REASONS
FOR JUDGMENT
Russell J.
[1]
These are reasons for judgment in the informal
procedure appeal of the Appellant, William Lappan, from reassessments raised
April 16, 2012 by the Minister of National Revenue (Minister) of the Appellant’s
2009 and 2010 taxation years’ liabilities under the Income Tax Act
(Canada) (Act). These reassessments disallowed donation tax credits per section
118.1 of the Act that he had claimed in the respective amounts of $19,340 and
$15,252 for those two taxation years. He objected to these reassessments, which
subsequently on April 16, 2012 the Minister confirmed.
[2]
The donation tax credits were denied on the
Minister’s assumptions that the property ostensibly donated (corporate shares)
was worthless despite the Appellant’s filing with the Minister of a charitable
gift receipt stating that this property had a value of $35,000. The Minister
also considered that in ostensibly donating the corporate shares, the Appellant
had no “donative interest”. As well the Minister
considered that in “donating” these corporate
shares which the Minister considered as having no value, the Appellant had
participated in a tax shelter scheme and had not reported prescribed
information accordingly, including a tax shelter identification number.
[3]
More particularly, in this regard, in the
Amended Reply at paragraphs 9(a) to (d) and 9(g) to (s) the Respondent pleaded
assumptions made by the Minister, as follows:
a) in
2009, the appellant earned income of $47,201, which was comprised of employment
income of $27,378.30, employment insurance benefits of $4,848.00 and taxable
capital gains of $14,975;
b) in the
ten years prior to the 2009 taxation year, the appellant’s total charitable
donations was $0;
Congregation
of the Sisters of Merciful Jesus (the “Charity”)
c) the
Charity is a charitable organization in Hobbema, Albert;
d) the
Charity is based in Poland and the nuns are not elders of the Samson Indian
band, nor any other Indian band;
…
Strategic
Gifting Group
g) Strategic
Gifting Group (“Strategic”) was a sole proprietorship owned by Abraham Herbert
Grossman (aka Al Grossman);
h) between
October, 2009 and February, 2011, Strategic ran an arrangement that was
promoted to allow a participant to claim in his or her tax return, a charitable
donation of four to twelve dollars for every dollar that he or she contributed
(the “Strategic Scheme”);
i) Strategic
and/or its promoters promoted that a participant who was an Ontario resident
would receive a return of approximately 46.41%;
j) the
Minister did not issue a tax shelter identification number in respect of Strategic;
k) the
appellant did not provide a tax shelter identification number with respect to
the amounts claimed from as a result of his participation in the Strategic
Scheme and he did not file a form T5004;
l) the
Strategic Scheme operated as follows:
i. a participating taxpayer would make a cash donation to a
participating charity;
ii. a fictitious non-resident philanthropist would match the
taxpayer’s donation and donate shares in Dixon Perrot & Champion Inc.
(Dixon) to the taxpayer;
iii. during the material time, Dixon was a Canadian corporation
incorporated in Ontario and listed on the Open Market of the Frankfurt Stock
Exchange;
iv. the taxpayer donated the shares of Dixon to the charity to
which he or she made the cash donation;
v. the stated fair market value of the Dixon shares would be four
to twelve times the value of the taxpayer’s cash donation;
vi. if the taxpayer chose not to donate the Dixon shares to a
participating charity, the shares would be subject to a compulsory hold period
of five years;
vii. the charity issued the taxpayer a donation receipt for the cash
donation and for the predetermined, false value of the Dixon shares;
viii. the charity returned 90% of the taxpayer’s cash donation to
Strategic;
ix. participating taxpayers who did not make a cash donation to the
participating charity instead paid a fee to DSC Lifestyle Services;
m) Dixon
had negative retained earnings in the years ended October 31, 2007, 2008, 2009
and 2010;
n) Dixon
made its first public share offering on the Open market of the Frankfurt Stock
Exchange on May 20, 2008;
o) the
Open Market of the Frankfurt Stock Exchange is not as a designated stock
exchange;
p) there
was no market for the Dixon shares and they had no value;
q) Strategic
received $332,620 from the Strategic Scheme;
The appellant’s participation in the
Strategic Scheme
r) the
appellant entered into the following predetermined series of transactions in
the 2009 taxation year:
i. the appellant did not make a cash donation to the Charity;
ii. the appellant paid a fee of $5,000 to DSC Lifestyle Services
in exchange for being issued 11,041 common shares in Dixon;
iii. on December 17, 2009, the appellant purported to donate the
11,041 Dixon shares to the Charity;
iv. on January 12, 2010, the Charity issued the appellant a
donation receipt in the amount of $35,000 for the 2009 taxation year, which
represented the purported fair market value of the Dixon shares;
v. from the $35,000 donation receipt issued, the appellant claimed
$19,340 as a charitable gift to the Charity in the 2009 taxation year and
claimed $15,252 as a charitable gift in the 2010 taxation year;
s) on
December 17, 2009, the Dixon shares that the appellant purported to donate to
the Charity had no value;
[4]
To summarize the foregoing pleaded assumptions,
it was the Minister’s view in raising the appealed reassessments that the
Appellant had been approached by a representative of DSC Lifestyle Services
(DSC) and encouraged to pay $5,000 to DSC, in return for which the Appellant
would receive corporate shares which in due course when the DSC representative
said so, the Appellant could “donate” to a
particular charity identified by the DSC representative, and receive in return
a charitable donation receipt stating a value four to twelve times the value of
the originating $5,000 payment. The Minister’s view was that in fact the shares
were of nil value.
[5]
In the evidence given by the Appellant and Mrs.
Lappan respectively, none of the foregoing assumptions was effectively refuted.
The Appellant did testify that he had had no expectation as to the amount that
would be provided on the anticipated donation receipt from the charity that the
DSC representative would designate. However in these circumstances I do doubt
that the DSC representative to whom the Appellant had paid his $5,000 had not
advised the Appellant that the tax credit value of the gifting donation receipt
he ultimately would receive would well exceed the value of his initiating
$5,000 payment. I believe otherwise he would not have made this $5,000 payment,
noting also that that payment was not itself made to the Charity, but rather,
directly to DSC. My view in this regard is based on objective reality. Also,
the Appellant’s evidence was that the DSC representative gave him no choice as
to which charity to eventually donate his shares, and he was not to donate
until the DSC representative told him to. The Appellant testified also, in
cross-examination, that he had taken no steps to confirm the $35,000 valuation
shown on the Charity’s donation receipt.
[6]
The Respondent called as a witness Gary
Huenemader, who was the Canada Revenue Agency (CRA) team leader in charge of
the charity audit involving activities of Strategic Gifting, leading the
Minister to conclude this was a non-registered tax shelter. His evidence in
general substantiated the Minister’s assumptions. Also, the Respondent filed
affidavits with which the Appellant was familiar from pre-trial case management
conferences and in respect of which the Appellant had had opportunity to
cross-examine if and as wished. These affidavits included those of Bette Anne
Spears and James Moon. The Spears affidavit (Ex. R-9) was sworn March 30, 2016
by Ms. Bette Anne Spears, a chartered business valuator employed as a business
valuator with CRA. Attached as an exhibit to her affidavit was her Estimate
Valuation Report dated March 19, 2016. It reflected the conclusion
that on December 31, 2009 the fair market value of shares of Dixon, Perot &
Champion Inc. was $0.01 per share.
[7]
The Moon affidavit (Ex. R-10) was that of Mr.
James Moon sworn April 8, 2016, he as president and chief executive
officer of All Group Financial Services Inc. in Toronto, Ontario (All Group).
All Group was described as an independent investment dealer serving both retail
and institutional clients. Its business includes equity sales, trading in securities
and investment banking. At paragraph 10 of the affidavit it is stated that: “In contemplation of recording an opening value for such shares
[of Dixon, Perot & Champion Inc.] in the Charity’s account, we made a
determination that the Dixon shares had a value of NIL” The affidavit
elaborates as to how All Good reached that view.
[8]
The issues presented were:
a)
what was the fair market value of the so-called
Dixon shares at December 17, 2009;
b) did the Appellant have donative intent;
c)
was the Strategic Gifting plan a tax shelter and
if so did the Appellant breach subsection 237.1(6) of the Act in failing to
report any tax shelter identification number.
[9]
Turning to the first issue - whether the fair
market value of the aforementioned shares on date of transfer was $35,000 as
reported to the Minister by the Appellant - the Minister made the above-noted assumption
(paragraph 9(s) of the Amended Reply) that:
…on December 17,
2009, the Dixon shares that the appellant purported to donate to the Charity
had no value;
[10]
It is well established that the onus is on the
taxpayer to rebut assumptions of the Minister (other than where the assumption
is within the particular knowledge of the Minister, or the particular assessment
is of a penalty, or relates to a “statute-barred year”)
with the underlying factual issues ultimately to be determined on the basis of a
balance of probabilities. This is because it is presumed that a taxpayer has greater
knowledge of his/her/its tax relevant factual circumstances than does the
Minister. In the hearing of this appeal the Appellant brought no evidence to
displace the Minister’s assumption that the fair market value of the corporate
shares the Appellant claimed as having been donated to the Charity on December 17, 2009
was nil; as opposed to the $35,000 value shown on Mr. Lappan’s donation
receipt, or any lesser value exceeding nil. Although not necessary, I note also
in respect of this conclusion the Respondent’s evidence in the form of the
Spears and Moon affidavits referred to above. Also I note the Appellant’s
testimony, referred to above, that he had done nothing to confirm the purported
$35,000 value of these shares that he ostensibly had donated to the Charity.
[11]
Accordingly on this issue the Respondent is
successful - the Minister’s assumption that the “donated”
corporate shares generating the $35,000 gift donation receipt in fact had a
fair market value of nil has not been rebutted. Thus it stands. There was no
gift valued at $35,000 or any lesser sum exceeding a fair market value of nil. The
available tax credit for purposes of section 118.1 of the Act is determined on
the basis of the fair market value of the donated property, which here is nil. The
Appellant’s appeal therefore fails on this point alone.
[12]
In light of this conclusion, that the “donated” property had no value, in the circumstances
of this informal appeal I do not consider it necessary to also address the
remaining two argued issues – whether there was “donative
intent” and whether the herein circumstances denote a tax shelter in respect of
which the Appellant provided no tax shelter information number, as required by
subsection 237.1(6) of the Act.
[13]
On the basis of Mr. Lappan’s failure on the
basic issue of the fair market value of the property he purported to donate (that
value being nil), this appeal is dismissed. The dismissal is without costs, as
this is an informal procedure appeal and I am not prepared to conclude per
subsection 10(2) of the Tax Court of Canada Rules (Informal Procedure)
that in pursuing this appeal the Appellant delayed its
prompt and effective resolution.
Signed at Ottawa, Canada, this 30th day of November 2017.
“B. Russell”
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