DR F Bruce Burns v. Minister of National Revenue, [1983] CTC 2629, [1983] DTC 557

Taylor, TCJ:—These appeals were heard by me in Toronto, Ontario, on May 20, 1983 in my capacity as a member of the Tax Review Board, and in Ottawa, Ontario, on July 21, 1983 in my present capacity as a judge of the Tax Court of Canada. The appeals relate to income tax assessments for the years 1977, 1978 and 1979 in which the Minister of National Revenue disallowed amounts of $2,496, $1,500 and $250 claimed as gifts. The factual situation is described in the Minister’s reply to notice of appeal:

— The Appellant, a dentist by profession, resides in the City of Mississauga, in the Province of Ontario.

— The Canadian Ski Association (“CSA”) is a registered Canadian Amateur Athletic Association as that term is understood in Subparagraph 110(1 )(a)(ii) of the Income Tax Act, RSC 1952, Chapter 148, as amended (the “Act”).

— The CSA is a volunteer organization with its headquarters in the City of Ottawa, in the Province of Ontario, and has 16 divisions throughout Canada, one of which is the Southern Ontario Division (the “SOD”).

— The CSA is responsible for the selection and training of the National Ski Team which competes in worldwide competitions including the Olympics. The SOD is reponsible for the training of skiers residing in or about Southern Ontario.

— During 1977, 1978 and 1979 the Appellant’s daughter, Jane Burns, was a member of the SOD training squad.

— The Appellant paid the CSA through the intermediary of the SOD, $2,496.00, $1,500.00 and $250.00 in 1977, 1978 and 1979 respectively.

— In due course, the CSA forwarded to the Appellant offical Income Tax receipts for the payments referred to above.

The repondent relied, inter alia, upon section 110 of the Income Tax Act, SC 1970-71-72, c 63, as amended, and contended:

— that the payments made to the CSA were not a voluntary transfer of property without consideration;

— that the Appellant made the payments to the CSA in the expectation that he would receive and did in fact receive consideration therefor;

— that the consideration received by the appellant was the ski training provided for his daughter by the SOD;

— that the payments made to the CSA were not gifts.

The Court heard about the organization, structure and various fund- raising activities of CSA. There was some government financial support by way of grants to CSA; there were donations, both individual and corporate, and there were fund-raising activities — auction sales, etc, which provided the total budget. The CSA when providing income tax deduction receipts, kept approximately 10% of donated amounts for activities directed largely toward the development of the National Ski Team. CSA remitted the balance of about 90% back to the local or regional association or club to which the money had been donated. The funds at issue in these appeals were not “ski club dues” providing for ski-tow fees, etc. Some disallowance arose out of special payments by Dr Burns of $1,000, $1,500 and $250 in each of the years 1977, 1978 and 1979, at a time when his daughter reached the potential of training for world class competition. In addition to the $1,000 noted above related to 1977, there was also an amount of $1,496 at issue for 1977 in connection with a European summer ski camp. The evidence and testimony indicated to me that it did not fit into any classification that could possibly be called a “gift”, and that amount of the appeal will be dismissed. This judgment, therefore, will only concern itself with the three amounts $1,000, $1,500 and $250 directly related (at least allegedly so) to the process of ski training in Canada for world class competition — a chance at a place on the National Ski Team representing Canada. Out of the 25,000 or so skiers under the general aegis of CSA, perhaps 25 might reach that level of proficiency after many years of earlier training and individual effort. From there, they might progress to world-class level with greatly intensified training and dedication.

Only a small fraction of the evidence and testimony provided at the hearing is recorded in this judgment but I would note with appreciation that both parties put forward all aspects of a complete case and the arguments presented were informative, well researched and reasoned. I am satisfied Dr Burns was aware, while his daughter was still very young, that at the “elite” level he would be almost certainly required to pay amounts much greater than he had contributed usually. Also, I am satisfied that prior to the three years under review, such donations were accepted by CSA and appropriate tax deduction receipts issued, not materially different than those at issue here.

The perception of counsel for the Minister in this matter was that some middle ground existed between a “contract” and a “gift” — a kind of “gift with consideration” which, because there was consideration of some kind, could not be classified as a true “gift” for purposes of the Income Tax Act. Counsel for the appellant conceded that such a perception could exist, but that it represented only a “phychic benefit” as opposed to any “material benefit” which was proposed by the Minister. I do not believe I need determine if there was such a thing as a “psychic benefit”, but if it reflects only the general feeling of satisfaction which could result from making a donation, I doubt it could not be termed “consideration” as foreseen by the Act and described in the jurisprudence. Even the “moral character training” alluded to by counsel would not suffice, in my opinion, to validate the Minister’s assessments. To serve the Minister’s purpose in these appeals, the assessments must be founded on the consideration (if it existed) directly related to the ski training to be received — and indeed received by the appellant’s daughter.

I am prepared to agree that the efforts at persuading parents to contribute bordered on the “hardsell” at the “elite” level of training, and the threat of discontinuation of an individual’s training is implicit, almost explicit, in some of the correspondence. However, I am not prepared to decide that in all its constituent elements, that “hard-sell” reaches the level of mutual agreement which can be termed a “contract”. But that does not relieve this appellant from convincing the Court that the amounts at issue qualify as “gifts” and it is not sufficient that counsel for the appellant highlight the distinctions which might be seen from a “contract”.

On that point (the characterization of these amounts as “gifts”), the signal case to date, in my view, is The Queen v John Zandstra, [1974] CTC 503; 74 DTC 6416. In particular, I would note the reference and comments of the learned justice when he dealt with the term “gift” at 508 and 6419 respectively. The essence of the argument from counsel for the respondent in the instant appeals, respecting that jurisprudence, was:

To disqualify the payments as gifts, it is not necessary that there be a valid contract existing between the Canadian Ski Association and Dr Burns. It is sufficient that Dr Burns or a member of his family intended to receive, and did receive, a benefit as a result of this payment. The moneys were paid by Dr Burns in the expectation that he, or a member of his family, would get a material benefit in return.

Adopting the approach submitted by Mr Justice Heald in the Zandstra case, it is submitted that Dr Burns’ payments to the Canadian Ski Association were made in that expectation, that is the expectation that he would receive a benefit and that his daughter would receive training as a member of the ski team, and would also receive what I might call some moral character training.

Conversely, counsel for the appellant commented:

I never considered that this was something of a landmark decision of great significance. To me Zandstra is nothing more than another school case but there are a couple of interesting points apropos of it. The key thing here — you have to understand that this is a religious school or, if you will, a mixed religious school, and if you read the facts what you find, for example, is that part of the argument or part of the subsidiary argument has to do with how much ‘Revenue’ is actually allowing them — in other words, it is a question as to whether the first $200.00 . . . perhaps I could read it:

The Society which operated the school for the children of members had obtained a ruling from the Department to the effect that any payment toward tuition exceeding $200.00 per child could be considered a gift or charitable donation . ..”.

The religious schools, that is the mixed religious secular schools, fall into a totally different group insofar as the law is concerned. There is, in fact, a Revenue Canada interpretation or, I am sorry, an information circulation, out dealing with tuition payable to religious schools, and they have come to a modus vivendi in respect of religious schools in which, pursuant to a formula which they use, they in effect allow the tuition for the so-called religious portion as opposed to the secular portion and one of the things you find with these schools is that there are all sorts of funding and all sorts of arrangements which are made, and here they talk about the lack of a contract and they focus to some extent on the fact that there are variable fees, you don’t have a fixed fee, but that is really nothing much more essentially since they do talk about it in the context of people’s ability to pay, it is not really much more than saying we have a fee schedule as it were; however, everybody pays according to their ability and we recognize it and a lot of the money is coming from a central source.

What I find interesting about the case in the particular context of what we have been discussing today is the number of times Mr Justice Heald refers to “consideration”. I don’t find the word “benefit” floating around, which is the word we are talking about here, but “consideration”.

He refers to it over and over again. He says, again on page 4 of Mr Malette’s document, he first gives the Shorter Oxford Dictionary definition of “giving” as

.. a transfer of property in a thing, voluntarily and without any valuable consideration . ..” and then Mr Justice Heald says:

“. . . I have concluded that the payments made by these parents to the Jarvis School were not payments made without consideration . .

Further he says:

“It seems to me they received consideration from the Jarvis School .. .”

What I am suggesting is that even though he appears . . . he seems to say there isn’t a contract, what he is really saying, it seems to me, is that there is consideration or, if you will, to use the kind of terminology we have been using up to now, there is benefit great enough to create consideration which would, in fact, sustain a contract. There is so much consideration here .. .

He doesn't use vague words like benefit, he uses words like consideration over, over and over again and, in my feeling, this is no accident ...

I would also note that counsel for the appellant during argument contended that if indeed there were a “benefit”, such benefit accrued to the CSA or to Canada rather than to the appellant or his daughter. I am not persuaded that such an argument is tenable and even if viable to some degree, it does not reduce the onus on the appellant to show that consideration expected and received was not the motivation for the donation.

Dr Burns did not make the payments at issue out of the sole desire to assist CSA in producing a world class skier. At the same time there can be no doubt that such an objective had been and continued during the years material to be very much a part of his life. That interest and objective cannot be ignored in a review of these appeals. In addition to that objective, however, he made the contributions with the hope and expectation that one of the world class skiers so produced might be his daughter, and that she would be provided with every reasonable opportunity, through CSA, to attain that goal. As I understand the matter, the amounts at issue in these appeals are in question only because the payments made by Dr Burns had been “tainted” allegedly by this concurrent interest in his daughter’s progress.

I am prepared to agree that perhaps all of the skiers in CSA did not have an equal chance of becoming a world champion even if each one of them were of equal physical ability. In the process of selection, the financial capability of the sponsoring and vitally interested parents or guardians could plan an increasingly important role in any individual ascent up the hierarchy. However, the testimony was clear — even though every effort was made to “encourage” the parents (and that may be a very mild word for it) to provide financial assistance, the lack of such financial assistance had never been an actual deterrent for a good skier. The appellant’s daughter Jane herself testified that she did not know which trainees had paid or which ones had not (if there were any). That fact simply did not interest the trainees. There may have been variations in training. Perceptions of “favouritism” and special attention may have been a common complaint. But I do not find that any different than one might expect under any form of intense competition for the limited spaces available on such a narrow and lofty plateau.

The “consideration” regarded by the Court in Zandstra (supra) as sufficient to disqualify the amount at issue as a “gift” was “the Christian education of their children”. In this matter, the respondent argues that the same disqualification should obtain as a result of the ski training of the appellant’s daughter. As I read Zandstra (supra), there was no overall general objective as one finds in this case — at least not the production of world-class specialized scholars, as compared to world-class skiers. In Zandstra, education, as a simple objective, was readily available in the public system. That which the appellant Zandstra sought and obtained was a private Christian education for his own children. There was no such analogous situation in these appeals. If indeed a world-class skier — an athlete to represent Canada — were to develop, he or she could only develop, as I understand it, under the Strict auspices of the Canadian Ski Association. The sole purpose of the CSA was to provide an organization and financial framework within which the potential for world-class competition could be spotted, encouraged and developed. The contributions made by Dr Burns were directed toward that objective and, as far as the evidence would indicate, were used for that purpose. I am not persuaded that because Dr Burn’s daughter had the potential of being a mechanism or vehicle through which some part of such an objective might be attained, he should be denied the deduction to which he would otherwise be entitled arising out of the basic charitable nature of the payment. The “secondary motive”, as one might term his family interest, is not sufficient in the circumstances of this case to obviate the long standing and clearly demonstrated support of Dr Burns for the prime objective of the Canadian Ski Association. It has already been noted that the Court concludes that the sole reason for Dr Burns’ contributions was not just the prime objective of producing a world-class skier, he had an ancillary concurrent reason in hoping it would be his daughter. At the same time, to the degree that Zandstra (supra) can throw any light on this matter, it cannot be said that the sole reason for the payments was the individualized ski training of his own daughter, similar to that reflected in Zandstra “in discharge of their duties as parents as they conceived them to be” (emphasis mine).

The parents in Zandstra (supra) regarded the specific format of their children’s education as a moral, indeed a religious duty. That sense of purpose does not come through to me from Dr Burns’ testimony, even though he readily and candidily agrees that he would not have made the contributions to CSA without the expectation that his daughter would participate in the program. I can only assume that it it were merely expert or professional ski training that Dr Burns considered essential — in fact, a duty (see Zandstra) — he could have obtained this by simply paying for it outside CSA. That, however, would not have contributed to his objective of producing a world-class skier representing Canada.

The payments at issue here were directed toward the general non-profit objective of CSA, they were voluntary, not part of a contract, and eligible for deduction as a gift. I find no reason to dilute that deduction, or eliminate it, because of the secondary “personal interest” aspect of the matter relied upon by the Minister. In my view the appeals bear a degree of similarity to the circumstances described by the Board in Marinus J Overdyk v MNR, [1983] CTC 2361; 83 DTC 307; at 2365 and 311 respectively:

That fulfills the requirements of the section to my satisfaction. Mr Overdyk has managed to re-order a painful and frustrating life experience into a satisfying and productive sphere of activity. That effort does warrant attention and appropriate recognition, but it does not, of itself entitle him to any special benefit or privilege under the Income Tax Act. However, neither should it serve to deprive him of a deduction for which his basic and constant physical condition meets the requirements of the Act. (italics mine)

In view of the lack of specific jurisprudence on the point from the higher Courts, for this Court to reach the conclusion that, at the very point in time and individual development when maximum financial support was required from the parents, a major incentive (the tax deduction) should be discontinued, in my view, would be in direct conflict with the alleged purpose for which Parliament designated the Canadian Ski Association as a non-profit organization. The dual aspects of responsibility for the formation of worldclass skiers, and certification to attract financial support through taxdeductible donations appears to me to have been fundamental to that purpose. Some analogous situations exist within the Income Tax Act and the questions raised are obvious. Should a donation to a religious organization, otherwise tax deductible, be disallowed because the donor indicated an interest, or even directed that it be used for a particular purpose within that organization’s authorized functions? Or should a political contribution, otherwise tax deductible, be disallowed because the donor indicated a certain candidate or utilization for the gift within the acknowledged political ambit of the organization? These questions were referenced or implied in the arguments of counsel for the appellant, but this Court is not required to consider them in depth. However, the practical problems inherent in the Minister’s rationale for the assessments at issue in these appeals do warrant some reflection.

The appeals are allowed in part in order that the amounts of $1,000, $1,500 and $250 in the taxation years 1977, 1978 and 1979 respectively be permitted as a charitable deduction. In all other respects the appeals are dismissed.

Appeal allowed in part.