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. It was "clear…that any participants in the program knew that their cheques for the cash contribution [to Millennium] would not be cashed until they were notified they were accepted as capital beneficiaries [of the Trust] and, thus, would be receiving the further benefit of Licence distributions for further gifting" (para. 38). 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 upheld the Minister's disallowance of the taxpayers' charitable tax credits. Among other reasons (including that the transactions were a sham - see summary under general concepts - sham), Pizzitelli J found that, as in Berg, the taxpayers had no donative intent for either the licence or cash gifts. Despite the pains taken by the promoters to separate out the two gifts, it was clear that the two were part of a single interconnected series of transactions (para. 48), and that the taxpayers did not seek to impoverish themselves by making the gifts, but rather to receive a net tax benefit. The taxpayers argued that they were necessarily impoverished through the act of giving away the gift property. Pizzitelli J stated (at para. 22):
The concept of impoverishment means more than depriving oneself of property; it clearly means depriving oneself of property in such a manner as to not benefit from such deprivation.
A further barrier to finding that the participants had gifted the licences is that their Deeds of Gift indicated that the subject licences were as described in "Schedule A," which had not yet been attached. The determination of the type and number of licences which were "allocated" to each participant was not determined until subsequently, based on a computer algorithm. Pizzitelli J stated (at para. 51):
This is prima facie evidence the Appellants could not have owned the Licences they say they voluntary gifted… . It simply defies common sense to suggest someone can voluntarily give a property he does not yet know of or otherwise has any way of specifically identifying.
See summaries under general concepts - sham, general concepts - fair market value, s. 104(1), and s. 107(2).