The taxpayers were participants in leveraged donation transactions, which were intended to result in a step-up of the adjusted cost base of courseware licences (e.g., on how to use Microsoft products) under ss. 69(1)(c) and 107(2) (apparently with a view to avoiding s. 248(35)) before the licences were donated by them at a higher stipulated value to a registered charity ("CCA").
A Bahamian corporation ("Phoenix') acquired various courseware licenses, at costs of 13.3 to 26.7 cents each from a Florida corporation ("Infosource") which also packaged and sold such licences in the course of its business and gifted most of them to a Canadian–resident Trust (with the balance being sold to raise cash to fund its purchase price). Ostensibly, the licences then were distributed to the program participants such as the taxpayers as capital beneficiaries of the Trust, with the participants then donating them to CCA. The participants also made cash donations to a second registered charity ("Millennium"), which redonated 80% of those amounts to CCA and used the balance to pay fees and other expenses. The participants were issued charitable receipts for three or more times their cash outlay (and perhaps 800 times the cost to Phoenix of the licences (para. 125)).
Pizzitelli J agreed with the Minister that the transactions were a sham. The trust and escrow agent were operated, either directly or indirectly, by the Promoter, so that any purported independent exercise of discretion or judgment was a fabrication. There were numerous other examples of deceit, including concealing the fact that 90% of the total cash donated did not stay with any charities, and the creation of fraudulent invoices and a backdated inventory of courseware CDs.
Before stating (at para. 89) "the deceit…need not be perpetrated by the Appellants in order to find a sham, as their participation in the sham is sufficient to invalidate their purported gifts of cash and property to the charities," Pizzitelli J noted that their execution of Deeds of Gifts referencing the gifted licences as described in "Schedule A" which, in fact had not yet been completed, amounted to, if not complicity, at least wilful blindness (para. 88).
See summaries under s. 118.1 – total charitable gifts and s. 104(1).