Date: 19990122
Docket: 97-1150-IT-I
BETWEEN:
NATHALIE PLANTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on April 22, 1998, at Montréal, Quebec, by
the Honourable Judge Alain Tardif
Reasons for judgment
Tardif, J.T.C.C.
[1] This is an appeal from an assessment for the 1993 taxation
year. The case relates to a charitable gift made to the
Sanctuaire Notre-Dame-de-Lourdes, in return for which a receipt
for $3,400 was issued.
[2] The appellant had owned a painting by the painter
Albert Rousseau since the fall of 1986. She allegedly paid
$1,800 for it. The way it was paid for is quite unclear and
ambiguous.
[3] In 1993, the appellant wanted to invest in an RRSP. Since
she did not have enough money to do so, she apparently decided to
sell the above-mentioned painting so as to be able to purchase an
RRSP.
[4] After approaching a number of galleries, the names of
which could not be obtained, the appellant apparently realized
that there was little or no interest in her painting and
therefore no chance of her getting a fair price for it.
[5] At that time, because of the problems in the market and on
the advice of one Mr. Tremblay, she changed her plan to sell the
painting and decided to make a gift of it in exchange for a
receipt that would qualify her for the tax benefit she
wanted.
[6] The recipient or donee of the painting, the Sanctuaire
Notre-Dame-de-Lourdes, was chosen by Mr. Tremblay; the appellant
originally wanted to give her painting to an organization working
to help battered women. She said that she accepted Mr.
Tremblay’s recommendations even though she had to give up
on her initial plan.
[7] In return for the gift, a receipt for $3,400 was issued by
the Sanctuaire Notre-Dame-de-Lourdes. It seems that
the value was determined using the Quebec-based Guide
Vallée. The appraisal by a firm known as
Services d’art, which was connected with the gallery
run by Mr. Tremblay, set the value of the painting at $3,400. No
one testified to explain or support the claimed appraisal.
[8] I do not think that the Guide Vallée is a valid,
let alone a sufficient, reference tool for determining the real
value of a painting. The appraisals given in the guide are often
dictated and set out by the painters themselves; it is therefore
in their interest for the quoted values to be as high as
possible. However, I do not mean to suggest that the appraisals
in the Guide Vallée are always completely inflated or
arbitrary.
[9] In my view, the guide basically expresses an opinion
motivated by self-interest. While it may be a useful
indication or reference for purposes that are essentially
commercial or speculative, it is not sufficient for determining
fair market value.
[10] An appraisal that is basically a reference to the Guide
Vallée is not an appraisal prepared according to generally
accepted practices and therefore has no probative force as
regards the real value of a painting.
[11] In the case at bar, the appellant argued that the
painting was worth $3,400. To defend the increase in value of the
painting, which she had purchased for $1,800 a few years earlier,
and the correctness of the appraisal, she said that paintings
generally increase in value over time, especially after the
painter’s death.
[12] She filed a document indicating that the value of the
painting was $3,400. The document does not give the
appraiser’s name.
[13] Neither the appraiser nor any expert testified to support
the appraisal claimed by the appellant. The document described as
the appraisal also has on it, in handwriting, the word
[TRANSLATION] “Receipt", followed by the number 3271
and the date December 22, 1993. I consider it important to
reproduce the document, which is fundamental to this case
(Exhibit I-11).
[TRANSLATION]
December 22, 1993
APPRAISAL FOR CHARITABLE GIFT
APPRAISED FOR: Nathalie Plante
705-36e Avenue #101
Lachine, Quebec
H8T 3L8
ARTIST: Albert Rousseau
MEDIUM: Oil painting
TITLE: “Vert”
SIZE: 12 x 16 PRICE: $3,400
APPRAISAL AT THE LISTED VALUE OF: $3,400
The above appraisal is given to the best of my knowledge, and
I accept no liability in respect of any action that may be taken
on the basis of the appraisal.
[14] The appraisal was followed by an invoice for $170
(Exhibit A-8), which is unsigned, although it does set out the
name, address, telephone number and line of work of the firm that
prepared the appraisal and issued a receipt in the said amount of
$3,400.
[15] The respondent took a number of steps to determine the
real value of the painting given as a gift. However, the
Department’s investigation did not uncover the amount
obtained at the auction held after the gift was made.
[16] The respondent identified several paintings that had been
given as gifts and sold at auctions for prices corresponding to a
small fraction of the values indicated on the receipts issued for
tax deduction purposes.
[17] One thing is certain: the respondent's data on the
prices paid for the sold paintings, some of which were by the
same painter, Albert Rousseau, make it possible to conclude
unequivocally that the appellant’s painting was obviously
overvalued. Its value was probably somewhere between $600 and
$1,200. This conclusion is based on comparisons that are
relevant, valid and above all reasonable.
[18] In light of the incomplete, inadequate evidence —
the burden of proof being on the appellant — I am
determining the value based only on the indirect evidence adduced
by the respondent, which contradicts the appellant’s
arguments as to the value of the painting. I therefore find that
the value of the painting in issue in this case was $900.
[19] Although this appraisal is arbitrary, it is nonetheless
the only possible option, since the appellant submitted nothing
at all that could guide, advise or direct the Court in
determining the painting’s value. The value of $900 is
assigned on the basis of the comparable data drawn from the
respondent’s evidence.
[20] Parliament has provided for a mechanism and, above all,
specific parameters for appraising paintings precisely to avoid
the arbitrariness and exaggeration that can lead to abuses.
[21] The appellant was unwise to rely on someone who was
clearly self-interested. He certainly did not provide the
guarantee of objectivity needed for an appraisal; he was, as it
were, both a judge of and a party to the transaction, especially
since he was also the one who issued the receipt used for tax
purposes.
[22] The evidence shows that the appellant transferred a
painting worth $900 to the Sanctuaire; does that transfer meet
the requirements for entitlement to tax benefits? Was the
transferred painting appraised by a competent, qualified
expert?
[23] The appellant adduced no evidence with respect to the
appraiser’s qualifications; she simply filed the document
prepared by Services d’Art (Exhibit I-11), which does
not contain a signature or the name of the person who performed
the appraisal. The evidence also showed that the appraiser was
directly involved in the process leading up to the transfer, thus
undermining the quality and objectivity of the appraisal.
[24] I conclude that the appraisal was in no way one prepared
by an expert. It was basically a self-interested assessment with
no objective value.
[25] After arguing that the painting had been paid for in
cash, the appellant and her agent changed their testimony and
claimed that it had been paid for by cheque. Although there was
also confusion about when the painting was purchased, I believe
that the balance of the evidence shows that the appellant was the
owner of the painting and that she had owned it for a few years
at the time she made the gift. As for the contradictions, they
can possibly be explained by the appellant’s nervousness
and health problems.
[26] Some facts that are helpful and relevant in disposing of
this case are clear and not subject to interpretation. They can
be summarized as follows:
- A painting by Albert Rousseau described as an oil painting
measuring 12" x 16" and entitled VERT was given to the
Sanctuaire Notre-Dame-de-Lourdes and a receipt
for $3,400 was issued in return.
- The transfer was made on the self-interested advice of one
Mr. Tremblay.
- The painting was not appraised objectively, validly or
seriously in accordance with generally accepted practices in
order to determine its real value.
[27] Was it a real gift? Judge Pierre Dussault of this Court
has stated the following about gifts:
The intent to give or animus donandi has traditionally
been recognized both by the courts and by scholarly commentators
as one of the essential requirements for a valid gift.
[28] To be entitled to claim the deduction for gifts in
computing her income, the appellant also had to meet a number of
conditions set out in the Act.
[29] The first condition was that the transfer of the painting
be a “gift” within the meaning of subsections
118.1(1) and (3) of the Act, which read as follows:
(1) In this section,
“total gifts” --- “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.
. . .
(3) Deduction by individuals for gifts. For the purpose of
computing the tax payable under this Part by an individual for a
taxation year, there may be deducted such amount as the
individual may claim not exceeding an amount determined by the
formula
(A x B) + [C x (D - B)]
where
A is the appropriate percentage for the year;
B is the lesser of $250 and the individual’s total gifts
for the year;
C is the highest percentage referred to in subsection 117(2)
that is applicable in determining tax that might be payable under
this Part for the year; and
D is the individual’s total gifts for the year.
[30] The Minister made the assessment on the assumption that
the transfer of the painting to the recipients was not a gift for
the purposes of section 118.1 of the Act. Since the
Act does not define that term, we must rely on its usual
meaning.
[31] The following definition appeared in article 755 of the
Civil Code of Lower Canada:
755 -- Gift inter vivos is an act by which the donor
divests himself, by gratuitous title, of the ownership of a
thing, in favor of the donee, whose acceptance is requisite and
renders the contract perfect. This acceptance makes it
irrevocable, saving the cases provided for by law, or a valid
resolutive condition.
[32] Today, article 1806 of the Civil Code of
Québec defines “gift” as follows:
Gift is a contract by which a person, the donor, transfers
ownership of property by gratuitous title to another person, the
donee; a dismemberment of the right of ownership, or any other
right held by the person, may also be transferred by gift.
Gifts may be inter vivos or mortis causa.
[33] Thus, for there to be a gift, an animus donandi
must exist. Its existence is shown by the fact that the gift is
free and by the impoverishment of the donors in favour of the
donee.
[34] In the case at bar, the respondent argued that the
appellant's action was self-interested, since the tax
benefit was the only motivation for it. I do not think that the
facts support such a conclusion, since the appellant had owned
the painting for a number of years. Moreover, it was legitimate
for her to believe that the painting had significantly increased
in value, especially since the painter had died, which generally
has a positive impact on the value of a painter’s
works.
[35] The case law in support of the respondent’s
arguments strikes me as of limited relevance, since the taxpayers
involved in the cited cases were, so to speak, parties to a
system that existed partly to procure a tax advantage.
[36] In this case, it is my view that the appellant was
basically in good faith; she may have been unwise, but she
certainly was not a party to a system. Rather, she was the victim
of a profiteer.
[37] In this regard, I concur with the assessment by our
colleague Judge Pierre Archambault, who stated the following in
Gaétan Paradis v. Her Majesty the Queen,
96-905(IT)I and 95-2380(IT)I, at pages 12-13:
In my view, this tax advantage should not be considered in
determining whether Dr. Paradis was impoverished.
If such advantage were to be taken into account, a number of
gifts might not qualify for the purposes of computing the
deduction for gifts. I do not believe such an approach to be
consistent with the spirit of the Act.
[38] Judge Archambault referred to a passage from Friedberg
v. The Queen (December 5, 1991), A-65-89 [92 DTC
6031],[1] in which
Linden J.A. stated the following at pages 2-3:
Thus, 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 (see Heald J. in The Queen v. Zandstra
[1974] 2 F.C. 254, at p. 261.) The tax advantage which is
received from gifts is not normally considered a
‘benefit’ within this definition, for to do so would
render the charitable donations deductions unavailable to many
donors.
[39] Judge Archambault continued as follows:
Nor was the gift a sham. The Musée genuinely acquired
ownership of the painting. Furthermore, Dr. Paradis attached no
condition to the donation of the painting. I do not believe that
Dr. Paradis could ask the Musée de Joliette to return
the painting to him on the basis that he had not obtained all the
tax advantages that he had expected. It goes without saying that
it would have been an entirely different matter if he had made
the gifts conditional upon obtaining tax advantages.
I am satisfied in this instance that, in respect of each of
the gifts for which he claimed a tax deduction, Dr. Paradis
wished to benefit the donees by depriving himself of the value of
those paintings. The transfers of paintings to the donees
constituted gifts within the meaning of the Act.
[40] Did the receipt filed by the appellant meet the
Act’s requirements and entitle her to benefits under
the Act?
[41] This is a very important question, since Parliament has
subjected the deduction for gifts to specific conditions.
[42] Subsection 118.1(2) of the Act reads as
follows:
118.1(2) A gift shall not be included in the total
charitable gifts, total Crown gifts or total cultural
gifts of an individual unless the making of the gift is proven
by filing with the Minister a receipt therefor that
contains prescribed information. [emphasis added]
[43] Section 3500 and subsections 3501(1) and (1.1) of the
Income Tax Regulations (Regulations) provide
as follows:
3500. In this Part,
. . .
“official receipt” means a receipt for the
purpose of paragraph 110(1)(a), (b),
(b.1) or subsection 110(2.2) of the Act, containing
information as required by section 3501 or 3502;
. . .
“other recipient of a gift” means a person
referred to in any of subparagraphs 110(1)(a)(iii) to
(vii), paragraph 110(1)(b) or (b.1) or subparagraph
110(2.2)(a)(ii) of the Act to whom a gift is made by a
taxpayer . . . .
3501. (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.
(1.1) Every official receipt issued by another recipient of
a gift 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 of the other recipient of the
gift;
(b) the serial number of the receipt;
(c) the place or locality where the receipt was
issued;
(d) where the donation is a cash donation, the day on
which or the year during which the donation was received;
(e) 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 (d) or
(e);
(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
(3.1), of a responsible individual who has been authorized by the
other recipient of the gift to acknowledge donations.
[emphasis added]
[44] In the case at bar, it is clear that neither the
appraisal nor the receipt meets the very clear and explicit
requirements set out in the Regulations; what is more, the
breaches of those requirements are so significant and so numerous
that it is absolutely impossible to determine who issued the
receipt and who did the appraisal.
[45] According to the appellant, Exhibit I-11 is both the
appraisal and the receipt. It does not indicate the name of
either the appraiser or the person who issued the receipt. The
document is not numbered and does not include the registration
number assigned by the Department. These are a few of the very
serious breaches that provide sufficient justification for
rejecting the document described as a receipt.
[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.
[49] In the case at bar, the appellant did not prove that the
receipt met the minimum requirements set out in section 3500 and
subsections 3501(1) and (1.1) of the Regulations, which
means that she cannot be entitled to a tax deduction for her
gift.
[50] As regards the penalty, the respondent rightly concluded
that the facts adduced in evidence at the hearing do not support
its imposition.
[51] For these reasons, the appeal is allowed in that,
although the appellant is not entitled to a tax deduction for her
gift — since the documentation concerning its value and
above all the quality of the receipt issued do not comply with
the Regulations — the penalty is deleted —
since the evidence did not show that the appellant knowingly made
or participated in, assented to or acquiesced in the making of a
false statement.
Signed at Ottawa, Canada, this 22nd day of January 1999.
“Alain Tardif”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 18th day of March 1999.
Stephen Balogh, Revisor
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