Woolner v. R., [1999] 4 CTC 2512 (Informal Procedure)

Hamlyn T . C.J.:

The appeals are for the 1992 taxation year. They were heard together.

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.

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.

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.

In reassessing the Appellant Jan Overduin for the 1992 taxation year, the Minister disallowed donations claimed, in the amount of $4,185.

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.

In reassessing the Appellant Dennis Burkhardt for the 1992 taxation year, the Minister disallowed donations claimed, in the amount of $4,185.

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

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

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.

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.

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.

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.

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.

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.

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.

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.

The following table contains the relevant amounts for the three Appellants.

Issue

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

The most relevant point to be noted is that the term “gift” is not defined in the Act.

Analysis

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.

The approach is followed in a decision of the Federal Court of Appeal in the similar case McBurney v. R. (1985), 85 D.T.C. 5433 (Fed. C.A.).

What is a Gift

In Campbell v. R. (1992), 92 D.T.C. 1855 (T.C.C.) (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. Zand st ra, 74 D.T.C. 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 D.T.C. 6101 (F.C.T.D.) and The Queen v. McBurney, 85 D.T.C. 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

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 McBur- ney (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 I

In numerous cases the lack of a contractual obligation did not transform payments into gifts, see for example Campbell (supra); No. 688 v. Minister of National Revenue (1960), 60 D.T.C. 130 (Can. Tax App. Bd.) ; McBur- ney (supra); Bleeker Stereo & Television Ltd. v. Minister of National Reve- nue (1984), 84 D.T.C. 1761 (T.C.C.); and Getkate v. Minister of National Revenue (1980), 80 D.T.C. 1695 (T.R.B.). The fact that payments were voluntary was “irrelevant” according Chairman Snyder, Q.C. in Campbell v. Minister of National Revenue (1958), 59 D.T.C. 8 (Can. Tax App. Bd.). Further, the fact that those unable to pay were not excluded also did not transform the payments into gifts in À. v. Zandstra (1974), 74 D.T.C. 6416 (Fed. T.D.), or No. 688.

Was there a Material Benefit or Advantage in Return for the Donation

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 (1992), 92 D.T.C. 1855 (T.C.C.), Federal Commissioner of Taxation v. McPhail (1967), 41 A.L.J.R. 346 (Australia H.C.), and Leary v. Federal Commissioner of Taxation (1980), 32 A.L.R. 221 (Australia Fed. Ct.).

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 )(r/)(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 [McPhailI 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, /.e., the Christian education of his children. [emphasis added I

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 1s, 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.

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

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.

The Respondent argued that the Court is bound to apply the law, not the policies of Revenue Canada as outlined in Information Circulars.

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. R. (1996), 96 D.T.C. 1159 (T.C.C.) 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.

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.

In addition, the case of Koetsier v. Minister of National Revenue (1973), 74 D.T.C. 1001 (T.R.B.), establishes the right of the taxpayer to deduct the portion of his donation to a religious society [2] above a reasonable payment of tuition.

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 payers 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.

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.

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.

Appeals allowed.