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.
Tags: Court of Appeal for Ontario, CRA, Definition of Gift, Income Tax Act, law of charity, Property Law
Categories: Charity, It's the Law, Stupid!, Law