Tax Court Reviews Whether Christian School Fees Are Gifts

November 4, 2022
School Classroom

written on behalf of Feigenbaum Law

One of the most interesting areas of the law is the nuance and consideration of specific words that might not ordinarily cause someone to take a second glance. A legal decision can hinge on how a court or a statute interprets a single word or phrase. A recent decision from the Tax Court of Canada, Leduc Society for Christian Education v. The King,  highlights one such instance. The Court was asked whether the fees paid for private Christian schools could be claimed as gifts by the parents who received tax receipts upon payment.

Three Alberta schools offered “alternative education” 

The Leduc Society case involved three appeals heard together. All three appellants were registered charities and operated Christian schools in Alberta. The law in Alberta requires all schools to provide education to children who reside in their districts and prohibits tuition from being charged to students. However, the old School Act and its replacement, the Education Act, state that school boards offering alternative education programs may charge parents fees to cover all or part of non-instructional costs.

The three schools represented by the appellants entered into agreements with their local school boards to be considered public schools that offered alternative education. Teachers and educational costs for the schools were paid by the public school boards in the same way as all other schools. In addition to teacher and staff salaries, these funds also paid for instructional materials, library costs, and custodial costs.

“Christian program fees” paid to cover religious components of education

What made these three schools different than other public schools is that religion was integrated into all aspects of their curriculum, including secular elements. There were fees associated with the inclusion of religious programming, ensuring compliance with an organization that provided the religious material used.

Parents who wanted to send their children to the schools were asked to pay Christian program fees. These fees were intended to cover the costs of the religious aspects of the children’s experiences at the schools, though it was discovered that fees were mingled with the money received by the school boards. If the parents did not pay these fees, fee assistance was provided, or the fees were waived partially or entirely. Parents who paid fees were given tax receipts for 100% of the fees paid.

The question on appeal before the Tax Court of Canada was whether the parents could claim the fees as “gifts” on their personal tax returns.

“Gift” cannot result in benefit to donor

The Tax Court explained that “gift” is not defined under the Income Tax Act. However, common law defines it as “a voluntary transfer of property owned by a donor to a done, in return for which no benefit or consideration flows to the donor.” The Court stated that any tax advantages associated with a gift should not be considered “benefits”, because doing so would undermine charitable donations allowed under the Income Tax Act.

The Court defined “consideration” as:

  1. The inducement to a contract;
  2. The cause, motive, price or impelling influence which induces a contracting party to enter into a contract;
  3. Some right, interest, profit, or benefit accruing to one party; or
  4. Some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other party.

The Court emphasized that intent is an integral part of determining whether a benefit or consideration has flowed to the donor, stating that there should be no expectation of return.

Fees were obligatory part of enrolment at schools

The next element considered by the Court was whether the payment of alternative Christian program fees was voluntary. The appellants argued that parents who sent their kids to their schools did so voluntarily. They also submitted that the fees charged were a part of that voluntary choice, meaning they could not be obligatory. However, Canada Revenue Agency took the position that the fees were a contractual condition of enrolment.

The Court reviewed how fees were collected, noting that one school offered parents the choice of paying the fees in full, monthly, or on another schedule. Parents were also asked to indicate the mode of payment. There is an option to apply for a bursary, but it comes with advice that as the fund is limited, parents must provide a mode of payment as a backup. Finally, the enrolment form required parents to agree to pay the fees as a condition of enrolment. The other two schools had some differences in wording, but the spirit of the fee rules was consistent across all three schools.

Enrolment in schools was “voluntary choice to pay obligatory fees”

The Court found that once parents made the voluntary choice to send their kids to the schools in question, the fees became obligatory. The Court said it could be described as a “voluntary choice to pay obligatory fees,” adding,

“… the relationship between the appellants and parents of children enrolled in the alternative Christian program was contractual and non-payment of fees would likely be legally enforceable unless waived by the appellants. The ability to waive all or part of the fees and to forego removal of students for non-payment were options within the sole discretion of the appellants; however, the wording of the application/registration materials makes it clear that these instances were the exception to the rule that fees were to be paid.”

Parents received the benefit of delivery of religious education

Finally, the Court determined whether parents received a benefit or consideration for their payment of fees. The appellants said any value would be in the eyes of the parents and is, therefore, objective. However, the Court found that there were tangible benefits that came from the payment of fees that were realized through the delivery of a religious education.

As a result of these findings, the Court ruled that the Christian program fee payments provided to the appellants’ schools could not be considered gifts for tax purposes.

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