Several months after the debate surrounding academic freedom (University Affairs) at Trinity Western University (TWU) has left the public’s focus, TWU is back in the news, this time in connection the decision of the Federal Court of Appeal earlier this month in Ballard v. Canada (CanLII). Here’s the version of the story from The Province:
An appeal court has ended a long-standing tax scheme in which students at Trinity Western University received scholarships or bursaries for their education in exchange for donations being funnelled by family members to a Christian charity.
The court was asked to rule on a tax deduction in which Trinity Western University solicited family members to donate to a registered Christian charity in exchange for a tax receipt that would lower the income tax they paid, and allow the students to receive scholarships or bursaries for their education.
According to court documents students were told: “God does not want to see students graduate with huge burdensome student loans.”
The dispute goes back to taxes filed as far back as 2002. During its peak, almost $5 million in tax receipts were issued for students at Trinity Western and other Christian colleges.
The federal tax agency maintained it was not a true gift if the donor is expecting and receiving a direct and possible equal financial benefit in return.
According to the facts determined by the court, the students involved with the case were enrolled at TWU, and they asked their parents and, in one case, grandparents to “donate” money to the National Foundation for Christian Leadership (NFCL), a registered Canadian charity
(Canada Revenue Agency), which amounts were claimed by the “donors” as charitable tax credits (i.e. they were issued tax receipts and were able to therefore reduce the amount of tax they had to pay). The students were then given a bursary by the NFCL in relation to their educational expenses and the amount of money donated by their relatives.
The catch? Anytime you give money to a charity and receive some benefit in return, you cannot get a charitable tax credit for the amount corresponding to the benefit. The Canada Revenue Agency, our federal tax authority, explains the rule here
. The simplest example is a gala fundraising event put on by a charity. If the tickets are $100 a piece, and you get a meal and a show normally valued at $75 per seat, then you will likely be issued a tax receipt for only $25 of the $100 you paid. It makes sense – otherwise, charities could use their special status to sell things to individuals who would also be able to claim back a portion of the amount the paid.
The scheme highlighted in Ballard
may be more common than many of us may expect, which would explain why charities engaged in these sorts of tactics are currently in the crosshairs of the Canada Revenue Agency. It often gets complicated by the fact that many educational institutions are also registered charities (see the database of charities here
). The court in Ballard
adopted a broad view of the notion of receiving a benefit, in the sense that a grandparent “donating” to a charity with the expectation that the charity would issue a educational bursary to his or her grandchild would constitute a “benefit”. The same applies to private corporations “donating” in relation to a child of one of the shareholders.
Educational institutions that are also registered charities must be aware of their obligations under the applicable tax statutes. Charities cost the government a lot in lost tax revenues, and despite their good works a charity will generally be dealt with harshly for not following the rules. Parents, too, should understand the requirements a charity must obey and ensure that they do not get entangled in any risky or poorly thought out proposals from cash-strapped educational institutions.