Markou v. The Queen, 2016 TCC 137 is a super boring case dealing with the jurisdiction of the Tax Court of Canada and whether such court can make a determination as to whether certain proceeds are part of a Quistclose trust.  Beyond whether there are or are not enough legal gymnastics in this decision there is lots of interesting background on a complicated tax scheme from 2001 that probably few have heard of.  The leveraged donation scheme known as “The Donation Program for Medical Science and Technology” was implemented by Trinity Capital Corporation from 2001 – 2003.  An example of one donor is that he put in $3,520,000 and received a tax receipt for $11 million which would save him about $3.2 million in Federal taxes and $1.9m in Ontario taxes.    

In other words the total tax savings were about $5.1m which is $1.6 m over the cash investment.  Unfortunately schemes like these play to the narrative that charities have a lot to do with helping the rich get richer rather than focusing on making society better.  According to CRA, schemes like this have resulted in official donation receipts being issued, that should not have been, of over $6.5 billion in the last 10 years.  Thankfully CRA is not accepting these schemes – they are not fair to either average Canadians or even wealthy Canadians who play by the rules.  

One minor observation after reading the decision was a comparison between a loan that is questionable as to whether it is bona fide compared to a normal person obtaining a credit card:

[27]        The situation is not unlike the credit card arrangement Mr. Lubetsky described. For example, a Bank of Montreal Mastercard holder uses its credit card to donate to a charity. The charity looks to the Bank of Montreal for payment. The Bank of Montreal and the cardholder have an agreement which effectively has the cardholder directing the Bank of Montreal to make the payment. At that point, the time of delivery of funds by the Bank of Montreal to the charity, there is a loan between the Bank of Montreal and the cardholder.

[28]        I believe there are parallels to the situation before me, with the only distinction being the lender puts funds into its solicitors trust account. That, I conclude, is the only trust, an express trust or, as Mr. Lubetsky’s preference is, an intentional trust. But, to be clear, FMC does not hold the funds as any type of purpose trust. The law firm holds the funds at the direction of its client, the lender, not the borrower. The borrower and Capital have an agreement that the borrower may direct Capital. FMC is not part of that loan agreement. It simply gets its client’s money and waits for its client’s direction, notwithstanding what the agreement between its client, (the lender) and the taxpayer might say. 

I take a little bit of an exception to the words “only distinction being the lender puts funds into its solicitors trust account”.   The loan received was interest free loan with a 20-year term.   Perhaps someone can let me know exactly which Canadian credit card company offers an interest free loan for 20 years?  

Trinity Capital Corporation has been covered in some other articles:

Noose tightens around donation tax schemes (Globe and Mail)

FMC targeted in class action suit (Financial Post)

Legality of charity tax shelters in doubt (Jamie Golombek)

I also covered it here in 2011.