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Citation: 2006TCC193
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Date: 20060324
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Docket: 2003-3900(IT)G, 2003-3901(IT)G
2003-3902(IT)G, 2003-3904(IT)G
and 2003-3905(IT)G
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BETWEEN:
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ESTHER BENQUESUS, AMRAM BENQUESUS,
REUBEN BENQUESUS, RUVANE BRUDNER,
and SANDY BRUDNER,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Miller J.
[1] Mr. Jacques Benqueses, father of four of the Appellants, and father-in-law of one of the Appellants, lives in Israel. In 1997, he transferred significant funds to the Canada charity, Sephardic Educational Foundation, indicating in writing that the monies are loaned to the Foundation by his children. Further, if the children were to forgive the loan, the funds should be considered a donation. The children forgave some, but not all, of the monies. In 1999, the Foundation issued charitable receipts to the Appellants for such gifts. The Minister of National Revenue disallowed such amounts as charitable donations claimed by the Appellants in the 1999 taxation year. The Appellants appealed the assessments on the basis that Mr. Jacques Benqueses had gifted them the money, which they donated to the Foundation. This matter turns on whether Mr. Jacques Benqueses gifted the monies to his children. I find that he did.
[2] No witnesses were called by either side. Instead they presented at trial an Agreed Statement of Facts. The Agreed Statement is not lengthy and I believe it is critical to reproduce the Agreed Statement in its entirety:
1. The appellants Esther Benquesus, Reuben Benquesus, Amram Benquesus and Sandy Brudner are siblings of each other and are the adult children of Jacques Benquesus (the "Father").
2. The appellant Ruvane Brudner is, and was at all times, the spouse of the appellant Sandy Brudner and the brother-in-law of the appellants Esther Benquesus, Reuben Benquesus, and Amram Benquesus. At all material times, Sandy Brudner was the only one of the children of the Father to be married and thus Ruvane Brudner was the only child-in-law of the Father.
3. The appellants are, and were at all material times, residents of the province of Ontario.
4. The appellants are all members of the Sephardic Jewish community of north Toronto.
5. The Sephardic Educational Foundation (the "Foundation") is, and was at all material times, a registered charity under the Income Tax Act.
6. The Foundation supports inter alia the conduct of education in the Jewish faith carried out at Or Haemet Sephardic School (the "School"). All of the appellants except Ruvane Brudner attended this School.
7. The School is located at 7026 Bathurst Street, Thornhill, Ontario. It is part of a complex which also contains a Sephardic synagogue, Abir Yaakob Congregation, study hall, as well as a community/recreation centre for the Sephardic community. The offices of the Foundation are housed in the community centre.
8. All of the appellants worship at the Abir Yaakob Congregation synagogue.
9. On January 14, 1997, funds in the amount of $1,500,000 were transferred by the Father to the Foundation. The transfer was accompanied by a letter from the Father to the Foundation, a copy of which is attached as Exhibit 1 hereto, which reads as follows:
January 14, 1997,
Sephardic Educational Foundation of Toronto
Dear Tom
I am transferring $1,500,000 for my children, Esther, Sandy, Ruben and Amram. These funds are to being loaned to you by them on an interest free basis. Should they require the funds for their own use, would you be kind enough to repay any amounts requested. Otherwise, they may forgive these monies and you should consider them a donation.
Thank you.
Jacques Benquesus
(Tom was at the time the bookkeeper of the Foundation.)
10. On July 30, 1997, funds in the amount of US$145,000 were transferred by the Father to the Foundation. This amount was converted into Canadian dollars for deposit by the Foundation, which yielded C$200,680. The transfer was accompanied by a letter from the Father to the Foundation, a copy of which is attached as Exhibit 2 hereto, which reads as follows:
July 30, 1997
S.E.F. of Toronto
Dear Tom,
I am transferring US$145,000.00 for my children Sandy, Esther, Ruben and Amram. These funds are to being loaned to you by them on an interest free basis. Should they require the funds for their own use, would you be kind enough to repay any amounts requested. Otherwise they may forgive these monies and you should consider them a donation.
Thank you
Jacques Benquesus
11. The said amounts (the "Transfers") were reflected on the financial statements of the Foundation that year as loans. At the time, construction of a new building for the School was underway.
12. The appellants were aware at the time that the Father transferred the Transfers to the Foundation that the Transfers had been made. The appellants were also generally aware at that time of the terms of the aforementioned letters which accompanied the Transfers.
13. The Father had made other substantial gifts to the appellants over the years.
Examples include the following:
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DATE
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RECIPIENT
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AMOUNT
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July 26, 1999
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Reuben Benquesus
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$146,500.00
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August 6, 1998
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Sandy and Ruvane Brudner
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$ 75,000.00
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August 21, 1996
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Esther Benquesus
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$169,000.00
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September 2, 1997
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Esther Benquesus
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$360,000.00
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May 4, 1999
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Esther Benquesus
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$146,500.00
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February 3, 1996
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Amram Benquesus
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$ 50,000.00
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March 5, 1996
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Amram Benquesus
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$ 50,000.00
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May 28, 1996
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Amram Benquesus
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$ 60,000.00
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July 26, 1996
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Amram Benquesus
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$146,500.00
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September 11, 1997
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Amram Benquesus
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$380,000.00
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14. In 1999, the appellants instructed the Foundation that they would gift part of the Transfers to the Foundation absolutely, in the following amounts:
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Name
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Amount
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Amram Benquesus
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$165,000.00
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Esther Benquesus
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$206,000.00
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Reuben Benquesus
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$160,000.00
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Ruvane Brudner
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$115,000.00
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Sandy Brudner
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$100,000.00
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15. Charitable receipts for the above amounts (the "Gifts") were issued by the Foundation to the appellants in respect of the 1999 tax year, and were claimed by the appellants as charitable donations on their income tax returns that year. (It is these claims of charitable donations which are in issue in the appeals at bar.)
16. The amount of the Gifts was shown as donations in the financial statements of the Foundation for that year, and the amount of loans outstanding was reduced by the amount of the Gifts.
17. In years prior and subsequent to the year of the gifts in issue (1999), all of the appellants made further gifts to the Foundation from the amount of the Transfers. The appellants took back the balance of the Transfers for their own use personally. These other amounts are not in issue in the appeals at bar.
Analysis
[3] Based on this Agreed Statement of Facts, what conclusion should I draw? Did Mr. Jacques Benquesus intend to gift funds to his children, and leave it to them how much they wished to donate to charity or, as the Respondent suggests, did Mr. Benquesus intend to make the charitable donations himself and transfer eligibility for credit for the charitable donations to his children, as the donations were of no benefit to him in Israel? The Respondent's position was not that the latter interpretation might engage the general anti-avoidance rules, but that such an interpretation made the "alleged" gift to the children imperfect: no gift to children, therefore no money for them to donate to the Foundation. So, indeed, as stated at the outset, the outcome depends on whether Mr. Jacques Benquesus did gift the monies to his children.
[4] The parties agree that there are three requirements for a valid inter vivos gift:
(i) an intention to donate;
(ii) acceptance by the donee; and
(iii) a sufficient act of delivery.
(i) Intention
[5] Did Mr. Jacques Benquesus intend to gift the funds to the children? The evidence is: (i) Jacques Benquesus had a history of making significant gifts of money to his children (paragraph 13 of the Agreed Statement of Facts); and (ii) Jacques Benquesus' letters indicated he was transferring money "for my children" and "should they require the funds for their own use would you be kind enough to repay any amounts requested".
[6] I weigh this evidence against speculation by the Respondent that Mr. Jacques Benquesus really intended to personally donate the monies to the Foundation, and not first gift them to his children. I have no hesitation in finding that the evidence supports Jacques Benquesus' intention to gift monies to his children.
(ii) Acceptance
[7] The Respondent argues that the evidence that the children were "generally aware" of the terms of their father's letters to the Foundation is not sufficient to constitute acceptance. The Respondent further suggests there is no coincidental acceptance by the Foundation of the arrangements set forth in Mr. Jacques Benquesus' letters. Yet, the Foundation's behaviour in reflecting the transfer of funds as a loan on its financial statements, and also in following the Appellants' instructions to retain part of the funds as a donation and the balance to be returned to the Appellants, certainly suggests the Foundation accepted the arrangement in Mr. Jacques Benquesus' letters precisely. But it is acceptance of the gift by the Appellants that is at issue. Being "aware at the time that their father transferred the transfers to the Foundation that the transfers had been made" and "generally aware at that time of the terms", combined with providing instructions to the Foundation for charitable donations and to take back monies, clearly point to an acceptance by the Appellants of the gift. The bar is not set particularly high for finding acceptance, as indicated by Professor Ziff in his text "Principles of Property Law" at page 141:
"Acceptance of a gift involves an understanding of the transaction and a desire to assume title. This is a requirement that is treated with little rigor: in the ordinary case, acceptance is presumed to exist. The donee may rebut that presumption by rejecting or disclaiming the interest."
[8] Also Professor Gillese in her text "Property Law" indicates:
"In circumstances where the gift is beneficial to the donee, the Courts will normally presume acceptance by the donee. Thus, a valid gift can be made without the donee's knowledge but is subject of the donee's right to unilaterally repudiate upon learning of the gift."
[9] I find this second condition for a gift has been readily met.
(iii) Delivery
[10] The parties disagreed as to whether the transfer of funds was an assignment of a chose in action or a chose in possession, suggesting different rules for delivery attached to each. Frankly, this is only an issue where there has not been actual delivery. In this case, there was actual delivery - monies were transferred: the relevant question is, was the delivery to the Appellants?
[11] Again, I refer to Professor Ziff's text at pages 143 and 144:
"Perfect delivery of a gift involves a physical transfer of possession of the chattel from donor to donee. As a general matter, the donor must have done everything that can be done to perfect the gift. However, one finds copious examples of some lesser form of transfers sufficing, the Courts straining to find a sufficient delivery when the evidence of a desire to make a gift is irrefutable."
"The transfer of possession does not need to be contemporaneous with the expression of the intention to donate. Delivery may follow the formation or expression of this intention, or precede it, and it can be effective even if the donee was initially holding the property in some other capacity (for example, as an employee)."
"If goods are delivered to some person acting as the agent or trustee of the donee, this too might be acceptable. Even if the holder is not strictly an agent of the donee, delivery may be found if that person takes possession on behalf of the ultimate recipient. In any of these situations, the acid tests appear to be whether or not (1) the donor has retained the means of control; or (2) all that can be done has been done to divest title in favour of the donee."
[12] In applying these principles, has Mr. Jacques Benquesus retained the means of control over the funds, or did control pass to the Appellants? There was some speculation as to what the Foundation would have felt bound to do if:
(i) Jacques Benqueses had demanded the money back; or
(ii) if one child had requested repayment of all the funds.
[13] Not surprisingly, counsel for the parties speculated differently. No one from the Foundation testified. The best evidence I have, therefore, is to look at what in fact happened; and that is that the Appellants, the children, effectively took over control of the money. They instructed the Foundation how much was to be kept as donation, and how much was to be taken back by them. That is the best evidence, indeed the only evidence, I have as to who controlled the funds. Any suggestion by the Respondent that Mr. Jacques Benqueses could have got the funds back, that the money remained his money, and that the donation to the Foundation was his donation is sheer speculation. With only the Agreed Statement of Facts to rely upon, I conclude that the transfer of monies to the Foundation on the terms set out in Mr. Jacques Benqueses' letters, was a sufficient act of delivery to perfect the gift to the children. It was, therefore, the Appellants who ultimately made the donations to the Foundation.
[14] I have reached this conclusion with some concerns about the minimal evidence set forth in the agreed Statement of Facts, as the Respondent's view that Mr. Jacques Benquesus was simply transferring non-transferable charitable donation credits is not beyond the realm of possibility: however, the Agreed Statement of Facts, on balance, failed to support that finding. And even if it had, does that imperfect the gift to the children? In effect, is an intention to gift money to children in the hopes that they use the money a certain way rendered ineffective so as to imperfect the gift? I do not believe so. But if that certain way is a way that results in an avoidance transaction, then perhaps the issue is not one of an imperfect gift, but whether the arrangement is an abuse of the Income Tax Act: that would certainly depend on the facts. The facts in this case did not justify going down that road; a view obviously shared by the Respondent.
[15] The appeals are allowed and referred back to the Minister on the basis that the Appellants did make charitable gifts in 1999 as receipted by the Foundation. The Appellants are entitled to one set of costs.
Signed at Ottawa, Canada, this 24th day of March 2006.
"Campbell J. Miller"
