No Tax Credit Without Proper Receipts
On May 25, 2016, the Tax Court of Canada released a decision in the case of Shahbazi v. The Queen. While this case was by way of informal procedure and has no precedential value, it adds to a substantial body of case law regarding proper receipting of charitable donations. The case involved an appeal of two notices of assessment issued by the Minister of National Revenue (the “Minister”), which disallowed charitable tax credits that were claimed by the taxpayer for donations of gifts in-kind consisting of household goods forfeited from rental units owned by the taxpayer.
The taxpayer claimed the tax credits for the 2006 and 2007 taxation years in the amounts of $20,000 and $15,000; amounts for which receipts were issued by registered charities. However, the receipt for the first donation did not indicate whether the donation was property or cash, and the second receipt indicated that the donation was received during January to December of 2007 but did not indicate the particular date upon which the donation was made.
The Court, following the Federal Court of Appeal decision in The Queen v Castro, dismissed the appeal since the receipts for the donations did not comply with the prescribed information necessary for the tax credits to be claimed under subsection 118.1(2) of the Income Tax Act (“ITA”) and subsection 3501(1) of the Income Tax Regulations. Since the receipts did not contain descriptions of the goods, the date on which they were donated, or whether the donations were property or cash, the Court ruled that they failed to comply with the necessary requirements and dismissed the appeal.
Misrepresentation
On June 1, 2016, the Tax Court of Canada released a decision in the case of Omoruan v. The Queen which was also brought by way of informal procedure. Of particular interest in this case was the matter of misrepresentation that lead the Minister to rely on subsection 152(4) of the ITA to assess the taxpayer beyond the normal reassessment period for the 2003 tax year.
In cases of misrepresentation, credibility of the taxpayer plays a central role in the analysis, and in this case the taxpayer claimed tax credits for a number of charitable donations made in the form of cash and in-kind gifts for the tax years of 2003 to 2006 which totalled $9,533, $15,700, $12,360, and $8,033 respectively. At trial, the taxpayer could not supply bank statements and she could not provide details on the in-kind gifts donated by her and her husband. In short, the Court did not believe the credibility of the taxpayer and her husband for the following reasons:
- Their defensive and evasive attitude in answering question on cross-examination;
- The discrepancy between the years in question and the years before and after vis-à-vis the amounts of the donations;
- The suggestion that Ms. Omoruan donated 100 pairs of used shoes in two years;
- The significant amount of the alleged donations compared to her income;
- The lack of an independent appraisal for the alleged goods donated;
- The lack of bank records (from which was drawn a negative inference that any such records would have helped the Omoruans);
- The different story Ms. Omoruan raised at trial compared to in the previous letter regarding why she left Redemption Power International Ministry;
- The inability to recall a pastor’s name;
- The inability to describe the toys donated;
- The large donation by Ms. Omoruan to a church of which she was not a member, when she testified that on one hand she did not attend the church regularly and on the other hand donations were made in smaller amounts throughout the year.
In light of the foregoing, the Court held that there was a misrepresentation, since the taxpayer “claimed donations for amounts she did not donate” and “ she knew or certainly ought to have known that $9,500 in 2003 was far in excess of any cash donation actually made, if at all.” As a result, the Court ruled that the Minister was entitled to rely on subsection 152(4) and dismissed the appeal.