Link: Case Summary Document
Citation:  ABQB 303 (Court of Queen’s Bench of Alberta, Jeffrey J, )
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
This was a Canadian case, which dealt with issues of property law, contract law, and environmental law among other areas of the law. Among the many issues, there was the question of the timeliness of the issuance of a charitable donation receipt (the tax receipt). The defendant, Thomas Olson, bought from the plaintiff, the Nature Conservancy of Canada (NCC), a large cattle ranch on which he planned to run wild bison. The defendant acquired the property from the NCC in 2004 at a significant premium to fair market value, the excess understood to be his charitable donation to the NCC. However, no tax receipt was issued to Olson until 2009.
The NCC is a private non-profit corporation extra-provincially registered in Alberta. It is a registered charity under the Income Tax Act, dedicated to conserving Canada’s natural heritage through land conservation in Canada. It partners with individuals, corporations, foundations and governments to achieve the protection of ecologically significant land, including plants and wildlife. It does this by protecting, through donation, purchase or conservation easement, what it considers to be important natural habitats in Canada. Among its many initiatives the NCC invites landowners along wildlife migration corridors to permit conservation easements upon their lands, to ensure permanent continued access to those corridors by the wildlife.
The ranch property lay on the eastern slopes of the Rocky Mountains, close to Waterton Lakes National Park, and within the migratory corridors of a wide array of wild species. The NCC believed that the area in which the property was located was strategically important for the movement of wildlife in Alberta, being within the last half of one percent just east of the mountains. The NCC described the strip of land as the ‘North American Serengeti’. A conservation easement was part of the purchase agreement, which became the subject of later argument and litigation.
Among a wide array of issues for consideration in this case, was the question: Did the NCC issue the donation tax receipt in a timely manner and, if not, was it liable in damages to the defendant? The parties acknowledged the NCC was required by the purchase agreement to issue a charitable donation receipt for tax purposes to Olson if the approximately $3 million Olson paid for the property sufficiently exceeded its fair market value. The defendant pleaded the NCC’s failure to issue the tax receipt until December 2009 breached an express or implied term of the purchase agreement requiring it to issue the tax receipt in a timely fashion. The defendant argued further that the NCC breached an implied duty of good faith, and that it breached the fiduciary duty it owed to him.
The NCC responded that its only obligation to the defendant with respect to the tax receipt was to issue it to him in a reasonable time in the circumstances. The NCC argued that it did so by issuing the tax receipt in December 2009 and, in any event, the defendant failed to mitigate by not applying for taxpayer relief within the time allowed by law.
There was no express term in the purchase agreement on the timing of the issuance of the tax receipt. Therefore, the court had to look for an implied term. There is a presumption at law against implied contractual terms. To find one, there needs to be one of three bases existing: (1) the legal incidents of a particular class of contract (referred to as ‘by operation of law’); (2) custom or usage; and (3) the presumed intentions of the parties. However, common law courts (such as this Alberta court) have for a long time implied terms requiring contracts without express deadlines to be performed within a reasonable time in the circumstances. The NCC accepted that this was the relevant law.
Was the time taken by the NCC to issue the tax receipt reasonable? The determination of a reasonable time depends on the circumstances of the case. The court said that the (Federal) Income Tax Act and its regulations did not set any timeline that charities are required to follow in issuing a tax receipt. The Canada Revenue Agency (CRA) had suggested charities issue tax receipts by ‘at least the last day of February following the year during which the gift was made’: Interpretation Bulletin IT-110R3, Gifts and Official Donation Receipts, at paragraph 21. Although Interpretation Bulletins are not law and therefore are not legally binding, it was agreed by the parties that charities generally follow this practice.
However, the NCC argued that post-purchase disagreement with the defendant about the conservation easement justified its delay in issuing the tax receipt. The court said that this was not a reasonable basis to withhold the tax receipt. The tax receipt was due to the defendant because of his charitable gift, and not conditional on, or revocable for, any post-gift conduct (at ).
Canadian taxpayers can only use a charitable donation receipt to obtain tax credits in the taxation year in which the gift was made, and any of the subsequent five taxation years. Thus, the longer a charity takes to issue a charitable donation receipt to the taxpayer, the less flexibility and control the taxpayer has over determining which available taxation year(s) in which to use the tax receipt. Taking all the circumstances into account, the court said on this point (at -, ):
A delay in issuing a tax receipt reduces its monetary value, based on the time value of money…Therefore the sooner a taxpayer receives a charitable donation receipt, the greater its economic value. I find a reasonable time in these circumstances would have been the end of February in the year following the gift…In these circumstances I find the last day the NCC could render the Tax Receipt in compliance with the implied term of the Penny Ranch Purchase Agreement was August 31, 2005. The NCC did not issue the Tax Receipt to Olson within a reasonable time in the circumstances and therefore breached its implied obligation to Olson.
Therefore, there was a breach of an implied term in the purchase agreement, but was there also a breach of an implied term of good faith? The court said not, as this was a commercial agreement, and there was no inequality of bargaining power between the parties.
As to a breach of fiduciary duty in not issuing the tax receipt in a timely fashion, the court said that this was not a situation that gave rise to a fiduciary duty, which had recognised categories in law. The defendant was not vulnerable, and was sufficiently protected by the implied term as to timeliness in the contract itself. Therefore, the defendant had suffered a loss by the failure of the NCC to issue the tax receipt in a timely fashion. But should he have mitigated his loss?
The defendant was a tax lawyer who was based in Utah, though he also worked in Canada. He was familiar with schemes of tax minimisation and avoidance, and was well-known to the CRA. He claimed that he had not sought the usual taxpayer relief (for extension of time to make a charitable donation claim) from the CRA because of his circumstances. The court did not accept that this claim had legal merit or was objectively reasonable (at ). Nevertheless, the court agreed that the defendant did not have a duty to mitigate in the particular circumstance of the case. There was still ongoing litigation relating to the property, and it was reasonable to delay his application in that situation.
The defendant claimed $702,000 in damages because of the late issuance of the tax receipt. This was calculated by subtracting the tax savings he obtained as a result of his actual use of the tax receipt from the tax savings he could have optimally obtained had he received the tax receipt in 2006. Naturally, the NCC disputed this amount. However, the court agreed with the defendant (at ):
If Olson had received the Tax Receipt within a reasonable time in the circumstances, he would have paid $1,895,407.75 less in taxes. In contrast, after receiving the Tax Receipt in December 2009, Olson’s tax savings were limited to $1,193,594.22. [His] damages claim is therefore the difference between these two numbers: $701,813.53. I award that amount.
Therefore, the defendant was awarded $701, 813.53 plus interest for the late issue of a tax receipt for a charitable donation.
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