchell] at
paragraph 43, where this Court found that, notwithstanding the absence of
waivers in prescribed form, there could still be a waiver since the Crown had
all the relevant facts from the beginning when it agreed to reassess the
taxpayer on the basis of a test case. In Mr. Castro’s case, the Tax Court has
made a finding that a $1,500 cash donation was made by Mr. Castro. In his view,
this finding is sufficient and there is no requirement that the mention of $1,500
as a cash gift necessarily appear on the receipts issued by CanAfrica.
[72]
Mr. Castro equally relies on this Court’s decision
in Chabot v. Canada, 2001 FCA 383, [2002] D.T.C. 6708 [Chabot] for
the proposition that a flexible approach must be taken to the interpretation of
the Regulations.
[73]
This Court stated in paragraph 3 of Chabot,
that:
With respect to the requirements under
section 3501 of the Regulations, as is noted by Judge Tardif in Nathalie Plante v. The Queen, [1999] T.C.J.
No. 51 (Q.L.), at paragraph 46 of his reasons, it is clear that:
[46] The requirements in question are
not frivolous or unimportant; on the contrary, the information required is
fundamental, and absolutely necessary for checking both that the indicated
value is accurate and that the gift was actually made.
Having regard to the foregoing, the Regulations must be applied with some
flexibility. In this case, and unlike Judge Lamarre, I am of the view that by
appending the certificate of appraisal to the receipt, which was otherwise
incomplete, the charitable organization satisfied the requirements of the Regulations.
[74]
Mr. Castro argues that subsection 118.1(2) of
the Act does not state that all the prescribed information must
be included and that, in light of Chabot and Mitchell, some
flexibility must be allowed.
[75]
I must reject Mr. Castro’s argument that the
language of the provision does not state that all of the prescribed information
must be present.
[76]
Firstly, the Court in Chabot and Mitchell
allowed for some flexibility on the basis that all the information was, in any
event, readily available to the Minister. In Chabot it was contained in
a certificate appended to the receipt, whereas in Mitchell the Minister
received all the information, though not in prescribed form, acknowledged its receipt,
and acted as though it had been filed in prescribed form (see Mitchell
at paragraphs 34, 38 and 40).
[77]
In the present case, the amount of the cash
donations does not appear on the receipts as prescribed by paragraph 3501(1)(h)(i)
of the Regulations. The amounts that appear on the receipts are not the
amount the respondent actually gave in cash according to the Judge’s
determination. Unlike Mitchell and Chabot, the information
is not readily available to the Minister. More importantly, in view of the language
used in the Regulations, it is apparent that the receipts filed by Mr.
Castro do not contain the prescribed information. More precisely, the amount of
his respective cash donations do not appear, as prescribed by subparagraph 3501(1)(h)(i).
The same can be said for the receipts filed by the respondents in the other
appeals.
[78]
I must also point out that subsection 3501(6) of
the Regulations is unambiguous; it states that every official receipt
form on which any of the following is incorrectly or illegibly entered is
deemed to be spoiled. Paragraph (b) of subsection 3501(6) clearly
mentions the amount of the gift in the case of a cash gift.
[79]
It is a well-established principle that
delegated legislation, such as the Regulations, is to be interpreted in
accordance with the general principles of interpretation, in addition to being
read in the context of its enabling Act (see Ruth Sullivan, “Sullivan on the
Construction of Statutes”, 6th ed. (Markham, Ont., LexisNexis, 2014) at
c.13.18). Consequently, subparagraph 3501(1)(h)(i) and subsection
3501(6) of the Regulations must be interpreted in their grammatical and
ordinary sense, in harmony with the Act (see Amaratunga v. Northwest
Atlantic Fisheries Organization, 2013 SCC 66, [2013] 3 S.C.R. 866, at
paragraph 37).
[80]
As I read paragraph 3501(6)(b) of the Regulations
in its grammatical and ordinary sense, it is clear that, in the case of a cash
gift, if the amount of the cash gift is incorrect or is not legibly written,
the receipt is deemed to be spoiled. This general interpretation accords with
the scheme of the Act.
[81]
The Act is meant primarily as a source
of revenue for the federal government. Parliament has also used the Act to
create incentives for private activities that benefit the community as a whole.
Registered charities are allowed to issue charitable gift receipts to facilitate
their funding.
[82]
Pursuant to section 118.1 of the Act and
subparagraph 3501(1)(h)(i) of the Regulations, tax receipts
enable a taxpayer who makes a donation to obtain a non-refundable tax credit
based on the fair market value of his gift to a registered charity. The non-refundable
tax credit is a percentage of the cash donated or if the donation is a property
a percentage of its fair market value. The tax credit is meant to entice the taxpayer
to make donations because it also serves to reduce his impoverishment as a
result of the gift made.
[83]
The Regulations have been enacted to
ensure that the charitable tax receipts are accurate and truthful since the tax
system in Canada is based on self-assessment. When cash is donated, there is no
documentary evidence available other than the mention of the exact amount on
the receipt issued by the registered charity. In the case of a cash gift, as
the entitlement and the calculation of the exact amount of the tax credit is
based on the official receipt issued by the registered charity, it is in
keeping that the absence of the amount of the cash donation on an official tax
receipt will result in a spoiled receipt, or as stated in the French version of
subsection 3501(6) of the Regulations: “le reçu officiel est considéré comme inutilisable”, translated literally “it cannot be used”.
[84]
Subparagraph 3501(h)(i) of the Regulations
states unequivocally that the amount of the cash gift must appear on the
receipt. The consequence of a failure to include that information is outlined
in subsection 3501(6), which is that the receipt is deemed to be spoiled. Just
as in the recent case of Sowa, the missing cash donation information on
the receipts in the present case is sufficient to deny the respondent’s claim
to a tax credit pursuant to subsection 118.1(2) of the Act.
[85]
Even if the Judge determined that a gift was
made, there was no official receipt, in the present case, evidencing the amount
that was donated, in violation of subsection 118.1(2) of the Act. Consequently,
the respondent is denied any tax credit.
IX.
Conclusion
[86]
For these reasons:
a) I would allow the appeals in files A-255-14 Ray Castro v. Her
Majesty The Queen, A-249-14 Rubirosa Tiroy v. Her Majesty The Queen,
A-251-14 Ronaldo David v. Her Majesty The Queen, A-252-14 Danilo
Magarro v. Her Majesty The Queen, A-253-14 Maria S. Grande v. Her
Majesty The Queen, and A-254-14 Aris N. Ani v. Her Majesty The Queen,
with costs;
b) set aside the judgment of the Tax Court of Canada rendered on April
15, 2014 in files A-255-14 Her Majesty The Queen v. Ray Castro, A-249-14
Her Majesty The Queen v. Rubirosa Tiroy, A-251-14 Her Majesty The
Queen v. Ronaldo David, A-252-14 Her Majesty The Queen v. Danilo Magarro,
A-253-14 Her Majesty The Queen v. Maria S. Grande , and A-254-14 Her
Majesty The Queen v. Aris N. Ani;.
c) render the judgment that should be rendered in files A-255-14 Her
Majesty The Queen v. Ray Castro, A-249-14 Her Majesty The Queen v.
Rubirosa Tiroy, A-251-14 Her Majesty The Queen v. Ronaldo David,
A-252-14 Her Majesty The Queen v. Danilo Magarro, A-253-14 Her
Majesty The Queen v. Maria S. Grande , and A-254-14 Her Majesty The
Queen v. Aris N. Ani; and
d) restore the Minister’s assessment denying the tax credit claimed by each
of the respondents in files, A-255-14 Her Majesty The Queen v. Ray Castro,
A-249-14 Her Majesty The Queen v. Rubirosa Tiroy, A-251-14 Her
Majesty The Queen v. Ronaldo David, A-252-14 Her Majesty The Queen v.
Danilo Magarro, A-253-14 Her Majesty The Queen v. Maria S. Grande ,
and A-254-14 Her Majesty The Queen v. Aris N. Ani, for the taxation year
2006.
"A.F. Scott"
“I agree.
David Stratas J.A.”
“I agree.
Richard Boivin
J.A.”
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