Questions? Call 416-367-4222


As a matter of social policy, Parliament recognizes the benefits of philanthropic donations to the community. As such, taxpayers who have made donations to qualified donees can claim a charitable tax credit to help reduce their tax payable. Qualified donees include registered charities, registered Canadian amateur athletic associations, and registered Canadian municipalities to name a few. Since the charitable tax credit reduces the donor’s tax payable, the Canadian Income Tax Act contains provisions to limit the scope of gifts and the type of recipients that can receive the gifts to prevent misuse of the tax credit.


Recently, the Tax Court released a 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. In The Estate of Late Edmond G Odette v Her Majesty the Queen, 2021 TCC 65, the Court held that consideration used to purchase a non-qualifying security, such as shares of a private corporation, from a foundation (a qualified donee) cannot be satisfied with a promissory note (another type of non-qualifying security). The Court also held that consideration must be received by the foundation at the time of disposition. Accordingly, the Court denied the Estate from claiming a charitable donation tax credit.




The Players Involved

To understand the Tax Court’s ruling, we shall canvass the facts of the case. The Estate of the Late Emond G. Odette was created after the death of Mr. Odette, a philanthropist, on November 17th, 2012. Mr. Odette was the sole director, shareholder, and President of an Ontario corporation called Edmette Holdings Ltd. (the “Corporation”). After the passing of Mr. Odette, the Estate became the sole shareholder of the Corporation.  Two of Mr. Odette’s children along with his lawyer became the directors of the Corporation. Prior to Mr. Odette’s death, the value of his shares in the Corporation amounted to nearly 46 million dollars.


The Transfer of Shares to the Foundation

On July 2, 2013, the Corporation converted all its Class B and Class C shares into common shares. As a result of this conversion, the Estate owned class A shares with a paid-up capital of $6.5 million and common shares with a paid-up capital of $103. Note that paid-up capital is a tax term that refers to the amount of money a corporation receives for the issuance of its shares to its shareholders.


According to Mr. Odette’s two wills, the remaining assets of his estate were to be given to the Foundation, which included all issued and outstanding shares of the Corporation. Consequently, the Estate obtained advice from its expert Canadian tax lawyer on how to best transfer the common shares from the Corporation to the Foundation. To achieve the transfer, the following steps were undertaken:

  • On December 20, 2013, the Estate transferred shares to the Foundation as a gift.
  • On December 23, 2013, the Foundation disposed of the shares by selling them to the Corporation.
  • The payment for the shares by the Corporation was satisfied by a promissory note with a principal amount of $17,710,000.
  • Between April 10, 2014, and August 6, 2014, the Corporation made three cash payments to the Foundation to satisfy the promissory note.
  • The Foundation then issued a charitable donation receipt dated December 23, 2013, to the Estate in the amount of $17,710,000, corresponding to the principal amount of the promissory note.
  • The Estate filed its T1 Terminal Return for the 2012 taxation year in which it declared within its total charitable and government gifts, the amount for the shares gifted to the foundation, which was over $17 million.


The CRA reassessed the Estate’s 2012 taxation year and disallowed the Estate from claiming the tax credits relating to the transfer of the shares to the Foundation.




Issue Before the Tax Court

The sole issue before the Tax Court was whether the Estate was permitted to claim the charitable tax credit for the transfer of the shares to the Foundation. In other words, the question to answer was whether the gift of the shares to the Foundation constituted consideration within the meaning of paragraph 118.1(13)(c) of the Income Tax Act.


Applicable Law on the Gifting of Shares

Under paragraph 118.1(13)(a) of the Canadian Income Tax Act, a gift of a non-qualifying security, one that is not considered an excepted gift (i.e a gift of a share made to a donee with whom the donor deals with at arm’s length), is treated as if the gift had not been made. That said, if the security is no longer considered a non-qualifying security within 60 months of making the gift or if the recipient of the gift disposes of the gift within that 60-month period, then the donor is deemed by virtue of paragraph 118.1(13)(b) and (c) to have made the gift and may be eligible to claim a charitable donation tax credit.


To understand the application of the paragraph, one must also examine the meaning of a non-qualifying security. As defined in subsection 118.1(18) of the Income Tax Act, a non-qualifying security refers to an obligation of an individual or the individual’s estate with which the individual or the estate does not deal at arm’s length immediately after that time. It also refers to a share of a corporation that is not listed on a designated stock exchange with which the individual or estate does not deal at arm’s length. As can be seen, the key principle underlying a non-qualifying security is the idea that the donor and the recipient are at non-arm’s length—that is, the donor and recipient have an existing personal or business relationship where one party can influence the decision of the other and manipulate the value of transactions.


Position of the Parties Regarding What Constituted “Any Consideration”

The determination made by the Tax Court turned on the meaning of the term “any consideration” under paragraph 118.1(13)(c). The Estate’s position was that consideration involved both the promissory note and the cash payments. In contrast, the CRA’s position was that consideration under paragraph 118.1(13)(c) refers to consideration received at the time of the transfer and cannot be a non-qualifying security. Accordingly, since the Promissory note was the only consideration received at the time of transfer, CRA submitted that if paragraph 118.1(13)(c) applied, then the fair market value of the gifted shares would be nil, and no charitable donation tax credit could be claimed by the Estate.



To determine the meaning of “consideration” under this paragraph, the Court applied a textual, contextual, and purposeful approach. After examining the text, purpose, and context of paragraph 118.1(13)(c) and other applicable provisions of the Income Tax Act, the Court held that this paragraph is a redemptive provision which allows taxpayers who meet a strict set of conditions to be eligible for a tax credit. That said, the court reasoned that “consideration” under this paragraph does not apply to a non-qualifying security and that timing is important. Consideration must be received at the time of disposition. In the Estate’s case, the promissory note was the only consideration received at the time of the disposition. The cash payments were not consideration as they were made months after the issuance of the promissory note. Further, the promissory note was made between parties who were acting at non-arm’s length. Therefore, the promissory note was a non-qualifying security. Because the promissory note was the only consideration received at the time of the transfer, the fair market value of the gift was nil, and the Estate was not permitted to claim the charitable donation tax credit.



This case highlights that if shares of a private corporation are donated to a registered charity, two important things must be met under paragraph 118.1(13)(c) of the Income Tax Act to be eligible for a charitable tax credit. 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. 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. Speak to one of our experienced Canadian tax lawyers to determine if you are eligible to claim a charitable tax credit.


"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."


A charitable donation tax credit is available for taxpayers who have made contributions to a qualifying donee to help offset their tax payable. A qualifying donee includes a registered charity and several types of public organizations who can issue official charitable tax receipts.

A non-qualifying security refers, in part, to a security, such as shares of a private corporation where the owner of the security (shareholder) does not deal at arm’s length with the donee after the donation was made. As such, donating non-qualifying securities to a qualified donee, including a registered charity, requires meeting certain requirements to be eligible for a charitable donation tax credit.

Get your CRA tax issue solved

Address: Rotfleisch & Samulovitch P.C.
2822 Danforth Avenue Toronto, Ontario M4C 1M1

Tax Court Rules That Gift Of Shares Of A Private Corporation To A Foundation Was Ineligible For A Charitable Tax Credit
Gifting shares of a publicly traded company
Donation Tax Shelter, Roher v. the Queen
Tax Credit if Renovating your kitchen
CRA guidelines, dealing with charities and political activities
Donating an interest in a personal residence to a charity?
Charitable Tax Receipts
Charitable donations through leveraged donation programs