Citation: 2010 TCC 240
Date: 20100505
Docket: 2008-3722(IT)I
BETWEEN:
RICHARD KWAME ADOMPHWE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell J.
[1]
These appeals were part
of a group of charitable donation appeals involving almost forty different
Appellants. By the time they were scheduled for hearing, many of the Appellants
had withdrawn their appeals. In the end, only the appeals of Richard Kwame
Adomphwe (2008-3722(IT)I), George W. Scott (2008-1657(IT)I), Stephonie
Scott (2008-1704(IT)I) and Doreen Tuar (2008-2888(IT)I) proceeded to
hearing.
[2]
Richard Adomphwe’s
appeals involve his 2004, 2005 and 2006 taxation years. In each of these years
the Appellant claimed non-refundable tax credits in respect to charitable
donations totalling $14,900.00 in 2004, $11,339.30 in 2005 and $11,820.00 in
2006. During the hearing, the Appellant testified that in respect to the 2004
taxation year, he did not review his tax return before it was filed and could
not identify the organizations or the exact amounts of the donations and could
not produce supporting receipts. Consequently, he requested that the only issue
which he wanted to place before me was for interest relief. Of course, there is
an abundance of caselaw which prevents me from giving the Appellant the
interest relief which he seeks and therefore I am dismissing the appeal
respecting the 2004 taxation year.
[3]
For the 2005 and 2006
taxation years, the Appellant claimed that the following amounts were paid to
several related charities:
|
Year
|
Charity
|
Amount
|
|
2005
|
Bible Teaching Ministries
|
$3,514.00
|
|
2005
|
PanAfrican Canadian Multicultural Centre
|
$7,825.30
|
|
2006
|
Bible Teaching Ministries
|
$2,620.00
|
|
2006
|
Ave Development Foundation
|
$4,500.00
|
|
2006
|
Jesus is the Answer Care and Prayer
|
$4,650.00
|
|
2006
|
AMREF Canada
|
$ 30.00
|
|
2006
|
Canadian Red Cross Society
|
$ 20.00
|
The Minister of National Revenue (the “Minister”)
allowed a tax credit in respect to the last two charitable donations of $30 and
$20 in the above list for the 2006 taxation year but disallowed the remaining
donations.
[4]
When the Appellant was
first introduced to the possibility of making donations to these charities, he
investigated the work these charities were engaged in through a friend who
lived in the African region where the charities operated. He also determined
that the charities were legitimately registered for tax purposes.
[5]
The Appellant submitted
his bank records respecting the 2005 and 2006 taxation years to show his
withdrawals of various cash amounts throughout both years, which he testified
he provided to Mr. Gudu to donate to these charities. None of these withdrawals
or their totals in either year match the amount of the donations claimed in his
returns. However, he admitted that the cash amounts delivered to Mr. Gudu were
less than the face value of the receipts in both 2005 and 2006. He explained
this discrepancy by stating that in each year he qualified as a member of a
small group chosen by the tax preparer, George Gudu, to receive
receipts for a higher dollar amount than the actual contributed amounts that
were shown as withdrawals on his bank statements. He suggested that he believed
ADD Accounting and later, Payless Tax, were “topping off” the differences.
The Appellant is now requesting that he be permitted to claim, as donation
amounts, only the amounts of these withdrawals, being $3,860.00 and $6,000.00
in 2005 and 2006, respectively.
[6]
The Appellant provided
five donation receipts for four charities: PanAfrican Canadian Multicultural
Centre (“PanAfrican”), which states that most of the donation was a gift in
kind, and cash donation receipts from Bible Teaching Ministries, Ave
Development Foundation and Jesus is the Answer Care and Prayer.
[7]
The Appellant on
cross-examination stated that, although the PanAfrican receipt states that only
$300.00 was a cash contribution and that the balance of $7,525.00 was a gift in
kind, the amounts he did pay were all cash amounts, which were admittedly less
than the face value of the receipt. He surmised that George Gudu used some
of his cash donation to purchase goods such as computers for the charity.
[8]
The Appellant testified
that in the 2005 and 2006 taxation years, he paid the cash amounts to George
Gudu, who had been employed by ADD Accounting in 2005 as a part-time tax
preparer. At ADD Accounting, Mr. Gudu worked for Ambrose Danso-Dapaah, who
pled guilty to fraud on December 15, 2008 for issuing false tax donation
receipts to clients of ADD Accounting and preparing false tax returns.
[9]
Mr. Gudu purchased the
clientele base of ADD Accounting from Mr. Danso-Dapaah in December, 2006
and started operating under the name Payless Tax. It appears from his own
admission that he blithely carried on the common practice of issuing false
receipts for which, according to his testimony, clients paid only 10 per cent
of the face value of the receipt while receiving receipts for much larger
amounts. Mr. Gudu has also been charged, along with a third tax preparer, and
will be pleading guilty to fraud, pursuant to an agreement with CRA, in the near
future.
[10]
George Gudu testified
that he remembered the Appellant because Mr. Adomphwe worked the night
shift at an autoparts business and came to Mr. Gudu’s home to have his
return completed after his night shift ended at 6:30 a.m. Mr. Gudu
stated that, as the tax preparer, if his clients wanted to maximize their tax
refund, he would provide a receipt in respect to one of the charities which ADD
Accounting, and later Payless Tax, represented, but that the clients paid only
10 per cent of the face value of the issued receipt. This 10 per cent cash amount
was then split between the charity (if, indeed, the money ever found its way to
the purported charity) and the tax preparer/office. Various splits on the 10
per cent donation occurred depending on the charity. He stated that
approximately 98 per cent of the office’s 3,000 clients purchased receipts.
[11]
George Gudu disagreed
with the testimony of the Appellant that the office chose a small group of its
clients and “topped off” the amounts to equal the face value of their receipts.
He stated that all clients had knowledge of the practice of paying only 10 per
cent of the face value of the receipt and how it worked. The receipts, attached
to the Appellant’s 2005 tax return, were prepared by Mr. Gudu and he testified
that he recalled a conversation with the Appellant that he would be paying only
10 per cent of the face value of the receipts. The receipts, attached to the
Appellant’s 2006 tax return, contain different handwriting, although prepared
by Payless Tax, because Mr. Gudu did not want the same handwriting on every
issued receipt coming out of the office in order to avoid raising suspicion.
[12]
Mr. Kofi Debrah, a
so-called pastor, testified that he was “involved” with Ambrose Danso-Dapaah
and George Gudu on behalf of his charity, Bible Teaching Ministries, which
became a registered charity in 2005. He confirmed his “arrangement” with these
two individuals respecting the issuance of receipts from Bible Teaching
Ministries and the payment of only 10 per cent of the face value of the
receipts issued by Bible Teaching Ministries. The flow of money between
Mr. Gudu and Mr. Debrah was always in cash. He also admitted that the
receipts issued by Bible Teaching Ministries and provided to George Gudu were blank
except for being pre-signed.
[13]
Deborah Edyvean, the Canada
Revenue Agency (“CRA”) investigator, detailed the information, including copies
of clients’ tax returns, obtained from the CANTAX software program on the
computers and equipment seized from the Payless Tax offices, as well as Mr.
Gudu’s personal residence and his van. In addition, receipt booklets, from
various charities, some completed and some pre‑signed and sealed but
otherwise in blank, were seized. Letterhead from some charities and
correspondence were seized.
[14]
Ms. Edyvean also
referred to the invoices attached to the returns in respect to the preparation
of the tax returns issued to the Appellant in 2005 and 2006 (part of Exhibits
R-4 and R-5, respectively) where the tax preparation fee statement to the Appellant
included references to the donation receipt number and the face value amount of
the receipt but listing only payment of 10 per cent of that amount being made
in the year the return was prepared and filed.
[15]
Both Ms. Edyvean and
Barbara Lovie, also a special investigator with CRA, determined that Ambrose
Danso-Dapaah and George Gudu were participants in a scheme whereby inflated
receipt amounts were being utilized by these tax preparers and purchased by the
clientele for 10 per cent of the inflated amount. She confirmed that Ambrose
Danso-Dapaah entered a guilty plea in 2008 and that George Gudu, among others,
has been charged with fraud. All of the charities involved have now had their
charitable registrations revoked. According to the evidence of Ms. Lovie,
the quantum of false donation receipts issued by Mr. Danso-Dapaah was
approximately $21.6 million with $6.2 million in non‑refundable tax
credits claimed.
[16]
The main issue in these
appeals is whether the Appellant made any gifts to registered charities that
would entitle him to claim non-refundable tax credits pursuant to section 118.1
of the Income Tax Act (the “Act”). In addition, a second issue
arises as to whether the receipts issued by these charities can qualify as
validly issued receipts in prescribed form pursuant to subsection 118.1(2) of
the Act and Regulations 3500 and 3501(1) of the Income Tax
Regulations (the “Regulations”).
[17]
It is the Respondent’s
position that the Appellant did not make a true gift as contemplated by the
common law but rather “purchased” donation receipts from his tax preparer which
contained grossly inflated face value amounts.
[18]
The leading case on the
meaning of “gift” is The Queen v. Friedberg, 92 D.T.C. 6031, where
Linden J.A. defined “gift” as:
…[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…
[19]
Respondent counsel
referred to the case of Coombs et al v. The Queen, 2008 D.T.C. 4004,
where Woods J. at paragraph 15 referred to the elements of this definition in
the following manner:
… First, it is necessary that the gifted property be owned by the
donor, second that the transfer to the charity be voluntary, third that no
consideration flow to the donor in return for the gift, and fourth that the
subject of the gift be property, which distinguishes it from providing services
to the charity. These elements reflect the general notion that a taxpayer must
have a donative intent in regards to the transfer of property to the charity.
[20]
In Webb v. The Queen,
2004 TCC 619, [2004] T.C.J. No. 453, Bowie J. at paragraph
16 described this “donative intent” to transfer property to a charity as
follows:
[16] Much has been written on the subject of
charitable donations over the years. The law, however, is in my view quite
clear. I am bound by the decision of the Federal Court of Appeal in The
Queen v. Friedberg, among others. These cases make it clear that in order
for an amount to be a gift to charity, the amount must be paid without benefit
or consideration flowing back to the donor, either directly or indirectly, or
anticipation of that. The intent of the donor must, in other words, be entirely
donative.
[21]
The Appellant, in
addition to his bank statements, submitted a handwritten summary of his withdrawals
from his account. The withdrawals varied in amounts between $100.00 and $800.00
in 2005 and in amounts between $400.00 and $2,000.00 in 2006. The Appellant generated
this summary in 2009 from the bank’s computer-generated statements. He testified
that, in reviewing his bank statements, he was able to identify the withdrawals,
which he used for donations, on the basis that it would not have been
economical to drive to Mr. Gudu’s location to give him cash amounts for less
than $100.00.
[22]
In 2006, his donation
amounts were larger because his income was much higher in that year. He also
stated that these donations were made to Mr. Gudu in both years at the Payless
Tax office on Kipling Street. Mr. Gudu, however, stated that he met the
Appellant through a referral in 2006, in which case the Respondent argues that
it would have been impossible for the Appellant to have paid amounts to Mr.
Gudu throughout 2005 as the Appellant alleges. In addition, Mr. Gudu claimed
that he prepared the Appellant’s 2005 tax return at his home (George Gudu’s
home) which was not the business location on Kipling Street of Payless Tax. The evidence was also that Mr. Gudu
did not purchase the clientele of ADD Accounting until December of 2006, when
he then moved the business to the Kipling Street
location. Accordingly, the Appellant could not have attended the Kipling Street address in 2005. Mr. Gudu went on to state that, in
2006 when he prepared the return for the 2005 taxation year, the Appellant paid
him for preparing the return together with 10 per cent of the face value of the
receipts which he claims Mr. Adomphwe purchased from him in 2006 for the
2005 taxation year.
[23]
George Gudu’s evidence
was much the same in respect to preparation of the 2006 return, except that in
2007 he prepared the Appellant’s return at the Kipling Street address and met the Appellant there rather than Mr.
Gudu’s home, as he had done in the prior year.
[24]
There is no direct
evidence that the Appellant did not pay the cash amounts to Mr. Gudu in 2005 and
2006 which he claims that he did. The Appellant, as did some of the Appellants
in the other appeals, claimed that he always made donations to charities in
Africa in prior years but that, in 2003, he was introduced to these charities
and the work they were doing in his homeland and was told that since he was
donating he might as well get a tax credit for his donations.
[25]
The testimony of George
Gudu directly conflicts with much of what Mr. Adomphwe told me. However, I
have serious problems in stating that I would accept the evidence of George
Gudu when he admits that he knowingly continued a practice, commenced by
Ambrose Danso-Dapaah, of issuing false receipts and has himself been charged
with fraud. I also think it highly improbable that Mr. Gudu has specific
recollection of his meetings with the Appellant, and their location, in light
of the fact that he had between 3,000 and 3,500 clients in 2006 and 2007 and
stated that he never met with the Appellant except on the occasions when he
completed his returns in each year.
[26]
I also reject the
evidence of Kofi Debrah. This so-called pastor, who is fortunately not
associated with any particular church, merely confirmed that he had knowledge
of this scheme or, as he put it, “arrangement” with George Gudu. Although
he did not admit to being part of this “arrangement’, according to his evidence,
he was clearly a participant, by his own admission, in supplying booklets of
uncompleted but signed receipts on behalf of Bible Teaching Ministries to
Mr. Gudu. His “understanding” was that Mr. Gudu’s clientele paid only
10 per cent of the face value of these receipts which he issued and
supplied to Mr. Gudu. There is also a red flag raised respecting the
credibility of Mr. Debrah’s evidence in that it seems coincidental that he
registered Bible Teaching Ministries as a charity in 2005, about the time that
he commenced this so-called “arrangement” with these tax preparers.
[27]
Despite my rejection of
the evidence of George Gudu and Ambrose Danso‑Dapaah, the entirety
of the evidence, particularly the testimony of the CRA investigators, supports
the conclusion that these tax preparers were involved in a tax scheme that
permitted taxpayers to be eligible for inflated tax benefits. In fact, the
Appellant admitted that he did not give cash amounts that matched the face
dollar amounts of the receipts. I have no doubt that he did provide George Gudu
with some cash amounts. However, there is no explanation provided for the
figures contained in the invoices attached to the CANTAX returns obtained from
the seized computers for each of the Appellant’s taxation years. They clearly
support the Appellant’s involvement in the scheme which the investigation
uncovered. These invoices contradict the testimony of the Appellant and
indicate that he paid only 10 per cent of the amounts which he claimed in each
year.
[28]
When presented with
copies of invoices, he testified that he had not previously seen these
invoices. The invoices for 2005 and 2006 reflect a preparation fee for the
return together with a 10 per cent payment amount of the total face value of
the receipts submitted in each taxation year. Both invoices reflect that these
10 per cent amounts were paid in the year of the preparation of the return and
not throughout the prior taxation year as would be required. These invoices are
strong evidence supporting the Respondent’s contention that, based on the
investigator’s evidence, George Gudu’s usual practice was to prepare returns,
prepare the receipts and then invoice the charge for the preparation fee plus
the 10 per cent of the receipt amount at the same time. These invoices
represent the ‘nail in the coffin’ for the Appellant’s case. He presented no
evidence to refute the invoice statements except to say he had never seen them
before. I cannot ignore these invoices in reaching my decision. They are not
peculiar to the Appellant’s appeals, as invoices surfaced in the other appeals
which I heard within this group of appeals. I can think of no other reason for
the production and existence of these invoices on the seized computers, except
for the fact that they do accurately reflect the payments made and the dates
upon which they were received. The Appellant provided no other alternate reason
for their existence.
[29]
I believe the
Appellant may have provided a greater number of cash payments to these tax
preparers than the 10 per cent face value of the receipts. However, to quantify
exactly how much more the Appellant gave is difficult, if not impossible, for
me to do. His summary of withdrawals for 2005 and 2006 was not completed
contemporaneously with the withdrawals of cash and delivery to Mr. Gudu.
His summary was a reconstructed version and by its very nature potentially
fraught with guesswork and error. In addition, the correspondence, dated June
2, 2009 (Exhibit R-3), which the Appellant forwarded to the Department of
Justice, leaves one with the impression that the Appellant is stating that he
paid the entire amount contained in each receipt. This contradicts his
admission that he paid lesser amounts than the face value of the receipts.
Although the Respondent produced no direct evidence that the Appellant did not
in fact pay these amounts, I must conclude that, based on the entirety of the facts
before me, the Appellant has failed to meet the onus of demolishing the
assumptions of fact and, consequently, that he paid only 10 per cent of the
face value of the receipts in each year.
[30]
Even if I had concluded that the
evidence supported a contrary decision, I would still dismiss the appeals on
the basis of the Respondent’s alternative argument. The receipts simply do not
meet the requirements under subsection 118.1(2) of the Act and Regulations
3500 and 3501.
[31]
According to subsection
118.1(2), a gift is not to be included as a charitable gift unless it is proven
by having a receipt for the gift that contains prescribed information filed
with the Minister. That prescribed information is set out clearly and in
specific detail at Regulation 3501(1). In particular, Regulation 3501(1)(h)(i)
states that the receipt shall show:
(h) the amount that is
(i) the amount of a cash donation, or
…
[32]
With respect to donations that
include gifts of property, other than cash, Regulation 3501(1)(e.1) states that
every official receipt shall contain the following:
(e.1) where
the donation is a gift of property other than cash
(i) the day on which the donation was received,
(ii) a brief description of the property, and
(iii) the name and address of the
appraiser of the property if an appraisal is done;
[33]
The Appellant admitted that he
reviewed his returns prior to filing. All of the receipts, by the Appellant’s admission, were inflated
and therefore do not contain the correct information as prescribed by the Regulations,
as they do not contain the correct amount of the cash donation. Clearly, the
PanAfrican receipt submitted for the 2005 taxation year is deficient, as it
contains no description of the property donated. This receipt also contradicts
the evidence of the Appellant that he paid only cash and gave no property. All
of these inconsistencies simply further support the existence of this scheme
involving inflated receipt amounts.
[34]
I subscribe to the
remarks by Tardif J. of this Court in Plante v. The Queen, [1999] T.C.J.
No. 51, on the importance of issuing appropriate receipts. Tardif J. stated at
paragraphs 46-48 of his Judgment:
[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.
[47] The
purpose of such requirements is to prevent abuses of any kind. They are the
minimum requirements for defining the kind of gift that can qualify the
taxpayer making it for a tax deduction.
[48] If the
requirements as to the nature of the information that a receipt must contain
are not met, the receipt must be rejected, with the result that the holder of
the receipt loses tax benefits. Accordingly, even though a taxpayer may have
made a gift of a painting, he or she cannot claim the potential deduction if
the appraisal and the receipt issued for the gift do not comply with the
requirements of the Act and the Regulations made thereunder.
[35]
Since the receipts do not contain
prescribed information, they do not comply with the Regulations and
therefore cannot be used to support the Appellants’ claim that charitable gifts
were made in 2005 and 2006.
[36]
For these reasons, the
appeals for the 2005 and 2006 taxation years are dismissed without costs.
Signed at Ottawa, Canada, this 5th
day of May 2010.
"Diane Campbell"
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