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Taxation – Income Tax – Assessments – Tax credits for gifts made to registered charities and other qualified organizations – Whether the courts below erred in finding that the applicant’s donations were vitiated by the long-term interest-free loans she received to top up her donations – Income Tax Act, R.S.C. 1985, c. 1 (5th Suppl.), s. 118.1.

The applicant, Ms. Kossow, participated in a leveraged charitable donation program by which money was used to finance the purchase of art for a registered charity. The donation program allowed Ms. Kossow to combine her own money with the proceeds of long-term, interest-free loans to make payments to the charity. The Tax Court found that she was able to transfer $50,000.00, $60,000.00 and $50,000.00 to the charity by using only $17,000.00, $20,400.00 and $17,000.00 of her own money in the years 2000, 2001 and 2002 respectively. Ms. Kossow claimed income tax credits for the relevant years based on payments made to the charity, but the Minister of National Revenue issued reassessments against her in which the claims were denied. Ms. Kossow appealed the reassessments, but was unsuccessful. She then appealed to the Federal Court of Appeal. The Court dismissed her appeal, finding, among other things, that the Tax Court was right to have concluded that Ms. Kossow had not made any “gifts”, as that term is understood by the jurisprudence and s. 118.1 of the Income Tax Act. Indeed, the Court explained that a long-term interest-free loan is a significant financial benefit to the recipient, and that a material benefit received in return for making a gift will vitiate the gift, whether the benefit comes from the donee or another person. In this case, the benefit of the loans to Ms. Kossow were such that Ms. Kossow’s charitable gifts were vitiated.