Docket: 2021-1544(IT)G
BETWEEN:
CHRIS WALBY,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeal heard on common evidence with the appeal of Joel De Las Alas (2021-1574(IT)G) on September 5 to 7, 2023, at Winnipeg, Manitoba
Before: The Honourable Justice Ronald MacPhee
Appearances:
Counsel for the Appellant:
Jeff Pniowsky Matthew Dalloo
Counsel for the Respondent:
David Silver Allanah Smith
Erin Wolfe
AMENDED JUDGMENT
The appeals from reassessments made under the Income Tax Act for the Appellant’s 2005, 2006, 2007, 2008, 2009, 2010 and 2011 taxation years are dismissed.
There shall be one set of costs payable by the Appellants to the Respondent. The parties shall have 30 days from the date of this Judgment to make submissions as to costs if they are unable to agree upon an amount.
This Amended Judgment is issued in substitution of the Judgment December 7, 2023 in order to include the years underscored in paragraph 1 hereof.
Signed at Ottawa, Canada, this 13th day of December 2023.
“R. MacPhee”
MacPhee J.
Docket: 2021-1574(IT)G
BETWEEN:
JOEL DE LAS ALAS,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeal heard on common evidence with the appeal of Chris Walby (2021-1544(IT)G) on September 5 to 7, 2023, at Winnipeg, Manitoba
Before: The Honourable Justice Ronald MacPhee
Appearances:
Counsel for the Appellant:
Jeff Pniowsky Matthew Dalloo
Counsel for the Respondent:
David Silver Allanah Smith
Erin Wolfe
JUDGMENT
The Appeal from a reassessment made under the Income Tax Act for the Appellant’s 2006 taxation year is dismissed.
There shall be one set of costs payable by the Appellants to the Respondent. The parties shall have 30 days from the date of this Judgment to make submissions as to costs if they are unable to agree upon an amount.
Signed at Ottawa, Canada, this 7th day of December 2023.
“R. MacPhee”
MacPhee J.
Citation: 2023 TCC 164
Date: 20231207
Docket: 2021-1544(IT)G
BETWEEN:
CHRIS WALBY,
Appellant,
and
HIS MAJESTY THE KING,
Respondent;
Docket: 2021-1574(IT)G
AND BETWEEN:
JOEL DE LAS ALAS,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
AMENDED REASONS FOR JUDGMENT
MacPhee J.
OVERVIEW
1These matters were heard at the same time and under common evidence, save and except the testimony of the Appellants.
2Mr. Chris Walby and Mr. Joel De Las Alas (the “Appellants”) have appealed their reassessments from the Minister of National Revenue (the “Minister”) denying them charitable tax credits pursuant to s.118.1 of the Income Tax Act (the “Act”). For Mr. Walby, the years appealed are 2005 to 2011. For Mr. De Las Alas, the year appealed is 2006. For both Appellants, their appeals arise from their participation in the Global Learning Gifting Initiative program (the “GLGI Program”).
3As participants in the GLGI Program, both Appellants received two charitable receipts, one for the cash they contributed, and another for educational courseware licences (the “Licenses”), said to have been acquired through the GLGI Program from an offshore entity, Phoenix Learning Corporation. These licenses were claimed to have been gifted on their behalf to a registered charity.
4Pursuant to these appeals, the Appellants now claim only that the cash amounts advanced by them to the GLGI Program constitute valid charitable gifts under section 118.1 of the Act for which they should be entitled to charitable tax credits.
5The GLGI Program was at issue in the Tax Court of Canada’s 2015 decision Mariano v. The Queen.[1] In Mariano, both the cash receipt and the gift in kind receipt for the Licenses were denied as charitable tax credits by the Tax Court. In this matter, the Appellants’ counsel acknowledges that the gift in kind receipt was properly denied by the Minister, but states that his clients should be able to claim the cash contributions they made.
6A Partial Agreed Statement of Facts was filed in these matters and is included at Appendix “A” to this decision. As was agreed between the parties, the GLGI Program was designed to abuse Canada’s charitable donation receipt tax credit system. The GLGI Program operated in a manner to enrich the promoters and administrators of the program, as well as those who participated in the program, such as the Appellants.[2]
ISSUE
7The issue before the Court is whether the cash contributions made by the Appellants are a gift pursuant to section 118.1 of the Act. In deciding these Appeals, the parties have asked the Court to determine whether subsection 248(30) to (32) of the Act are applicable to these transactions, and if so, to apply these provisions.
8To answer this question, I will look at the following:
(1) Whether there are two transactions in relation to the two charitable receipts the Appellants claimed on their tax returns or whether there is just one interconnected transaction that led to the creation of these receipts;
(2) Whether sham documents having no actual effect that purport to provide a benefit to the donor can impact donative intent;
(3) Whether a tax receipt prepared, pursuant to one of the steps in the GLGI arrangement, accurately representing the cash contribution made to a qualified charity is sufficient on its own to qualify for charitable donation tax credits;
(4) Whether subsection 248(30) to (32) of the Act displaces the requirement for donative intent for a gift to be valid; and
(5) If subsection 248(30) to (32) does apply, what was the amount of the advantage in respect of the cash donation?
FACTS
9The Appellant, Mr. Walby, participated in the GLGI Program in the 2005 to 2011 taxation years. He claimed charitable donation tax credits as a result of his participation as follows:
2005
2006
2007
2008
Carry forward from previous years
$0
$0
$0
$15,080
Cash
$15,000
$15,000
$15,000
$15,000
Gift-in-kind
$75,010
$60,077
$75,006
$75,043
Other donations (not an issue)
$25
$20
$80
$0
Total charitable donations available
$90,035
$75,097
$90,086
$105,123
Total charitable donations available claimed
$90,035
$75,077
$75,080
$75,123
Amount available for transfer/carry forward
$0
$20
$15,006
$30,000
Carry forward from previous years
$0
$6,643
$0
Cash
$15,000
$10,000
$10,000
Gift-in-kind
$50,021
$50,000
Other donations (not an issue)
$95
$90
$100
2009
2010
2011
2009
2010
2011
Amount available for transfer/carry forward
$3,322
$0
$0
10The Appellant, Mr. De Las Alas, participated in the GLGI Program in the 2006 taxation year. In that year he made a cash contribution of $13,600 to the GLGI Program. As a result of the various mechanisms of the program, described below, he claimed two donation amounts in his 2006 filing, a cash gift of $13,600 and a gift of $54,447 in relation to the donation of the Licenses.
11Both Appellants maintained that they were entitled to the entirety of their claimed charitable gifts (both for the cash contribution and the gift in kind) in their income tax filings and their filings at the objection stage.
12The fact that both parties contributed the cash amounts described above is not in dispute. Both parties received donation receipts from a registered Canadian charity as a result of their cash contributions.
13Mr. Walby and Mr. De Las Alas testified at trial. Both were honest in their testimony, providing what knowledge they had as to how the GLGI Program worked, in some instances admitting the various factual weaknesses in their case. Given the passage of time, and the fact that much of the GLGI Program was a sham, the parties struggled to describe various details, or to explain how the program was able to enrich them.
14The Appellants (mostly in cross examination) described participating in the program and signing the various documents provided through the GLGI Program. They also admitted that it was their expectation that they would receive back, as a result of their participation in the GLGI Program, more than their cash contribution. Both of the Appellants expected to be enriched as a result of their participation.
15In the cross examination of Mr. Walby the following was stated:
Q And you understood the investment or gifting arrangement was promoted on the basis that you would have losses, deductions, or credits equal to or greater than the net cost of the original investment, meaning you'd get more out than you put in.
A Yes
Q So you understood it was an investment?
A I understood what it was about. I don't ‑‑ I mean, I shouldn't say I understood what it was about, but I understood there was an investment, yes, to answer your question.
16And in the cross examination of Mr. De Las Alas:
MS. WOLFE: Okay, sorry, back, to the questions. So you've agreed that Jim told you could claim tax credits as a result of your participation in GLGI.
A Yes.
Q And you understood that those tax credits would be greater than your cash contribution?
A Yes.
Q So you were told you get more money back on your tax refund than the cash that you contributed?
A Yes, that's what he told me.
Q Okay. So you understood that you would profit from your participation.
A Yes.
17The Appellants’ enrichment was to occur because their cash contribution would be one-third to one-sixth of the purported fair market value of the Licenses they would receive ownership of through the GLGI Program. Although the Appellants had very limited memory of this, based on the evidence at trial I find that they determined the total value of the property requested in the Application based on the Cash Ratio, with the assistance of the Promoter and its sales agents. The positive cash flow resulted from the difference between their cash outlay and the provincial and federal tax credits they would claim respecting both their monetary contribution and their purported gift-in-kind donation.
18Neither Mr. Walby, nor Mr. De Las Alas, had ever claimed a charitable donation anywhere near as large as their claimed donations to the GLGI Program. Their donation history from 1987 to 2022 (non inclusive) was put before the Court. Prior to participating in the GLGI Program, neither of the Appellants had ever donated more than $700 in a year. Typically their annual donations were under $100. After 2003, they also never made a donation anywhere near as large as their claimed donations in this matter.
19Both Appellants acknowledge receiving two receipts for each year they participated. One receipt was for their cash donation, and the second receipt was for software that was claimed to have been donated through the GLGI Program. Both receipts were claimed on their tax return for the various years before the Court.
20Presented at trial, mostly through submissions from the Appellants’ counsel, as well as through the Partial Agreed Statement of Facts, is an acknowledgement that much of the GLGI Program was a sham, undertaken to create false receipts. Appellants’ counsel describes the various components of the program, which led to the second receipt, as a “unicorn”.
How the GLGI Program Worked
21I will not go into detail concerning the claimed mechanics of the GLGI Program. Attached at Exhibit “A” is a Partial Agreed Statement of Facts which goes in great detail in describing how the program worked. Any capitalized term not defined herein shall have the meaning given to it in the Partial Agreed Statement of Facts.
22A brief review of certain steps of the program is provided. This is included to show that the Appellants played an active role in the program in signing various documents required by the promoters in the GLGI Program. It also leads me to conclude that the Appellants’ participation was part of one interconnected series of transactions (other reasons for this conclusion are set out later in this decision).
23Participants, including the Appellants, would review and sign various documents (the “Transactional Documents”) that included the following:
- a)an “Information Sheet” containing information about the participant including their name, address, social insurance number, email address, the amount of the cash payment that would be made to one of the Charities, the value of courseware requested (generally three to five times the cash payment), prior donation history, and details of the sales agent;
- b)a “Deed of Gift” addressed to one of the Charities;
- c)a “Deed of Gift of Property” addressed to one of the Charities stating that the Appellants are the legal and beneficial owner in possession and control of the educational courseware purportedly specified in Schedule “A” (referred to as “Section A” in 2008 and subsequent years) to the deed;
- d)an “Application for Consideration as a Capital Beneficiary of the Global Learning Trust (2004)” (the “Application”) requesting that the participant be approved as a capital beneficiary of the Trust and, if so approved, that the participant receive a distribution of properties in the nature of educational courseware with a specified monetary value;
- e)“Direction One”, authorizing Escrowagent to deliver the Application to the trustee of the Trust, and also arrange for the delivery of the Deed of Gift of Property, to date or amend the date of certain documents and to arrange for the delivery of charitable donation receipts;
- f)“Direction Two”, authorizing Escrowagent to arrange for the delivery of the Deed of Gift of cash together with the cheque, to date or amend the date of certain documents and to arrange for the delivery of charitable donation receipts;
- g)a cheque to the Escrowagent;
- h)a cheque for a Charity, which was post-dated to four days after the date of
- i)their Application (“Cash Contribution”);
- j)a prior donation tax receipt; and
- k)for the years after 2007, a waiver as well as a donor acknowledgement.
24Any individual that completed the Transactional Documents and made the required Cash Contribution to the Escrowagent and the identified Charity would be guaranteed acceptance as a capital beneficiary of the Trust. The Trust would purportedly transfer software licences to a participant after they were accepted as a capital beneficiary. Once a participant’s Transactional Documents were processed, an email would be sent to the participant informing them that they had been accepted as a capital beneficiary of the Trust and inviting them to view a copy of their documents, including the Assignment of Licence at the website address for the GLGI Program.
25Direction One and Direction Two both purported to allow the participant to revoke their respective gift of courseware or Cash Contribution by providing notice within 48 or 72 hours, respectively, after having been notified that their Application had been approved and they would receive a distribution of property from the Trust.
26As a result, participants in the GLGI Program knew that no purported gift (either the Cash Contribution or the Licenses) would become effective until the participant’s Application had been approved and the participant had been so notified.[3] In Mariano, the Court found that the 72-hour period operated as a security to the participants to ensure that they received the benefit of the Licences prior to their cheques being cashed. I agree with this finding.
27Corporations that were involved with the GLGI Program would process the Transactional Documents on a batch basis for a group of participants, and would generate a number of documents by applying an algorithm to the information contained in a database created for that purpose, on a weekly basis. Those same corporations would create donation receipts on behalf of the Charities.
28Ultimately, once a participant made the decision to participate in the GLGI Program, all subsequent transactions followed a predetermined series. As long as a participant’s Transactional Documents were complete, they would be able to participate in the GLGI Program and their Application would be approved as a capital beneficiary of the Trust.
ANALYSIS
(1) Participation in the GLGI Program constitutes one single interconnected arrangement
29The ultimate question before me is whether the Appellants made a gift pursuant to s. 118.1 of the Act. In this analysis, I will first determine whether there are two transactions in relation to the two charitable receipts the Appellants claimed on their tax returns, or whether there is just one interconnected transaction that led to the creation of these receipts.
30It is now well established that where there is only one interconnected arrangement, it is inappropriate for the Court to consider the transactions separately. The Tax Court in Maréchaux[4] (upheld on appeal) considered whether the Appellant in that case made a split gift. This finding has been summarized as follows by the Tax Court in in Herring:[5]
124 Justice Woods went on to consider whether the appellant was entitled to a partial gift consisting of the taxpayer's “cash outlay” noting that “in some circumstances, it may be appropriate to separate a transaction into two parts, such that there is in part a gift, and in part something else” (para. 48).
125 However, she concluded “on the particular facts” of the appeal that it was “not appropriate to separate the transaction in this manner” because there was “just one interconnected arrangement” and “no part of it can be considered a gift that the appellant gave in expectation of no return” (para. 49).
31No part of such an interconnected arrangement will be considered a gift where it is given with the expectation of profit.
32The GLGI Program falls squarely within the holding in Maréchaux. Participation in the GLGI Program constitutes only one single interconnected arrangement. This is supported by the following facts set out in paragraphs 250 to 256 of the Partial Agreed Statement of Facts:
- a)all steps in the GLGI Program were predetermined;
- b)once a participant made the decision to participate in the GLGI Program, all subsequent transactions followed a predetermined series;
- c)although the Transactional Documents and promotional materials gave the appearance that a participant could retain the Licences to the courseware rather than donate them, such an option was so limited it was effectively non-existent because a CD ROM or other means of access through an online Portal was necessary in order to use the Licences;
- d)the Appellants could not use the educational courseware products as they were never provided with the necessary means of access nor with any instructions on how to gain such access;
- e)the only practical option the Appellants had was to donate the Licences as preordained by the GLGI Program;
- f)the Charities were merely conduits through which the cash generated by the GLGI Program was flowed in order to generate the donation tax credits and enrich the participants and the Promoter; and
- g)the GLGI Program, and all the transactions comprising it, were intended to deceive the Minister into allowing participants to realize donation tax credits greater than any amount they were actually out of pocket.
33The participants of the GLGI Program did not have any real alternative other than to follow through on the entirety of the steps that were involved when participating in the program. Any taxpayer that gave a cash donation, by direct consequence of that cash donation, was to receive courseware, distributed to the participant as a capital beneficiary of the Trust.
34The Court in Mariano came to the same conclusion wherein it found:
[I]t is clear they participated in a leveraged donation scheme that was interconnected and all part of the same transaction or series of transactions, the same program if you will, that was clearly marketed to them for the purpose of offering to them and from which they expected to receive, in return for their cash donation, a number of Licences having an expected value of 3 to 8 times the cash donation to donate to another charity […][6]
35No member of the public who was not involved in the GLGI Program would have known of the option of becoming a capital beneficiary of the Trust without making a cash donation.[7] As stated in Mariano, “[a] cash donation was always mentioned and integrated into any calculations of net cash advantage or total contributions.”[8] This illustrates how the cash donation was part of a quid pro quo to receive a distribution of courseware licenses from the Trust which would ultimately result in an inflated charitable tax receipt relating to the in kind donation by consequence of the Transactional Documents.
36In the absence of the cash donations, license transfers from the Trust would not have been possible. The Court summarized this in Mariano as follows:
It is clear that neither the Promoter nor any of the administrators involved, either hired and paid for by the Promoter, the Charities or the Escrow Agent, such as IDI and JDS, could be paid under the program if there was no cash donation. It is clear the Promoter received its compensation only in cash, pursuant to agreements with Millenium and CCA, both at the stage they were made by the participants to Millenium, and again at the stage Millenium redonated 80% of such cash received to CCA who paid the Promoter, from its cash received, a further amount equal to 20% of both the value of such cash redonated as well as the value of Licences donated by the participants to CCA based on the EMC valuation. IDI was paid in cash via the direction of the Promoter to Millenium, to pay from amounts owing to it, funds to IDI based also on a percentage of cash donations. If there was no cash, there was no method of payment to the Promoter and those down the chain and so there was no business to be carried on by the Promoter or others. Common sense and the business model clearly identified for the Program support the need for a cash contribution to make the program work. […][9]
37Therefore, I conclude that participation in the GLGI Program constituted an interconnected series of transactions. I must consider the transactions together and cannot consider whether any transaction qualifies for charitable donation tax credits independent of the others. No part of such an interconnected arrangement will be considered a gift where it is given with the expectation of profit.
(2) Sham documents having no effect still impact a person’s donative intent
38The Appellants’ counsel argues that since the pretence documents that were intended to give rise to a valid in-kind donation were sham documents that had no actual effect and provided no actual benefit, then they should have no impact on the donative intent of the Appellants with respect to the cash donation.
39The Appellants’ argument in this regard has been considered by the Federal Court of Appeal in Berg,[10]which dealt with a similar set of facts. In Berg,pretence documents, which made promises of the substantial transfer of assets to the participants’ ownership (then to be gifted to a charity), were in fact a sham. The FCA concluded that the pretence documents “had value when they were delivered” to the taxpayer such that the case was “indistinguishable from Maréchaux”.[11] The Court added in obiter that the taxpayer did not have “the requisite donative intent” because “he intended to enrich himself by making use of falsely inflated charitable gift receipts to profit from inflated tax credit claims.”[12]
40Donative intent should be assessed at the time at which the taxpayer makes the donation. The Court in Herring stated “the operative time to calculate the amount of any benefit is at the time the alleged donations were made.”[13] In Crane, the Court articulated that “expectation of […] financial benefits vitiated any donative intent at the time of his alleged gift.”[14]
41Based on the above, in assessing donative intent by the Appellants, I do take into consideration the various sham documents that the Appellants believed to be legitimate at the time of their cash contribution. Although the Appellants clearly did not understand all the claimed mechanism’s of the GLGI Program, they did understand that ultimately they would receive ownership of educational licenses, which would be gifted on their behalf. The overall effect of this arrangement would be their ultimate enrichment.
42Donative intent is often assessed using the principle of “animus donandi or liberal intent, meaning the donor must be willing to grow poorer for the benefit of the donee without receiving any compensation.”[15] In assessing donative intent, the court will “look for objective manifestation of purpose, and purpose is ultimately a question of fact to be decided with due regard for all of the circumstances.”[16]
43In the present case, the taxpayer had clear intent to profit when making their donations. The taxpayer intended to make the cash donation which would cause seemingly valuable courseware licenses to be transferred to them which would subsequently be donated for valuable tax credits that exceeded the amount of the initial cash donation. It doesn’t matter that after the fact it was discovered that the intended profit does not arise. All that matters is that profit was the intention at the time the taxpayer made the cash donation. The Appellants utilized documents which had the purported and intended effect of creating a positive return for them which they executed and attempted to derive benefit from.
44This leads me to my finding that neither Appellant had donative intent at the time they made their cash contribution to the GLGI Program. The cash contributions they made cannot be isolated and were part of an interconnected series of transactions meant for their enrichment. Therefore, no gift was made by either Appellant as a result of their participation in the GLGI Program. The appeals are dismissed on that basis. Although this is my ultimate conclusion in this matter, I will consider each of the additional arguments presented by the Appellants.
(3) The law of gifts applies to determine whether a transfer of property qualifies for charitable donation tax credits.
45The Appellants also argue that a properly completed tax receipt accurately representing a cash donation to a qualified charity is all that the Appellants must prove existed to be successful in claiming the cash donation. It is argued that the sham documents relating to the in-kind donation cannot undo the real transaction which involved the transfer of cash and which was represented in an accurate tax receipt.
46To agree to this argument would be to ignore the interconnection of the cash gift with the rest of the steps in the GLGI Program.
47The law of gifts applies such that a cash donation must form a valid gift to qualify for charitable donation tax credits. As previously set out, donative intent has been held to be a necessary element for there to be a valid gift, which includes an intent to impoverish oneself.[17]
48As concluded above, there was no donative intent with respect to the cash donation. The cash donations were part of a series of transactions which the Appellants participated in, which would lead to their enrichment. Therefore the cash donation was not a gift and cannot qualify for charitable donation tax credits under section 118.1 of the Act.
(4) Whether subsection 248(30)-(32) of the Act displaces the requirement for donative intent for a gift to be valid?
49The Act was amended in 2013 to include subsection 248(30).[18] Subsection 248(30) was brought in with an effective date of December 21, 2002.[19]
50Subsection 248(30) reads as follows:
Intention to give
(30) The existence of an amount of an advantage in respect of a transfer of property does not in and by itself disqualify the transfer from being a gift to a qualified donee if
(a) the amount of the advantage does not exceed 80% of the fair market value of the transferred property; or
(b) the transferor of the property establishes to the satisfaction of the Minister that the transfer was made with the intention to make a gift.
51Subsections 248(30) to (41) are interrelated and provide a framework for dealing with gifts with an advantage.
52The Appellants argue that subsection 248(30) applies to permit split gifts where the amount of the advantage is less than 80%. Consequently, donative intent should not be required for a valid gift provided the advantage is below the 80% threshold. At trial, the Appellant did not argue this issue further and considered it evident that subsection 248(30) applied in this way.
53The Respondent argues that subsection 248(30) only applies to valid gifts where donative intent is present. Subsection 248(30) provides no relief for invalid gifts where donative intent is lacking. The Respondent explains that the purpose of subsection 248(30) is to reconcile the common law and Quebec civil law concept of what constitutes a gift. Under both the common law and the civil law, donative intent is required. However, under the common law, any advantage vitiates a gift. Under the civil law, a gift less the amount of an advantage remains valid provided donative intent is present. Subsection 248(30) therefore operates to permit the net amount of an otherwise valid gift to be claimed similar to civil law. This alters the common law view that any advantage vitiates a gift rather than displacing the requirement of donative intent altogether.
54The Respondent argues this by stating as follows in their written submissions: “If Parliament intended to do away with the requirement of donative intent, it would have stated so explicitly. […] This conclusion is supported by the object, spirit, and purpose of this provision, which was to modify the law with respect to [c]ontributions with an [a]dvantage. In effect, gifts that might otherwise be completely vitiated under the common law because of the existence of a benefit, despite the intention to make a gift for the amount of the contribution that exceeds the benefit, would no longer be vitiated.” […] “This relieves the taxpayer of the common law prohibition on receiving any advantage for a charitable donation.”
55In this analysis, I am entirely in agreement with the submissions put forth by the Respondent.
56The correct interpretation of subsection 248(30) is that an advantage does not necessarily disqualify a gift provided that donative intent is still present. Therefore I conclude that, where there is no donative intent, there is no gift. In such a case, the provisions of subsections 248(30) to (32) do not apply.
(5) If subsection 248(30) does apply, what was the amount of the advantage in respect of the cash donation?
57If I am wrong in finding that subsection 248(30) does not apply to the present case, I will consider in the alternative how it would apply. If subsections 248(30) to (32) do apply, pursuant to the legislation the eligible amount of the gift is reduced by the amount of the advantage as a result of subsection 248(31). Therefore, I will consider in the alternative what would be the amount of the advantage that applies for the purpose of subsection 248(31).
Position of the Parties
58On this issue, the Appellants argue that as established in the case law, an inflated donation tax receipt cannot be considered a benefit. An inflated receipt has no fair market value (citing Castro v R, 2015 FCA 225).
59The Appellants further argue that subsection 248(30) should not apply to what is “intended” or “attempted” and only real consideration should be considered an advantage. The Court should consider what actually happened rather than what the Appellants intended would happen (i.e. the Appellants received no actual benefit from receiving courseware or related tax receipts).
60By consequence, the Appellants are arguing that the advantage is zero and the cash donation should not be reduced at all under subsection 248(31).
61The Respondent argues in their written submissions that “the inflated donation tax credit receipts and [a]ssignments of Licences the Appellants received ought to be valued at the value of the inflated donation tax credits the [A]ppellants would have expected to derive from the inflated donation tax receipts. Therefore, the value of the advantage received by the [A]ppellants through the [GLGI] Program can be quantified by determining the total non-refundable provincial and federal tax credits attributable to the purported gift-in-kind contribution in any respective taxation year, assuming all tax credits could be claimed in the year of the purported donation.” An inflated tax credit used to induce a donation is a benefit or consideration not contemplated by the Act. “A clear difference exists between taxpayers who make Cash Contributions for the purpose of obtaining donation tax receipts containing false information in order to claim tax credits for amounts greatly in excess of their Cash Contribution, and taxpayers who receive donation tax receipts that accurately reflect the fair market value of their gift.” An inflated tax receipt should therefore constitute an advantage under subsection 248(32).
62In the alternative, the Respondent argues the inflated tax receipts and assignment of licenses ought to be assigned a value equal to the amount of the cash donation because this is the amount the Appellants were willing to pay to acquire the inflated tax receipts.
63In the further alternative, the Respondent argues the expected value of the courseware is the amount of the advantage. This would be three to five times larger than the cash contribution.
64The Respondent supports these positions by stating in their written submissions that “[t]he “amount of an advantage” is defined very broadly in subsection 248(32) of the Act and includes the value of any benefit the transferor “has received, obtained or enjoyed” or to which the transferor is “entitled, either immediately or in the future and either absolutely or contingently, to receive, obtain or enjoy”: i. that is consideration for the gift; ii. that is in gratitude for the gift; or iii. that is in any other way related to the gift.”
65Consequently, the Respondent submits that regardless of the valuation method used, the amount of the advantage would exceed 80% and therefore the cash donation is not saved by paragraph 248(30)(a). The cash donation would not be saved by paragraph 248(30)(b) either since the Appellants failed to prove to the Minister’s satisfaction that they had donative intent in making the cash donation.
If subsection 248(30) applies, how do we apply it?
66To apply subsection 248(30), the first step is to consider what the advantage to the transferor is.
67In Herring, the Tax Court considered the entire amount of a limited-recourse loan to be the amount of the advantage which exceeded the 80% threshold.[20] It did not matter that the loan proceeds were never actually advanced to the charity as the intended recipient of the funds.[21]
68The time at which the amount of a benefit is to be considered is at the time at which the purported donation occurs.[22]
69It is important to recognize that the “amount” of the advantage is what must not exceed 80% rather than the “fair market value”of the advantage. The “amount” of the advantage is an unclear concept.[23]
70Some benefits that have been considered an advantage by the courts have included loans with no interest or below market interest rates,[24] an embedded put option,[25] funds deposited to the taxpayer’s investment portfolio,[26] and the services of a discretionary portfolio manager.[27]
71As to whether pretence documents can constitute an advantage where they have no actual effect, the Federal Court of Appeal in Castro considered the value of pretence documents by applying the Berg Federal Court of Appeal decision, stating as follows:
42 The judge of the Tax Court concluded that the pretence documents received by Mr. Berg were of no value since they were false and they could therefore not constitute a benefit. On appeal, this Court overturned that conclusion. The pretence documents had value since they were used by Mr. Berg to claim greater tax credits than those he was actually entitled to receive. Furthermore, this Court determined that on the facts of that case, it was not open to the judge to conclude that Mr. Berg had the requisite donative intent. Mr. Berg never intended to impoverish himself by transferring the timeshare units to the registered charity; on the contrary, he wanted to enrich himself by making use of falsely inflated charitable gift tax receipts. In sum, Mr. Berg did not have the requisite donative intent for the purposes of subsection 118.1 of the Act.[28]
72The benefit associated with a purported gift can come from an interconnected agreement and can also come from a third party rather than from the recipient of the donation.[29]
If subsection 248(30) applies: courseware as the advantage
73In this analysis one clear advantage to both Appellants is the expected dollar amount of the Licenses that they expected to receive.
74The amount of the advantage of the courseware is the value that the Appellants expected the courseware to have (and not the fair market value it actually had). Since the courseware had an expected value far greater than the cash donation made by the Appellants, then paragraph 248(30)(a) would not save the gift from being disqualified as the advantage far exceeds the entirety of the cash donation. Thus the application of subsections 248(30)-(32) would once again lead to the dismissal of the Appeals.
If subsection 248(30) applies: tax credit as the advantage
75Another possible advantage is the tax credit received by the Appellants in exchange for the purported in-kind donation.
76Although a tax benefit from a donation typically is not considered an advantage that would invalidate a gift or void its donative intent,[30] in an arrangement such as in the GLGI Program, the inflated tax credit created through the various sham transactions are an advantage for the purposes of subsection 248(30).[31]
77Since the advantage from the tax credits derived from the in-kind donation exceeds the cash donations, the charitable gift would once again not be saved by subsection 248(30).
If subsection 248(30) applies: the pretence documents as the advantage
78In other cases, the pretence documents themselves have been found to have value to the taxpayer at the time they were acquired and used based on their expected result.[32]
79I would also make such a finding in this case. In a very simplistic manner, I would value the pretence documents as being equal to the cash donation amount, that amount being the value that the Appellants were willing to pay for them. Once again the charitable gift would not be saved by subsection 248(30).
CONCLUSION
80Subsections 248(30) to (32) do not displace the common law requirement of donative intent to make a valid gift. These provisions only save otherwise valid gifts where there is a technical advantage that would defeat a gift where donative intent is otherwise present.
81Since neither Appellant had donative intent in making their cash contributions, but instead were participating in a series of interconnected transactions meant to lead to their enrichment, the Appeals are dismissed.
82Costs are payable by the Appellants.
These Amended Reasons for Judgment are issued in substitution of the Reasons for Judgment dated December 7, 2023 in order to include the word underscored in paragraph 80 hereof.
Signed at Ottawa, Canada, this 13th day of December 2023.
“R. MacPhee”
MacPhee J.
Appendix A
2023 TCC 164
COURT FILE NO.:
2021-1574(IT)G 2021-1544(IT)G
STYLE OF CAUSE:
JOEL DE LAS ALAS v. HIS MAJESTY THE KING
CHRIS WALBY v. HIS MAJESTY THE KING
AMENDED JUDGMENT AND AMENDED REASONS FOR JUDGMENT BY:
The Honourable Justice Ronald MacPhee
DATE OF AMENDED JUDGMENT AND AMENDED REASONS FOR JUDGMENT:
December 13, 2023
PARTICIPANTS:
Counsel for the Appellant:
Jeff Pniowsky Matthew Dalloo
Counsel for the Respondent:
David Silver Allanah Smith
Erin Wolfe
COUNSEL OF RECORD:
For the Appellant:
Name:
Jeff Pniowsky Matthew Dalloo
Firm:
Thompson Dorfman Sweatman LLP
Winnipeg, Manitoba
For the Respondent:
Shalene Curtis-Micallef
Deputy Attorney General of Canada
Ottawa, Canada
1Mariano v. The Queen, 2015 TCC 244 [Mariano].
2Partial Agreed Statement of Facts at paras 64-65, 82-83, 161, 231-232, 255-256.
3Mariano, supra note 1 at paras 36-38.
4Maréchaux v. The Queen, 2009 TCC 587 [Maréchaux].
5Herring v. The Queen, 2022 TCC 41 at paras 124-125 [Herring].
6Mariano, supra note 1 at para 48.
7Ibid at para 41.
8Ibid at para 41.
9Ibid at para 45.
10Berg v. R, 2014 FCA 25 [Berg].
11Ibid at para 28.
12Ibid at para 29.
13Herring, supra note 5 at para 234.
14Crane v. The King, 2022 TCC 115 at para 39 [Crane].
15Herring, supra note 5 at para 117 considering Mariano, supra note 1 at para 18.
16Symes v. The Queen, 1993 CanLII 55 (SCC), [1993] 4 SCR 695 at para 74.
17Herring, supra note 5 at para 117.
18Van Der Steen v. The Queen, 2019 TCC 23 at para 55 [Van Der Steen].
19Ibid at para 55.
20Herring, supra note 5 at para 229.
21Ibid at para 233.
22Ibid at para 234.
23Cassan v. The Queen, 2017 TCC 174 at para 332.
24Ibid at paras 316-317; Maréchaux, supra note 4 at para 9; Markou v. The Queen, 2018 TCC 66,aff’d 2019 FCA 299 at para 77.
25Maréchaux, supra note 4 at para 11.
26Crane, supra note 14 at para 30.
27Ibid at para 30.
28Castro v. R, 2015 FCA 225 at para 42.
29Jensen v. The Queen, 2018 TCC 60 at para 48.
30Markou v. The Queen, 2019 FCA 299at para 60.
31Crane, supra note 14 at paras 24-25, 30, 44; Berg, supra note 10 at paras 28-29.
32Berg, supra note 10 at para 28.