Allan W. S. Tite v. Minister of National Revenue, [1986] 2 CTC 2343, 86 DTC 1788

Brulé, T.C.J.:—This appeal concerns a reassessment of income tax for the appellant's 1982 taxation year wherein the Minister refused a deduction of $250 pertaining to a charitable donation to the Canadian Wildlife Foundation (C.W.F.).

The facts are not in dispute and may best be set out by referring to the reply to notice of appeal as follows:

during the 1982 taxation year, the C.W.F. offered the public the opportunity to purchase a Robert Bateman limited edition print of the Golden Crown Kinglet (hereinafter referred to as the “Print”) for $450.00;

the C.W.F. advertised that it would issue an income tax receipt in the amount of $250.00, as a donation, for each print sold;

the public was not entitled to purchase the print for less than $450.00, but were required to pay the full $450.00 if they wished to obtain a copy of the print;

the Appellant accepted the above noted offer of the C.W.F. and he paid $450.00 to the C.W.F. and received the print in return;

the Appellant also received an income tax receipt from the C.W.F. in the amount of $250.00 which the Appellant sought to claim as a deduction in his 1982 taxation year;

the Print was not available in the “first-run” market for less than $450.00;

Subsequent to the publication of this offer an investigation by Revenue Canada led to a letter directed to the C.W.F. dated December 7, 1982, which read:

We are writing regarding an item offered for sale in a recent catalogue published by your Federation.

The item of concern is a limited edition print by Robert Bateman, “Golden Crowned Kinglet”. The price quoted in your Federation's catalogue is $450.00. According to the catalogue, “Because of the very special fund-raising nature of this edition, the C.W.F. will be able to issue an income tax receipt for a $250.00 donation with each print sold. All income tax receipts will be forwarded in January for inclusion in your 1982 income tax return”.

Under paragraph 110(1)(a) of the Income Tax Act, a taxpayer may, in computing his taxable income, deduct gifts made to registered charities. The word “gift” is of particular significance in this context since the payment to the charity must be considered a “gift” to entitle the taxpayer to a deduction. The Act does not define the word “gift” and therefore the word takes on its accepted legal meaning which is a voluntary transfer of property without expectation of return, compensation or other consideration.

A person who acquires the limited edition print, “Golden Crowned Kinglet”, in exchange for his $450.00 payment to the Canadian Wildlife Federation has not, in our view, made a “gift” to your organization by virtue of the fact that he has received consideration in the form of a print, the value of which is at least equal to the amount paid. We would comment that in the market place, the value of an article such as a piece of art work is determined by what a willing buyer would pay to a willing seller in an arm's-length transaction. In this particular instance, the value of these limited edition prints is enhanced by the fact that they bear Princess Grace’s signature, and, moreover, since her death their value has further increased. We have information to indicate that retailers in the Ottawa area will be offering these prints for sale, when available, at a retail price in the neighbourhood of $1,000.00.

In light of the foregoing, we trust you will appreciate that it is not in order for the Canadian Wildlife Federation to issue charitable donation receipts for any portion of the $450.00 purchase price quoted for the “Golden Crowned Kinglet” print in your catalogue. We are requesting your Federation's immediate written confirmation that no such receipts will be issued in this connection. Any such receipts that may have already been forwarded to purchasers of this print will have to be recalled by your Federation.

The C.W.F. acted upon receipt of the letter and offered to repurchase the print for $450.00 and cancel the income tax receipt. The appellant refused to comply.

The position taken by the parties and the nature of the problem prompted counsel for the respondent to say that this appeal raised two questions. First, is it possible to make a “donation” or a "gift” under paragraph 110(1)(a) of the Income Tax Act if some valuable consideration is received in return? Then, if so, what criteria should dictate the apportionment between what is received by way of consideration and what is to be viewed as a gift?

Counsel for the Minister argued that the answer to the first question should be "No”. Counsel set out that when there is a contractual obligation to pay a set amount, as there is in this case to pay at least $450 for the print, it becomes difficult to distinguish between what the donor receives in return for his payment and the gift portion as the two are inextricably linked. If, assuming the appellant chose to acquire the print, he had no choice as to the amount he must pay for his purchase. The print and the donation were all a part of the same payment.

Two recent cases heard in the Federal Court were set out: (1) Hudson Bay Mining and Smelting Co. Limited v. The Queen, [1986] 1 C.T.C. 484; 86 D.T.C. 6244, a decision of the Federal Court — Trial Division, and (2) The Queen v. McBurney, [1985] 2 C.T.C. 214; 85 D.T.C. 5433, a decision of the Federal Court of Appeal.

The Hudson Bay case involved a complicated transaction in which the Company sold some of its assets to the Manitoba Hydro-Electric Board. The sale stipulated that the Board would pay $3,600,000 for the assets while, simultaneously and as a part of the same transaction, Hudson Bay would issue a cheque for $2,850,000 to the order of the Board, allegedly as a donation. This arrangement was reached after lengthy discussions, clearly to provide tax advantages to Hudson Bay, as it had been established from the outset that the Board was restricted in its purchasing power to an outlay of $750,000, a price below the actual value of the assets transferred. The Court refused to recognize that the scheme involved a "gift" by Hudson Bay as it was Clear the reason for the arrangement was not genuine generosity but a concern about Hudson Bay’s tax position. The agreement was one transaction and not two independent ones that could be distinguished one from the other.

The McBurney case involved a taxpayer who “gave” money to three religious schools which were attended by his children. Each school requested and expected the parents to make financial contributions according to their means to cover operating expenses. The Court decided that the taxpayer was under a legal and moral obligation to ensure that his children received satisfactory education, one aspect of which involved making these payments.

In this case, Mr. Justice Stone, referred to several other decisions. One was The Queen v. Zandstra, [1974] C.T.C. 503; 74 D.T.C. 6416, wherein the Court quoting from Black’s Law Dictionary (revised 4th edition) found that "gift" is defined as:

a voluntary transfer of personal property without consideration

and

a parting by owner with property without perceiving consideration . . .

and also referred to the Shorter Oxford Dictionary defining "giving" as:

. . . a transfer of property in a thing, voluntary and without any valuable consideration . . .

Also referred to in the McBurney case were other authorities described by Stone, J. at 218 (D.T.C. 5435) as follows:

The word "gifts” is not defined in the statute. I can find nothing in the context to suggest that it is used in a technical rather than in its ordinary sense. This latter sense was attributed to that word by courts of Australia as it appeared in a like context of an Australian taxing statute allowing "gifts” to be deducted from income in certain circumstances (Commissioner of Taxation of the Commonwealth v. McPhail (1967-68), 41 A.L.J.R. 346 at 346; Leary v. Federal Commissioner of Taxation (1980), 32 A.L.R. 221 at 221, 237 and 241). The same approach was taken by the Trial Division of this Court in The Queen v. Zandstra (supra). It adopted the views expressed by Owen, J. in the McPhail case which decided that payments made by a parent to the building fund of a school attended by his son were not deductible as "gifts”. At 348 of the report, Owen, J. stated:

But it is, I think, clear that to constitute a "gift”, it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return.

The judges of the Federal Court of Australia who heard the Leary case, while generally agreeing with Owen, J., placed some qualification on the test he enunciated. Thus, after referring to the above passage, Deane, J. in his concurring reasons for judgment stated (at 243):

I would question the unqualified nature of his Honour’s comments. Ordinarily, a gift will not be made in pursuance of a contractual obligation: the mere fact that a person has made a contractually binding promise to make a gift may not, however, necessarily deprive it of its character as such when it is

made: see, eg. the illustration of the father of the prospective bride given by Ridley J. in Attorney-General v. Holden [1903] 1 KB 832 at 837. Ordinarily, a gift will be without valuable material return: again, the mere fact that a donor receives, either from a stranger or the donee, a valuable return which he may or may not welcome may not prove conclusively that there was no gift: see, eg. Collector of Imposts (Vic) v. Peers, supra, at 121-2.

If a transfer of property is in return for valuable consideration received by the transferor from the transferee, it will not be a gift by the transferor. If the relevant property is not, for that reason, precluded from being properly regarded as a gift, the above-mentioned considerations indicate usual attributes of a gift, namely, that a gift will ordinarily be by way of benefaction, that a gift will usually be not made in pursuance of a contractual obligation and that a gift will ordinarily be without any advantage of a material character being received in return. I would add to those usual attributes of a gift, the attribute that a gift ordinarily “proceeds from a 'detached and disinterested generosity/” Commissioner v. LoBue (1956) 351 U.S. 243, 246; “out of affection, respect, admiration, charity or like impulses”.

The best that the appellant could offer was that he, in all sincerity, followed the terms of the offer by the C.W.F. and that this offer was no different from payments made to purchase tickets for dinners, balls, concerts, shows or other like functions or events where official receipts are issued for part of the payment made. In these latter situations it was incumbent upon the charity to substantiate the basis used for ascertaining the amounts to be treated as gifts before issuing any receipts.

In this case while the payment by the appellant to the C.W.F. in response to their advertisement was voluntary, there was a contractual obligation to pay $450. (The evidence clearly showed that the payment and the gift were inextricably involved with the purchase of the print.)

Presumably the appellant could have sued for a tax receipt if one was not forthcoming. This was probably so even though the tax receipt would not be accepted by Revenue Canada. Was the “gift” of a primary or secondary nature in the mind of the appellant? I believe it was the latter.

As a result there was no “gift” made in the proper sense, such that it arose because of “detached and disinterested generosity”.

In view of this finding, under the provisions of paragraph 110(1 )(a) of the Income Tax Act it is not possible to make a “gift” if some valuable consideration such as goods or services is received in return.

It is not necessary to consider the second question involving the criteria which would dictate the apportionment between what is received by way of consideration and what is considered to be a gift.

The appeal is therefore dismissed, and no costs are allowed.

Appeal dismissed.