When a donation is not really a gift: The court's rejects on tax-driven charity arrangements, gifts must be genuine

Overview: Expecting to profit from charity — why the Court denied the tax credit

David J Rotfleisch, CPA, JD is the founding tax lawyer of Taxpage.com and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm.

The decision in Walby v. Canada (2025 FCA 94) addresses the meaning of a "gift" under the Income Tax Act and the requirements for claiming charitable donation tax credits. The case arose after two taxpayers, Chris Walby and Joel De Las Alas, participated in a charitable donation arrangement known as the Global Learning Gifting Initiative Program (GLGI Program). The Federal Court of Appeal ultimately upheld the earlier decision of the Tax Court, which denied the taxpayers' claim for charitable donation tax credits. The case clarifies that a valid charitable gift requires genuine charitable intent and not a scheme designed to produce financial gain.

Background of the case in Walby v. Canada

The taxpayers participated in the GLGI Program for several years. Under the program, participants made cash contributions to a registered charity. After doing so, the participants would receive educational courseware licences that could then be donated to another charity. The program issued two separate charitable receipts: one for the cash contribution and another for the donation of the licences.

The value of the licences was claimed to be approximately four to five times the amount of the cash contribution. Participants therefore expected to claim tax credits that greatly exceeded the money they actually paid. For example, Mr. Walby contributed $15,000 in cash in several years but received receipts indicating total donations exceeding $90,000 when the licences were included.

However, the licences later turned out to have no real value. The Canada Revenue Agency reassessed the taxpayers and denied the charitable donation tax credits that had been claimed.

During the proceedings, the taxpayers accepted that the receipts relating to the licences were invalid because the licences were worthless. The remaining dispute concerned only the cash contributions. The taxpayers argued that even if the licences were worthless, the cash payments should still qualify as legitimate charitable gifts.

Decision of the Tax Court in Walby v. Canada

The Tax Court rejected the taxpayers' arguments. The court concluded that the entire arrangement was a single interconnected transaction designed to generate inflated tax credits rather than genuine charitable giving. The judge found that the taxpayers participated in the program with the expectation that they would receive a benefit greater than their cash contribution.

Because the taxpayers expected to gain financially from the arrangement, the Tax Court concluded that the required donative intent — the intention to give a gift without receiving something in return — was absent. Without donative intent, the cash payments could not be considered charitable gifts under the Income Tax Act. As a result, the tax credits were denied.

The taxpayers appealed the decision to the Federal Court of Appeal.

Issues before the Federal Court of Appeal in Walby v. Canada

The Federal Court of Appeal considered three main issues:

1. Whether the Tax Court was correct to treat all the steps of the GLGI Program as a single interconnected transaction.
2. Whether a payment can still qualify as a gift if the donor expected a benefit but did not actually receive one.
3. Whether the Tax Court properly interpreted the concept of "value" in the provisions of the Income Tax Act dealing with split gifting.

Analysis of the Federal Court of Appeal in Walby v. Canada

Interconnected Transactions

The Court rejected the argument that the cash donation should be considered separately from the licence transaction. The Tax Court explained that when determining whether a payment qualifies as a charitable gift, it is necessary to examine all the surrounding circumstances, not simply the receipt issued by a charity.

Since the taxpayers entered the program with the expectation that the licences would produce large tax benefits, the court concluded that the cash payments were part of a broader arrangement intended to generate profit.

Meaning of a Gift

The court also examined the legal meaning of a "gift." Previous court decisions establish that a gift is a voluntary transfer of property without the expectation of a benefit or advantage. If a donor expects something in return, the payment may not qualify as a charitable gift and could instead resemble a business expense rather than a donation.

In this case, the taxpayers admitted that they expected to be financially enriched through the tax credits generated by the program. Because of this expectation, the court concluded that the taxpayers did not possess the necessary donative intent when making the cash payments.

The fact that the expected benefit ultimately turned out to be worthless did not change the analysis. What mattered was the expectation of benefit at the time of the transaction, not whether the benefit was actually received.

Interpretation of "Value"

The court also addressed the concept of "value" in the split-gifting provisions of the Income Tax Act. These rules allow a donation to qualify partially as a gift even when the donor receives some benefit, provided the donor still intends to make a gift.

However, the court found that these provisions could not assist the taxpayers because the required donative intent was completely absent. The taxpayers intended to profit from the arrangement rather than make a genuine charitable contribution.

Conclusion: Charity must be genuine — Court rejects donation scheme built on tax benefits

The Federal Court of Appeal dismissed the appeal and confirmed the earlier decision of the Tax Court. The court held that the cash contributions made by Mr. Walby and Mr. De Las Alas did not qualify as charitable gifts because they were made with the expectation of financial gain through inflated tax credits.

This decision reinforces an important principle in Canadian tax law: charitable donation tax credits are available only when a transfer is made with genuine charitable intent. Even when money is paid to a registered charity and a receipt is issued, the courts will examine the full context of the transaction to determine whether a true gift was made.

The case therefore serves as a warning against donation schemes that promise unusually large tax benefits. When charitable giving becomes primarily a method for obtaining tax advantages, it risks losing the legal status of a genuine gift.

Canadian taxpayers should exercise caution when participating in charitable donation programs that promise tax benefits exceeding the amount actually contributed. A valid charitable gift under Canadian tax law requires genuine donative intent, meaning the donor must not expect any financial gain or advantage in return.

If a payment is made with the expectation of receiving a benefit — such as inflated tax receipts or valuable property — the Canada Revenue Agency may deny the charitable tax credit, even if a receipt was issued. Taxpayers should therefore ensure that donations are made purely for charitable purposes and not as part of schemes designed to generate profit or tax advantages. Improper donation receipting practices can also expose charities themselves to regulatory action, including potential revocation of charitable status by the Canada Revenue Agency.

David J Rotfleisch, CPA, JD is the founding tax lawyer of Taxpage.com and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm and is a Certified Specialist in Taxation Law who has completed the CICA in-depth tax planning course. He appears regularly in print, radio and TV and blogs extensively.  

With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, cryptocurrency traders, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax audit representation and tax litigation. Visit www.Taxpage.com and email David at david@taxpage.com.

Read the original article in full on Tax Law Canada. Author photo courtesy Rotfleisch & Samulovitch P.C. Title image: iStock id 172740677. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Title image: Defrino Maasy, Unsplash.