Citation: 2012TCC325
Date: 20120914
Docket: 2005-1974(IT)G
BETWEEN:
KATHRYN KOSSOW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
In 2000, 2001 and 2002
the Appellant participated in a leveraged-charitable donation[1]
arrangement promoted by Berkshire Funding Initiatives Limited and Talisker
Funding Limited (the “Berkshire Program” and sometimes “Program”). As a
participant in the Berkshire Program, she made purported donations to and
received charitable tax receipts from Ideas Canada Foundation (“Ideas”) in the
amounts of $50,000, $60,000 and $50,000 in 2000, 2001 and 2002 respectively
(the “Donations”). In the present appeal, the Appellant’s Donations were funded
by 20% cash from her and 80% from a 25 year, non-interest bearing loan provided
to her by one of the promoters of the Berkshire Program.
[2]
The Appellant claimed a
tax credit in respect of the Donations of $50,000, $60,000 and $50,000 in 2000,
2001 and 2002. By notices of reassessment dated September 2, 2004, the Minister
of National Revenue (the “Minister”) disallowed 80% of the tax credit claimed
for each year. In a reassessment dated September 9, 2005, the Minister disallowed
the entire tax credit for the 2002 taxation year.
[3]
The issues in this
appeal are: (a) whether the Donations made by the Appellant were gifts within
the meaning of subsection 118.1(1) of the Income Tax Act (the “Act”);
(b) whether the general anti-avoidance rule is applicable to deny the tax
credits to the Appellant; and, (c) who has the onus of proving the Minister’s
assumptions when those assumptions involve third parties.
[4]
Based on my analysis of
the facts and law, the appeal cannot succeed because I have concluded that the
decision in Maréchaux v. The Queen, 2010 FCA 287 is determinative of the
first issue in this appeal. As a result, I have also concluded that I do not
have to address the second issue. In the circumstances of this appeal, it is
not necessary for me to decide who had the onus of proving the Minister’s
assumptions as there was sufficient evidence presented at the hearing which
allowed me to make my decision.
[5]
At the hearing, the
Respondent called the following witnesses who held the following positions
during the years at issue. All witnesses, except the Canada Revenue Agency
(“CRA”) employee, gave their evidence under subpoena issued by the Respondent.
Yeti Agnew, lawyer for the MacLaren Art
Centre;
William Moore, Executive
Director of the MacLaren Art Centre until December 2003;
Jack Keslassy, Administrative
Director of Berkshire Funding Initiatives Ltd., President of Berkshire
Foundation Ltd. and Talisker Funding Ltd.;
Allan Beach, lawyer for James
Penturn, Berkshire Funding Initiatives Ltd., Talisker Funding Ltd., Joan
Krawczyk Fine Art Inc. and Jennings Art Consultants Ltd.;
David Sanderson, Executive
Director of Ideas;
Cheryl McCann, Valuation Specialist with the Canada Revenue
Agency.
[6]
There were copious
documents tendered as evidence in this appeal and the hearing lasted ten days.
[7]
Prior to deciding
whether the Donations made by the Appellant were gifts and to put the Donations
in context, I will summarize the main points in the evidence and, in so doing,
will describe the Berkshire Program and what happened to the Donations after
they were received by Ideas.
Background
[8]
In these reasons, I
have used the term Participant to represent an individual who made a donation
to Ideas.
[9]
The Appellant obtained
her Masters in Business Administration with a speciality in marketing in 1978
from York University. She conducted marketing research in the pharmaceutical
industry first as a sole proprietor and later through Kossow Research and
Associates which she had incorporated in 2001.
[10]
The Appellant learned
of the Berkshire Program in October 2000 from her investment advisor, Donnovan
DePass of Capital Management Group. She became a Participant in 2000 and 2001
through Mr. DePass. In 2002, she met directly with Jack Keslassy[2]
(“Keslassy”) to become a Participant. (Later in these reasons, I will describe
Keslassy’s role in the Berkshire Program.)
[11]
It was the Appellant’s
evidence that she was attracted to the Berkshire Program because, according to
its promotional material, Ideas donated to several arts related organizations
and the Program would allow her to make a larger donation than she could
otherwise make to support the arts. According to the Appellant, the tax savings
was a secondary consideration.
[12]
I note that from 1988
to 1999, the Appellant made charitable donations which ranged from $201 to
$1,360.
The Berkshire Program
[13]
I do not know when the
idea for the Berkshire Program was first conceived. However, Allan Beach
(“Beach”), a partner with Fasken Martineau DuMoulin LLP (“Fasken”), testified
that he became involved in the Berkshire Program in the early summer of 2000.
[14]
The Berkshire Program
was conceived by a fundraising group and an art dealer group who worked in
concert to develop the details of the Program.
[15]
The individuals in the
fundraising group were James Penturn (“Penturn”), Richard Glatt (“Glatt”) and
Jack Keslassy (“Keslassy”). It was their idea that the Donations from the
Participants would consist of an interest-free loan component and a cash
component.
[16]
The art dealer
individuals were Hazel Hett (“Hett”), Gerard Jennings (“Jennings”), Joan
Krawczyk (“Krawczyk”) and Elizabeth Sumption. The corporate entities in this
group were Jennings Art Consultants Limited (“Jennings Art”), Joan Krawczyk
Fine Art Inc. (“JKFA”) and Gower Street Gallery Limited, later renamed GSG
Limited and hereinafter referred to as “GSG”. The art dealers arranged for
works of art to be acquired by the MacLaren Art Centre (the “MacLaren”) using
the funds raised in the Berkshire Program. The MacLaren is located in Barrie, Ontario.
(a) The Fundraising Group
[17]
The individuals in the
fundraising group had, at various times, been involved in the sale of tax
shelter programs.
[18]
Keslassy worked for
Penturn and Glatt since the early 1990s. Prior to the Berkshire Program, he had
been the Administrative Director of AFE Consultants Limited, an art purchase
and donation tax shelter. It was his evidence that he worked for Penturn at AFE
Consultants Limited. When this tax shelter was impacted by the February 2000
budget, the Berkshire Program was created.
[19]
As early as August 25,
2000, Keslassy, as Administrative Director of The Berkshire Foundation Limited,
contacted individuals and investment advisors to interest them in participating
in the Berkshire Program. The Berkshire Foundation Limited was later renamed
Talisker Funding Limited (“Talisker”) and I will refer to it as Talisker in
these reasons. Keslassy was the President, director and sole shareholder of
Talisker and he processed the paperwork for the Berkshire Funding Initiatives Limited
(“Berkshire”).
[20]
Both Berkshire and
Talisker promoted the Berkshire Program. Berkshire was the fundraiser and
Talisker made the loans to the Participants.
[21]
Neither Penturn nor
Glatt testified at the hearing. However, the evidence established that they were
Co-Presidents of Berkshire.
[22]
On or before August 21,
2000, Penturn engaged David Sanderson to be the Executive Director of Ideas.
David Sanderson had worked for James Penturn and his father, Norton Penturn in
various tax shelter programs since the 1980’s.
[23]
Ideas was settled as a
charitable trust on September 22, 2000 and it became a registered charity
effective November 1, 2000[3].
Its role in the Berkshire Program was to issue charitable receipts to the
Participants, to make donations to charities and to facilitate the circular
flow of the Donations through an escrow account.
[24]
Berkshire recruited lawyers, accountants and
investment advisors from across the country to be sales agents for the
Berkshire Program. These sales agents signed an agency agreement with Berkshire and they were paid a commission based on the quantum of Donations they raised[4].
[25]
The sales agents were
provided with promotional materials to describe the Program to their clients.
According to these materials, some of the features of the Program were:
- Support of educational and cultural
institutions
- Cash contribution of 30% of total
donation; 20% used for the donation and 10% as a security deposit
- Loan for 80% of total
donation
- Loan is interest free
for 25 years
- Security deposit to be invested by
lender and guaranteed to meet or exceed benchmarked rate of return
- Loan processing fee of
1-5%
- Tax opinion from the law firm of Thorsteinssons, Canada’s largest law firm dealing exclusively in the area of taxation
- Cumulative cash flow advantage of
40.88% in 2000, 52% in 2002 for residents of Ontario when they donated $50,000
- Key Benefits – cash donation; no
valuation risk; tax advantages
[26]
The Berkshire Program
was in existence from 2000 until 2003. During this period, Talisker made more
than $160,000,000[5]
in loans to approximately 1200 Participants. Talisker stopped making loans in
February 2003[6]
because of proposed amendments to the Act[7].
[27]
Sometime in 2003, a new
program called the Millennium Charitable Foundation came into existence and the
Appellant participated in this program through Keslassy. I do not know any
details about the Millennium Charitable Foundation except that the Appellant
paid $16,000 to receive a charitable receipt of $48,000 from it.
(b) The Art Dealers and The Art
[28]
According to this
component of the Program, 88% of the Donations to Ideas were deposited into an
escrow account held by Fasken on account of a gift which Ideas wanted to make
to the MacLaren. However, the MacLaren had no control over 87.5% of those funds.
They had to be used to purchase art which the dealers made available to the
MacLaren at a price which the dealers dictated.
[29]
On a review of the
evidence, I have concluded that Hett was the person who planned the art
component of the Berkshire Program. Sometime prior to October 4, 2000[8], she
agreed to help William Moore raise funds for the MacLaren through Ideas. They
intended that the MacLaren would acquire an inventory of Rodin bronzes which it
could sell over a period of years to raise money.[9] The
MacLaren wanted to build a project called Art City in the city of Barrie, Ontario.
[30]
Hett negotiated an
agreement with Gary Snell, owner of Gruppo Mondiale (“Gruppo”), that Gruppo
would manufacture, in Italy, 12 sets of Rodin bronzes for the MacLaren. Each
set was to contain 51 bronzes for a total of 612 bronzes. These were called the
MacLaren Edition. Hett negotiated that the MacLaren Edition would be sold to JKFA
for US $6,000,000[10].
[31]
Within a two day
period, there were four contracts which were signed with respect to the
MacLaren Edition of the Rodin bronzes. In the space of these two days, the
price for the bronzes increased 18 fold from US $6,000,000 to US $108,840,000.
The details were as follows.
[32]
On November 30, 2000,
JKFA entered into a written contract with Gruppo for the MacLaren Edition of
Rodin bronzes. At this time, JKFA also received 612 signed “Bills of Sale &
Certificates of Title” which were to be released to the MacLaren as Gruppo was
paid for each set. The contract specified that delivery, inspection and
acceptance of the bronzes were to take place in Italy at JKFA’s expense.
[33]
A day after signing the
contract with Gruppo, JKFA assigned its interest in the contract to GSG. Hett
was a consultant to GSG. The same day, that is, December 1, 2000, GSG consigned
the MacLaren Edition to Jennings Art for US $108,840,000. The sale was governed
by a “Marketing and Consignment Contract” which had been made between the
parties on August 15, 2000.
[34]
Again on December 1,
2000, Jennings Art agreed to sell the MacLaren Edition of Rodin bronzes to the
MacLaren for US $108,840,000. There was no negotiation on the price to be paid
by the MacLaren. It was decided by the vendor[11] with the use of a purported “Valuation
Summary” prepared by Stewart Waltzer. I refer to the valuation as purported
because it was not based in reality. It was prepared before the Rodin bronzes
were manufactured; it was based on “numerous suppositions”; and, Stewart
Waltzer had not even seen the plasters from which the bronzes would be made.
[35]
According to Beach, a
dispute arose between JKFA and Gruppo and only 10 of the 12 sets of bronzes
were completed, inspected and title transferred to the MacLaren. JKFA paid US
$5,000,000 for the 10 sets. None of the bronzes was landed in Canada. The MacLaren has never received any of the MacLaren Edition bronzes.
[36]
There was no evidence
before me which showed that the MacLaren Edition of the Rodin bronzes actually
existed. None of the witnesses who appeared before me saw or inspected them.
The declarations of inspection of the bronzes were completed by Hett or Gerard
Jennings or Joan Krawczyk [12],
the art dealers who helped to plan the Berkshire Program. The declarations of
inspection were not made exhibits and no documents were submitted which would
allow me to conclude that the MacLaren Edition of the Rodin bronzes were
actually manufactured.
[37]
The MacLaren received
title to 10 sets of the Rodin bronzes. However, even after it was apparent that
the MacLaren would not get title to the remaining two sets of Rodin bronzes,
funds continued to be deposited to the Fasken escrow account for the benefit of
the MacLaren. The art dealers had to arrange for the MacLaren to acquire other
pieces of art to support the amounts being deposited to the escrow account.
They then arranged for the MacLaren to receive a collection of prints by Henry
Moore in substitution for the two remaining sets of bronzes. Pursuant to a
letter dated October 25, 2002, Jennings agreed to sell a set (676) of Henry
Moore prints for US $35,000,000 to the MacLaren.
[38]
The complete collection
of Henry Moore prints consisted of 693 prints. This collection had been sold to
JKFA for US $1,450,000 on February 11, 2002 by Gilles Abrioux, an art dealer in
Chicago.
[39]
Hett also arranged for
the MacLaren to acquire 17 Rodin plasters which she owned. The cost of these
plasters to the MacLaren was $3,256,000. There was no evidence with respect to
the cost of these plasters to Hett. There was no evidence concerning the
valuation of these plasters.
(c) The Appellant as a Participant
[40]
To become a Participant
in the Berkshire Program, the Appellant was required to complete the following
steps, which she did in 2000, 2001 and 2002:
(a) sign a Pledge to Ideas for the full
amount of her Donation;
(b) make a Loan Application for a 25
year, interest-free loan equal to 80% of her Donation to Talisker (I will refer
to this as the “Loan Amount”);
(c) sign a cheque for 20% of her
Donation made payable to Talisker “as agent”;
(d) pay Talisker a security deposit
equal to 10% of her Loan Amount which was to be invested for the purpose of
increasing to the Loan Amount in 25 years;
(e) pay Talisker a loan processing fee
of 1-5% of the Donation;
(f) sign a document called a
promissory note for the Loan Amount, due 25 years from the date on the note.
[41]
Ideas was the
designated charity on the Loan Applications and the Loan Amounts could only be
used to make donations to Ideas.
[42]
The Donation was
conditional on the Loan Application being approved. If it was not approved, the
Appellant’s deposit (20% of the Donation) would have been returned to her.
[43]
Talisker forwarded the
Loan Amounts and the funds received “as agent” to Ideas who then sent
charitable receipts to the Appellant.
[44]
The particulars of the
Appellant’s transactions were as follows:
|
Year
|
Donation
|
Loan
Amount
|
20% of
Donation
|
Security
Deposit
|
Loan
Processing
Fee
|
Charitable
Receipt
|
|
2000
|
$50,000
|
$40,000
|
$10,000
|
$5,000
|
$2,000
|
$50,000
|
|
2001
|
$60,000
|
$56,400[13]
|
$12,000
|
$6,000
|
$2,400
|
$60,000
|
|
2002
|
$50,000
|
$40,000
|
$10,000
|
$5,000
|
$2,000
|
$50,000
|
[45]
As a result of the charitable
receipts from Ideas, the Appellant claimed the following Tax Credits:
|
Year
|
Tax Credits
|
|
2000
|
$20,046
|
|
2001
|
$24,060
|
|
2002
|
$20,045
|
[46]
Pursuant to a power of
attorney, Talisker invested the security deposits in mutual funds chosen by the
Appellant from a list determined by Talisker.
[47]
The Appellant testified
that she now believes that the investments will not be sufficient to repay the
Loan Amounts at the maturity dates. She stated that she has invested additional
funds so that she can meet her obligations when the loans mature. However, this
testimony was not supported by any documentary evidence.
[48]
I note that Talisker
has assigned the Appellant’s security deposits and debts to GSG. According to
the statements received by the Appellant since 2003, her security deposits have
been deposited in GSG Collateral Security Account. She testified that she has
not made any inquiries about this investment.
(d) The Circulation of the Loans Amounts
[49]
The circular flow of
the Loan Amounts was succinctly described in the Respondent’s Submissions as
follows:
In
a nutshell, Talisker borrowed money from a Canadian lender in order to make the
loans to the participants. Talisker borrowed money from an offshore lender in
order to repay the Canadian lender. The offshore lender used funds directed to
it from the “donations” to make these loans to Talisker. Transactions involving
parties other than the participants ensured that Talisker would be able to
repay the Canadian lender[14].
[50]
In 2000, Talisker
borrowed monies from Standard Mercantile Bancorp., Limited Partnership
(“Standard”) pursuant to a Credit Facility Agreement, dated December 4, 2000.
The amounts borrowed from Standard were used to make the loans to the
Participants[15].
[51]
Beach described the
circulation of the monies as follows:
His
loan was designed ‑‑ sorry, the Standard loan was designed as a
daylight loan which would effectively move money through, I think, in this
case, a series of accounts, bank accounts, established for each of the parties
in the chain of payments. The end result of which would be some or all of that
loan would end up back with Standard within 24 or 48 hours[16].
[52]
The return of the Loan
Amounts to Standard within 24 to 48 hours was made possible through the use of
an escrow account held by Fasken, a set of Directions which had been prepared
by Beach and bank accounts held by each party in the chain of payments at
various branches of the TD Bank in Toronto.
[53]
The parties in the
chain of payments, the Directions and the circulation of the funds were as
follows (For clarity, I have attached a diagram at Appendix ‘A’ to these
reasons which illustrates the circulation of the Loan Amounts):
(a)
The advances from
Standard were deposited to the bank account of Irwin Singer (“Singer”), in
trust, who directed the TD Bank to credit the advances to the bank account of
Talisker.
(b)
Talisker directed the
TD Bank to combine the advances from Standard with the amounts paid to it “as
agent” and issue bank drafts to Ideas in the names of each of the Participants
for 100% of their Donation. Talisker gave the TD Bank a list of the
Participants’ names with the Donation made by each Participant.
(c)
Ideas directed the TD
Bank to deposit the proceeds of the bank drafts to its bank account. It then
authorized the TD Bank to debit its account for 88% of the Donations and
deliver a cheque or bank draft for this amount to Fasken on account of a gift
to be made by Ideas to MacLaren.
(d)
Ideas directed Fasken
to deposit 88% (on some occasions 86%) of the Donations to an escrow account
held in trust for the MacLaren. (Ideas paid Berkshire 11% of the Donations for
its fundraising services. The remaining 1% of the Donations was used by Ideas
to pay its expenses and salaries and to make donations to charities chosen by
Sanderson.)
(e)
The MacLaren authorized
and directed Fasken to pay all amounts received from Ideas, except 0.5%, to
Jennings Art. The 0.5% was paid to the MacLaren for its building fund.
(f)
Jennings Art directed
Fasken to pay amounts to GSG. I assume that Jennings Art received a commission
but the percentage was not put into evidence.
(g)
GSG directed Fasken to
pay “the amounts as may from time to time be requested” in writing by Wigmore
Investments Limited (“Wigmore”).
(h)
Wigmore directed Fasken
to pay Talisker those amounts which Fasken had received on its behalf from GSG.
According to the evidence, I conclude that GSG received at least 80% of the
Donations and it directed that the Loan Amounts be paid to Wigmore who directed
that they be paid to Talisker[17].
Elizabeth Sumption in Barbados gave directions for both GSG[18] and
Wigmore[19].
According to Beach, these amounts were Wigmore’s advances to Talisker under
their loan agreement[20].
(i)
Talisker directed
Fasken to deposit the amounts received from Wigmore into Talisker’s bank
account at the TD Bank.
(j)
Talisker directed the
TD Bank to credit 80% of the Donation (the Loan Amount) to the account of Irwin
Singer in trust.
[54]
The loan agreement
between Talisker and Wigmore was made on October 12, 2000 and it specified that
the advances given to Talisker could be used only for the Berkshire Program.
Any amounts advanced by Wigmore to Talisker were interest free until December
31, 2010.
[55]
Talisker relied on
advances from Standard in 2000 and 2001 to fund the Loan Amounts to the
Participants in the Program. By 2002, Talisker used its own funds to fund the
Loan Amounts[21].
However, even in 2002, the Loan Amounts circulated through Wigmore and returned
to Talisker.
[56]
In cross examination,
Beach was asked why GSG was directing the escrow account to make payments to
Wigmore. The question and his answer follow:
Q. Why was Gower Street
Gallery permitting your firm or your escrow account to make payments to
Wigmore?
A. This was the mechanic in
which it was ‑‑ well, it is part of the daylight loan we are
discussing now, but this is how some or all of the money that originated with
Irwin Singer would be ultimately repaid to Irwin Singer[22].
He was later asked the same question but
answered that he did not know the answer.
[57]
In conclusion, I could
not ascertain the exact quantum of monies which was transferred between Jennings and GSG and Wigmore. However, I concluded from Beach’s evidence and exhibit R-7,
Tab C1 page 24 that the Loan Amounts circulated through the escrow account and
were returned to Standard within 24 to 48 hours.
(e) The Amounts Reported in the
Information Returns
[58]
Ideas reported the
following amounts in its Information Returns. Its fiscal year end was August
31.
|
|
August 31, 2001
|
August 31, 2002
|
August 31, 2003
|
|
Gifts
Received
|
$81,725,350
|
$85,551,485
|
$37,894,705
|
|
Gifts to
MacLaren
|
$71,771,420
|
$75,605,932
|
$33,157,540
|
|
Gifts to Other
Charities
|
$235,458
|
$183,500
|
$15,000
|
[59]
Beach informed the
MacLaren that the following amounts had been paid on its behalf.
|
December 11, 2000 to
August 31, 2001
|
September 1, 2001 to
August 31, 2002
|
September1, 2002 to
February 18, 2003
|
|
$71,771,420
|
$75,405,932
|
$32,986,620
|
He wrote that $141,831,761 went towards the
acquisition of 10 sets of the Rodin bronzes; $3,256,000 went towards the
acquisition of 17 Rodin plasters; and, $35,076,211 went towards the acquisition
of 433 Henry Moore prints. The MacLaren also received $1,314,817 towards its
building fund.
[60]
In its Information
Returns, the MacLaren reported in its fiscal year end December 31, 2000, that
it had received $63,975,933 and in its fiscal year end December 31, 2001, that
it had received $71,124,299 from a registered charity. In its fiscal year end
December 31, 2002, it reported that it had received nothing from a registered
charity.
[61]
The essence of the
Berkshire Program was that little cash was given to a few charities and the
MacLaren was required to acquire art from the creators of the Program with the
Donations allocated to it.
[62]
In conclusion, I note
that the Appellant was not aware of most of these individuals or the
transactions described above when she first became a Participant in the
Berkshire Program. The aspects of the Program which directly affected her were
described under the heading “The Appellant as a Participant”.
[63]
When the Appellant
became a Participant in the Berkshire Program, she was not familiar with Ideas.
However, she made no enquiries about it and she did not read the details
related to her participation in the Program. She signed the Loan Application
and the power of attorney without reading their terms.
[64]
I noted earlier that the Appellant
stated that she was attracted
to the Berkshire Program because it allowed her to make a larger donation than
she could otherwise make to support the arts and that the tax savings was a
secondary consideration.
[65]
On a review of the
evidence, it is my view that the tax savings were the Appellant’s principal
reason for making the Donation.
Analysis
[66]
Section 118.1 of the Act
allows a tax credit for individuals with respect to gifts made to a registered
charity and other organizations. That section reads as follows:
118.1(1) In this section,
“total
charitable gifts”, of an
individual for a taxation year, means the total of all amounts each of which is
the fair market value of a gift (other than a gift the fair market value of
which is included in the total Crown gifts, the total cultural gifts or the
total ecological gifts of the individual for the year) made by the individual
in the year or in any of the five preceding taxation years (other than in a
year for which a deduction under subsection 110(2) was claimed in computing the
individual’s taxable income) to a qualified donee, to the extent that the
amount was not included in determining an amount that was deducted under this
section in computing the individual’s tax payable under this Part for a preceding
taxation year;
[67]
In Maréchaux v. The
Queen, 2010 FCA 287, the Federal Court of Appeal also dealt with a
leveraged-charitable donation program. It agreed with the definition of gift
adopted by the trial judge, Woods J., from The Queen v. Friedberg, 92
DTC 6031 (FCA) at 6032. It stated that for the purposes of section 118.1:
…a gift is a voluntary
transfer of property owned by a donor to a donee, in return for which no
benefit or consideration flows to the donor
[68]
The Federal Court of
Appeal also agreed with Woods J. that Mr. Maréchaux did not make a “gift”
within the meaning of section 118.1 of the Act because he made the
payment to the foundation expecting to receive a “significant benefit” in
return. That benefit was an interest-free loan from a lender.
[69]
In the present case,
Ms. Kossow’s Donations to Ideas were not separate from the financing she
received from Talisker. Her Donations were conditional on her Loan Applications
for interest-free loans being accepted. I conclude that, as in Maréchaux,
Ms. Kossow did not make a gift within the meaning of section 118.1 of the Act.
The 25 year interest-free loans were “significant benefits” which she received
in return for making her Donations. The Appellant was able to transfer $50,000,
$60,000 and $50,000 to Ideas by using only $17,000, $20,400 and $17,000 of her
own money in 2000, 2001 and 2002 respectively. She accomplished this without
having to pay interest on a commercial loan for the difference.
[70]
The appellant in Maréchaux
received a second benefit from a “put option”. However, it is not necessary
that there be two benefits to vitiate a gift. That a benefit flowed to Ms.
Kossow in return for her Donation is sufficient to demonstrate that her
Donation did not constitute a gift. The comments made by Woods J. in Maréchaux
v. The Queen, 2009 TCC 587 are applicable:
35
I would also comment that, even without the Put Option, the financing provided
a significant benefit. It is self-evident that an interest-free loan for 20
years provides a considerable economic benefit to the debtor.
[71]
Counsel for Ms. Kossow
argued that a gift is only vitiated where there is evidence of consideration
from the donee to the donor. In support of her position, counsel relied on the
recent decision of the Ontario Court of Appeal in McNamee v. McNamee,
2011 ONCA 533 where the court stated:
31. It is helpful to remember that the issue is not whether
the donor (or, for that matter, the donee) received some benefit from the
estate freeze (Mr. McNamee Sr. accomplished his corporate planning; the boys
received their common shares). The issue is whether the
donee has provided any consideration to the donor for the transfer of
the shares. For the reasons outlined above, the appellant provided no
consideration in that regard. The fact that Mr. McNamee Sr. accomplished his
corporate planning goals - including capping his value in the company at $2
million, with the right to draw out more if he wished; protection from
creditors; and relief from possible tax consequences on his death - do not
amount to consideration flowing from the appellant to him. Nor, we would add,
did the appellant's continued employment with McNamee Concrete constitute
consideration for the transfer of the shares in the circumstances. The
appellant receives a good salary for his services as an employee of the
enterprise, and the father's vague hope that his sons would continue with the
company does not constitute consideration flowing from the boys. The shares
were not transferred in order to ensure the sons' continued involvement in the
company; they were transferred to give effect to the estate freeze plan. Motive
underlying a donor's conduct is not the same thing as consideration flowing
from the donee. (emphasis added)
[72]
It is my view that the Appellant
has taken the statement of the Ontario Court of Appeal out of context and she
has misinterpreted its scope. The statement in McNamee was made in the
context of a Family Law matter where there was a disagreement whether shares
received by the husband from his father were part of the matrimonial property.
The question revolved around whether the shares had been gifted to the husband
by his father.
[73]
Further, the statement made in McNamee
was not intended to be one of general application. It has to be read in the
context of the facts in that particular case. The Ontario Court of Appeal did
not impose a restriction on the definition of the word “gift”. It did not
purport to change the definition of gift. It relied on the following definition
of “gift” in making its decision:
24 The essential ingredients of a
legally valid gift are not in dispute. There must be (1) an intention to make a
gift on the part of the donor, without consideration or expectation of
remuneration, (2) an acceptance of the gift by the donee, and (3) a sufficient act
of delivery or transfer of the property to complete the transaction: Cochrane v. Moore, (1890), 25 Q.B.D. 57 (C.A.), at p.
72-73; Mossman and Flanagan, supra, at p. 441, Bruce
Ziff, Principles of Property Law, 5th ed. (Toronto:
Carswell, 2010), at p. 157.
[74]
Counsel also argued that, if I
concluded that the Appellant received a benefit in return for the Donation, the
Appellant should receive a tax credit for the cash portion of her Donation,
$10,000, in 2002.
[75]
I disagree. As in Maréchaux,
there was “only one interconnected transaction here”. No part of the Donation
was given as a gift without expectation of a return.
[76]
The appeal is dismissed with costs
to the Respondent.
Signed at Ottawa, Canada, this 14th
day of September 2012.
“V.A. Miller”
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