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Reference: 2004TCC526
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Date: 20040812
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Docket: 2002-3217(IT)I
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BETWEEN:
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JEAN-MARC TROTTIER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from an assessment made under the Income Tax Act (the “Act”) for
taxation year 1998. The issue at bar is whether the Minister of National
Revenue (the “Minister”) was justified in disallowing the credit claimed by the
Appellant for a charitable gift of $22,500 for taxation years 1998 and 1999.
[2] The parties agreed
to proceed by means of the same evidence for this docket and for Louis Laliberté (Docket: 2002-1892(IT)I).
[3] The assessment
disputed in this appeal was issued further to the consideration of the
following assumptions of fact:
a) during
taxation years 1998 and 1999, the Appellant worked as a notary;
b) the
Appellant exercised his profession with Louis Laliberté under the name Trottier
Laliberté, notaires (hereinafter the “Corporation”);
c) the
Appellant was the sole shareholder in Rentinvest Inc. during the taxation years
at issue;
d) the
Appellant attached a tax receipt issued by “l’Oasis à Coeur Ouvert”
(hereinafter “Oasis”), dated July 3, 1998, to his 1998 tax return, for the sum
of $22,500; a note on the receipt states: “Référence Coop de l’Échange”;
e) the
Appellant claimed $10,305 for taxation year 1998 and $12,194 for taxation year
1999; these amounts were disallowed by the Minister in the computation of
credits for charitable gifts claimed for these years;
f) a
receipted dated July 3, 1998, for the sum of $22,500 was also issued by Oasis
to Louis Laliberté;
g) according
to a transaction coupon issued by the Coop de l’Échange and dated December 10,
1997, the Société d’Échange Commercial de Québec Métropolitain (hereinafter
“SECQM”) purchased 25,000 exchange units from the Appellant;
h) according
to a transaction coupon issued by the Coop de l’Échange on the same date
(December 10, 1997), the Appellant purchased 25,000 exchange units from SECQM;
i) according
to the contract of sale dated December 10, 1997, SECQM sold a dinosaur skeleton
replica to the Appellant in consideration of 25,000 Coop de l’Échange
commercial exchange units;
j) as
of December 10, 1997, and May 29, 1998, the fair market value of the exchange
units was nil;
k) as
of December 10, 1997, the fair market value of the dinosaur skeleton replica,
which was received in consideration of the exchange units, is nil;
l) on
May 29, 1998, according to the transaction coupon issued by the Coop de
l’Échange, the Corporation purchased 45,000 exchange units from SECQM;
m)
according to the Corporation’s accounting records, on August 16, 1998, the
Corporation issued an invoice to Rentinvest Inc. for fees in the amount of
$45,000;
16-08-98 Accounts
receivable $51,761.00
Fees $45,000.00
GST
payable $3,150.00
QST
payable $3,611.25
Invoice
for fees—Rentinvest Inc.;
n) according
to the Corporation’s accounting records, on August 17, 1998, Rentinvest Inc.
paid the $45,000 in fees, invoiced by the Corporation, in candles for a sum of
$25,000 and a painting of a dinosaur for a sum of $20,000:
17-08-98 Candles
purchased $25,000.00
Painting
(dinosaur)
purchased $20,000.00
GST
$3,150.00
QST
$3,611.25
Accounts
receivable $51,761.00
Receipt
from Rentinvest for candles and painting as payment of fees;
o) on
August 18, 1998, according to the Corporation’s accounting records, the
Corporation sold candles to SECQM for a sum of $25,000 and a painting of a
dinosaur for a sum of $20,000:
18-08-98 Accounts
receivable $51,761.25
Sale of candles $25,000.00
Sale of dinosaur painting $20,000.00
GST
$3,150.00
QST
$3,611.25
Sale of painting and candles
to the SECQM;
p) according
to the Corporation’s accounting records, on August 19, 1998, the Corporation
purchased a painting from a museum for the sum of $45,000:
19-08-98 Purchase
of a
painting
(museum) $45,000.00
GST
$3,150.00
QST
$3,611.25
Accounts
payable $51,761.25
Purchase
of a painting from the museum;
q) no
invoice for the purchase of a painting was submitted;
r) according
to the Corporation’s accounting records, on August 20, 1998, the $45,000 owed
to the museum for the purchase of a painting was paid by SECQM:
20-08-98 Accounts
payable $51,761.25
Accounts
receivable $51,761.25
Amount
owing to the museum paid by SECQM;
s) according
to the Corporation’s accounting records, on August 21, 1998, the Appellant and Louis
Laliberté invoiced the Corporation for $22,500 each, acquired a painting for
$45,000, and donated this painting to a museum:
21-08-98 Fees—Trottier $22,500
Fees—Laliberté $22,500
Purchase
of painting $45,000
Donation
of painting to museum;
t) on
October 27, 2000, the agent for the Corporation explained to the Minister that
the receipts issued by Oasis were further to the gift of a dinosaur skeleton
replica;
u) on
August 29, 2001, Louis Laliberté explained to the Minister that the gifts
established by Oasis were further to the gift of 45,000 SECQM exchange units;
v) according
to the Appellant’s notice of objection, this was a cash donation;
w) the
real consideration for the receipts from Oasis was a number of SECQM exchange
units, also known as “bartering points”;
x) the
exchange units were obtained following diverse transactions involving the
Corporation, Rentinvest Inc. held by the Appellant, the Coop de l’Échange, and
finally, the Appellant and Louis Laliberté personally;
y) the
receipt submitted by the Appellant for the charitable gift is deficient because
it shows that it is a receipt for a cash donation rather than for a gift of
property other than cash; it does not describe the gift in kind and provides
neither the name nor the address of the appraiser;
z) the
explanations provided to the Minister by the Appellant to explain the basis for
the charitable receipt from Oasis do not agree with the Corporation’s
accounting records;
aa) the receipt from Oasis
submitted by the Appellant is deficient, because it is dated July 3, 1998,
which is prior to the date of the gift, August 21, 1998, as identified in the
Corporation’s accounting records;
bb) the
Corporation’s accounting records for 1997, and Rentinvest Inc.’s accounting
records for 1997 and 1998 were not provided to the Minister, because these
records apparently cannot be located;
cc) the
Appellant did not, in any form, make a donation for the sum of $22,500 to
Oasis.
[4] The Appellant agreed
with the content of paragraphs (a) to (i), (l) to (o), (q), (r), (u), (w), (x),
and (aa). He agreed with the content of paragraph (s), except for the
information relating to the purchase of a painting for $45,000; he denied this
aspect. An number of paragraphs were denied outright; they are a follows: (j),
(k), (p), (t), (v), (y), (z), (bb), and (cc).
[5] Louis Laliberté,
Notary, and Gaston Drolet, Accountant, were the only witnesses.
[6] Mr. Laliberté’s
testimony was rather brief. He was not the person acting as the main player in
the various transactions leading to the issuance of the receipts (Exhibits A-9
and A-10). The accountant, Gaston Drolet, was more forthcoming.
[7] From the outset,
Mr. Drolet stated that all the accounting entries explained and justified the
Appellant’s claims, and he was very insistent on this fact. The consistency of
the facts upon which the entries were based was not, however, as well
established.
[8] Where the
accountant, who was the person responsible for the accounting records of
Appellant’s legal firm, appeared to be very familiar with the file, he
nonetheless made very surprising claims.
[9] He stated that it
was not a painting, but a dinosaur replica, the specific property that is
central to the history of the file leading to the gift. Later, bartering
points, then cash, were involved, on the basis that bartering points were, for
all intents and purposes, cash.
[10] When he was asked
about the various steps taken to validate the charitable organization’s status,
the accountant replied that this was not a critical requirement; he then
acknowledged that he had done some research which confirmed that the
organization that issued the receipt was duly registered and authorized to
issue receipts. He stated, however, that he had been informed that the
organization had had this authorization revoked at one time.
[11] The accountant also
provided an explanation for the bill of costs for the amount of $45,000. He
stated that the Appellant worked physically for Rentinvest Inc., which he
owned.
[12] As a result of this
work, his availability to work at his legal firm, Trottier Laliberté, was
reduced, thus the Corporation invoiced Rentinvest Inc. for $45,000 for 45 days
of work, at a rate of $1,000 per day.
[13] Likely to justify
the reasonableness of the invoice, the accountant also stated that the charges
could have been much higher, because the Appellant had been absent for a number
of days more than the number indicated in the invoice.
[14] In his argument,
counsel for the Respondent raised the following question, with reason:
[Translation] In this matter, I
submit, Mr. Justice, that a problem arises: How can Trottier Laliberté,
notaires, issue an invoice for maintenance or renovation work that Mr. Trottier
performs for his own business?
[15] Overall, the
Appellant, through the testimony of Mr. Laliberté and that of the accountant,
argued that he had not concealed anything and that everything had been declared
and recorded in complete accounting entries.
[16] Essentially, the
Appellant’s arguments, expressed mostly by the accountant, affirmed,
reiterated, and insisted that everything had been disclosed and entered into
the accounting records with absolute consistency.
[17] The development of
the facts upon which the Appellant’s arguments are based is open to doubt and
raises a number of questions, to the extent that it may be suspected that some
facts were simply invented to support the claims of accounting consistency of
which the Appellant was obviously very proud.
[18] Taxation is not only
a consistent accounting exercise. Compliance with the provisions of the Income
Tax Act is the only criterion that must be considered in determining
whether an assessment is well founded. Accounting consistency cannot validate
the facts that lead to conclusions of non-compliance with the provisions of the
Act.
[19] For the moment, I
see no point in evaluating this aspect of the evidence, because in order for a
receipt for a charitable gift to be acceptable, it must meet very specific and
very strict conditions. For this reason, it is necessary to first evaluate the
case in this light to determine whether the essential conditions have been
met.
[20] In this case, the
wording of the receipt is as follows (Exhibit A-10):
[Translation]
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L'OASIS À COEUR OUVERT INC
278 de la Salle, Suite 00l
Quebec City, Quebec G1K 2T3
Registration number: 89310 8068
RR 0001
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Receipt number: 10004
DATE July 3, 1998
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Received from:______Mr.
Jean-Marc Trottier_____________________
Address:
_____370 René Lévesque Blvd. West____________________
City/Province:
_QUEBEC
CITY, QUEBEC Postal Code: G1S 1R9 SIN: xxx xxx xxx
The sum
of: --- --- Twenty-two thousand five hundred dollars --- --- $22,500
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Note: Reference—Coop de l'Échange
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(signature)
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Jean-Yves Gagnon
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[21] Does the receipt
filed by the Appellant comply with the provisions of section 3500 and
subsections 3501(1) and (1.1) of the Income Tax Regulations (the
“Regulations”)? These provisions read as follows:
3500. In this Part,
[…]
"other recipient
of a gift" means a person, to whom a gift is made by a taxpayer, referred
to in any of subparagraphs 110.1(1)(a)(iii) to (vii), paragraphs
110.1(1)(b) and (c), subparagraph 110.1(3)(a)(ii),
paragraphs (c) to (g) of the definition "total charitable gifts"
in subsection 118.1(1), the definition "total Crown gifts" in
subsection 118.1(1), paragraph (b) of the definition "total
cultural gifts" in subsection 118.1(1) and paragraph 118.1(6)(b) of
the Act;
[...]
"official receipt" means a
receipt for the purposes of subsection 110.1(2) or (3) or 118.1(2), (6) or (7)
of the Act, containing information as required by section 3501 or 3502;
[...]
3501. (1) Every official receipt issued by a
registered organization shall contain a statement that it is an official
receipt for income tax purposes and shall show clearly in such a manner that it
cannot readily be altered,
(a)
the name and address in Canada of the organization as recorded with the
Minister;
(b)
the registration number assigned by the Minister to the organization;
(c)
the serial number of the receipt;
(d)
the place or locality where the receipt was issued;
(e)
where the donation is a cash donation, the day on which or the year during
which the donation was received;
(e.1)
where the donation is a gift of property other than cash
(i)
the day on which the donation was received,
(ii)
a brief description of the property, and
(iii)
the name and address of the appraiser of the property if an appraisal is done;
(f)
the day on which the receipt was issued where that day differs from the day
referred to in paragraph (e) or (e.1);
(g)
the name and address of the donor including, in the case of an individual, his
first name and initial;
(h)
the amount that is
(i)
the amount of a cash donation, or
(ii)
where the donation is a gift of property other than cash, the amount that is
the fair market value of the property at the time that the gift was made; and
(i)
the signature, as provided in subsection (2) or (3), of a responsible
individual who has been authorized by the organization to acknowledge
donations.
[22] In a past decision, Plante
v. Canada [1999] T.J.C. No. 51
(Q.L.), I dealt with the rigidity of the requirements established for a receipt
for a charitable gift to be compliant. The following are paragraphs 40 to 43
of this case:
[40]
Did the receipt filed by the appellant meet the Act’s requirements and
entitle her to benefits under the Act?
[41]
This is a very important question, since Parliament has subjected the deduction
for gifts to specific conditions.
[42]
Subsection 118.1(2) of the Act reads as follows:
118.1(2)
A gift shall not be included in the total charitable gifts, total
Crown gifts or total cultural gifts of an individual unless the making of
the gift is proven by filing with the Minister a receipt therefore that
contains prescribed information. [emphasis added]
[43]
Section 3500 and subsections 3501(1) and (1.1) of the Income Tax Regulations
(Regulations) provide as follows:
3500. In this Part,
.
. .
“official
receipt” means a receipt
for the purpose of paragraph 110(1)(a), (b), (b.1) or
subsection 110(2.2) of the Act, containing information as required by
section 3501 or 3502;
.
. .
“other
recipient of a gift”
means a person referred to in any of subparagraphs 110(1)(a)(iii) to
(vii), paragraph 110(1)(b) or (b.1) or subparagraph 110(2.2)(a)(ii)
of the Act to whom a gift is made by a taxpayer . . . .
3501. (1) Every official receipt
issued by a registered organization shall contain a statement that it is an
official receipt for income tax purposes and shall show clearly in such
a manner that it cannot readily be altered,
(a)
the name and address in Canada of the organization as
recorded with the Minister;
(b)
the registration number assigned by the Minister to the organization;
(c)
the serial number of the receipt;
(d)
the place or locality where the receipt was issued;
(e)
where the donation is a cash donation, the day on which or the year during
which the donation was received;
(e.1)
where the donation is a gift of property other than cash
(i)
the day on which the donation was received,
(ii)
a brief description of the property, and
(iii)
the name and address of the appraiser of the property if an appraisal is
done;
(f)
the day on which the receipt was issued where that day differs from the day referred
to in paragraph (e) or (e.1);
(g)
the name and address of the donor including, in the case of an
individual, his first name and initial;
(h)
the amount that is
(i)
the amount of a cash donation, or
(ii)
where the donation is a gift of property other than cash, the amount that is
the fair market value of the property at the time that the gift was made; and
(i)
the signature, as provided in subsection (2) or (3), of a responsible
individual who has been authorized by the organization to acknowledge donations
[23] The actual wording
of the receipt issued by Oasis à coeur ouvert Inc. is non-compliant; it
describes a cash donation of $22,500, whereas the evidence shows that it was a
donation of bartering points assigned by “Coop de l’Échange.”
[24] What is the value of
these bartering points to a corporation that deals exclusively with its own
members? The accountant’s completely arbitrary and self-interested appraisal
was certainly not the way to determine their fair market value.
[25] A receipt must
contain a brief description of the property; the receipt filed specifies
twenty-five thousand five hundred dollars in words and in numbers, “$25,000,”
including the dollar sign.
[26] The receipt does not
match the property that was given to the charitable organization. The receipt
contains no description of the property—not the painting, the dinosaur replica,
or the bartering points. It simply states “Référence Coop de l’Échange,” which
does not specify that the property consists of bartering points; the bartering
points were not issued to the benefit of the Appellant, but to the benefit of
the corporation he owns.
[27] Accounting
consistency is not synonymous with a justificatory shield for fiscal correctness.
Transactions must not be essentially entries of accommodation.
[28] To benefit from the
tax credit resulting from a gift to a certified organization, it is imperative
that the receipt meets all the requirements set out in the Regulations; failure
to do so means that the donor cannot claim a credit for the charitable gift as
described in section 110.1 of the Act.
[29] In this case, after
hearing the evidence, the facts surrounding the origin of the gift are still
vague; moreover, some facts are questionable.
[30] The gift was not a
cash donation as the receipt leads to believe; it was essentially a certificate
that identifies the bartering points issued by an exchange coop. The receipt
was issued to the Appellant personally, whereas the gift was made by his
corporation.
[31] Finally, members
only can deal with the Coop de l’Échange, therefore, the value of the bartering
points is not equivalent to cash, contrary to the contentions of the
accountant, Gaston Drolet. I do not agree with his interpretation, which
appears to me to be absolutely unfounded.
[32] Aside from these
various aspects that, in themselves, would justify a dismissal of the appeal,
the receipt filed in support of the credit claimed is absolutely non-compliant
with subsection 3501(1) of the Regulations, with particular respect to the
description of the property and its fair market value—two aspects that are
essential for a compliant receipt in support of a credit claimed for a
charitable gift.
[33] Therefore, the
appeal is dismissed.
Signed at Ottawa, Canada,
this 12th day of August 2004.
Tardif
J.
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