GLGI Is Unsuccessful in Tax Court
On October 19, 2015 The Honourable Justice F. J. Pizzitelli of the Tax Court of Canada issued his report on the outcome of the GLGI / CRA court case which you can read HERE
The Judge ruled: “The appeal from the reassessment made under the Income Tax, Act …is dismissed.” This means that the Appellants (GLGI donors) have lost the tax court case in its entirety including donation claims for both cash and courseware.
Needless to say this outcome will come as a shock to all participants and many observers. Of late there had been concern that even had GLGI won CRA would either not apply the result to everyone's situation or would appeal until resources were exhausted, or both.
GLGI had always emphasized the strengths of the program and all of the charitable benefits to Canadians (we saw and experienced it with our own eyes... that we will take beyond this world). For many, the judge's decision will leave wide open for doubt that the program had any benefit. To that, we'd ask what significant benefit to Canadians the art tax shelters have had... aside from the enormous profitable tax credits to wealthy and prominent Canadians (maybe judges, too).
But no one could have speculated the judge would have destroyed GLGI's case so completely. The GLGI lawyer's response had this to say to the appellants in the case, in part:
The Court has dismissed in its entirety all facets of the appeals.
The result is that the totality of deductions – both the cash portion and the gift in kind portion have been disallowed. From the decision, it is clear that the Court was not prepared to permit to stand an arrangement which it considered to be abusive.
Among other things, the Court made the following critical findings of fact:
1. Donors did not possess donative intent to make a gift. The Court concluded that but for the promise of a substantial in kind donation, no cash donation would have been made. The Court determined that in order to establish donative intent, donors were required to demonstrate impoverishment. That evidence, based on the Court’s analysis, was not present.
2. The Trustee (GL Trust), never exercised the required discretion to make donors Capital Beneficiaries of the Trust. The Court also determined that the decision of what courseware to allocate to you was undertaken through an entity known as JDS – not by an act of the Trustee. As such, the Court found that you never in fact received any courseware.
3. The courseware could not have been bestowed on the charity because donors never were in possession of such courseware.
4. The Trust itself failed because the definition of the group of potential capital beneficiaries was too wide. Therefore, there was no certainty of object, a legal requirement of a Trust.
5. The entire program was a “sham”. Although this finding was unnecessary given the matters above, it appears that the Court was determined to close any remaining doors which would allow this type of program to continue to operate. That is made quite clear by paragraph 87 of the reasons.
6. The FMV of the licenses did not carry the values ascribed either by emc Partners or PWC. While the Court acknowledged frailties with the analysis undertaken by FTI (Respondent’s expert), it concluded that if a value needed to be given (which was not necessary in light of its findings in 1-4 above), it would give each license a value of between $0.13 - $0.26. In undertaking this analysis, the Court specifically discounted and found to be not credible, the evidence of both Richard Williams and Glenn Wall on the issue of a philanthropic intent on the part of ISI in its sale of courseware to Phoenix.
What About Appeals Court?
It is too early to know whether GLGI or the appellants intend to appeal the Judges’ decision. An application to the Appeals Court must be made within 30 days.
What this Means to GLGI Donors?
It is fair to suggest that there is a major amount of speculation about the immediate and future impact of this case to donors. Initially, it is important to remember that this was a test case based on specific party's' participation in the 2004 and 2005 tax years. There are many inspired minds working on getting the answers and some potential solutions. We would ask all to be patient while some of these suggestions come to light.
How is the Outcome Positive For the Merchant Class Action?
Tony Merchant is adamant that the blatant severity of the ruling evidences CRA's negligence in how it handled the GLGI question over the years. If it was so obvious that GLGI was abusive and off-side why did they let it go on so long? Merchant's position - CRA must have wanted to enable as many taxpayers as possible, to participate. CRA is responsible for the suffering!