In a recent decision of the Tax Court of Canada, Duguay, N. v. The Queen, a taxpayer claimed charitable donations made to a Canadian registered charity providing housing for low-income people and seniors residences but these were denied and the taxpayer decided to appeal the decision.
The taxpayer in this case was a tenant of the charity and in its lease with the charity, the taxpayer was allowed to renovate the housing at his own expense, but the charity agreed verbally it would reimburse the taxpayer 50% of the cost of renovation and would issue a charitable receipt for other 50% of work to reflect the value of materials that taxpayer would leave behind. The charity had a policy to pay full renovation costs for its tenants of around $10,000 per unit. When the taxpayer decided to do renovations, the charity issued two cheques in the amount of $10,000 each as reimbursement for construction materials and the taxpayer subsequently donated one of those cheques to the charity and the charity issued a charitable receipt for that amount. The Minister disallowed the deduction of $10,000 as a charitable donation for the taxpayer and the taxpayer appealed this decision. In the appeal, the Tax Court of Canada clarified that in both civil law and common law , the concept of donative intent must clearly exist for a legal act to qualify as a donation. In this case the taxpayer had, at the time of the donation, the right to immediately enjoy the renovations to his home and this advantage was granted through the donation made to the charity. The occupation of the renovated housing and the donation was inextricably linked by the prior arrangement agreed to verbally before the renovations took place. Also, the court noted that the taxpayer recognized that the rent paid to occupy the dwelling was less than the market value of rent required to hold this type of housing and it was lower rent than the previous tenant was paying prior to the renovations. The appeal was dismissed.
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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.