Archive for the ‘It’s the Law, Stupid!’ Category

Court of Appeal for Ontario Rules on Meaning of “Gift”

August 25th, 2011 by Blake Bromley, Bio

In my last article, I focused on the fact that an Application has been made to the Supreme Court of Canada for leave to appeal the Federal Court of Appeal decision in Ballard v. Queen. It will be interesting to learn whether transfer of money by way of “gift” is governed by property law, determined by the law of the provinces, rather than by the Income Tax Act.

Certainly, it is much easier to determine the meaning of “gift” as a matter of common law when the facts do not involve a gift to a charity from a donor seeking tax benefits under the Income Tax Act. In recent weeks, the Court of Appeal for Ontario in McNamee v. McNamee held that a father had made a “gift” of shares in the family company to his sons. The Court recognized that the transfer of the shares was motivated by an estate freeze and the desire to exclude the shares from inclusion in “net family property” under the Family Law Act, R.S.O. 1990, c.F.3. However, the gift was good because the father had the intention to transfer the shares gratuitously by way of gift and the sons provided no consideration or remuneration to the father. The Court held “a transfer of property by way of gift may equally be motivated by commercial purposes provided the transfer is gratuitous.”

The Court of Appeal for Ontario implicitly takes issue with the Federal Court of Appeal in The Queen v. Friedberg, 92 DTC 6031, which uses the words “benefit” and “consideration” interchangeably.  It held:

“Consideration” in law is a contractual concept. It is the value that flows from a promisee to a promisor as a result of a bargain.”

The July 26, 2011 decision of the Court of Appeal for Ontario is in more open disagreement with the Federal Court of Appeal decision in Ballard v. Queen, which disallowed as charitable gifts the entire amount of transfers to a charity where the donors received what the court considered to be a “material benefit”. In McNamee v. McNamee the Court held:

“It is helpful to remember that the issue is not whether the donor (or, for that matter, the donee) received some benefit from the estate freeze (Mr. McNamee Sr. accomplished his corporate planning; the boys received their common shares). The issue is whether the donee has provided any consideration to the donor for the transfer of the shares.”

Hopefully, the Supreme Court of Canada will grant leave to appeal in the Ballard case on the basis that it is “an issue of public importance” to provide clarity as to whether “consideration” and “benefit” have quite different meanings in determining what is a “gift”.

In my next article, I will discuss another aspect of the McNamee v. McNamee decision which is contrary to CRA’s position on the meaning of gift.

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Categories: Charity, It's the Law, Stupid!, Law

“Gift” Question Appealed to Supreme Court of Canada

August 16th, 2011 by Blake Bromley, Bio

In my last article, I focused on the fact that whether money has transferred by way of “gift” is a matter of property law, determined by the law of the provinces rather than by the Income Tax Act. This issue creates real challenges in bijural Canada, because the legal definition of gift is very different in the common law, applied in British Columbia and Ontario, etc., and the civil law, applied in Québec. An Application has been made to the Supreme Court of Canada for leave to appeal the Federal Court of Appeal decision in Ballard v. Queen in the hope of clarifying this issue.

CRA’s lawyers have argued that this is not an “issue of public importance”. In a previous article, I discussed examples of CRA having contradictory definitions of “gift” in its various publications. Consequently, it is not surprising that CRA appears to take contradictory positions in its Response seeking to dissuade the Supreme Court of Canada from ruling on this issue, even though it is critical to providing donors with certainty regarding the legal meaning of “gift” when they plan large donations.

In its filings with the Supreme Court of Canada, CRA takes the position that the common law test of gift is “well settled” in The Queen v. Friedberg, 92 DTC 6031, which states that the common law requires that when there is a “gift” there must be “no benefit or consideration flowing to the donor for that transfer”. CRA cites this definition, but does not explain how it can be reconciled with the concept, expressed in its official definition of “gift”, that an “advantage” flowing to the donor as a component of a charitable gift is not a “benefit”.

Far more significantly, CRA goes on to argue that provincial law does not establish the meaning of “gift” when determining whether a donor has made a charitable donation for tax purposes. Paragraph 38 of its Response reads:

“In A.Y.S.A. v. Canada, [the Supreme Court of Canada] held that the Interpretation Act does not require that provincial law dictate the meaning of terms under the Act. Therefore, a gift that is valid under provincial law is not necessarily a gift for purposes of the Act, in the same way that this Court held that an organization that is a charity under provincial law is not necessarily a charity for purposes of the Act.”

This position is taken immediately after CRA asserts that “the test outlined in Friedberg is the applicable law for determining whether a gift has been made for tax purposes”.

Consequently, CRA applies the common law test of “gift” when determining whether a gift has been made, but at the same time takes the position that provincial (common) law does not necessarily determine whether a gift has been made for tax purposes.

If that last sentence sounds contradictory and nonsensical, I agree. However, the problem stems from the positions taken by CRA rather than from my inability to write clearly. Is CRA seeking only to exclude the application of civil law in Québec, or does the common law not necessarily determine the meaning of gift in the rest of Canada?

Hopefully, the Supreme Court of Canada will hear this appeal and provide clarity as to whether provincial law determines the meaning of “gift” in the Income Tax Act, and help us to understand the implications of the fact that a “gift” is so different in the common law provinces and Québec.

In my next article, I will discuss a recent decision of the Court of Appeal for Ontario on the meaning of “gift” under the common law of Ontario.

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Categories: Charity, It's the Law, Stupid!, Law

“Gift” is a Matter of Property Law

July 14th, 2011 by Blake Bromley, Bio

In my last article, I explained that the Federal Court of Appeal, in Ballard v. Queen, recently disallowed as charitable gifts the entire amount of transfers to a charity where the donors received what the court considered to be a “material benefit”.

It seems that a “Benefit” necessarily includes an “Advantage”. However, for the last nine years, CRA has allowed charitable gifts that result in an “advantage” being received by the donor. CRA has chosen to apply its administrative policy, rather than the law that is in effect when a gift is made or a case decided.

CRA is waiting for Parliament to retroactively legislate amendments to the Income Tax Act, which will validate a transfer of property, for which the donor receives an advantage, as a “gift”, if the transfer was made after December 20, 2002.

In my opinion, the reason that Parliament did not introduce these proposed amendments in the most recent Budget, on June 6, 2011, is that the government has realized that the amendments are fundamentally flawed. Constitutionally, the law of gift is a matter of property and civil rights, and is not within the legislative competence of Parliament. The law of gift is clearly a matter of property law and the constitution gives jurisdiction over property issues to the provinces. Consequently, an amendment to the Income Tax Act cannot change what constitutes a gift as a matter of common law or civil law.

Weeks after the proposed amendments were introduced to the House of Commons on December 20, 2002, I wrote a technical critique of the amendments and sent it to the Minister of Finance. When I received no acknowledgement or reply, I wrote several follow-up letters over the years. I have still heard nothing. However, when one reads Department of Justice’s website, one learns that the bijuralism experts are keenly aware of the problems resulting from the different definitions of gift in Québec and common law provinces.

It is quite proper, under the civil law of Québec, to have a “remunerative gift” that enables the donor to obtain an advantage or benefit. The proposed amendments in 2002 were Parliament’s first attempt to bring the civil law concept of “remunerative gift” into the scheme of charitable gifts for tax purposes. However, remunerative gifts are disallowed by the Federal Court of Appeal in Ballard because they result in the donor receiving a “material benefit”.

When there is confusion as to whether the law of gift being applied is common law or civil, there is not enough certainty for donors to risk making large gifts to charities.

I have filed an application for leave to appeal the Ballard decision to the Supreme Court of Canada. In my next article, I will discuss some of the legal issues and the positions taken by CRA on the application of the Federal Court of Appeal judgment as well as on bijuralism.

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Categories: Charity, It's the Law, Stupid!, Law