Tax Court rules that gift of shares of a private corporation to a foundation was ineligible for a charitable tax credit

David Rotfleisch, a tax lawyer with Rotfleisch & Samulovitch P.C. in Toronto, shared his thoughts and opinions regarding the decision on the eligibility of an estate for a charity donation tax credit in relation to the estate’s donation of shares of a private corporation to an non-arm’s length foundation.

“First, a promissory note is not adequate consideration if the parties involved were acting at non-arm’s length. Parliament permitted tax credits for situations where the donor is impoverished, and the recipient (charity) is enriched. Because a promissory note does not create a genuine intention to pay between non-arm’s length parties who can use the promissory note as formality but never actually make the payments, a promissory note is not adequate consideration,” said Rotfleisch

“Second, timing is important. Consideration must be received at the time of disposition and such consideration must not be a non-qualifying security, such as a promissory note. If you are planning on making gifts of non-qualifying securities to registered charities, this case shows that certain requirements must be met to claim a charitable tax credit, ” he added.

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