In January 2010, the Tax Court of Canada released its decision in Coleman v. M.N.R. The case provides guidance on the approach that courts will take in determining whether a benefit has been received by a donor in respect of a charitable donation. Although the case was decided in the pre-split receipting context, it is likely that this decision will be used as a basis for determining when an advantage has been received by a donor in respect of a donation under the split-receipting rules.
The Coleman case considered certain donations made to a charity which provided scholarships to students at a Christian university. The donations in question were made pursuant to a scholarship program promoted by the charity. Under the terms of the Program, students were required to fundraise on behalf of the charity in order to be eligible for a scholarship or bursary. The scholarship amounts given to students were in part a function of the amount of funds raised by those students – the greater the amount raised by the student, the greater the available scholarship (provided that the student otherwise met certain academic and financial criteria). Students were encouraged to solicit donations from family and friends. At issue was whether donations to the charity from relatives of students who had fundraised through the Program, and who subsequently received scholarships from the charity, constituted gifts which could be receipted.
As the donations in question preceded the introduction of the split-receipting regime in the Income Tax Act, the Court analyzed the donations according to the common law definition of gift, which requires that no benefit flow to the donor in respect of the gift. The Court canvassed earlier case law which addressed whether donations to religious schools by the parents of students at these schools gave rise to a benefit which vitiated the gift. The Court identified three principles from these cases which apply to the determination of whether a benefit has been received:
- The benefit to the donor need not arise as a result of meeting a legal obligation
- Anticipation of a benefit may be sufficient to deny a gift
- There must be a connection or link between the donor’s payment and the benefit
The Court then indicated that a two-step inquiry will apply to determining whether a benefit has been received. First, the Court must identify the benefit in question (which must be quantifiable and cannot consist purely of “moral satisfaction”). Second, the Court must analyze the strength of the link between the benefit and the donation. The Court identified several factors which will go to determining the strength of the link:
- Is there a relationship between the donor and the ultimate beneficiary?
- Is there any correlation between the amount of the donation and the amount received by the beneficiary?
- What are the circumstances surrounding the donation? In particular:
- What did the donor know or expect would happen to the donation?
- What did the beneficiary know or expect would happen to the donation?
- What did the charity know or expect would happen to the donation?
- What was the donor’s intention?
- How was the amount of the donation determined?
- How was the money donated?
- Was the donor under any moral or legal obligation to the beneficiary?
- Did the donor have any control over the charity’s use of the money?
Applying these criteria in this case, the Court held that there was a sufficiently strong link between the donations and the (scholarship) benefit such that the donations to the charity by donors related to students who received scholarships under the Program did not qualify as gifts.
This case provides insight into the approach that courts may take when determining whether a donor benefit exists in respect of a gift. It is also reasonable to expect that a similar analysis may apply to analyzing whether an advantage has been received in respect of a gift under the split-receipting rules. The case also indicates, consistent with other case law in this area, that courts will take a relatively expansive view of donor benefits.
Charities and donors who are uncertain whether a charitable donation gives rise to a benefit or advantage should consult legal counsel before issuing or claiming donation receipts.