On July 8, 2016, the Tax Court of Canada issued its decision in the informal procedure case of Duguay c La Reine (“Duguay”). The taxpayer appealed the Minister’s disallowance of a claim for a charitable tax credit in relation to a receipt issued in the amount of $10,000 by a registered charity. The Minister disallowed the claim because the taxpayer received an advantage in excess of the value of his gift. The Court upheld the Minister’s decision.
In particular, the taxpayer rented an apartment belonging to the charity, which he spent over $20,000 renovating. The charity reimbursed him $20,000. The taxpayer immediately donated $10,000 to the charity, pursuant to a verbal agreement with the charity. The agreement was to cover the cost of the renovations he would leave behind. However, because the taxpayer had the right to enjoy the renovations to his apartment at the time of the donation, the Court found that the donation was not given independently of the benefit of living in a newly renovated apartment and was caught by the Income Tax Act’s (“ITA”) rules relating to advantage. Subsection 248(31) of the ITA states that the amount of the gift is “the amount by which the fair market value of the property that is the subject of the gift or monetary contribution exceeds the amount of the advantage, if any, in respect of the gift or monetary contribution.” Because the taxpayer had the advantage of living in the renovated space which surpassed the eligible value of the gift, there is no tax credit. Although the decision has no precedential value, it is interesting to note the Court found that the future benefit to the charity was not pertinent to the determination of the taxpayer’s advantage.