On November 19, 2012, the Tax Court released its decision in Berg v. The Queen (2012 TCC 406),
which dealt with donative intent in the context of a
donation scheme involving inflated charitable donation
receipts. The Tax Court held that, although the taxpayer received
documentation reflecting a valuation about nine times greater than
the fair market value of the donations, the
cash contributed by the taxpayer could effectively be
segregated from the rest of the scheme and, thereby,
constitute a "gift" for purposes of subparagraph
118.1 of the Income Tax Act.
In 2002 and 2003, Mr. Berg purchased 68 timeshare units, for
which he paid $375,950 in cash and the remainder via low-interest
financing. The taxpayer subsequently donated the units, and the
recipient charity issued donation receipts for amounts
approximately nine times higher than the fair market value of
the units. The taxpayer claimed the inflated charitable donation
tax credits. The CRA reassessed and disallowed the claimed
charitable gifts of $2,420,000 for 2002, $1,786,000 for 2003 and
$718,380 for 2004, including the portions paid by the
taxpayer in cash for the units.
The only issue before the Tax Court was whether the cash
paid was a "gift" and therefore eligible for the
charitable donation tax credit.
The taxpayer argued that since he provided value for the units,
and received no benefit from the charity (other than the credits
themselves), the cash payments had to constitute a gift. The Crown
argued that the inflated receipts conferred an additional benefit
to the donor, thereby negating the donative intent of the taxpayer
entirely. The Tax Court distinguished Marechaux v.
The Queen in the Tax Court and Federal Court of Appeal on the basis that the
Crown had conceded in this case:
 . . . that the Transaction Documents were pretenses
and thereby not legally effective documents. Legally, no tangible
or potential benefit to the Appellant, beyond the camouflage
afforded by the Inflated Gift Receipts which were needed to enhance
the purported gift value beyond the Cash Donation Amounts, can be
ascribed to the Transaction Documents which, on admission by the
Respondent, gave rise to no legal rights, obligations or
The Tax Court concluded as follows:
 . . . to the extent the Cash Donation
Amount related to the Transferred Units, the Appellant was
impoverished by, paid valuable consideration for, intended to
give, and conveyed the Transferred Units which were, in turn,
received by the Charity. Whatever opprobrium may be ascribed to
the Donation Program, legally the Cash Donation Amount has met
the legal test of a charitable gift. In the absence of some
other benefit received beyond the Inflated Tax Receipts, no
legal authority suggests donative intent as defined by the case
law relevant to section 118.1 of the Act has been vitiated or
nullified to the extent of the value of the Cash Donation
The Tax Court concluded that the taxpayer intended to
donate to the charity, even if he was motivated by the possiblility
of receiving an inflated tax receipt. This decision takes
seriously the words of the Federal Court of Appeal in The
Queen v. Friedberg in which it was held that a
"gift is a voluntary transfer of property owned by the donor
to a donee, in return for which no benefit or consideration flows
to the donor." In certain circumstances, including those found
in this case, one may be able to effectively segregate the
"gift" amount from the "non-gift" amount
provided that the requisite degree of intent is found
in connection with the former.
It is not known whether the Crown will appeal the Tax
Court's decision to the Federal Court of Appeal.
FMC is one of Canada's leading business and litigation law
firms with more than 500 lawyers in six full-service offices
located in the country's key business centres. We focus on
providing outstanding service and value to our clients, and we
strive to excel as a workplace of choice for our people. Regardless
of where you choose to do business in Canada, our strong team of
professionals possess knowledge and expertise on regional, national
and cross-border matters. FMC's well-earned reputation for
consistently delivering the highest quality legal services and
counsel to our clients is complemented by an ongoing commitment to
diversity and inclusion to broaden our insight and perspective on
our clients' needs. Visit:
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).