The Minister of National Revenue disallowed substantive deductions for questionable tax-avoidance tactic
The Tax Court of Canada recently heard a case where a Canadian taxpayer was denied a charitable tax deduction because the donation was not made with “donative intent.”
In Goheen vs. The Queen, a Canadian taxpayer made a US$30,000 ($46,667) donation to a charitable organization co-founded by his brother in exchange for a charitable donation receipt, reported the Law Times. The amount was given in two payments, which were funded through a loan from his father-in-law. Several months afterward, a deposit was made into the same account from which the amounts were paid.
The taxpayer claimed tax credit deductions for the charitable donation over four years; the Minister of National Revenue disallowed the deduction, arguing that the amount did not constitute a “gift” as defined under s. 118.1 of the Income Tax Act. The taxpayer appealed the decision, but the appeal was dismissed.
In its decision, the court noted the implausible and improbable nature of the evidence presented by the taxpayer. The amount given to the organization was unusually large; it constituted 75% of the family’s net income, and the taxpayer lacked the financial wherewithal to fund it themselves.
It was also unlikely that the donation was made with altruistic intentions since the taxpayer did not claim any charitable donation tax credit for the previous 12 years. In addition, they failed to independently look into the organization’s activities and financial statements, did not follow up on what was done with the amount, and could not explain the deposit made into the account where the donation originated.
“Taxpayer gave amount to organization with intent and expectation of receiving tax credit and anticipated return of amount,” the Law Times reported. “Taxpayer did not prove that he paid amount with donative intent, so amount did not constitute gift.”