Last updated: May 08 2014

Gift Not Negated with Inflated Charitable Tax Receipts

As per subsection 118.1(3) of the Income Tax Act (the Act), an individual may claim a tax credit with respect to a gift made to a registered charity. The amount of the tax credit is determined by the amount of the gift.

But, is an expectation of an inflated tax credit based on an inflated donation receipt a benefit that negates the gift under the Income Tax Act?

This is an issue that has been before the Tax Court of Canada before, but until the decision in Ronaldo David v. The Queen, no clear principle has emerged from the case law, according to the Honourable Justice Woods.

That was the central question to be determined in Ronaldo David v. The Queen and is an issue that has been before the Tax Court of Canada before. Until this decision, no clear principle has emerged from the case law according to the Honourable Justice Woods.

It was found as a matter of fact that the appellants paid cash and perhaps donated some household goods to CanAfrica in return for greatly inflated tax receipts. The Minister of National Revenue (the Minister) assumed in Ronaldo David that the appellants paid 10 percent of the face amount of the tax receipts, and an additional unspecified amount as a commission.

The Minister argued that to be a “true gift”, the donation must be made without a benefit in return. It was found that the appellants likely knew that they were claiming inflated tax credits, but Justice Woods held that was not a sufficient reason to deny the tax credits altogether.

Upon review of the case law, Justice Woods concluded that the issuance of an inflated tax receipt should not usually be considered a benefit that negates a gift and held that in the circumstances of this case the benefits received by the appellants did not negate the gifts.

Justice Woods did mention however that there may be extraordinary circumstances in a particular case that should be taken into account when making this determination and therefore the holding in Ronaldo David does not establish a blanket rule but does provide a great deal of clarity to the application of subsection 118.1(3) of the Act.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.