R. v. Castro: Tough Decision on Charitable Receipts

Bill Innes has some interesting things to say about a tough and uncompromising decision from the Federal Court of Appeal in The Queen v. Castro which overturned a group of Tax Court decisions that allowed taxpayers a charitable tax credit for the cash portion of donations they made to a registered charity, the receipts for which showed an inflated amount of donation based on the supposed of value of “cash and goods” which were donated.

The decision is uncompromising: in its reasons the FCA says that a tax credit can only be awarded under the Income Tax Act where it has been evidenced by a receipt form issued in prescribed form (that is, prescribed in the Regulations to the ITA) and that the relevant regulations (Part XXXV, at section 3501) require the full and correct amount of a cash gift to be stated on the receipt form. Since in these cases, the amounts listed on the receipt forms was higher than the cash gift, the FCA reversed the Tax Court and decided that there was no charitable tax credit at all available to the taxpayers.

Ouch.

It’s a very tough decision, but one I find it difficult to quibble with in law for the moment. I wonder–and this is little more than idle speculation–whether rectification could restore the correct amount of the gift. Such a situation could be if a charity were proceeding under the assumption that it was entitled by law to state a higher amount, say on the basis that it had accepted not cash but goods having a higher fair market value than the value of that cash the donor had put up. Such a mistake could ground a request for rectification by a court of the receipt once the mistake is discovered.

That possible solution would not necessarily apply to this case Castro, where the transactions were much more mercenary and commercial in nature (the FCA essentially describes a charity and tax preparer marketing these receipts in exchange for a cut; Innes is even more brutal and describes the cash gift as a “purchase price” for the receipt–perhaps hard to argue with, but certainly uncharitable; pun intended). In many cases, though, charities have even had legal opinions sanctioning the granting of charitable receipts for more than the cash amount put forward by the donor. I don’t necessarily think most of these work in law, and I’d advise donors or potential donors to be very careful about promises of getting charitable receipts for more than what they are actually giving. But in such situations, it may be that inflated receipts can be cured by rectification if there is a genuine mistake underlying the choice of the inflated amount.

The decision certainly may raise the stakes significantly in charitable donation cases, of which there are vast numbers before the Tax Court currently. If no “we will give the donor the cash value” intermediate position is available to the Tax Court, then such cases will tend to become all-or-nothing. In some of these types of donation disputes, the CRA has been sometimes making settlement offers to taxpayers to allow the cash portion only, and disallow the rest. We will see if their practice changes in light of Castro.

If you have ever made a charitable donation and received a receipt for a larger amount, which you then claimed on your taxes, I recommend that you should consult your tax advisor.

Written by Craig Burley

Craig is a tax lawyer in private practice in Hamilton, Ontario. Call Craig at (905) 870-0196 to discuss issues that you think may need independent tax advice. In addition to tax, Craig writes and works publicly on a number of other issues related to law, justice, and public affairs.

Website: http://craigburley.com