Bleeker Stereo and Television LTD v. Minister of National Revenue, [1984] CTC 2885

Cardin, TCJ:—The appeal of Bleeker Stereo and Television Ltd filed with the Court pursuant to paragraph 169(b) of the Income Tax Act, RSC 1952, c 148, is from assessments of taxes by which the Minister of National Revenue disallowed amounts of $2,657.28 in the 1977 taxation year and of $3,054.68 in the 1978 taxation year which were claimed as part of aggregate amounts of donations made by the appellant to various registered charity organizations in the years under appeal.

The appellant’s statement of facts in his notice of appeal is as follows:

(A) Statement of Facts

l. The appellant operates a television and stereo retailing business in Ottawa, Ontario.

2. The Ottawa Christian School Association (hereinafter referred to as the “OCSA”) and The Community for Christian Learning (hereinafter referred to as the “CCL”) are charities which operate Christian schools in Ottawa, Ontario.

3. The OCSA and the CCL were at all material times registered as charities by the Respondent.

4. In its 1977 taxation year the appellant donated a total of $8,826.00 to various registered charities, including the OCSA and the CCL.

5. In its 1978 taxation year the appellant donated a total of $14,585.00 to various registered charities, including the OCSA and the CCL.

6. All of the appellant’s donations to the OCSA and to the CCL in both of the appellant’s 1977 and 1978 taxation years were donated as general support for the charitable activities which both of these charities were carrying on.

7. The appellant was not in any way obligated to make any such donation to either the OCSA or the CCL, nor did the appellant receive any benefit or advantage in return for its donations to either of these charities.

8. The OCSA and the CCL each issued official receipts to the appellant, setting out the amounts received from the appellant in each of the said taxation years, together with all other prescribed information.

9. In computing its taxable ihcome for its 1977 and 1978 taxation years, the appellant deducted the aggregate of the amounts it had donated in these years to registered charities, including the OCSA and the CCL, and it proved its payment of the amounts claimed by filing official receipts with the respondent.

10. On May 29, 1981, the respondent mailed two Notices of Reassessment to the appellant concerning its 1977 and 1978 taxation years.

11. The reassessment of the appellant’s 1977 taxation year disallowed $2,657.28 of the appellant’s charitable donation claim for that year, this amount being a portion of the appellant’s donations to the OCSA and the CCL in that year.

12. The reassessment of the appellant’s 1977 taxation year disallowed $3,054.68 of the appellant’s charitable donation claim for that year, this amount being a portion of the appellant’s donations to the OCSA and the CCL in that year.

In his reply to notice of appeal, the respondent’s statement of facts reads as follows:

A Statement of Facts

1. He admits paragraphs 1, 3, 13, and 14 of the Notice of Appeal.

2. He denies paragraphs 6 and 7 of the Notice of Appeal and puts the appellant to the strict proof thereof. He further does not admit any allegation of fact or law contained in Part B of the Notice of Appeal.

3. With respect to paragraph 2 of the Notice of Appeal he admits that at all material times the Ottawa Christian School Association (the OCSA) and the Community for Christian Learning (the CCL) operated schools in Ottawa, Ontario providing both secular and religious education to children of elementary and high school ages respectively. He otherwise does not admit paragraph 2 of the Notice of Appeal.

4, With respect to paragraph 4 of the Notice of Appeal he admits that in its 1977 taxation year the appellant donated $3,826.40 to various registered charities other than the OCSA and the CCL and further that in its 1977 taxation year when the children of the major and controlling shareholder of the appellant were in attendance at the schools operated by the OCSA and the CCL the appellant paid the amount of $2,500 to each school. He otherwise does not admit paragraph 4 of the Notice of Appeal and puts the appellant to the strict proof thereof.

5. With respect to paragraph 5 of the Notice of Appeal he admits that in its 1978 taxation year the appellant donated $6,085 to various registered charities other than the OCSA and the CCL and further that in its 1978 taxation year, when the children of the major and controlling shareholder of the appellant were in attendance at the schools operated by the OCSA and the CCL the appellant paid the amounts of $3,500 and $5,000 to the OCSA and the CCL respectively. He otherwise does not admit paragraph 4 of the Notice of Appeal and puts the appellant to the strict proof thereof.

6. With respect to paragraph 8 of the Notice of Appeal he admits that the OCSA and the CCL issued receipts for the payments received from the appellant in its 1977 and 1978 taxation years but he specifically denies that the receipts issued to the appellant for its 1977 and 1978 taxation years correctly set out the amount of the gift or donation by the appellant in those years within the meaning of subsection 110(l)(a) of the Income Tax Act and section 3501 of Part XXXV of the Income Tax Regulations and puts the appellant to the strict proof thereof.

7. With respect to paragraph 9 of the Notice of Appeal he admits that in filing its Income Tax Return for its 1977 and 1978 taxation years the appellant sought to deduct as charitable donations in the computation of its taxable income the aggregate of the amounts it had paid to the OCSA and the CCL but he specifically denies that the appellant was correct in so doing. He further denies that the receipts issued to the appellant from the OCSA and the CCL in its 1977 and 1978 taxation years supported the charitable donation deduction he claimed with respect thereto.

8. With respect to paragraphs 10, 11 and 12 of the Notice of Appeal he admits that the appellant was reassessed for its 1977 and 1978 taxation years by Notices of Reassessment dated May 29, 1981 but says that the reassessments must speak for themselves. He otherwise does not admit paragraphs 11 and 12 of the Notice of Appeal.

9. In reassessing the appellant for its 1977 and 1978 taxation years the respondent proceeded on the basis that:

(a) at all material times Hans Bleeker was the controlling shareholder of the plaintiff;

(b) in the appellant’s 1977 taxation year Hans Bleeker had children in attendance at the schools operated by the OCSA and the CCL;

(c) in the appellant’s 1978 taxation year Hans Bleeker had children in attendance at the schols operated by the OCSA and the CCL;

(d) the schools operated by the OCSA and the CCL provided education to the children of Hans Bleeker in attendance thereat in the appellant’s 1977 and 1978 taxation years;

(e) the amounts of $2,657.28 and $3,054.68 paid by the appellant in its 1977 and 1978 taxation years respectively to the OCSA and the CCL were paid as consideration for the education of the children of Hans Bleeker in attendance thereat and were not gifts.

The appellant’s position is that all the amounts he donated to OCSA and the CCL in the 1977 and 1978 taxation years, were charitable donations within the meaning of subparagraph 110(l)(a)(i) of the Income Tax Act, RSC 1952, c 148, and are fully deductible.

The respondent, on the other hand, submits that in 1977 and 1978, Hans Bleeker, the controlling shareholder (of the appellant) had children in attendance at schools operated by OCSA and the CCL which provided education to them. He contends that the amounts of $2,657 and $3,054 of the total amounts paid by the appellant to OCSA and CCL in 1977 and 1978, were not gifts but payments made as consideration for the education of Hans Bleeker’s children.

There is agreement on the following points:

1. It is the deductibility or otherwise of the amounts disallowed that is the issue. The amounts themselves are not disputed.

2. The Ottawa Christian School Association (OSCA) and the Community for Christian Learning (CCL) are registered charities within the meaning of paragraph 110(8)(c).

3. The appellant donated aggregate amounts of $8,826 and $14,588 to various registered charities including OCSA and CCL in 1977 and 1978 respectively.

4. OCSA and CCL issued official receipts setting out the amounts received from the appellant corporation which were filed with the respondent in accordance with Part XXXV, Regulation 3501 of the Act.

5. Of the total amounts paid by the appellant to registered charities, amounts of $2,657.28 and $3,054.68 were disallowed by the respondent in the 1977 and 1978 taxation years respectively.

6. Mr and Mrs Hans Bleeker are the principal shareholders of the appellant corporation.

It is common ground that donations made by corporations to registered charities are deductible under subparagraph 110(l)(a)(i) of the Act. Indeed the respondent did allow the appellant corporation to deduct all charitable donations other than the amounts of $2,657.28 and $3,054.68 claimed in 1977 and 1978. Nor is there any dispute that a corporation and its shareholders are separate entities and should be so considered in applying the law to the facts of this appeal.

The question, then, is whether the amounts of $2,657.28 and $3,054.68 are gifts made by the appellant to registered charities in 1977 and 1978 within the meaning of subparagraph 110(l)(a)(i) or whether the nature of the payments are other than that of a gift in that they were made, according to the respondent, as consideration for the education of the children of Mr and Mrs Hans Bleeker, the principal shareholders of the appellant.

The answer to that question was very fully dealt with by the Honourable Justice Muldoon of the Federal Court of Canada, Trial Division, in his decision in the appeal of Lyle McBurney v The Queen, rendered on the 24th day of August, 1984 (as yet unreported), a copy of which is attached hereto.

The basic facts and the issue described above are virtually identical with those of McBurney, (supra). In a very comprehensive review and analysis of the words “gifts to registered charities”, as interpreted by the Courts over the years, the learned Mr Justice Muldoon concluded that if the intent as well as the wording of subparagraph 110(l)(a)(i) of the Act are considered, as indeed they must, then the basic concept of the words “gifts” and “charities” must not be restricted in any way for tax purposes but should retain the full range of meaning which is ordinarily accorded them in all other contexts.

Prior to the decision of Mr Justice Muldoon in McBurney, (supra), the leading case on point was the decision of the Federal Court of Canada, Trial Division, in The Queen v John Zandstra, [1974] CTC 503; 74 DTC 6416.

In that case, Mr Justice Heald found that the Hamilton Christian School Society, a registered charity, had obtained and applied a ruling from the Hamilton District Office of the Department of National Revenue, whereby the tuition fees for students attending the school were fixed at $200 per student per year. Mr Justice Heald found therefore, that amounts paid by the taxpayer to the school to the extent of $200 per student per year were tuition fees. However, amounts over and above the fixed tuition fees paid by the taxpayer to the school were gifts and deductible pursuant to subparagraph 27(l)(a)(i) of the Act (now subparagraph 110(1 )(a)(i) ).

The principle on which Mr Justice Heald arrived at his decision in Zandstra, (supra), basically is the same as that applied by Mr Justice Muldoon in McBurney, (supra). The facts, however, were different. In the McBurney case, as in the case at bar, the evidence was that there were no fixed tuition fees either required by or paid to the registered charities. The facts of both these cases are therefore distinguishable from those of Zandstra.

I do not feel it necessary to write further reasons for judgment with respect to the case at bar since this Court is bound by the decision of the Federal Court, Trial Division, in McBurney, (supra). Furthermore, I fully concur with the excellent reasons given by Mr Justice Muldoon in support of his decision in McBurney which, in my opinion, are in their entirety applicable to the facts and the issue of the instant appeal.

The appeal is therefore allowed and the matter referred back to the Minister for reconsideration and reassessment on the basis that the amounts of $2,657.28 and $3,054.68 are donations made by the appellant in 1977 and 1978 respectively, to registered charity organizations and deductible by virtue of subparagraph 110(l)(a)(i) of the Act.

[See L McBurney v The Queen, reported at [1984] CTC 466.]

Appeal allowed.