Slobodrian v. R., [1998] 3 CTC 2654

Lamarre Proulx T.C.J.:

The Appellant is appealing by way of the informal procedure the reassessment of the Minister of National Revenue (the “Minister”), for the 1995 taxation year.

The question at issue is whether the provision of professorial and research services on a voluntary basis to a university institution is a gift within the meaning of section 118.1 of the Income Tax Act (the “Act’’).

The facts of the present appeal are not really in dispute. Paragraphs 3 and 5 of the Reply to the Notice of Appeal describe them as follows:

3. In computing his non-refundable tax credits for the 1995 taxation year, the Appellant claimed as charitable gifts the following amounts:

Laval Hospital Foundation	$ 20
Canadian Association of Physicists	25
St. Stephen’s and St. Vincent	590
Congregation
Laval University T4	447
Laval University - money valuation	15,000
	$16,082

5. In so reassessing the Appellant, the Minister made the following assumptions of fact:

a. in computing his charitable gifts for the 1995 taxation year, the Appellant claimed an amount of $15,000 as charitable gifts for the unpaid time spent for a research with Laval University (the “employer”);

b. the Appellant did not charge anything to the employer;

c. the amount of $15,000 was not included on the T4 prepared by the employer;

d. the Appellant has not shown that he gave something to the employer;

e. the Appellant did not submit an official receipt issued by a registered organization as prescribed by section 3501 of the Income Tax Regulations;

In his Notice of Appeal, the Appellant stated among other things the following:

A second and late reassessment was subsequently effected and a donation consisting in scientific research carried out for the Canadian Space Agency and also academic activities (graduate course, thesis advising, etc.) for Université Laval, evaluated at a fair market value, was disallowed. This donation resulted in a tax credit of $4,145.

The 1995 General Income Tax guide states on page 33 under the heading Donations Other than Cash: you may be able to claim donations other than cash. The brochure Gifts and Income Tax P113(E)Rev. 95 cites gifts in kind, both property and artistic work. Scientific research and discovery belongs certainly to the same category as artistic work and integrates the cultural patrimony of a country....

I believe that I have made a bona fide donation (word used in the tax guide) or gift, encompassed in the spirit of the tax law and included in subsection 118 (copy enclosed). Indeed, in 1995 I have incurred in several expenditures directly related to my activities as principal investigator of the contract and teaching responsibilities. ...I enclose a copy of the report I have written for the Space Agency and a reprint of a publication in the journal Physics in Canada, during the period object of discussion, proving the tangible aspects of my research. I do not believe that respecting the spirit of our tax legislation one can logically make a distinction between art work and scientific work (research and development) with respect to admissibility as a donation. Arts and sciences go hand in hand in civilized societies, since ancient times.

All the above-mentioned facts stated in the Reply were admitted by the Appellant except for the statement made in subparagraph 5d).

The Appellant retired from the professorial body at the end of August 1995, and at that time began to draw from his pension. Around the same time he was named a “professeur associé” for the period of September 1 to August 31, 1998. This allowed him to keep his office and continue to be part, under certain conditions, of the teaching and research auxiliary body at the faculty. This is stated in Exhibit R-3, a letter from “le vice-recteur aux ressources humaines” to the Appellant, dated October 1995.

The Appellant explained that in 1995 for Laval University, he had made a proposal for a research project to the Public Works and Government Services Canada. This proposal was filed as Exhibit A-2. Exhibit A-3 is the request for proposal. Exhibit A-4 is also part of the proposal but it is relative to the costing of the research project. It shows that there will be no costs for the principal investigator. Exhibits A-2 and A-4 are dated February 28, 1995. The Appellant stated that it was normal practice within the universities not to charge anything for the principal investigator in doing research works for outside parties, this research work being a useful tool for training and providing some earnings to the research assistants or trainees. Exhibit A-5 is the acceptance by Public Works and Government Services Canada for the Canadian Space Agency. It shows at Annex A that there are no costs to be paid for the services of the principal investigator, Dr. R.J. Slobodrian.

Exhibit A-l is a document signed by Mr. Pierre Amiot, “directeur du département de physique, de la faculté des sciences et de génie de l’Université Laval”, dated April 29, 1996. This document says the following:

A qui de droit,

Le Dr. R.J. Slobodrian a donné un cours gradué durant le trimestre d’automne de 1995, entre septembre et décembre. Il a aussi agi à titre de chercheur principal d’un contrat de l’agence spatiale canadienne en novembre et décembre de 1995. Ces activités ont été effectuées au département de physique de la faculté de sciences et de génie de l’université Laval. Il n’a pas perçu une rémunération pour le temps donné à l’institution.

Dr. Pierre Amiot

Directeur de département

Evaluation monétaire:

Mr. Amiot, who came to testify at the request of Counsel for the Respondent, stated that indeed the Appellant had given a graduate course and had been the principal investigator for the research works described above, on a voluntary basis. He explained that, at the Appellant’s request, he had completed the statement contained in Exhibit A-1. He truly believed that the Appellant had given the number of hours mentioned and he said that the rate was surely not exaggerated. He explained that the Appellant was still working at the Faculté as an associate professor, as mentioned in Exhibit R-3 above, and that even now it was difficult to arrive at the office before him, and therefore he did not doubt that the Appellant had put the hours mentioned in Exhibit A-1.

Mr. Côté, the Minister’s agent at the appeals level explained that the principal point why the Appellant was not allowed the tax credit, was that the provision of services on a voluntary basis is not a gift. Although the provision of a prescribed receipt is an essential condition, the agent based his decision on the substance of the matter.

In assessing in the manner in which he did, the Minister was following what is expressed in Interpretation Bulletin IT-110R3: Gifts and Official Donation Receipts. Subparagraph 15(d) of paragraph 15, entitled NonQualifying Contributions, reads as follows:

(d) Contributions of services may not be acknowledged by issue of an official receipt. A gift must involve property. Contributions of services (that is, time, skills, effort) are not property and do not qualify. There is nothing to prohibit a charity from paying for services and later accepting the return of all or a portion of the payment as a gift — provided it is returned voluntarily. The donor must, in such an arrangement, account for the taxable income that would be realized either as remuneration (in which case the charity may be obliged to issue an information slip) or as business income.

Counsel for the Respondent referred to section 1806 and to the first paragraph of section 1807 of the Civil Code, which read as follows:

Art. 1806. 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.

Art. 1807. A gift which entails actual divesting of the donor in the sense that the donor actually becomes the debtor of the donee is a gift inter vivos.

She also referred to La Collection Bleue, Faculté de Droit, Section de droit civil, Université d’Ottawa, at the section entitled Donations, substitutions et fiducie at page 14, Paragraphe I, L’élément matériel:

Pour qu’il y ait donation, il faut d’abord qu’il y ait une transmission de valeur d’un patrimoine à un autre, cela sans contrepartie. En d’autres termes, il faut que le donateur se dépouille d’un droit patrimonial sans compensation, pour le faire acquérir par le donataire; il est donc nécessaire qu’il y ait un lien de causalité entre l’abandon du droit et son acquisition.

In response to the Respondent’s position that services is not property and may not be the subject of a gift, the Appellant submitted that it was not ordinary services that he provided as a volunteer does, but scientific work that he gave as an artist gives his work of art.

Respecting the Appellant’s argument, it must be said that it does not correspond with the legal reality. The Appellant did not give the research work that became the product of his services as it belonged to the person who had paid for it. An artist may give a painting, he will not give his skills. The Appellant provided services, albeit of a scientific nature. The question remains: is the provision of services on a voluntary basis a gift?

The accepted meaning of the term gift, for the purpose of the Income Tax Act, is a voluntary transfer of property without consideration: Burns v. Minister of National Revenue, (1988), 88 D.T.C. 6101 (Fed. T.D.), at 6104 , affd (1990), 90 D.T.C. 6335 (Fed. C.A.). It is not different from the definition that is found at article 1806 of the Civil Code, which is cited at paragraph 12 of these reasons.

In the end, what has to be determined is whether services are comprised in the definition of property.

Property is defined as follows by paragraph 248(1) of the Act:

“property” means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes

(a) a right of any kind whatever, a share or a chose in action,

(b) unless a contrary intention is evident, money,

(c) a timber resource property, and

(d) the work in progress of a business that is a profession;

It is not defined in the Civil Code. Its legal meaning has been found by the authors and the jurisprudence to be something that is susceptible of being appropriated or possessed.

As mentioned by Counsel for the Respondent, there does not seem to be a Canadian decision as to whether services may be the subject of a gift within the meaning of section 118.1 of the Act.

In the U.S. federal tax law, section 170 of the Internal Revenue Code provides a deduction for charitable contributions and gifts made in a taxable year. In Holmes v. Commissioner of Internal Revenue, 57 T.C. 430 (U.S. T.C. 1971), Forrester, J. stated at 436:

In the senses that are useful to our discussion, “property” is variously defined as “something that is or may be owned or possessed”, “the exclusive right to possess, enjoy, and dispose of a thing”, and “something to which a person has a legal title”; while “services” may be variously defined as acts “done for the benefit or at the command of another”, actions “that further some end or purpose”, conduct “that assists or benefits someone or something”, and “deeds useful or instrumental to some object”. Webster’s New International Dictionary, pp. 1818, 2075 (3d ed. 1961).

Interestingly, in Etheridge v. Commissioner of Internal Revenue, 36 T.C.M. 724 (U.S. T.C. 1977), a case involving facts similar to those in the present matter, the petitioners, college professors, argued, as was done by the Appellant, that a distinction should be made between professional and ordinary volunteer services so as to entitle the former to a deductible allowance. The Court held that the statutory language did not permit such a distinction:

...Petitioners claim that their services were purely professional in nature and are therefore different from the type of voluntary services ordinarily rendered to charitable organizations....

Had petitioners been compensated in cash for their voluntary services and then contributed the cash to the project, they might have been entitled to deductions for the amount of the cash, but they would have had offsetting additional taxable income. The regulation is designed to deny deductions for the value of services where such value is not included in taxable income. While petitioners are to be commended for contributing their valuable services in the cause of providing better education for the beneficiaries of the project, the Internal Revenue Code simply does not allow the coveted deduction.

In Horn v. Minister of National Revenue (1989), 89 D.T.C. 147 (T.C.C.), in a matter different from the present matter, I had to examine whether skills and training were property for the purpose of subsection 90(1) of the Indian Act to conclude that it was not. I had referred to the decision of Jackett, C.J. in Rapistan Canada Ltd. v. Minister of National Revenue (1974), 74 D.T.C. 6426 (Fed. C.A.), where he held at 6428 that knowledge and ideas do not constitute property. I quote:

..as I know, under no system of law in Canada, does knowledge, skill or experience constitute “property” that can be the subject matter of a gift, grant or assignment except to the extent, if any, that it can be a right or a part of a right in respect of which there is property... As I understand the law, knowledge or ideas, as such, do not constitute property.

Indeed the distinction between property and services is equally recognisable in the ordinary usage of those words, as found in The Shorter Oxford English Dictionary. “Service” is defined as:

II. 1. Performance of the duties of a servant, attendance of servants; work done in obedience to and for the benefit of a master... b. An act of serving; a duty or piece of work done for a master or superior.... IV. 1. The action of serving, helping, or benefiting; conduct tending to the welfare or advantage of another.... c. collect. pl. Friendly or professional assistance.

The word “property” is defined as:

1. The condition of being owned by or belonging to some person or persons; hence, the fact of owning a thing; ... 2. That which one owns; a possession or possessions collectively, (one’s) wealth or goods.

The Appellant had said during his testimony that he had incurred expenses for the provision of the voluntary services. This also appears to me as not being a gift of property to a charitable organization. If the Appellant had the right to be reimbursed for these expenses, this right would be his personal property. If the Appellant had ceded it gratuitously to the charitable organization, that may be the subject of a gift. In a similar way, when there is provision of services, if that person has the right to be paid for those services, the right becomes the person’s property. It is the right for payment that is property however, not the services themselves.

In the circumstances of the present appeal, the Appellant contributed his knowledge, skill and talents in the form of services to the university. While these added value to, and ultimately resulted in a work capable of ownership, hence property, the services themselves were not capable of ownership and therefore should not be considered property. Not being property, services cannot be the object of a gift.

In consequence, the appeal has to be dismissed.

Appeal dismissed.