Charitable Donations – No Receipts, No Credit Claims

In a recent appeal to the Tax Court of Canada (TCC), Emily Sowah argued that the Minister of National Revenue (the Minister) was incorrect in disallowing her charitable tax credit for purported cumulative gifts of $10,252 in the 2006 taxation year.

The Minister’s stance was that the receipts did not meet the legislative requirements and that she was otherwise unable to substantiate her purported cash donations to the Jesus Healing Center.

During the trial, Ms. Sowah was represented by her husband, Mr. Twumasi. Mr. Twumasi testified that both he and his wife began attending the Jesus Healing Center in 2004 at the recommendation of a friend. He claimed that they attended every Sunday and each time donated $100-$200 at a minimum.

It was a finding of fact that in 2006 Ms. Sowah had income of approximately $86,000 and Mr. Twumasi had income of approximately $8,000.

After stating that he doubted the veracity of Mr. Twumasi’s claim, Justice Miller gave the following reasons for denying the charitable tax credit:

a) I question Mr. Twumasi’s integrity. He tells me he is no longer suffering any mental impairment from an injury 20 years ago yet admits he continues to claim the disability tax credit every year. On its face, this shows some disregard for requirements of the Act.

b) Mr. Twumasi claims donations were made to help the building fund, yet there was no evidence of any plans for a building. Further, the receipt showed funds were donated for different reasons, none of which were mentioned by Mr. Twumasi.

c) Mr. Twumasi provided no corroboration for the cash payments: no bank records, no ATM withdrawals, nothing.

d) He provided a different name for the Pastor than that given by Mr. Huenemoeder, who interviewed the man. I would have thought that going to a church every Sunday for a couple of years that Mr. Twumasi would have recalled the Pastor’s name.

e) Mr. Twumasi’s claim that money was put in envelopes provided by the church would accord with pews with pouches in them, not with the use of stackable chairs for the congregation. Further, he gave no indication that the Appellant wrote her name on the envelope purportedly provided, so that the church could track the donations. He also provided no sample of the envelope, nor did the audit team come across any envelopes. Mr. Twumasi’s story in this regard simply does not ring true and is not supportable.

f) The Appellant had no history of charitable giving beyond a minimal annual amount.

g) The amount of the alleged donations was approximately 13% of the Appellant’s after tax income, a huge contribution that one would anticipate would cause the donor to at least follow up that the purpose of the donation was being fulfilled: nothing in evidence in that regard.

h) The books and records of the Jesus Healing Center could not support the quantity of donations evidenced by the receipts.

i) A sample of requests to other donors by the CRA audit team revealed no corroborative support from individual donors of their donations.

Some of the most disturbing aspects of this case are the findings of fact regarding the Jesus Healing Center. Mr. Huenemoeder, a charities audit team leader at the Canada Revenue Agency (CRA) who led the audit into the organization in 2008 that resulted in the revocation of charitable status for the center the next year, testified that there were very few record books for the organization that could validate the $3,200,000 worth of charitable donation receipts that had been issued by it over a two year period. The bank statements of the organization only showed $18,000. He also testified that the audit team randomly contacted a sample of the 760 listed donors, but none of them could support the amount of their donations. A review of expense receipts by the audit team showed a computer expense of $2,000, though a claim of over $700,000 for computers allegedly sent to Ghana.

Cases like this serve as a reminder that many individuals and organizations are trying to abuse the charitable tax credit and similar credits under the tax code, thereby committing tax fraud. Audit efforts to scrutinize charitable statuses and transactions more closely should, therefore, be heralded.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.

Source: Sowah v. The Queen (2013) TCC 297