The Queen v. Burns, 88 DTC 6101, [1988] 1 CTC 201 (FCTD), aff'd 90 DTC 6335 (FCA)

Pinard, J.:—These are appeals by the plaintiff from the judgment of the Tax Court of Canada dated September 26, 1983 allowing in part defendant's appeals from income tax assessments for his 1977, 1978 and 1979 taxation years.

The defendant (plaintiff by counterclaim) also appeals from the same judgment of the Tax Court of Canada that disallowed in part his appeal for the 1977 taxation year.

These appeals were heard together on common evidence. The proceeding in this Court is a trial de novo and the evidence, by consent of the parties, consisted of a book containing the 38 documents referred to in the joint application for this hearing and of the transcript of the evidence adduced at the Tax Court of Canada.

The question at issue in these appeals is whether certain sums of money paid by the defendant in the taxation years 1977, 1978 and 1979, to the Canadian Ski Association (C.S.A.) are deductible from his income under the provisions of subparagraph 110(1)(a)(ii) of the Income Tax Act, R.S.C. 1952, c. 148, as amended. This subparagraph states:

110.(1) Other deductions permitted. — For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

(a) charitable gifts—the aggregate of gifts made by the taxpayer in the year (and in the 5 immediately preceding taxation years to the extent of the amount thereof that was not deducted in computing the taxable income of the taxpayer for any preceding taxation year) to

(ii) registered Canadian amateur athletic associations,

The following relevant facts have been either admitted or clearly established by the evidence:

1. The defendant, a dentist by profession, resides in the city of Mississauga, in the province of Ontario.

2. The Canadian Ski Association (C.S.A.) is a registered Canadian amateur athletic association as that term is understood in subparagraph 110(1)(a)(ii) of the Act.

3. The C.S.A. is a volunteer organization with its headquarters in the city of Ottawa, in the province of Ontario, and has 16 divisions throughout Canada, one of which is the Southern Ontario Division (S.O.D.).

4. The C.S.A. is responsible for the selection and training of the National Ski Team which competes in worldwide competition including the Olympics. The S.O.D. is responsible for the training of skiers residing in or about Southern Ontario.

5. During 1977, 1978 and 1979, the defendant's daughter, Jane Burns, was a member of the S.O.D. training squad.

6. The defendant paid the C.S.A. (through the S.O.D.), $2,496.00, $1,500.00 and $250.00 in 1977, 1978 and 1979, respectively. In due course, the C.S.A. forwarded to the defendant official income tax receipts for those payments.

7. By notices of reassessment dated March 17, 1981, the Minister of National Revenue reassessed the defendant's 1977, 1978 and 1979 taxation years disallowing the deduction of the amounts paid by the defendant to the C.S.A. The defendant objected to the said reassessments but they were later confirmed by the Minister on the ground that . . the amounts of $2,496.00, $1,500.00 and $250.00 claimed in 1977, 1978 and 1979 respectively do not qualify as gifts under paragraph 110(1)(a) of the Act."

8. The Tax Court of Canada allowed the defendant's appeal in part and referred the matter back to the Minister for reconsideration and reassessment in order to permit the deduction, as charitable gifts, of the amounts of $1,000, $1,500 and $250 in the taxation years 1977, 1978 and 1979 respectively. At the same time, with respect to the 1977 taxation year, the Tax Court of Canada disallowed a similar deduction for an amount of $1,496.

The plaintiff contends essentially that because the defendant's daughter was a member of the S.O.D. training squad, in the circumstances of this particular case, the payments made to the C.S.A. by the defendant were made in the expectation that he would receive a benefit or consideration therefor. Alternatively, the plaintiff argues that the defendant entered into contracts during 1977, 1978 and 1979 with the S.O.D. wherein the S.O.D., for a fee, provided training for his daughter. Accordingly, the plaintiff submits that in either case, such payments do not qualify as "gifts" under section 110 of the Act.

For his part, the defendant submits that the C.S.A. was entitled to and in fact issued tax receipts to the defendant for the contributions he made to it. He also argues that pursuant to section 110 of the Act, absent any contractual relationship between the S.O.D. and himself, he was entitled to rely on such receipts and the contributions were therefore fully deductible from the computation of his taxable income for the respective years in question.

In view of the circumstances of this particular case, I find that the payments made by the defendant to the C.S.A. were not "gifts" within the meaning of section 110 of the Income Tax Act. Indeed, these payments were made for the purpose of securing a material advantage for the defendant. This can be seen from the following additional relevant facts duly established by the evidence.

Out of some 25,000 skiers under the general aegis of the C.S.A., perhaps 25 might get a place on the National Ski Team representing Canada, and that, only after many years of early training and individual effort. It is clear that the participants of the S.O.D. program received a real benefit. As explained by John Newton, executive director of the C.S.A. from November 1978 to April 1983, the main object of the C.S.A. was to be the governing body of skiing in Canada with the prime objective being the selection and training of athletes for the National Ski Team and ensuring that those athletes reach the greatest fulfilment they can from the sport. For his part, Daniel Braniff who served on the board of directors of the S.O.D. and who became president of the S.O.D. during the 1977-78 season, testified that he felt very strongly that the S.O.D. was responsible for not just training athletes but developing people as well. John Welton, technical chairman of the S.O.D. for the 1975-76 season, alpine chairman during the 1976-77 and 1977-78 seasons and finally alpine chairman of the Ontario Team during the 1978- 79 season, said he did not disagree with Mr. Braniff's comments that the S.O.D. performed a valuable function other than training elite athletes, that of developing people. He also stated that the people who are in the S.O.D. training squad (including Jane Burns, the defendant's daughter) are obtaining the benefits of a very costly program, including coaching and training. Mr. Welton clearly expressed his belief that the participants of the S.O.D. program indeed received a benefit. As for the defendant, he felt that as a result of his daughter's participation in the S.O.D., she would gain maturity partly due to the fact that she had to be a much more responsible student. He also recognized that it would make her a much better citizen.

With respect to the financing of the C.S.A., there were government grants, donations (both individual and corporate), and fund raising activities which provided the total budget. The C.S.A., when providing income tax deduction receipts, kept approximately ten per cent of donated amounts for activities directed largely toward the development of the National Ski Team. The C.S.A. remitted the balance of about 90 per cent back to the local or regional association or club to which the money had been donated.

In addition to the regular winter program of the S.O.D., John Welton became involved in organizing a summer ski program for the S.O.D. training squad in Solden, Austria. The parents whose children took part in that European trip were responsible for the entire cost, and it was for this reason that the defendant paid $1,496 to the C.S.A. The defendant received a receipt from the C.S.A. for this payment and deducted this amount in his 1977 tax return.

Prior to, as well as after the three years under review, the defendant made considerably smaller contributions to the C.S.A., who accepted them and issued appropriate tax deduction receipts. The defendant was aware that when his daughter would become a member of the S.O.D. training squad, he would be required to pay amounts much greater than he had contributed usually. As well expressed by the learned Tax Court's judge in his judgment, "the efforts at persuading parents to contribute bordered on the "hard-sell" at the ‘elite’ level of training, and the threat of discontinuation of an individual's training is implicit, almost explicit, in some of the correspondence". Moreover, the Agreement signed by Jane Burns, the defendant's daughter, on October 31, 1978 included the following paragraph:

Financial Agreement

This is to provide that the members and their parents are aware of the financial commitments to the Division for participation in the Southern Ontario Division Training Squad. These are as follows: —

Basic Programme Costs — $1,200.00 is the aim; if adequate fund raising does not develop it could be as high as $1,500.00.

On that Agreement, Jane Burns signed her name and her parent's name. The defendant stated that he might have authorized her to sign the document and Jane Burns testified that her father never disapproved of her signing it. Therefore, in my view, the defendant ratified this "agreement" by making the payments to the S.O.D. I consider that the defendant, in so doing, confirmed the existence of at least an understanding or arrangement between him and the S.O.D. by which he would pay it certain sums of money and it would allow his daughter to participate in its Training Squad.

Furthermore, Jane Burns started participating in the S.O.D. program at the team level in the 1975-76 season and stopped participating in the 1978-79 season. She left the team in or about February 1979, because of an injury. At that time, the defendant refused to make the last instalment for the 1978-79 program, because his daughter had stopped participating. He felt that the amount already paid to the S.O.D. was fair, given the amount of time at the end of the season for which his daughter was unable to ski. As indicated earlier, after his daughter left the S.O.D. training squad, the defendant's contributions decreased greatly. In his 1980 and 1981 income tax returns, he contributed $50 each year to the C.S.A.

Finally, the defendant spontaneously agreed that he would not have paid the fees he did, had his daughter not been part of the S.O.D. training squad.

In The Queen v. Lyle McBurney, [1985] 2 C.T.C. 214; 85 D.T.C. 5433, the Federal Court of Appeal has recently reviewed the law with regard to "gifts" within the meaning of section 110 of the Income Tax Act. In that case, the taxpayer paid certain amounts to three Christian religious schools which were attended at various times in the taxation years in issue by his children. Each of the schools was a non-profit organization and a registered charity. Parents of children attending these schools were requested and were expected to make financial contributions, but no child had ever been turned away because of the financial hardship of the parents. The taxpayer deducted the payments as charitable donations. The Minister took the position that the payments were on account of tuition fees and accordingly disallowed the deductions. The Court of Appeal found that the payments were not "gifts". At pages 218, 219 and 220 (D.T.C. 5435, 5436 and 5437), Stone, J. had this to say:

The word “gifts” is not defined in the statute. I can find nothing in the context to suggest that it is used in a technical rather than in its ordinary sense. This latter sense was attributed to that word by courts of Australia as it appeared in a like context of an Australian taxing statute allowing “gifts” to be deducted from income in certain circumstances (Commissioner of Taxation of the Commonwealth v. McPhail (1967-68), 41 A.L.J.R. 346 at 347; Leary v. Federal Commissioner of Taxation (1980), 32 A.L.R. 221 at 221, 237 and 241). The same approach was taken by the Trial Division of this Court in The Queen v. Zandstra, [1974] 2 F.C. 254; [1974] C.T.C. 503 (supra). It adopted the views expressed by Owen J. in the McPhail case which decided that payments made by a parent to the building fund of a school attended by his son were not deductible as "gifts". At page 348 of the report, Owen, J. stated :

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.

Apart from this qualification (which I would not consider material), the approach taken by Owen, J. in the McPhail case has stood through the years and has found favour in the Trial Division of this Court in the Zandstra case. That case also involved annual payments made by a taxpayer to a charitable organization of which he was a member. That organization, as here, operated a Christian school which two of the taxpayer’s children attended in the years the payments were made. The amount of payments was arrived at in much the same manner as in the present case, being based upon projected school operating costs and the number of children attending. Parents were assessed on the basis of family income. It was their view that payments were made out of a sense of moral obligation rather than a legal or contractual one. In holding that these payments were not “gifts” within the meaning of subparagraph 27(1)(a)(i) of the Income Tax Act (being in all relevant respects similar to subparagraph 110(1)(a)(i), Mr. Justice Heald stated (at 262 C.T.C. 509):

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.

[Christian duty]

There can be little doubt that here, too, the respondent saw it as his Christian duty to ensure his children receive the kind of education these schools provided. The payments were made in pursuance of that duty and according to a clear understanding with the charities that while his children were attending these schools he would contribute within his means toward the cost of operating them. 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". The securing of the kind of education he desired for his children and the making of the payments went hand-in-hand. Both grew out of the same sense of personal obligation on the part of the respondent as a Christian parent to ensure for his children a Christian education and, in return, to pay money to the operating organizations according to their expectations and his means. In my judgment the Minister was correct in refusing to treat these payments as "gifts" under subparagraph 110(1)(a)(i) of the Income Tax Act.

It is significant, in my view, that in the years after his children were no longer attending the OCSA school, the respondent's payments to that charity declined dramatically. With respect, I am unable to draw from this evidence the inferences that the learned trial judge was able to draw, namely, (at 477; D.T.C. 6504) that "there is nothing to be made" of this fact and, specifically, that "no inference of his paying a tuition fee can be drawn in these circumstances". On the contrary, this evidence supports the appellant's contention that the 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.

In the Zandstra case referred to in McBurney (supra), Heald, J. stated and applied to the facts of his case the following dictionary definitions of “gift” (at page 261; C.T.C. 508):

“Gift” is defined in Halsbury as follows:

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

In Black's Law Dictionary “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 . . .

I find the analogy between the McBurney case and the present one striking and compelling. I have no hesitation in applying here the rationale of that case as well as the dictionary definitions stated in Zandstra.

Here, 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”. Therefore, even accepting the defendant's contention that there was no contractual obligation, it seems clear that the payments made by the defendant were not payments made without consideration or without material benefit. The consideration or benefit the defendant obtained in return was the development and the ski training provided for his daughter, both in Austria and in Canada, by the S.O.D.

I would like to emphasize that one essential element of a gift is an intentional element that the Roman law identified as animus donandi or liberal intent (see Mazeaud, Leçon de Droit Civil, tome 4ième, 2ième volume, 4 ieme edition, No. 1325, page 554). The donor must be aware that he will not receive any compensation other than pure moral benefit; he must be willing to grow poorer for the benefit of the donee without receiving any such compensation. In my view, the defendant believed he was paying for his daughter's ski training and he considered that to be the benefit. Consequently, the defendant did not have the animus donandi or liberal intent required to allow the payments he made to the C.S.A. to be considered "gifts" under subparagraph 110(1)(a)(ii) of the Act.

In view of this conclusion, it will not be necessary to deal otherwise with the plaintiff's alternative submission. The defendant has failed to discharge his onus to satisfy this Court that the Minister’s reassessments ought to be set aside.

For the foregoing reasons, I would allow the plaintiff's appeal, dismiss the defendant's counterclaim and restore the reassessments made herein by the Minister of National Revenue in respect of the defendant's taxation years 1977, 1978 and 1979.

Pursuant to subsection 178(2) of the Income Tax Act, the Minister will be ordered to pay all reasonable and proper costs of the defendant in connection with this action. With respect to the counterclaim, there will be no costs.

Appeal allowed.