Date: 19971206
Dockets: 96-3326-IT-I; 96-3329-IT-I; 96-3359-IT-I
BETWEEN:
GLEN M. WOOLNER, JAN G. OVERDUIN, DENNIS G. BURKHARDT,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Appearances
________________________________________________
Counsel for the
Appellants:
Patrick J. Boyle
Counsel for the
Respondent:
John Shipley
_________________________________________________
Reasons for Judgment
(Delivered from the Bench in Toronto, Ontario, on November 3,
1997.)
Hamlyn, J.T.C.C.
[1]
The appeals are for the 1992 taxation year. They were heard
together.
[2]
In computing income for the 1992 taxation year, the Appellant
Glen M. Woolner claimed a non-refundable tax credit of $1,947
arising from donations in the amount of $6,818.
[3]
In reassessing the Appellant Glen Woolner for the 1992 taxation
year, the Minister of National Revenue (the "Minister")
disallowed donations claimed, in the amount of $2,092.
[4]
In computing income for the 1992 taxation year, the Appellant Jan
G. Overduin claimed a non-refundable tax credit of $2,975 arising
from donations in the amount of $10,362.
[5]
In reassessing the Appellant Jan Overduin for the 1992 taxation
year, the Minister disallowed donations claimed, in the amount of
$4,185.
[6]
In computing income for the 1992 taxation year, the Appellant
Dennis G. Burkhardt claimed a non-refundable tax credit of $3,016
arising from donations in the amount of $10,505.
[7]
In reassessing the Appellant Dennis Burkhardt for the 1992
taxation year, the Minister disallowed donations claimed, in the
amount of $4,185.
[8]
The Appellants are appealing reassessments under the Income
Tax Act (the "Act") in respect of the 1992
taxation years with regard to charitable donations.
RELEVANT FACTS
[9]
The three appeals were heard on substantially similar evidence
although the amounts vary to a certain degree. Each of the
Appellants paid a substantial portion of their income to the
First Mennonite Church (the "Church") in 1992. The
Church is one of the largest Mennonite churches in
Kitchener-Waterloo and is a registered charity. The Church issued
receipts to the Appellants for the year in question pursuant to
section 118.1 of the Act and Regulations 3501 thereunder.
Each of the Appellants had at least one child attending Rockway
Mennonite Collegiate (the "School") in 1992. The
School is not a post secondary institution. The School charged
stated tuition fees of $4,185 per student in 1991-92. No student
is denied enrolment at the School for failure to pay tuition
fees. The Appellants designated a portion of their regular
contributions to the Church to go to the "Congregational
Student Aid Program" (the "Student Aid
Program") that provides bursaries to enable students to
attend various educational institutions but in particular
Mennonite junior and senior high schools. Every student, who was
a member or the child of a member of the Church, who applied for
a bursary under the Church's Student Aid Program to attend
the School received it as a matter of policy. This policy was
established by a committee of Church members elected by the
Church congregation. The School also provided bursaries and
financial aid directly to students.
THE EVIDENCE
[10] The
Appellants called four witnesses including a pastor of the
Church, the Chairman of the Student Aid Program Committee (who
was also an Appellant), a representative of the Eastern
Conference of the Mennonite Church and the principal of the
School.
[11] The
Respondent called one witness, the auditor from Revenue Canada
who conducted the audit of the Church in relation to the matters
before the Court.
[12] The
evidence of the Appellants was to the effect that the Student Aid
Program was an outgrowth of the Mennonite belief in mutual aid
and the perceived need by the Mennonites to provide Mennonite
Christian training in many settings including school. The Student
Aid Program emphasises the Mennonite value of sharing.
[13] The
purpose of the Mennonite training was to bring children to a
decision to accept the Mennonite faith, to stay in the Church, to
teach the need for individual service to the Church community and
to teach the need for individual service to the world.
[14] The
student aid is available to members or adherents and is offered
to all in this category. The Student Aid Program has broad
support within the Church community with a small minority not in
favour. The open criteria to all who apply within the Church
community was to avoid the stigma that a means test would bring
to the process.
[15] In the
words of one of the Appellants, the education program at the
School for Mennonites and non-Mennonites was good and indeed he
described the School as excellent.
[16] The
principal of the School gave a demographic overview of the
student population and gave evidence of the billing practices to
those parents whose children were not funded by the Student Aid
Program. The non-funded parents were given a receipt for payments
after a deduction of $1,790 deemed to be the secular costs of the
tuition. This calculation ($1,790), as the cost of the secular
component of the education, appears not to have been challenged
by Revenue Canada for the 1992 taxation year. For other taxation
years not before the Court in relation to the secular costs,
there are apparently ongoing discussions between Revenue Canada
and the School.
[17] The
Revenue Canada auditor felt there was a correlation between
parent donors to the Student Aid Program and parent donors
children at the School, he found the donation to the School in
some cases went up significantly when the donor had a child in
attendance at the School.
[18] The
following table contains the relevant amounts for the three
Appellants.
|
Appellant
|
Total Charitable Contributions
|
First Mennonite Church "Donation"
|
Designated Student Aid Program Contribution in
1992
|
Minister Disallowed as Tuition-amount charity paid to
School as bursary
|
Number of Children attending in 1992
|
|
Woolner
|
$6,818
|
$4,710
|
$3,460
|
$2,092.50
(staff rate)[1]
|
1
|
|
Overduin
|
$10,342
|
$6,520
|
$4,350
|
$4,185
|
1
|
|
Burkhardt
|
$10,505
|
$9,950
|
$7,200
|
$4,185
|
1
|
ISSUE
[19] The issue
in all three appeals is whether the Appellants are entitled to
claim in the calculation of a non-refundable tax credit the
payments to the Church to the extent that the Church paid
bursaries to the children of the Appellants.
LEGISLATION
[20] The most
relevant point to be noted is that the term "gift" is
not defined in the Act.
ANALYSIS
[21] While the
Appellants primarily argued the case on the basis that the whole
donation of each Appellant to the Church was a "gift"
within the meaning of the Act and the whole donation was
allowable in the calculation of a non-refundable tax credit the
case law directs a fuller analysis of the costs attributable to
tuition and whether such attributed costs are gifts or benefits
and further whether such attributed costs can be broken down
within the definition of a gift, that is, secular education costs
and religious training costs.
[22] The
approach is followed in a decision of the Federal Court of Appeal
in the similar case of The Queen v. McBurney, 85 DTC
5433.
WHAT IS A GIFT
[23] In
Campbell v. M.N.R., 92 DTC 1855 (an Informal Procedure
case of this Court — albeit not a tuition case) Teskey, J.
made the following comments about the meaning of the term
"gift" in the Act (at page 1856):
The Federal Court Trial Division held in The Queen v.
Zandstra, 74 DTC 6416, that the word
"gifts" should be interpreted in its ordinary (rather
than technical) sense given that the term is not defined in the
income tax statute itself. This position has been carried forward
by subsequent decisions. (See The Queen v. Burns,
88 DTC 6101(F.C.T.D.) and The Queen v. McBurney,
85 DTC 5433 (F.C.A.).
According to Black's Law Dictionary (revised 6th
edition), "gift" is defined at p. 688 as:
A voluntary transfer of property to another made gratuitously and
without consideration. ... In tax law, a payment is a gift if it
is made without conditions, from detached and disinterested
generosity, ... and not ... from the incentive of anticipated
benefits of an economic nature.
The Shorter Oxford English Dictionary on Historical
Principles at p. 849, refers to a "gift" in
the following manner:
A transfer of property in a thing, voluntarily and without any
valuable consideration.
One essential characteristic of a "gift" is an
intentional element that is referred to in Roman law as the
animus donandi or liberal intent. In other words, the
donor must be aware of the fact that he will not receive any form
of compensation in return for his financial contribution from the
donee.
[emphasis added]
WAS THERE A CONTRACTUAL OBLIGATION
[24] The
assertion made by the Appellants that because they were under no
legal obligation to make the payments in question the payments
should be regarded as gifts is incorrect. The Federal Court of
Appeal stated in McBurney (at page 5436):
I cannot accept the argument that because the respondent may
have been under no legal obligation to contribute, the payments
are to be regarded as "gifts". The securing of the kind
of education he desired for his children and the making of the
payments went hand-in-hand. Both grew out of the same sense of
personal obligation on the part of the respondent as a
Christian parent to ensure for his children a Christian education
and, in return, to pay money to the operating organizations
according to their expectations and his means. In my judgment the
Minister was correct in refusing to treat these payments as
"gifts"...
[emphasis added]
[25] In
numerous cases the lack of a contractual obligation did not
transform payments into gifts, see for example Campbell
(supra); No. 688 v. M.N.R., 60 DTC 130;
McBurney (supra); Bleeker Stereo and Television Ltd. v.
M.N.R. 84 DTC 1761; and Getkate v. M.N.R. 80 DTC
1695. The fact that payments were voluntary was
"irrelevant" according Chairman Snyder, Q.C. in
Campbell v. M.N.R., 59 DTC 8. Further, the fact that those
unable to pay were not excluded also did not transform the
payments into gifts in The Queen v. Zandstra, 74 DTC 6416,
or No. 688.
WAS THERE A MATERIAL BENEFIT OR
ADVANTAGE
IN RETURN FOR THE DONATION
[26] While the
benefit received by the Appellants is perhaps less than or as
direct as that received by the Appellant in Burns it is
the same as the benefit received in McBurney, Zandstra, No.
688, Getkate, Bleeker, Campbell (92 DTC 1855),
Commissioner of Taxation of the Commonwealth v. McPhail,
(1967-68) 41 A.L.J.R. 346, and Leary v. Federal
Commissioner of Taxation, 32 A.L.R. 221.
[27] In
Zandstra, Heald, J. made the following comments about the
nature of a benefit (at page 6419):
Applying the above dictionary definitions of "gift"
to the facts of these cases, I have concluded that the payments
made by these parents to the Jarvis School were not payments made
without consideration and cannot therefore be considered
"gifts" under section 27(1)(a)(i).
.... It seems to me they received consideration from the
Jarvis School in the form of education of their children in a
separate Christian school in discharge of their duties as parents
as they conceived them to be.
...
The rationale of that case [McPhail] applies equally
here. Even accepting the evidence of the defendants in these
cases that subject payments were voluntary and not pursuant to a
contractual obligation, it seems clear that each parent here
received a consideration, i.e., the Christian education of
his children.
[emphasis added]
[28] Thus I
conclude for these Appellants the payments were voluntary and not
pursuant to a contracted obligation but each Appellant did
receive a consideration, that is, a secular education for their
children in a Mennonite institution. An education, I might add,
prescribed by the Education Act, and to some degree, the
child welfare laws of the province, with derivative
responsibility of parents and guardians in the process.
[29] The
question that remains is whether there is a distinction between
payments attributable to secular education costs and payments
attributable to religious training costs. This leads to the
Appellants' alternative argument.
THE ALTERNATIVE ARGUMENT
[30] The
Appellants request that the Court apply the law as outlined in
Revenue Canada's Information Circular IC-75-23 bearing the
title "Tuition fees and charitable donations paid to
privately supported secular and religious schools" dated
September 29, 1975.
[31] The
Respondent argued that the Court is bound to apply the law, not
the policies of Revenue Canada as outlined in Information
Circulars.
[32] I agree
with the Respondent that this Court is bound to apply the law and
in this regard Bowman, J. of this Court in Glaxo Wellcome Inc.
v. The Queen 96 DTC 1159 made the following
relevant comments (at page 1162):
The practice today, in my experience, appears to be to refer in
argument to virtually anything that may have some bearing,
however remote, on the question to be decided — speeches in
Parliament, technical notes, explanatory notes, budgetary
materials, commission reports, published advance income tax
rulings, texts by authors, whether living or dead, articles and
speeches by practitioners or academics, interpretation bulletins
— all are grist for the mill and the court is left to
determine what assistance, if any, can be gleaned from such
materials. The practice is now too well entrenched to be reversed
but it is important that the reliability and the utility of such
materials be put in their proper perspective and that it be
recognized that ultimately the interpretation must be based upon
the court's reading of the legislative language itself. In
that endeavour such extrinsic aids must be handled with extreme
caution.
[33] The
Appellant argued that Information Circular 75-23 merely states
the law and I conclude this position is supported by the Heald,
J. in McBurney (at page 5437):
The information circular appears designed to assist a taxpayer
in gaining whatever advantage may be had under section
110(1)(a)(i) of the Income Tax Act from payments
made to privately supported schools which are both secular and
religious. It recognizes that receipts may be issued for income
tax purposes for a portion of an amount paid to attend schools of
this kind and sets forth two methods of calculating the
deductible part of the amount paid depending on how the school
maintains its accounting records.
[34] In
addition, the case of Koetsier v. M.N.R., 74 DTC 1001,
establishes the right of the taxpayer to deduct the portion of
his donation to a religious society[2] above a reasonable payment of
tuition.
[35] The only
evidence before this Court concerning the tuition for the secular
portion of the tuition payments charged by the School was that
given by its principal who stated the amount was $1,790 per
student. This particular calculation was not challenged. Non
church sponsored payors were given charitable receipts less that
amount. While the Respondent submitted that Revenue Canada may be
disputing the calculation of this amount for some later years
there is no evidence before this Court to suggest that the amount
was not calculated properly and reasonably for 1992.
[36] On the
facts of this case, I conclude that payments made for religious
training were not tuition education payments but were payments
made by the Church to Rockway to have Rockway on the Church's
behalf to demonstrate and describe the tenets of the Mennonite
faith and the parameters of Mennonite life. As such the donations
made by the Appellants over and above the secular tuition were
calculable as charitable donations or gifts within the meaning of
subsection 118.1(3) of the Income Tax Act.
[37] In
conclusion, the appeals are allowed and the matter is referred
back to the Minister for reconsideration and reassessment on the
limited basis that the payments of $1,790 to the First Mennonite
Church were in fact a payment of tuition for secular education
and not calculable as charitable donations or gifts. The balance
of the Appellants' donations were calculable as charitable
donations or gifts within the meaning of the Act.
Signed at Ottawa, Canada, this 6th day of December 1997.
"D. Hamlyn"
J.T.C.C.
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