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Published: July 22, 2020

Last Updated: October 25, 2021

Charitable Donations and the Burden of Proof – Eisbrenner et al v The Queen – a Toronto Tax Lawyer Analysis

Facts and Judicial History – Charity Tax Credits Denied Except Actual Cash Paid

The taxpayers, Ross Morrison and Dieter Eisbrenner, participated in a chartable donation tax sheltering arrangement. Specifically, they made cash donations to a charity and received tax receipts as well as certificates that purportedly transferred title to certain pharmaceuticals to the taxpayers. The taxpayers then donated those certificates to another charity as donations-in-kind. Morrison donated a total of $30,425 in cash and received donation receipts of $109,349. Eisbrenner donated a total of $39,966 in cash and received donation receipts of $164,425. The difference between the cash donated and total donation receipts being the purported value of the donated pharmaceuticals.

The taxpayers were both reassessed with their donation tax credits denied. Upon appeal, the Tax Court of Canada allowed donation tax credits equal to the actual cash donated, but denied additional donation tax credits as the judge was not convinced that the taxpayers even acquired any pharmaceuticals and, further, that the pharmaceuticals were not worth what the taxpayers claimed they were worth. The taxpayers then made an application for judicial review which was heard by the Federal Court of Appeal.

Federal Court of Appeal Hearing – No Errors at Trial Court Level

In the Federal Court of Appeal, the taxpayers alleged that the Tax Court Judge erred in determining the fair market value of the pharmaceuticals, disputed the admissibility of certain documentary evidence, and raised the issue of who had the onus of proving that the taxpayers actually acquired the pharmaceuticals.
Before analyzing the taxpayers’ actual arguments, the Federal Court of Appeal first identified that the issue of the valuation of the pharmaceuticals was a question of fact and thus the standard of review is that of a palpable and overriding error. Essentially, an error that is both overwhelmingly obvious and that goes to core of the outcome of the case.


Regarding the valuation, CRA had led expert evidence which determined the fair market value of the pharmaceuticals that Morrison purported to own was $1,759, rather than $109,349. Morris did not lead any expert evidence and relied solely on the certificate prepared by the promoters of the charity. The Federal Court of Appeal simply found that Morrison failed to establish that the Tax Court Judge had made any error, let alone a palpable and overriding error.

Onus of Proof and Standard of Proof in Tax Litigation

The taxpayers’ primary argument was that the onus of proof lay on the CRA to prove that they did not actually acquire the pharmaceuticals – this being key as there was little evidence other than the certificate that they received to show that the taxpayers had any claim over any pharmaceuticals. The taxpayers argued that their testimony alone was prima facie evidence that they had ownership and they further argued that the requirement to raise a prima facie case was a lower standard than a balance of probabilities. When it was pointed out that the taxpayers had, in their notice of appeal, stated in their facts that they owned the pharmaceuticals and thus common sense would indicate that they were responsible to prove that fact, the taxpayers took the position that what they wrote in the notice of appeal was not relevant, and that the Court should only consider the reply filed by the Canadian tax lawyer for CRA which made negative assumptions about the ownership of the pharmaceuticals.

Unsurprisingly, the Federal Court of Appeal was not swayed by the taxpayers’ arguments and made it clear that the onus was on the taxpayers to prove their ownership of the pharmaceuticals as they had pled in their statement of facts. Furthermore, the Court emphasized that there is only one standard of proof in civil courts and that is the balance of probabilities.

Admissibility of Documents – Exception to Hearsay Evidence

The taxpayers also attacked the admission of invoices and bank documents of pharmaceutical manufacturing companies that would have made the pharmaceuticals that the taxpayers alleged to have acquired. The trial judge admitted the documents as they were likely to have been prepared in the ordinary course of business and because the documents were so old (12-14 years) that no person had first-hand knowledge of the detailed information recorded on the documents. The taxpayers attacked that reasoning as flawed and attacked the trial judge for presuming that the documents were prepared in the ordinary course of business, though they did not elaborate on why that was problematic. As a result, the Federal Court of Appeal determined that the taxpayers had failed to even identify what error the trial judge might have even made, much less that the error was palpable and overriding. As a result, the appeal was dismissed and costs were awarded to the Crown in the amount of $4,000.

Pro Tax Tip – A Donation Too Good to be True

This is not the first time a donation tax shelter arrangement has gone wrong, nor will it be the last. While the Canadian tax system does incentivise personal charity through tax credits, one should be incredibly wary where a donation results in tax credits offsetting more tax than the donation itself. In most cases, such a situation is indicative of a tax sheltering scheme. The CRA aggressively pursues any tax shelters that they believe are abusive and participants can face heavy penalties and interest in addition to losing out on the actual donation as well as the advertised tax benefits. Furthermore, the case law is overwhelmingly in the CRA’s favour with regards to these types of schemes and the CRA is typically unwilling to give more than a tax credit for the actual cash donated.

If an individual is involved in one of these arrangements but the CRA has not yet caught on, the voluntary disclosures program is available to correct any tax problems. If a disclosure is accepted, the CRA will waive some or all applicable penalties and a 50% break on interest. If you believe you are in this situation, you can speak to one of our top Toronto tax lawyers to discuss your options.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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