The Proof is in the Receipt
On December 1st and 15th, 2015, respectively, the Tax Court of Canada released two decisions that uphold the requirement of the Income Tax Act (“ITA”) for taxpayers to provide proof of the donations they have made to registered charities when claiming charitable tax credits.
In both Iqbal v The Queen and Okeke v The Queen, the taxpayers made cash donations to charities for which they claimed tax credits. In both cases, the credits were denied by the Minister of National Revenue (the “Minister”) upon reassessment. Paragraph 118.1(2)(a) of the ITA provides for a tax credit for taxpayers provided that the making of a gift is proven by filing a receipt with the prescribed information set out at paragraph 3501 of the Income Tax Regulations. Neither of the taxpayers were able to provide receipts with the prescribed information, and the court upheld the decisions of the Minister to deny tax credits in both cases.
Source of Income Does Not Determine Office of Employment
On November 26, 2015, the Tax Court of Canada released a decision regarding a deduction claimed under paragraph 8(1)(c) of the ITA for clergy residence. While the decision in Moerman v. The Queen bears no precedential weight because it was rendered pursuant to the informal procedure, it offers interesting insights in relation to clergy residence deductions.
Mr. Moerman was a chaplain for the Chinook Health Region in Southern Alberta and was paid an honorarium by Alberta Health Services for his work. Mr. Moerman received additional income through his corporation, John Moerman Enterprises Ltd., which was contracted by a local church to conduct chaplaincy services to the hospitals in the region. In 2012, Mr. Moerman claimed a tax credit for clergy residence under paragraph 8(1)(c) of the ITA for the total income earned between the two sources. The Minister reassessed Mr. Moerman and denied the credit for the portion of income received through the corporation because Mr. Moerman “was not performing the duties of the clergy for the Corporation but was performing this function for the churches and individuals to whom the Corporation contracted its services.”
The Court, however, overturned the Minister’s decision holding that, notwithstanding who is actually paying the remuneration, “that remuneration can still derive from a qualifying employment.” Because Mr. Moerman’s only employment was as a chaplain for the Health Region, the court held that the he was employed in an office for which the credit applied and referred the matter back to the Minister for reassessment.
Misrepresentation and Lack of Donative Intent
In an amended judgement released on January 4, 2016, the Tax Court of Canada in Mattachione v The Queen found that Vincenzina and Roberto Mattachione’s participation in a complex buy low-donate high gifting arrangement either lacked donative intent or knew that the value of the gifts they made was much higher than their costs. The Court therefore dismissed their appeal of the Minister’s reassessment in part.
Through a series of transactions, the Mattachiones purchased goods at a drastically reduced value and sold the goods to an intermediary who then sold the goods to donors at a subsequently marked up value. The goods then received a fair market value appraisal through an appraisal company that was higher than the value for which the goods were purchased. The goods were subsequently donated to a willing charity that would issue charitable receipts at the appraised value. The Mattachiones profited significantly from the transactions and, in 2003, they sought to claim tax credits for charitable donations under the buy low-donate high program. The Minister denied the credits.
Mrs. Mattachione conceded that the value of the donations she made was not more than her cost for the goods, which left the court to deal with the donative intent of Mr. Mattachione. The court held that the tax receipt, which was inflated to 50 times the value of Mr. Mattachione’s costs, was a benefit that nullified his gift to the charity. The Court held this to be the case because the donation was not made in isolation, but was part of a “coincidental transaction that included the provision of a questionable appraisal in circumstances demanding greater scrutiny.” The Court held that Mr. Mattachione did not seek to impoverish himself by the gift and, therefore, did not have donative intent.