Charitable Donations Tax Shelter – The Effect of Inflated Receipts

The Queen v Berg, 2014 FCA 25

This was an appeal of the TCC decision in Berg v The Queen,  2012 TCC 406. In that decision, the TCC held that the taxpayer had not received a benefit other than the inflated tax receipts and as such donative intent was intact.  The question of donative intent was central to the question of whether the transfer of the timeshares by the taxpayer was a gift and, therefore, whether the transfer was eligible for the charitable donation tax receipt in the first place.

The Author argued in reporting on the TCC decision that the decision was wrong in law and policy.  In that critique, I suggested that a  more fruitful question to try and answer, in determining the donative intent of the taxpayer, would perhaps be: Would the taxpayer have made the donation in question if the inflated tax receipt (and therefore the potential of a tax refund to offset the economic loss of donation amount) were not present? The FCA employed a different version of the same question – was the taxpayer’s intention, in entering the transactions giving rise to the tax receipt, to (pecuniarily) enrich or impoverish him/herself?

The FCA allowed the Crown’s appeal.  In doing so, the FCA referred to the need for a gift before one is eligible for a credit under 118.1, and stated that “gift” is not defined by the ITA but rather in the common law.  The Court referred to the decision in The Queen v. Friedberg, 92 D.T.C. 6031(F.C.A.) at 6032 (Friedberg) for such a definition:

[…] a gift is a voluntary transfer of property owned by a donor to a done in return for which no benefit or consideration flows to the donor.

In this case, the FCA held that it could not be said that the pretence documents were of no value to the taxpayer.  The taxpayer paid a substantial sum for them and they were part of the package deal he received.  In respect to donative intent, the FCA held that the TCC took the wrong approach. They said:

[29]           The Crown is entitled to succeed for a further reason. In my view, it was not open to the judge on this record to conclude that, at the time of the transfer of the timeshare units to Cheder Chabad, Mr. Berg had the requisite donative intent for the purposes of section 118.1 of the Act. In my view, Mr. Berg did not intend to impoverish himself by transferring the timeshare units to Cheder Chabad. On the contrary, he intended to enrich himself by making use of falsely inflated charitable gift receipts to profit from inflated tax credit claims. He consummated the “deal” solely with that objective, and he acted from beginning to end in a manner intended to achieve that result.

– Sas Ansari, JD LLM PhD (exp)

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