Date:
20010410
Docket:
2000-2990-IT-I
BETWEEN:
GUY
NADEAU,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Tardif,
J.T.C.C.
[1]
This is an appeal for the 1998 taxation year and it concerns a
charitable gift of $2,095 supported by a receipt issued by the
Fondation du Collège de la région de l'Amiante
("the foundation").
[2]
Starting in the early 1980s, the foundation worked in
co-operation with the Collège de la région de
l'Amiante ("the college"). It was a foundation that
collected funds through a variety of activities, such as
fundraising, direct solicitation, bingo and breakfasts. The
available funds were used to create various scholarships, to help
carry out specific projects and to meet any significant and
strategic needs that the college might have from time to
time.
[3]
When the computer age became an inescapable reality, especially
in schools, authorities at the college-faced with budgetary
limitations and constraints - wanted to set up a program whereby
all of the school's staff could have a computer and whereby
this would be achieved in a way that would provide good value in
terms of the outlays required.
[4]
To facilitate accessibility and support members of the
college's staff who wanted a computer at their disposal, some
people had the idea of calling upon the foundation. Extensive
evidence was adduced concerning the objectives and goals of
setting up the program and the benefits associated therewith. It
was stated that the program's creation had made it possible
for teachers to provide superior-quality education while
keeping on the leading edge in the field of computer information
and providing students with better supervision.
[5]
In view of the emphasis placed on the context in which the
program was set up, I told the appellant several times that
easier access to computers for the college's staff, while
certainly beneficial, was in no way what was at issue
here.
[6]
The nobleness of the goal and objectives and the outstanding
results achieved have absolutely nothing to do with the point at
issue here, which, I repeat, is basically whether the appellant
made a charitable gift that had the necessary characteristics to
be deductible from his income.
[7]
A brief overview of the procedure followed is an appropriate
starting point. The college had formed a committee in charge of
the computer acquisition program. When a staff member wanted to
take advantage of the program, he or she completed a formal
application and stated the desired configuration. The committee
assessed and analysed everything, and the application was then
approved or denied. In actual fact, three applications were
denied over the years, which was what led the college's
representative to state that 10 percent of applications had been
refused; he added that that percentage did not include people who
had not ventured to apply given the conditions and the complexity
of the procedure.
[8]
Once an application was accepted, the person concerned had to
sign a cheque or authorize his or her employer to withhold the
appropriate amounts from his or her salary. When payment was
made, a charitable gift receipt was issued by the foundation. The
amount of the receipt corresponded to the purchase price of the
computer and the computer equipment minus 20 percent to take
account of personal use. In other words, 20 percent of the total
outlays was not covered by the receipt.
[9]
That was the standard set by the committee, and it was a
mandatory one. On this point, the appellant said that he had
accepted and complied with that standard even though his use of
the computer for personal purposes was not actually
20 percent.
[10] Once
the computer was purchased, it became the responsibility of the
subscribing user, who used it at home and assumed responsibility
for it. It was therefore strongly recommended that an insurance
policy be taken out to cover the computer equipment for loss,
fire and theft. The costs associated with the use of the
computer, such as repair and replacement costs and fees for
connecting to networks such as the Internet, also had to be paid
by the user.
[11] To
ensure consistency and above all to strengthen the logic of their
view of things, the college and the participant who had been
issued charitable gift receipts signed a memorandum of
understanding (Exhibit I-3).
[12] The memorandum of understanding contained
various items, including a section headed [translation] "Characteristics of a program
providing an alternative to PÉDAMICRA". There
was:
·
a chapter entitled
[translation] "Computer technology
investment program" containing information on the program
and a [translation] "miscellaneous
provisions" portion;
·
another chapter on
the administrative process, including three forms that had to be
completed and attached to the application to participate;
and
·
another chapter on
identifying the configuration (desired computer equipment),
completed by the memorandum of understanding.
[13] The agreement (Exhibit I-3) provided that
the computer equipment would be at the participant's disposal
until it became obsolete and that the participant could use it at
the place he or she chose. In practice, they used the computers
at home and this was also true of the appellant.
[14] These facts alone are more than sufficient
for one to conclude that the participants, including, of course,
the appellant, received a definite and real benefit as a result
of their participation in the college's program. The fact
that a percentage was subtracted to take account of personal use
of the equipment is of no relevance. Whether the use made thereof
was limited or not has nothing to do with the question of whether
a genuine donation was made.
[15] Simply
being able to use the equipment for personal purposes was in
itself a consideration and an advantage and benefit. These
elements are totally inconsistent with the existence of a genuine
donation. Such deficiencies and/or flaws cannot be made to
disappear by disguising verbally, or even in writing, the reality
whereby the recipient borrower and/or possessor could use the
equipment placed at his or her disposal for personal
purposes.
[16] A gift
for which a receipt is issued and which entitles the donor to a
tax benefit is subject to a number of conditions, which are set
out in the Income Tax Act ("the Act") and
the Income Tax Regulations ("the
Regulations").
[17] Before
analysing the conditions applicable to the form of the receipt,
it must be decided whether a genuine gift was made.
[18] The
Act does not define what is meant by a gift. The courts
have often had to address this question and, over the years, they
have shed light on the matter, making it possible, I believe, to
identify the limits and scope of the concept of gift.
[19] I see
no point in expatiating on the meaning to be given to the word
"gift", since my colleague the Honourable Judge Lamarre
Proulx of this Court has set out the necessary conditions for a
genuine gift very clearly in Dupriez v. The Queen, [1998]
T.C.J. No. 452 (Q.L.).
[20] In this
regard, subsections 118.1(1) of the Act and 3501(1) of the
Regulations provide as follows:
The definitions of "total gifts" and "total
charitable gifts" are to be found in s. 118.1(1) of the
Act and are as follows:
"total gifts"of an individual for a taxation year means the total
of
(a) the
lesser of
(i) the
individual's total charitable gifts for the year,
and
(ii) 1/5
of the individual's income for the year,
(b) the
individual's total Crown gifts for the year, and
(c) the
individual's total cultural gifts for the year.
"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
or the total cultural gifts of the individual for the year, or
would have been so included for a preceding taxation year if this
section had applied to that preceding year) made by the
individual in the year or in any of the 5 immediately 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 (Emphasis added.)
(a) a registered charity . .
.
(g) a charitable
organization outside Canada to which Her Majesty in right of
Canada has made a gift during the individual's taxation year
or the 12 months immediately preceding that taxation
year,
Section
118.1(2) of the Act concerns proof of the gift, and reads
as follows:
(2)
Proof of gift - A gift shall not be included in the total
charitable gifts, total Crown gifts, total cultural gifts or
total ecological gifts of an individual unless the making of the
gift is proven by filing with the Minister a receipt therefor
that contains prescribed information.
The
phrase "official receipt" is defined in s. 3500 of the
Regulations as follows:
"official receipt" means a receipt for the
purposes of subsection 110.1(2) or (3) or 118.1(2), (6) or
(7) of the Act, containing information as required by section
3501 or 3502.
Section
3501(1) of the Regulations describes what an official
receipt must contain:
3501.
Contents of receipts - (1) Every official receipt issued
by a registered organization shall contain a statement that it is
an official receipt for income tax purposes and shall show
clearly in such a manner that it cannot readily be
altered,
(a) the name and address in
Canada of the organization as recorded with the
Minister;
(b) the registration number
assigned by the Minister to the organization;
(c) the serial number
of the receipt;
(d) the place or locality
where the receipt was issued;
(e) where the donation
is a cash donation, the day on which or the year during which the
donation was received;
(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;
(f) the day on
which the receipt was issued where that day differs from the day
referred to in paragraph (e) or (e.1);
(g) the name and address of
the donor including, in the case of an individual, his first name
and initial;
(h) the amount that
is
(i)
the amount of a cash donation, or
(ii)
where the donation is a gift of property other than cash, the
amount that is the fair market value of the property at the time
that the gift was made; and
(i) the signature, as
provided in subsection (2) or (3), of a responsible individual
who has been authorized by the organization to acknowledge
donations.
[21] In the
case at bar, was there a charitable gift of $2,095?
[22] The
appellant explained the process that led him to make the outlay
for which he was issued the disputed receipt. He said that he
applied to take advantage of the program through which he could
obtain a computer; upon being accepted, he wrote a
cheque.
[23] He
therefore wrote his cheque because his application had been
accepted; had it not been accepted, he would not have written a
cheque and would therefore not have made a gift. If the
acceptance had turned out to involve a higher amount because the
cost of the computer equipment had increased, or even a lower
amount because of certain changes, the amount of the cheque and
thus of the receipt would have been based on the adjusted amount,
whether higher or lower. Is this not proof of the absence of
gratuitousness? Is it not proof that the appellant acted out of
self-interest and was motivated essentially by the desire
to have the benefit of a computer?
[24] This
alone is ample ground for concluding that no genuine gift was
ever made; what was involved was basically an outlay whose size
depended on the value of the computer equipment, which, moreover,
the appellant was fully assured of being able to use for the
entire life of the machines.
[25] The
quantification of the time the computer was to be used for
personal purposes does not in any way enhance the nature of the
juridical act. The mere possibility of using the computer
equipment for which the payment was made was more than sufficient
in itself to eliminate one of the essential elements of a gift;
in other words, all the facts preceding and surrounding the
issuance of the charitable gift receipt are contrary to the very
existence of a genuine gift.
[26] It was
basically something done out of self-interest that was made to
look like a gift in order to derive a tax benefit therefrom.
Moreover, the evidence showed that the Pédamicra program,
in both its original form and its improved version, was a
separate, special and isolated activity in the foundation's
day-to-day business.
[27] The
reason the foundation was turned to in order to ensure the smooth
functioning of the program was basically that it had been
accredited to issue receipts that were presumed to be
valid.
[28] The
foundation was never involved in developing the program; it acted
essentially as a receipt issuer. It did not derive any advantage
or benefit from issuing the receipts ordered by the college to
those who had laid out money to obtain the use of a
computer.
[29] There
is no evidence-the burden of proof being on the appellant-that
the appellant made a genuine gift of $2,095 to the foundation.
Admittedly, he made an outlay of that amount, but the evidence
showed rather clearly that the foundation was turned to so that
the appellant could have a computer that he had chosen and laid
out money for and that he used.
[30] The
receipt issued by the foundation was nothing other than a
subterfuge the goal of which was to indirectly reduce the cost of
the computers made available to the college's staff,
including the appellant.
[31] The
fact that the appellant, his co-workers, the staff and the
college's officials racked their brains to come up with a
system that would enable any staff member to have the use of
computer equipment in return for minimal outlays is in no way
reprehensible in itself. It was a normal, legitimate reaction.
The persons involved thought they were doing nothing wrong,
especially since, as the appellant said, programs to provide
access to computer equipment exist in a number of businesses.
However, this did not justify making use of the foundation in the
way that they did.
[32] The
appellant was very insistent in arguing that the respondent's
representatives had, as it were, accepted and accredited the
system. The evidence, however, provides no basis for such a
conclusion; on the contrary, the weight of the evidence shows
that the scheme was identified as dubious and as liable to be
questioned or even rejected. This is made very clear by the
letter sent to the foundation on October 29, 1998, which I
consider it helpful to reproduce (Exhibit I-1):
[TRANSLATION]
Jean
Dagnault
Fondation
du Collège de la région de l'Amiante
671
Boulevard Smith Sud
Thetford
Mines, Quebec
G9G
1N1
October
29, 1998
Dear
Sir:
Subject:
Charity audit
We have
now completed our review of the receipts issued to professors by
the Fondation du Collège de la région de
l'Amiante (hereinafter "the charitable
organization") for gifts made under the
"Pédamicra" program. The results of our audit
indicate that the charitable organization issued official
receipts totalling $57,954 and $41,575 during the 1994 and 1995
fiscal years.
According
to the information obtained during the audit, the charitable
organization set up a program called "Pédamicra"
to finance the purchase of computer equipment that it would not
otherwise have been able to purchase at that time of budgetary
constraints. The purpose of the program was to facilitate access
to modern, efficient work tools. However, no brochure describing
the program was provided during the audit. Most of the amounts
collected came from employees of the charitable organization and
the Collège d'enseignement général et
professionnel de la région de l'Amiante (hereinafter
"the college").
Our audit shows that the equipment purchased remains the
college's property and seems to be used exclusively by its
employees, who may even use that computer equipment at home. No
equipment loan agreement is signed by the college and its
employees. Moreover, no written assessment of the need to
purchase computer equipment for a specific position is
prepared.
In 1989, the Department sent you a directive prohibiting this
type of program (a copy of which is attached to this letter).
However, the Department's 1989 directive did not in any way
change or add anything to the definition of gift recognized by
law. It was issued merely as a reminder of the existing rules
regarding the definition of gift.
Legally, a gift is defined as a voluntary transfer of property
whereby the donor receives no benefit or advantage in return. In
the present case, the transfer of money is not a gift because the
donors know even before paying that they will receive a benefit
in return, namely the use of computer equipment. Although the
benefit is not monetary, it is nevertheless an advantage that the
donor receives solely by virtue of making the payment. That
benefit is what removes from the payment the gratuitous nature
required by law and precludes the payment's being recognized
as a gift. Your argument that the college and its employees have
access to new technology at a time when budget cuts in the field
of education would make this impossible in no way alters the fact
that the employees have also received a benefit in return for
their payment.
We therefore suggest that you stop issuing official receipts in
such circumstances as of the date you receive this
letter.
We would ask you to send us, within 30 days of the date of this
letter, a written undertaking stating how the organization plans
to resolve the above-mentioned problems. Please send the
undertaking to Rhéal Dorval, Assistant Director, Audit
Section, Charities Division, at 320 Queen Street, 18th Floor,
Ottawa, Ontario K1A 0L5.
If you
have any questions concerning this matter, you can contact Mr.
Dorval at (613) 954-0939 or me at (613)
946-2400.
If you choose to be represented by a third party in this matter,
please let us know in writing in order to ensure that the
confidentiality of the charity's affairs with the Department
will be protected.
. . .
Particularly telling is the copy of the letter attached to
that cited above:
[TRANSLATION]
. .
.
Dear Sir or Madam:
I am writing to you to explain the Income Tax Act's
requirements as regards the issuance of tax receipts by
universities and colleges registered as charities under the
Act.
A registered charity may not issue tax receipts except in
recognition of gifts received. Legally, a gift is a voluntary
transfer of property without consideration. For there to be a
gift, there must be a donor who freely disposes of property and a
donee who receives it. The donor must not receive any right,
privilege or material benefit whatsoever as a result of the
disposition. (For more information on "Deductible Gifts and
Official Donation Receipts", please refer to the
Department's Interpretation Bulletin IT-110R2, a copy
of which is enclosed.)
As an example, it seems that some universities or colleges
registered as charities receive money from an employee and then
use that money to purchase property, such as a computer. The
university or college then issues a tax receipt to the employee
for the amount in question-on the basis that it is a gift-and
also gives the employee the computer for the employee's own
use. The employee then claims a tax credit for a charitable
gift.
In such circumstances, the Department's view is that it is
unlikely that the gift is valid, since the employee has received
a benefit in exchange for his or her payment. While the value of
the benefit received may be lower than the amount paid by the
employee, the fact that the employee received some actual benefit
invalidates the gift. Such claims for tax credits for charitable
gifts will not be accepted, as they are supported by improperly
issued receipts.
. . .
[33] The
appellant argued that he was in good faith, saying that he never
wanted to violate any provision whatsoever and adding that a very
large number of businesses have set up all kinds of procedures to
provide their staff with access to computers.
[34] He
also asked the Court to state in its judgment what approach the
college and the foundation would have had to take in order for
everything to be accepted by Revenue Canada.
[35] Good
faith and ignorance of the law are not factors that can be taken
into account by this Court in the instant case.
[36] As for
the approach that would be acceptable to Revenue Canada, I have
nothing further to add except to say that the college and the
foundation had or have to comply with the provisions of the
Act.
[37] Under
those provisions, a charitable gift receipt is to be issued only
when a genuine gift is made, which implies gratuitousness, a
disinterested donor and the absence of any consideration.
Furthermore, all of the provisions concerning form must also be
complied with, failing which the receipt may not be valid or
acceptable.
[38] The
appellant has not proven that he made a genuine gift; that being
so, the receipt that was issued was worthless and the appellant
therefore did not meet the fundamental requirements of the
Act.
[39] For
these reasons, the appeal is dismissed.
Signed at
Ottawa, Canada, this 10th day of April 2001.
J.T.C.C.
Translation
certified true on this 25th day of October 2002.
Erich Klein,
Revisor
[OFFICIAL
ENGLISH TRANSLATION]
2000-2990(IT)I
BETWEEN:
GUY NADEAU,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on February 12, 2001, at Québec, Quebec, by
the
Honourable Judge Alain Tardif
Appearances
Agent for
the
Appellant:
Michel Lemaire
Counsel
for the
Respondent:
Michel Lamarre
JUDGMENT
The appeal from the assessment made under the Income Tax
Act for the 1998 taxation year is dismissed in accordance
with the attached Reasons for Judgment.
Signed at
Ottawa, Canada, this 10th day of April 2001.
J.T.C.C.
Translation
certified true on this 25th day of October 2002.
Erich Klein,
Revisor
[OFFICIAL
ENGLISH TRANSLATION]
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