Plante v. R., [1999] 2 CTC 2631

Tardiff T.C.J.:

This is an appeal from an assessment for the 1993 taxation year. The case relates to a charitable gift made to the Sanctuaire Notre-Dame-de- Lourdes, in return for which a receipt for $3,400 was issued.

The appellant had owned a painting by the painter Albert Rousseau since the fall of 1986. She allegedly paid $1,800 for it. The way it was paid for is quite unclear and ambiguous.

In 1993, the appellant wanted to invest in an RRSP. Since she did not have enough money to do so, she apparently decided to sell the above- mentioned painting so as to be able to purchase an RRSP.

After approaching a number of galleries, the names of which could not be obtained, the appellant apparently realized that there was little or no interest in her painting and therefore no chance of her getting a fair price for it.

At that time, because of the problems in the market and on the advice of one Mr. Tremblay, she changed her plan to sell the painting and decided to make a gift of it in exchange for a receipt that would qualify her for the tax benefit she wanted.

The recipient or donee of the painting, the Sanctuaire Notre-Dame-de- Lourdes, was chosen by Mr. Tremblay; the appellant originally wanted to give her painting to an organization working to help battered women. She said that she accepted Mr. Tremblay’s recommendations even though she had to give up on her initial plan.

In return for the gift, a receipt for $3,400 was issued by the Sanctuaire Notre-Dame-de-Lourdes. It seems that the value was determined using the Quebec-based Guide Vallée. The appraisal by a firm known as Services d’art, which was connected with the gallery run by Mr. Tremblay, set the value of the painting at $3,400. No one testified to explain or support the claimed appraisal.

I do not think that the Guide Vallée is a valid, let alone a sufficient, reference tool for determining the real value of a painting. The appraisals given in the guide are often dictated and set out by the painters themselves; it is therefore in their interest for the quoted values to be as high as possible. However, I do not mean to suggest that the appraisals in the Guide Vallée are always completely inflated or arbitrary.

In my view, the guide basically expresses an opinion motivated by selfinterest. While it may be a useful indication or reference for purposes that are essentially commercial or speculative, it is not sufficient for determining fair market value.

An appraisal that is basically a reference to the Guide Vallée is not an appraisal prepared according to generally accepted practices and therefore has no probative force as regards the real value of a painting.

In the case at bar, the appellant argued that the painting was worth $3,400. To defend the increase in value of the painting, which she had purchased for $1,800 a few years earlier, and the correctness of the appraisal, she said that paintings generally increase in value over time, especially after the painter’s death.

She filed a document indicating that the value of the painting was $3,400. The document does not give the appraiser’s name.

Neither the appraiser nor any expert testified to support the appraisal claimed by the appellant. The document described as the appraisal also has on it, in handwriting, the word [TRANSLATION] “Receipt”, followed by the number 3271 and the date December 22, 1993. I consider it important to reproduce the document, which is fundamental to this case (Exhibit I-11).

[TRANSLATION]

December 22, 1993

Appraisal for Charitable Gift

APPRAISED FOR:

Nathalie Plante

705-36e Avenue #101

Lachine, Quebec

H8T 3L8

ARTIST: Albert Rousseau

MEDIUM: Oil painting

TITLE: “Vert”

SIZE: 12 x 16 PRICE: $3,400

APPRAISAL AT THE LISTED VALUE OF: $3,400

The above appraisal is given to the best of my knowledge, and I accept no liability in respect of any action that may be taken on the basis of the appraisal.

The appraisal was followed by an invoice for $170 (Exhibit A-8), which is unsigned, although it does set out the name, address, telephone number and line of work of the firm that prepared the appraisal and issued a receipt in the said amount of $3,400.

The respondent took a number of steps to determine the real value of the painting given as a gift. However, the Department’s investigation did not uncover the amount obtained at the auction held after the gift was made.

The respondent identified several paintings that had been given as gifts and sold at auctions for prices corresponding to a small fraction of the values indicated on the receipts issued for tax deduction purposes.

One thing is certain: the respondent’s data on the prices paid for the sold paintings, some of which were by the same painter, Albert Rousseau, make it possible to conclude unequivocally that the appellant’s painting was obviously overvalued. Its value was probably somewhere between $600 and $1,200. This conclusion is based on comparisons that are relevant, valid and above all reasonable.

In light of the incomplete, inadequate evidence — the burden of proof being on the appellant — I am determining the value based only on the indirect evidence adduced by the respondent, which contradicts the appellant’s arguments as to the value of the painting. I therefore find that the value of the painting in issue in this case was $900.

Although this appraisal is arbitrary, it is nonetheless the only possible option, since the appellant submitted nothing at all that could guide, advise or direct the Court in determining the painting’s value. The value of $900 is assigned on the basis of the comparable data drawn from the respondent’s evidence.

Parliament has provided for a mechanism and, above all, specific parameters for appraising paintings precisely to avoid the arbitrariness and exaggeration that can lead to abuses.

The appellant was unwise to rely on someone who was clearly self-interested. He certainly did not provide the guarantee of objectivity needed for an appraisal; he was, as it were, both a judge of and a party to the transaction, especially since he was also the one who issued the receipt used for tax purposes.

The evidence shows that the appellant transferred a painting worth $900 to the Sanctuaire; does that transfer meet the requirements for entitlement to tax benefits? Was the transferred painting appraised by a competent, qualified expert?

The appellant adduced no evidence with respect to the appraiser’s qualifications; she simply filed the document prepared by Services d’Art (Exhibit I-11), which does not contain a signature or the name of the person who performed the appraisal. The evidence also showed that the appraiser was directly involved in the process leading up to the transfer, thus undermining the quality and objectivity of the appraisal.

I conclude that the appraisal was in no way one prepared by an expert. It was basically a self-interested assessment with no objective value.

After arguing that the painting had been paid for in cash, the appellant and her agent changed their testimony and claimed that it had been paid for by cheque. Although there was also confusion about when the painting was purchased, I believe that the balance of the evidence shows that the appellant was the owner of the painting and that she had owned it for a few years at the time she made the gift. As for the contradictions, they can possibly be explained by the appellant’s nervousness and health problems.

Some facts that are helpful and relevant in disposing of this case are clear and not subject to interpretation. They can be summarized as follows:

-A painting by Albert Rousseau described as an oil painting measuring 12" x 16" and entitled VERT was given to the Sanctuaire Notre- Dame-de-Lourdes and a receipt for $3,400 was issued in return.

-The transfer was made on the self-interested advice of one Mr. Tremblay.

-The painting was not appraised objectively, validly or seriously in accordance with generally accepted practices in order to determine its real value.

Was it a real gift? Judge Pierre Dussault of this Court has stated the following about gifts:

The intent to give or animus donandi has traditionally been recognized both by the courts and by scholarly commentators as one of the essential requirements for a valid gift.

To be entitled to claim the deduction for gifts in computing her income, the appellant also had to meet a number of conditions set out in the Act.

The first condition was that the transfer of the painting be a “gift” within the meaning of subsections 118.1(1) and (3) of the Act, which read as follows:

(1) In this section,

“total gifts” — “total gifts’’ of an individual for a taxation year means the total of

(a) the lesser of

(i) the individual’s total charitable gifts for the year, and

(ii) /s of the individual’s income for the year,

(b) the individual’s total Crown gifts for the year, and

(c) the individual’s total cultural gifts for the year.

(3) Deduction by individuals for gifts. For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted such amount as the individual may claim not exceeding an amount determined by the formula

(A x B) + [C x (D - B)]

where

A is the appropriate percentage for the year:

B is the lesser of $250 and the individual’s total gifts for the year;

C is the highest percentage referred to in subsection 117(2) that is applicable in determining tax that might be payable under this Part for the year; and

D is the individual’s total gifts for the year.

The Minister made the assessment on the assumption that the transfer of the painting to the recipients was not a gift for the purposes of section 118.1 of the Act. Since the Act does not define that term, we must rely on its usual meaning.

The following definition appeared in article 755 of the Civil Code of Lower Canada:

755 — Gift inter vivos is an act by which the donor divests himself, by gratuitous title, of the ownership of a thing, in favor of the donee, whose acceptance is requisite and renders the contract perfect. This acceptance makes it irrevocable, saving the cases provided for by law, or a valid resolutive condition.

Today, article 1806 of the Civil Code of Québec defines “gift” as follows:

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. Gifts may be inter vivos or mortis causa.

Thus, for there to be a gift, an animus donandi must exist. Its existence is shown by the fact that the gift is free and by the impoverishment of the donors in favour of the donee.

In the case at bar, the respondent argued that the appellant’s action was self-interested, since the tax benefit was the only motivation for it. I do not think that the facts support such a conclusion, since the appellant had owned the painting for a number of years. Moreover, it was legitimate for her to believe that the painting had significantly increased in value, especially since the painter had died, which generally has a positive impact on the value of a painter’s works.

The case law in support of the respondent’s arguments strikes me as of limited relevance, since the taxpayers involved in the cited cases were, so to speak, parties to a system that existed partly to procure a tax advantage.

In this case, it is my view that the appellant was basically in good faith; she may have been unwise, but she certainly was not a party to a system. Rather, she was the victim of a profiteer.

In this regard, I concur with the assessment by our colleague Judge Pierre Archambault, who stated the following in Paradis c. R. 96-905(IT)I and 95-2380(IT)I, at pages 12-13 [reported, [1997] 2 C.T.C. 2557 (T.C.C.)]:

In my view, this tax advantage should not be considered in determining whether Dr. Paradis was impoverished.

If such advantage were to be taken into account, a number of gifts might not qualify for the purposes of computing the deduction for gifts. I do not believe such an approach to be consistent with the spirit of the Act.

Judge Archambault referred to a passage from Friedberg v. R. (December 5, 1991), A-65-89 [reported (1991), 92 D.T.C. 6031 (Fed. C.A.)], [1] in which Linden J.A. stated the following at pages 2-3:

Thus, a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor (see Heald J. in The Queen v. Zandstra, [1974] 2 F.C. 254, at p. 261.) The tax advantage which is received from gifts is not normally considered a ‘benefit’ within this definition, for to do so would render the charitable donations deductions unavailable to many donors.

Judge Archambault continued as follows:

Nor was the gift a sham. The Musée genuinely acquired ownership of the painting. Furthermore, Dr. Paradis attached no condition to the donation of the painting. I do not believe that Dr. Paradis could ask the Musée de Joliette to return the painting to him on the basis that he had not obtained all the tax advantages that he had expected. It goes without saying that it would have been an entirely different matter if he had made the gifts conditional upon obtaining tax advantages.

1 am satisfied in this instance that, in respect of each of the gifts for which he claimed a tax deduction, Dr. Paradis wished to benefit the donees by depriving himself of the value of those paintings. The transfers of paintings to the donees constituted gifts within the meaning of the Act.

Did the receipt filed by the appellant meet the Act’s requirements and entitle her to benefits under the Act?

This is a very important question, since Parliament has subjected the deduction for gifts to specific conditions.

Subsection 118.1(2) of the Act reads as follows:

118.1(2) À 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 therefor that contains prescribed information. [emphasis added]

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)0), 0), (6.1) 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 )0)(iii) to (vil), paragraph 110( 1)0) or 0.1) or subparagraph 11O(2.2)0)(ii) of the Act to whom a gift is made by a taxpayer....

35O1.( 1 ) Every official receipt issued by a registered organization all 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 0.1);

(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

(1) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge donations.

(1.1) Every official receipt issued by another recipient of a gift 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 of the other recipient of the gift;

(b) the serial number of the receipt;

(c) the place or locality where the receipt was issued;

(d) where the donation is a cash donation, the day on which or the year during which the donation was received:

(e) 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

(111) 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 (d) or (e);

(2) 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

(/) the signature, as provided in subsection (2) or (3.1), of a responsible individual who has been authorized by the other recipient of the gift to acknowledge donations.

[emphasis added]

In the case at bar, it is clear that neither the appraisal nor the receipt meets the very clear and explicit requirements set out in the Regulations; what is more, the breaches of those requirements are so significant and so numerous that it is absolutely impossible to determine who issued the receipt and who did the appraisal.

According to the appellant, Exhibit I-11 is both the appraisal and the receipt. It does not indicate the name of either the appraiser or the person who issued the receipt. The document is not numbered and does not include the registration number assigned by the Department. These are a few of the very serious breaches that provide sufficient justification for rejecting the document described as a receipt.

The requirements in question are not frivolous or unimportant; on the contrary, the information required is fundamental, and absolutely necessary for checking both that the indicated value is accurate and that the gift was actually made.

The purpose of such requirements is to prevent abuses of any kind. They are the minimum requirements for defining the kind of gift that can qualify the taxpayer making it for a tax deduction.

If the requirements as to the nature of the information that a receipt must contain are not met, the receipt must be rejected, with the result that the holder of the receipt loses tax benefits. Accordingly, even though a taxpayer may have made a gift of a painting, he or she cannot claim the potential deduction if the appraisal and the receipt issued for the gift do not comply with the requirements of the Act and the Regulations made thereunder.

In the case at bar, the appellant did not prove that the receipt met the minimum requirements set out in section 3500 and subsections 3501(1) and

(1.1) of the Regulations, which means that she cannot be entitled to a tax deduction for her gift.

As regards the penalty, the respondent rightly concluded that the facts adduced in evidence at the hearing do not support its imposition.

For these reasons, the appeal is allowed in that, although the appellant is not entitled to a tax deduction for her gift — since the documentation concerning its value and above all the quality of the receipt issued do not comply with the Regulations — the penalty is deleted — since the evidence did not show that the appellant knowingly made or participated in, assented to or acquiesced in the making of a false statement.

Appeal dismissed.