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I think that some people assume that if a tax avoidance scheme is sufficiently complicated or “grey” and sufficiently well documented that the courts will allow those schemes. If you make that assumption you might want to read Coleman v. The Queen, 2010 TCC 109 (January 25, 2010) as this case may change your mind. Coleman discusses in detail whether a “donation” to a charity that provides a scholarship or bursary through a scheme to their child or grandchild should be receiptable. The decision is 45 pages long which will be presumably ‘welcomed’ by those who complain that some of the recent Federal Court of Appeal decisions are too short! Blake Bromley of Benefic Law Corporation argues for the unsuccessful appellants. Mr. Justice Campbell J. Miller of the Tax Court of Canada decides for the CRA in this very well written case in which he decides that there is no donation when the children or grandchildren of a donor benefit from the gift. In addition to the pure legal issues in this case there are also some interesting ethical issues raised by the conduct of the registered charity (National Foundation for Christian Leadership) and the donors.
The Coleman case deals with whether the payments to a Canadian registered charity made by certain taxpayers were gifts to the registered charity and therefore qualify for deduction as charitable gifts in accordance with section 118.1 of the Income Tax Act.
The judge slices through the “grey” and states:
“What is disturbing is that the objective evidence points so very clearly to an understanding, indeed a knowledge, at the time of donation, that 80 to 100% of monies they donated would go to cover the education cost of those students who solicited the funds – primarily their offspring. The Appellants used words such as hope, anticipation, expectation. I find the truth is that they knew, they had to have known. The program was set up so that they would know. Once I reached that inescapable conclusion and accepted the objective over the subjective, the link becomes stronger and the answer becomes easier.”
In Paragraph 36 Mr. Justice Miller notes:
“ The application of section 118.1 of the Act centers on the finding that there is a gift. The parties are agreed that for the purposes of the Act the definition of “gift” found in Friedberg v. R. is the appropriate starting point. It calls for three elements:
I. Property owned by the donor;
II. A voluntary transfer of that property; and
III. With no benefit or consideration flowing to the donor.
There is no dispute with respect to the first two elements. The issue is the third. In the case of The Queen v. Burns. that issue was described as follows:
The donor must be aware that he will not receive any compensation other than the pure moral benefit; he must be willing to grow poorer for the benefit of the donee without receiving any such compensation.”
In paragraph 42 Mr. Justice Miller notes:
“ I make the following observations from a review of these cases:
I. The benefit to the donor need not arise as a result of meeting a legal obligation.
II.Anticipation of the benefit may be sufficient to deny a gift.
III. There must be a connection or link between the donor’s payment and the benefit. The cases actually refer to a “link” or “hand-in-hand” or “directly related”.
In paragraph 45 the decision discusses the necessary inquiry:
 This is a two-stage inquiry. First, was there a benefit to the donor? Second, was there a sufficiently strong link between that benefit and the donation that it fails to meet the third element of the Friedberg definition of gift?
In Paragraph 48 the decision notes some of the factors that would be relevant in determining whether there is a sufficiently strong link between that benefit and the donation.
“ It is at the second stage of the inquiry into the connection between the donation and the benefit that the true character of the payment as a gift will more often be determined. So, what are the factors I should consider? I am not suggesting any one factor is conclusive, nor that my list is exhaustive. This is a matter of looking at the factors objectively, weighing them and applying a good dose of common sense.
I. Is there a relationship between the donor and ultimate beneficiary?
II. Is there any correlation between the amount of the donation and the amount received by the beneficiary?
III. What are the circumstances surrounding the donation:
a) what did the donor know or expect would happen to the donation?
b) what did the beneficiary know or expect would happen to the donation?
c) what did the charity know or expect would happen to the donation?
d) what was the donor’s intention?
e) how was the amount of the donation determined?
f) how was the money donated?
g) was the donor under any moral or legal obligation to the beneficiary?
IV. Did the donor have any control over the charity’s use of the money?”
In this decision the conclusion is:
 I conclude, on balance, that taken together these connecting factors create a sufficiently strong link between the donation and the benefit, such that I find the Appellants have not met the Friedberg test that there can be no benefit flowing to the donor.
YOU CAN READ THE FULL CASE BELOW at http://decision.tcc-cci.gc.ca/en/2010/2010tcc109/2010tcc109.html or
Also if you want the case in PDF it is located at: Coleman Case on receipting by Canadian charities
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.