In this new tax court case Bacchus v. The King, the Appellant (a lawyer and former Dragons Den entrepreneur) claims that he was denied natural justice when he was not interviewed for his “donative intent” at the time CRA disallowed $101,000 in donation tax credits over a number of taxation years.

[6] At the commencement of the hearing, the Respondent brought a motion to strike the Notice of Appeal, arguing that the Minister’s conduct was not relevant and that the issue before the Court was the correctness of the reassessments.

[7] Having heard the representations of the parties, the Court struck the offending paragraphs without actually striking the Notice of Appeal, indicating that that it was prepared to hear the Appellant’s evidence and arguments on the issue of his donative intent for the cash donations.

The Court then went through the history of the case:

[2] Mr. Bacchus was initially assessed as filed for those years but the Minister later reassessed him to disallow donation tax credits claimed pursuant to subsection 118.1(1) of the Income Tax Act, R.S.C. 1985,c.1 (5^th Supp.) in respect of his participation in the Global Learning Gifting Initiative, also known as GLGI (the “GLGI Program”).

The Court then summarized the Minister’s position on the GLGI Program:

[9] In the Reply to the Notice of Appeal, the Minister made a number of factual assumptions that I would summarize as follows:

a)The GLGI Program was set up as a tax shelter that was promoted on the basis that participants would be entitled to receive tax credits equal to 56 – 112% of their cash donation;

b)Participants were entitled to become capital beneficiaries of a trust and, upon acceptance, would be entitled to receive educational courseware that would then be donated to the charities;

c)Participants were automatically approved as capital beneficiaries but did not take possession of the courseware. In any event, courseware had no value;

d)Participants received tax receipts reflecting the value of the cash donation and alleged value of the courseware. Since the courseware had no value, the receipt for the gift-in kind was in fact an inflated tax receipt.

[10] The Minister took the position that participants in the GLGI Program did not have donative intent because they made cash donations to obtain tax credits that exceeded the value of their cash donation. Accordingly, they actually intended to profit from their cash donation. In the end, all participants relied upon inflated donation receipts since the courseware had no value.

The Appellant then explained his position:

[15] The Appellant adduced a series of receipts to support his cash donations and argued that he should be entitled to donation tax credits for those amounts because, subjectively, he had donative intent when the donations were made. He argued that he did not knowingly participate in the GLGI Program and that he had been “scammed” by his insurance agent.

The Court’s analysis was as follows:

[18] In particular, the Court finds that the Appellant received the informational brochures describing the GLGI Program that he then reviewed with his spouse. Given his legal and accounting background, the Court finds that he understood there would be a cash-flow advantage in that the value of the courseware would exceed the amount of his cash donation by a ratio of 5:1.

[19] The Court finds that the Appellant understood that his participation would allow him to receive tax refunds that exceeded the value of his cash donation. Even if the Court accepts that he was initially sceptical, those concerns quickly dissipated as he agreed to participate in the GLGI Program over several years.

[21] The Appellant chose to believe that the courseware had value based on the alleged valuations. Regrettably, that turned out to be false and the actual fair market value was at best nominal. There has been no evidence to the contrary.

[23] As stated by Justice Iacobucci in Symes v. The Queen [1993] 4 SCR 695 (para. 74) – and I quote – where “purpose or intention behind actions is to be ascertained, it must not be supposed that in responding to this question courts will be guided only by a taxpayer’s statement ex post facto or otherwise, as to the subjective purpose of a particular expenditure. Courts will, instead, look for objective manifestation of purpose, and purpose is ultimately a question of fact to be decided with due regard for all of the circumstances.”

[24] When considering the objective manifestation of purpose in this instance, the Court finds that the Appellant intended to make the cash donations because of his expectation that he would be entitled to educational courseware valued at 5 times his cash donation. In the end, he chose to put aside his doubts because the alleged donation of the courseware to the charities would allow him to obtain a tax refund that exceeded the value of the cash donation.

[25] As noted by the Respondent, the Income Tax Act does not define a “gift” but the term has been described in the case law as “a gratuitous transfer of property that is not made in exchange for a financial advantage or benefit”. A necessary element of a gift includes impoverishment for the benefit of a qualified donee. If any of these elements are lacking, donative intent will be vitiated.

[26] In this instance, despite the fact that the Appellant is clearly out of pocket the cash donations, the Court finds that he did not intend to impoverish himself because the GLGI Program was designed to allow him to obtain tax credits that exceeded the amount of his cash donation.

[28] In Mariano v. The Queen, 2015 TCC 244 (“Mariano”), this Court heard evidence and conducted a thorough review of the GLGI Program. It concluded that the alleged gifts failed because of the financial advantage received by participants. It also concluded that the courseware had no market value. This Court is bound by the Mariano decision based on principles of judicial comity as explained by the Supreme Court of Canada in R. v. Sullivan, 2022 SCC 19 (para. 24).

[29] The Appellant has not distinguished his personal situation from the taxpayers in Mariano but he claims he should be entitled to claim his cash donation.

[30] However, in Maréchaux v. The Queen, 2009 TCC 587, Kossow v. the Queen, 2012 TCC 325 and Markou v. The Queen, 2018 TCC 66, this Court concluded that it was not possible to split donations made as part of an arrangement involving a series of predetermined and interconnected steps. These decisions stand for the proposition that it is not possible to consider the cash donations in isolation.

[31] This was confirmed by the Federal Court of Appeal. In Maréchaux v. Canada, 2010 FCA 287 (para. 12), it agreed with the trial judge’s conclusion that if there is just one interconnected transaction, no part of it can be considered a gift.

The Court concluded that there was no “donative intent” and therefore no charitable donation deductions available, even where the Appellant parted with some cash.

The Court then makes the following comment which makes me believe that the Appellant requested some equitable relief from the Court:

[33] The Court adds that it is not a court of equity and as such, it cannot make decisions based on fairness or equitable considerations.

[34] It also has no jurisdiction to waive interest or penalties where properly applied. To the extent that interest has accumulated over several years, the Appellant is entitled to seek relief under the Taxpayer Relief Program managed by the Canada Revenue Agency and, if necessary, seek judicial review of the Minister’s decisions before the Federal Court.