Trinity Western University, along with four Canadian bible schools and seminaries, might take a hit in their giving after the Federal Court of Appeal upheld a lower court ruling last week.
At issue is a charity called the National Foundation for Christian Leadership. During 2002 and 2003, parents of students attending TWU, along with other interested donors, gave to the charity. In return the students of the donating parents received bursaries and scholarships. The CCRA denied the donations, the parents sued the CCRA and last year, the Tax Court ruled that the parents had not given a true gift in tax terms to National Federation for Christian Leadership (NFCL), a charity set up to handle the cash, and give it to Trinity Western which then, in turn, gave the students of the donating families the money.
Trinity Western is getting the ink in a note on the National Post's website and a story two days later in the Province, as it was parents of kids in this school who lived the suit. How ever, the original tax court ruling has found that students from "ACTS Seminaries, Briercrest Bible College, Briercrest Biblical Seminary, and Columbia Bible College." were involved in what went on.
As the Federal Court, in its own ruling last week, merely upheld Campbell J. Miller's ruling after the case was tried in the Tax Court of Canada in January 2010, in Vancouver, I will be concentrating on that. It's possibly a far-reaching ruling that could affect churches, seminaries and denominations in regards to how they could apply charity law.
Toronto lawyer Mark Blumberg, an expert on charity law, also blogged on the original Tax Court case last year. He observed then that this is a clear ruling "that there is no [charitable] donation when the children or grandchildren of a donor benefit from the gift." The case also offers what he calls some "interesting ethical issues raised by the conduct of the registered charity (National Foundation for Christian Leadership) and the donors." [My thanks to him.]
Justice Miller's Tax Court ruling of Feb.24, 2010, which is also available in full on the internet, evidently found that the tax scheme by the schools was charitable jiggery-pokery. (If only they had though to ask for a court ruling before trying it to the effect of "Is this okay?"]
I'm only a blogger, not a lawyer or judge, but I will try to summarize correctly.
A "gift" in tax terms, according to various tax cases cited by the justice, means that the donor should expect no concrete return other than a pleasant feeling that they have done the right thing (as I would explain it in my non-lawyerly way.) They may incidentally get a benefit, but if they expect or demand one in return for their, that moves into territory which would be a "sale" and not a donation."
Here is how the schools' plan was intended to work:
Post-secondary education can be very expensive. The NFCL set up programs called the "Christian Higher Education Assistance Fund" and the "Partners in Education" program. (Essentially the same, the judge ruled.)
Justice Miller describes how the program then played out:
....Once accepted in the CHEAF Program by meeting the criteria outlined above, in order to qualify to receive a bursary or scholarship from NFCL under the CHEAF Program students were required to raise donations for NFCL. Donations were to be collected by the soliciting student and then sent to the NFCL office.
These donations were pooled by NFCL and used to fund individual bursaries, scholarships and foundation awards to qualifying students accepted into the CHEAF Program at TWU and the PIE program at other Christian colleges and universities.
NFCL stipulated in writing to both students and prospective donors that donations were not to be designated to any specific individual. Their literature represented that no particular donation could be directly tied or designated to any particular student, but instead that all donations went into a common pool of funds out of which awards were made to all qualifying students.
Students applying to the CHEAF Program were encouraged to solicit donations to NFCL from anyone, including their families, friends, relatives, churches, organizations and businesses or any other supportive person. Individuals, corporations, foundations, institutions and churches could all donate to NFCL.
According to the CHEAF Program, students who met the requirements set out above were eligible to receive a bursary calculated by reference to 80% of the lesser of the amount of donations raised by that student and the student's Maximum Eligible Amount....."
The NFCL, in coaching the students about soliciting donations would advise the students how much they needed to raise in donations to ensure that, after fees and overhead, they would get back enough in donations and scholarship top cover their own expenses. Donors were to be told that they "would receive tax deductible charitable donation receipts and tax credits of up to 40 to 45% of the amounts donated to NFCL."
Justice Miller summarizes the pitch that the students were to use. Emphasis mine:
"NFCL provided students with helpful hints to use in sending letters to prospective donors. Students were prompted to stress their own "need" or if they had difficulty in asking for money for themselves, to emphasize they were raising money for others in need. They are also prompted to thank donors and to send them a note or phone them to let them know "how you are doing throughout the year."
A fundraising ideas sheet provided to students by NFCL also advised student canvassers:
a) that God does not want to see students graduate with huge burdensome student loans;
b) to personalize their letters and reflect their relationship with the person they are writing to;
c) one of the main reasons that people give to any cause is because they believe in the person who is asking for the donation;
d) their solicitation letter should answer the question "why should I give to NFCL";
e) to not change the message that "ALL GIFTS BY LAW MUST BE UNDESIGNATED";
f) their own name "MUST NOT" be anywhere on the cheque or it would be returned;
g) to put their name, school and school I.D. number on the donor form ahead of time; and
h) if the student had a key supporter to consider asking them to send the student's canvassing letter to others who might he interested in helping to support this project, or alternatively to ask them if they know of someone who believes in the school and would not mind getting a similar letter. "
It struck the justice as odd that while the NFCL did, correctly, not earmark the student's donations directly to each student, they were promised "...a bursary of 80% of monies raised by the student, and a further 10 to 20% for those with a Grade point average ("GPA") of 2.5, who raised a minimum of $1,000.00 and had at least five donors."
He found that the donors were well meaning, but nevertheless smelled a rat. Emphasis mine:
"....These people believed that they had gifted funds to NFCL. Their subjective evidence could not have been clearer. What is disturbing is that the objective evidence points so very clearly to an understanding, indeed a knowledge, at the time of donation, that 80 to 100% of monies they donated would go to cover the education cost of those students who solicited the funds – primarily their offspring. The Appellants used words such as hope, anticipation, expectation. I find the truth is that they knew, they had to have known. The program was set up so that they would know. Once I reached that inescapable conclusion and accepted the objective over the subjective, the link becomes stronger and the answer becomes easier."
Later he adds: "...Even without their testimony, I have no hesitation in concluding the students sought funding solely for their own benefit. That is how the program was designed to work. There was no evidence to support the notion that students sought funding to help others get NFCL funding..."
Lawyer Blumberg, in his introduction to the recent Federal Court of Appeal decision, sees the upshot of all this as a reluctance of the courts to countenance "grey areas" in Charity law, which is certainly a good thing.
Some comments from non-lawyer me.
1. I'm a little disappointed In Trinity Western University's stance. The university takes great pride in its independence, which allows TWU to be thoroughly devoted to its conservative Christian views. UBC and SFU, say, have constraints on any attempts to be explicitly Christian due to the fact that they are publicly funded. However, with this scheme, TWU seems, in my mind, to try to use the government (via the tax system) to do an end run around what they profess to be necessary to their independence, their lack of appeal to the public purse.
No one wants to pay taxes. No one wants a avaricious tax authority. But they should have tried an appeal to a general scholarship program with no earmarking of money.
2. Trinity Western is refusing to comment on the story and, aside from a sentence clause in Miller's decision, no-one is quoting the defense's arguments as to why this program was necessary and laudable. This bothers me, not because I am in favour of tax scams, but because it seems that they may have wanted to appeal to the courts being lenient in this matter on "slippery slope" grounds.
If I may suggest two possible problem areas? I'm not a lawyer, and may not have a right sense of things, but...
What about donations to universities in general? What about parents who want to give to a university where their genius kid goes, and is guaranteed by their grades and brilliant activities to get scholarships? Should the parents not get a tax donation because circumstances dictated that their child must get a donation because they are gifted students? (In the cases were are discussing above, the students are complicit as they were guaranteed by contract to get the money. But could you make the same argument if the students are guaranteed by circumstance to get the money?
What about donations to a church? What if the parents have children and the church is making a big push from to beef up the Sunday school? The parents donate money Could you say that this is a tangible benefit for the parents, as the above cases were ruled to be?
If the lawyers for the defense were prone to make slippery slope arguments, that's what I think they might say.
Anyways, I am glad, after writing this post, that I am not a tax lawyer. I'll leave it to folks like Mr. Blumberg.
Hopefully, there will be more talk of this case and appeal, and what it could mean as it's likely to set a precedent.