Citation: 2004TCC128

Date: 20040427

Docket: 2003-3025(IT)I

BETWEEN:

JUANITA LOBO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Agent for the Appellant: Harold Coombs

Counsel for the Respondent: P. Michael Appavoo

____________________________________________________________________

REASONS FOR JUDGMENT

(Edited from the transcript of reasons delivered orally from

the Bench at Toronto, Ontario, on January 22, 2004)

Sarchuk J.

[1]      This is an appeal by Juanita Lobo from an assessment of tax with respect to her 1996 taxation year. In her return for that year, she declared total income in the amount of $25,284.06 and claimed a non-refundable tax credit in the amount of $2,151 with respect to a purported charitable donation in the amount of $7,500 made to Rocky Ridge Ranch Inc. (Rocky Ridge). In reassessing the Appellant, the Minister of National Revenue (the Minister) denied the Appellant's claim for the tax credit.

[2]      Evidence was adduced on behalf of the Appellant from her husband, Joseph A. Lobo (Lobo). He testified that his accountant, Harold Coombs (Coombs):

A.         ... approached me with a suggestion that the charity, Rocky Ridge Ranch, was going to gift me the amount of 7,500 and would I then be - would it be appropriate or okay with me to donate this gift to the charity. The gift was going to be made by Mr. Chapman, a Mr. Bruce Chapman, and ...

Justice Sarchuk:             Who approached you?

A.         Mr. Coombs, who I have known for a number of years. ... And he approached me with this suggestion of a gift of 7,500 from Mr. Chapman who was connected with the Rocky Ridge Ranch, which is a registered charity. ... And would I donate this amount to the ranch. I have known Mr. Coombs for sometime and I also knew that he was connected with this charity, that the charity was doing very worthwhile work. I knew that Mr. Coombs' daughter worked there at the ranch and I saw no reason why I should not donate that gift directly to the charity.

Lobo agreed to do so knowing that it was necessary in order to obtain a charitable donation receipt. He further testified that neither he nor his wife ever received anything from Chapman, or from Rocky Ridge, in any form be it cash or cheque, property or any other form of compensation. Furthermore, it is not disputed that neither he nor his wife ever donated anything to the charity. Nonetheless in December 1996, Lobo was given a receipt for $7,500 by Coombs and that receipt was included in the Appellant's tax return for taxation year 1996.[1] Lobo also testified that another similar "gift" in the amount of $11,200 had been provided to the same charity through Coombs. Lobo had never met Chapman and said that "all the communication with me and Mr. Chapman was through Mr. Coombs. I've never met the gentleman directly or spoken to him". When asked why Chapman would want to give him a gift of $7,500, he responded "I really couldn't say why. I'm not familiar with Mr. Chapman and the charity and the relationship between Mr. Coombs and Mr. Chapman, so I couldn't fairly say why".

[3]      Evidence was adduced from Bruce Chapman by the Respondent. He is the president of Rocky Ridge, a charitable organization which among other things operates summer camps, weekend retreats, outdoor education, etc. Chapman stated that Coombs originally organized its financial affairs and subsequently was responsible for all of its accounting.[2] With respect to the donation in issue, Chapman testified that he had never met Lobo nor his wife nor had he given a gift of $7,500 to them but only, "followed the instructions of my accountant at the time and did what he asked us to do". He described Coombs' instructions relating to the donation mechanism to be used and the context in which they were given as follows:

With the reassessments that were coming from the government, we were personally getting, I use the word "hit very heavily" and with discussions periodically, I was presented with a way that would satisfy the compliance of Revenue Canada, and I just continued to follow those instructions.

Reference was also made to a letter to Mr. and Mrs. A.J. Lobo signed by Chapman,[3] the relevant portions of which read:

Dear Donor,

This will confirm that in 1996 I have given you a gift of $7500.00 and have received your instructions for me to donate this amount to the ranch on your behalf.

Rocky Ridge Ranch Inc. has been instructed that this donation is being made on your behalf and to issue a charitable donation receipt directly to you.

The following exchange took place between Chapman and counsel for the Respondent:

Q.         Mr. Chapman, if I could ask you to turn to Appellant's Exhibit 4.

            Do we have a copy for Mr. Chapman?

            Mr. Chapman do you recognize that letter?

A.         I recognize the notation. The specifics I'm reminded of, yes.

Q.         And is that your signature at the bottom?

A.         Yes sir.

Q.         And when would this letter have been prepared?

A.         Well, there's no date on it. I would have to consult with my office secretary to confirm this.

Q.         Well, Mr. Chapman, if you look at the top it says December of 1996.

A.         Yes.

Q.         Is that the date that this would have been created?

A.         I don't believe so.

Q.         And could you maybe tell the court why this letter would have been created?

A.         I followed the instruction of Mr. Coombs, and this letter was later dictated to one of the ladies in my office, and just in following his instructions as my accountant.

Q.         So it's your testimony, then, that it was Mr. Coombs' instructions to complete this letter?

A.         Yes sir.

Q.         You will note that it says here that, "I have given you a gift of $7500.00". Is that in fact true?

A.         I didn't give it to him. That was according to ledger work, or whatever the accountancy practices were, as I believed it to be.

Q.         So there was no exchange of funds between yourself and Mr. Lobo, or Mrs. Lobo?

A.         Again I would have to have my accountant check anything that went past me at any time.

Q.         Mr. Chapman, did you intend to give Mr. and Mrs. Lobo a gift of $7500.00?

A.         No. I intended to follow my accountant's instructions.

Chapman also testified that at no time did Coombs ask him for money to be passed on to Lobo or the Appellant. Chapman further said:

A.         Well, I believe Mr. Coombs at the time explained what would be the compliance with Revenue Canada, and this would satisfy their regulations.

Q.         And if I rephrase my question, Mr. Chapman, did you give Mr. Lobo (sic) any cash to be given to Mrs. (sic) and Mrs. Lobo?

A.         No, I did not.

[4]      The Appellant's position as set out in her Notice of Appeal was:

3.          The taxpayer stated that she and her spouse were the recipients of a gift with a monetary value of $7,500.00 in 1996, from Mr. Bruce Chapman. Shortly after acceptance of this gift, the Appellants issued instructions to the Managing Director of Rocky Ridge Ranch Inc. These instructions were complied with and an appropriate donation receipt was issued to the donors.

4.          The Appellant further states that this transaction was concluded voluntarily and without expectation of any kind of return to the Appellants or anyone designated by the Appellants.

5.          The taxpayer stated that the charitable donation receipt in question was properly issued and in accordance with the rules and regulations of the Charities Act and also the Canada Tax Act.

[5]      Following the submissions on behalf of both parties, I made the following comments. In my 20-odd years on the Bench, I have never heard a case that had so little merit. I also have never heard a case where the representation was as inappropriate as it was. I do not know whether Coombs was unaware of his role as the Appellant's representative and of the role he could play or perhaps should not have played in this hearing. However, if he has not appeared in Court on behalf of a client before, he most certainly should have made some enquiries. His failure to do so put him and it put his client, in particular, and the Court, in a difficult position, and that should not have happened.

[6]      Having said that, there is absolutely no credible evidence to support the Appellant's position. The simplest way of putting it is that there was an unusual arrangement structured by Coombs as a result of which Mr. Lobo was approached with a "donation" proposition that he accepted. There is no evidence whatsoever that there was a donation of $7,500 at any time by either Mr. or Mrs. Lobo. Equally, there is absolutely no evidence Chapman and his evidence was clear on this point, that he in any form whatsoever provided the amount of $7,500 to the Appellant as part of the proposed transaction. There is no question that a donation receipt was issued and given Chapman's evidence, no question as to who in fact created that receipt.

[7]      There is no evidence capable of supporting that position advanced on behalf of the taxpayer. The only logical conclusion is that there was absolutely no transfer of any kind of property from Chapman or from the charity to the Appellant, and no evidence whatsoever that any moneys were donated by the Appellant to the charity. What was intended in all of this heaven only knows, but there is no question that the charitable donation receipt was in my view fraudulent. There is nothing in the evidence to support its legitimacy. This alone is sufficient to warrant dismissing the appeal.

[8]      Even if one were to consider the "paper transaction" to be legitimate, the Appellant could not succeed. In Woolner v. The Queen, 99 DTC 5722, the Federal Court of Appeal had occasion to deal with taxpayers who had made their contributions to a church with the anticipation that their children would receive bursaries. The Court found that this constituted a material benefit for them and to that extent the contributions were not deductible charitable donation tax credits. In particular, the following comment can appropriately be applied to the present case:

[7]         This Court has held that a gift, within the meaning of the common law, is a voluntary transfer of property from one person to another gratuitously and not as the result of a contractual obligation without anticipation or expectation of material benefit. In the present case, it is clear that the contributions were voluntary. The main issue for determination is whether or not the contributions were made with the anticipation of a benefit or advantage of a material nature.

There is no question in the present case that no contributions of any kind were in fact made by the Appellant to Rocky Ridge. However, had the proposed "gifting scheme" in fact occurred, there would have been a link between the contribution and the benefit of the gift previously received by the donor. This, in my view, would not have constituted a voluntary transfer form the Appellant to Rocky Ridge since it arose from a contractual arrangement.

[9]      For the foregoing reasons, the appeal is dismissed.

Signed at Ottawa, Canada, this 27th day of April, 2004.

"A.A. Sarchuk"

Sarchuk J.

CITATION:

2004TCC128

COURT FILE NO.:

2003-3025(IT)I

STYLE OF CAUSE:

Juanita Lobo and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

January 22, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice A.A. Sarchuk

DATE OF JUDGMENT:

January 27, 2004

APPEARANCES:

Agent for the Appellant:

Harold Coombs

Counsel for the Respondent:

P. Michael Appavoo

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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