Saturday, June 15, 2013

When is a Gift Not a Gift?

Law can be subtle. The same word can mean different things in different contexts.

The National Foundation for Christian Leadership (“NFCL”) is a registered as a charity in Canada that provides bursaries and scholarships to students in Christian universities. Those who made donations received charitable tax receipts, which they could use—or as it turned out, in some cases, thought they could use—to obtain charitable tax credits.

Parents or other family members or friends of students attending Christian universities provided donations. Donors could not direct that their donations be used to fund a bursary or scholarship for a specific student, but as found set out by the Federal Court of Appeal in Coleman v. HerMajesty the Queen,

[3]               Under the program administered by NFCL, nearly all students who solicited “donations” received bursaries for the expenses related to their education at TWU or at other Christian post-secondary institutions in an amount equal to approximately 80% of the lesser of students’ eligible expenses and the funds that they had solicited. Some students were awarded scholarships equal to 100% of the lesser of their eligible expenses and the “donations” to NFCL that they had solicited. The value of a student’s bursary or scholarship could not exceed the amount of the solicited “donations”. 
 [4]               Although a “donation” could not be earmarked by a “donor” for a particular student, the Judge found on the basis of NFCL’s pamphlets that the Appellants either knew or ought to have known that, if they made a “donation” to NFCL, their children and grandchild would receive a bursary or scholarship that would defray the expenses of their education at TWU.

The Federal Court of Appeal, upheld the Tax Court of Canada’s decision that a number of these donations charitable tax credits for which the Minister of National Revenue had disallowed were not “gifts.” For the purpose of qualifying for a charitable tax credit, a “gift” is “is a gratuitous transfer of property owned by the donor in return for which no benefit flows to the donor.”

Justice Campbell Miller, in the Tax Court of Canada, found that the donations were not truly gratuitous transfers with no benefits flowing to the donors. Although the donors could not directly control how their funds were used, there was a strong correlation between the donations and receipt by those students who solicited the donations. Parents donating funds knew that their children would receive bursaries or scholarships because of the donations. Justice Miller found that if the children had not received financial support from NFCL, the parents would have otherwise paid those amounts.

Ken and Monica Neville had donated $6250 to NFCL. They received a tax receipt. Their daughter, who attended Trinity Western University, received $6408 in scholarships from NFCL.

After they were denied charitable tax credits for their donations, they sued NFCL, seeking a return of the funds they donated.

In Neville v. National Foundation for Christian Leadership, 2013 BCSC 183, Associate Chief Justice Cullen considered whether the donations were “gifts” at common law. In finding that they were, he cited a Supreme Court of Canada case setting out the characteristics of a gift:

[25]         In Read v. Rayner, [1943] 2 D.L.R. 225 at 231 (P.E.I.S.C.), aff’d [1943] 4 D.L.R. 803 (S.C.C.), Arsenault J. held as follows:

What is a gift?
 Britton, in his treatise of gifts (Lib. 11. C3) gives the following definition:
“A gift is an act whereby anything is voluntarily transferred from the true possessor to another person, with the full intention that the thing shall not return to the donor, and with full intention on the part of the receiver to retain the thing entirely as his own without restoring it to the giver. For the gift cannot be properly made if the thing given does not so belong to the receiver, that the two rights, of property and of possession, are united in his person, so that the gift cannot be revoked by the donor, or made void by another, in whom the lawful property is vested.”
 Blackstone [Book II, c. 30, p. 441] says: “A true and proper gift or grant is always accompanied with the delivery of possession and takes effect immediately.” 
In the leading case of Cochrane v. Moore (1890), 25 Q.B.D. 57, at p. 76, Lord Esher M.R., gives the definition of a gift as follows:

“It is a transaction consisting of two contemporaneous acts, which at once complete the transaction, so that there is nothing more to be done by either party. The act done by one is that he gives; the act done by the other is that he accepts. These contemporaneous acts being done, neither party has anything more to do.”
The essential elements of a gift then, according to these definitions, are that one gives, that there is delivery of the gift and that the person to whom the gift has been made accepts.
 [26]         There is really no doubt based on the evidence adduced before me that the donations were gifts in the sense that “there is a delivery of the gift and ... the person to whom the gift has been made accepts”.  I do not understand either party to contest that proposition.

Mr. and Mrs. Neville argued that because they did not get tax credits, the purpose of their donations was not fulfilled, thereby vitiating their gifts. Associate Chief Justice Cullen did not agree. The purpose of the gifts was to fund scholarships and bursaries, and NFCL carried this out. The charity did what the donors contemplated. The donors may have been motivated by their desire for tax credits, but that was not the purpose of the donations. The tax authority’s treatment of the donations does not vitiate the gifts.

Nor did Chief Justice Cullen accept Mr. and Mrs. Neville’s submission that the donations were conditional upon their receipt of tax credits. There was no evidence that at the time they made the donations that they attached any conditions. Once they made an absolute gift, they cannot then attach trust conditions to it.

In the result, NFCL is entitled to keep the donations they received from Mr. and Mrs. Neville. Although the donations made by Mr. and Mrs. Neville were not “gifts” in the sense that they did not receive any benefit in returned, as required to qualify for charitable tax credits, they were “gifts” at common law in the sense that they were transfers of property that the recipient is entitled to keep.  

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