A recent decision of the Tax Court of Canada addressed the
treatment of donors claiming receipts that were inflated in excess
of the actual donation. Among other things, the Court made
some interesting comments on the meaning of "gift" and on
the imposition of penalties for the false filing.
David v. The Queen, 2014 TCC 117 involved six separate
appeals (heard consecutively) concerning CRA's disallowance of
the entire tax credit for a purported gift (comprised of both cash
and in-kind donations) to CanAfrica International Foundation
(CanAfrica). CRA found that the donors had made donations
amounting only to 10% of the face value on the receipts (plus a
commission to the tax preparer who promoted the scheme).
CanAfrica's charitable status has since been revoked and its
President has pled guilty to selling false donation receipts.
However, at the time the receipts in question were issued,
CanAfrica was a registered charity under the Income Tax
Many of the appellants in David acknowledged that the
tax receipts issued to them were false and were unable to provide
any evidence to support the position that they had paid more than
10% of the amount on the receipts; however, some sought relief on
the basis that CRA should bear some responsibility as CRA had
failed to warn taxpayers of its concerns with the
organization. Justice Woods explicitly dismissed this
argument, stating that regardless of whether CRA should have issued
the suggested warning, tax credits may only be determined based
upon the true value of the gift and nothing more.
The central issue addressed in David was whether the
expectation of an inflated tax credit based on an inflated donation
receipt is a benefit that ultimately negates the gift. The
Court held that the receipt of an inflated tax receipt was not
sufficient to deny the tax credits altogether, and that the
appellants should be allowed a charitable tax credit with respect
to the 10 percent of the receipt that was actually paid to the
At first blush, this ruling seems to contradict prior rulings in
leveraged donation tax shelter cases involving inflated receipts
issued for purported gifts of cash and property. In several
such cases, courts have denied any credit in
respect of these schemes. The Court in David,
however, made a distinction from these cases, stating that
"unlike many of the cases
dealing with so-called leveraged charitable donations, the
transactions in these appeals are not complex and do not involve a
series of inter-related transactions to which the cash is
Furthermore, the Court determined that it would not consider
whether the appellants had donative intent (which has been held by
some courts to be a requirement for a valid gift) as this argument
was raised by the respondent at the hearing and the appellants did
not have prior notice of such argument to enable them to
respond. As a result, the Court found that the appellants
paid cash, and perhaps some household goods, as a donation to
CanAfrica for which they received greatly inflated receipts.
Whether future courts will agree with the distinction drawn by
Justice Woods between this case and the leveraged donation tax
shelter cases remains to be seen. We expect that CRA will
continue to take the position that the no credit is available for
any portion of the donation (and indeed, CRA has appealed this
Interestingly, no penalties were imposed in respect of the
reassessment of the donors. The Court noted that there was
conflicting evidence as to whether penalties had in fact been
imposed by CRA, and stated that penalties, if any, should be
deleted. Again, this decision should not be taken as
assurance that penalties would not be sought (and upheld) in
respect of similar reassessments from false donation credits.
CRA has filed an appeal with the Federal Court of Appeal.
We will keep readers of this Newsletter updated as the case
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.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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).