Case of Allen Berg v. Her Majesty the Queen - court orders reduction in charitable receipts

Here is a recent Tax Court of Canada decision dealing with a particular donor and a donation arrangement.  The arrangement involved the donation of cash and time share units.  The charity Cheder Chabad provided a receipt for $2,420,000.00 for 2002 and $1,786,000.00 for 2003.  The TCC dealt with the issue of donative intent and found that there was donative intent only on the cash portion in this particular case and reduced the value of the receipts by almost 90%.  The tax receipts were reduced to $254,100.00 in 2002 and of $183,065.00 in 2003.The Court noted “There can be no question factually that the Transaction Documents were intended throughout to provide window dressing for the Donation Program, which if successful, would provide the obscurity necessary for the Canada Revenue Agency (the “CRA”) to overlook the inflated values of the Inflated Gift Receipts and consequently the tangible donative value of the Transferred Units. As well, the Court finds that the pretense was intended to fool the tax authority and no one else.”  The court notes: [21]      Subsection 118.1(1) of the Act does not define the term “gift.” Among other requirements, it is legally essential that a gift exist at law in order for the Appellant to utilize the donated amount and claim the corresponding charitable tax credit. The Court finds that the intention of the Appellant regarding the Donation Program was twofold. Firstly, he wanted to maximize his tax donation receipt by executing all the documents placed before him in relation to the Donation Programs. Secondly, he intended to and did provide, valuable consideration for the privilege of participating in the Donation Program, knowing full well, that this was an essential price of entry. What he did not intend, was that the deductibility of the valuable cash consideration paid (albeit, worth a fraction of the amount stated in the Inflated Gift Receipts) would ever be at risk because of the allegation that his donative intent was nullified or rendered non-existent by the Donation Program. This final point is the precise legal issue for this Court to determine, namely, does the overall scheme of the Donation Program, the Inflated Gift Receipt and/or the bogus Transaction Documents submitted in vain by the Appellant to the CRA, vitiate the donative intent or animus donandi regarding the Transferred Units donated to the Charity.””  The court set a pretty low standard for donative intent “The Appellant was not overwhelmingly and perhaps only marginally motivated by donative intent when he gave the Transferred Units to the Charity. Factually, the Appellant had an intention to give the Transferred Units purchased with the Cash Donation Amounts without the condition of receiving any benefit beyond that of the tax receipts, however perversely inflated they may have been. Both counsel agreed the Appellant received no consideration beyond the possibility of the overstated tax receipt and the concordantly inflated charitable tax credit.  The fact remains however, that to the extent the Cash Donation Amount related to the Transferred Units, the Appellant was impoverished by, paid valuable consideration for, intended to give, and conveyed the Transferred Units which were, in turn, received by the Charity. Whatever opprobrium may be ascribed to the Donation Program, legally the Cash Donation Amount has met the legal test of a charitable gift. In the absence of some other benefit received beyond the Inflated Tax Receipts, no legal authority suggests donative intent as defined by the case law relevant to section 118.1 of the Act has been vitiated or nullified to the extent of the value of the Cash Donation Amount.”