Where a taxpayer receives an inflated donation receipt, may the
taxpayer claim a charitable donation credit for the cash amount of
According to the Tax Court of Canada in David v. The Queen (2014 TCC 117), in
the absence of any extraordinary circumstances, the answer to that
question will be yes.
In David, the taxpayers paid certain amounts to a tax
return preparer as cash donations to a registered charity. In
exchange, the taxpayers received donation receipts from the charity
in amounts the Minister claimed were ten times greater than their
cash donations. The taxpayers subsequently claimed charitable
donation tax credits under subsection 118.1(3) of the Income
Tax Act (Canada) (the "Act") based on the inflated
The Minister disallowed the full amount of the donation tax
credits claimed by each taxpayer. The taxpayers appealed the
Minister's reassessments on the basis that at least a portion
of the credits should be allowed.
Decision of the Tax Court of Canada
The Court determined on the evidence that the amount that each
taxpayer paid as a donation to the charity was 10% of the face
value of their donation receipt.
The Minister argued that the donation amounts were not true
"gifts" and could not therefore give rise to a claim for
charitable tax credits by the taxpayers. The basis for the
Minister's argument was that the amounts were paid on the
expectation of receiving a benefit: an inflated charitable donation
The Court disagreed, stating that "the issuance of an
inflated tax receipt should not usually be considered a benefit
that negates a gift". However, there may be extraordinary
circumstances that should be taken into consideration. Accordingly,
the Court concluded that the taxpayers were entitled to claim a
charitable tax credit in respect of 10% of the face value of their
donation receipts. The Tax Court did not consider the
Minister's argument that the taxpayers lacked donative intent
as it was not raised in the Minister's pleadings. The
Court ordered the cancellation of the penalties (if any) imposed
against the taxpayers.
David is a helpful decision for taxpayers whose claims
for charitable donation tax credits have been entirely disallowed
by the Canada Revenue Agency ("CRA") on the basis that
the provision of an inflated donation receipt vitiates a gift. As
of the writing of this article, the David decision had not
been appealed to the Federal Court of Appeal. If appealed, the
Court of Appeal may clarify the law on gifts, donative intent and
inflated donation receipts. For example, in reaching its
conclusion, the Tax Court relied on the Federal Court of
Appeal's decision in The Queen v. Doubinin (2005 FCA
298), in which the Court of Appeal held that the issuance of an
inflated tax receipt was not a benefit that negated the
taxpayer's gift. In Doubinin, the taxpayer
had no knowledge of any wrongdoing and there was no expectation of
a benefit when he made the donation. It is not clear whether or how
much weight the Tax Court in David placed on
these facts or if these facts are examples of "extraordinary
circumstances" that should be considered by a court.
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