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Function and form

Adam Aptowitzer looks at a case in the tax court which holds implications we can all learn from. Namely, that your legal documents should match the underlying factual relationships. A cautionary tale of function and form.

Function and formA recent decision of the Tax Court illustrates a concept whose importance is only matched by the universality to which it is ignored. The case of Lichtman involved a number of Orthodox Rabbis teaching at an Orthodox Jewish school in Vancouver. The Rabbis claimed what is known as the “Clergy Residence Deduction” and ultimately lost their case. However, in a surprisingly lengthy decision the principles to take from this case are universal and simple. Namely that legal documents should match the underlying factual relationships.

The Clergy Residence Deduction allows for a religiously ordained individual who is ministering to a congregation to deduct residence expenses from his or her income. Historically, this relates to the time when ministers had parsonages and were required to live near the congregation and often used their homes to aid in the ministering.

The Rabbis in question taught at an elementary school. In the context of their duties, these Rabbis provided counselling when necessary and conducted daily prayer services with the children in the school. From the perspective of these Rabbis, much of the work that they did was similar to the work that they would do with adults in any Orthodox Jewish congregation.

It would seem, notwithstanding a full 72 page decision, the most persuasive evidence was that the Rabbis’ contracts referred to them as teachers, and that they had the same duties as other teachers. As previous decisions found that teachers do not minister a congregation these Rabbis were caught. In fact, the contracts that they signed were contracts typical of other teachers as well, who would not necessarily qualify as Rabbis of Orthodox Jewish congregations further ending credence to the view that they were not ministering to a congregation.

The context of the evidence reviewed in Justice Campbell’s decision makes it clear that the contracts signed by the school and the teacher may not have been fully reflective of the activities undertaken by these individuals. It seems that the Rabbis in question, to their mind, were somewhere closer to Rabbis providing the typical services to a congregation, including the fact that Rabbis and other religious leaders often engage in teaching in the context of their ministering duties. The fact that the contracts referred to these individuals as teachers were, at least in their minds if not the judge’s, an irrelevant factor.

The lesson to be drawn from this decision is one that can be applied to all areas of law. Legal documents describing relationships or stating a particular matter (such as board minutes) must be accurate and fulsome in their explanation of the situation. It can be tremendously harmful to rely on precedent documents or vague statements. Tax, in particular, applies the law to the situations as described in the documents between the various parties. In this case, the tax authority and the Courts applied the law based on the documents provided and the evidence, such as it was, could overcome the description provided by the documents. In all cases, readers are warned to be punctilious in ensuring that the legal documentation that they use accurately describes the situation in which they are engaged.

By: Adam Aptowitzer

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Drache Aptowitzer LLP

Tax and Charity Lawyers at Drache Aptowitzer LLP
Drache Aptowitzer LLPis one of Canada’s foremost experts in the law related to charities and non-profit organizations. Their team of bloggers is led by Adam Aptowitzer LLB. He is a lawyer practicing in the areas of charity and tax law. He is a member of both the bars of Alberta and Ontario. He has been speaking and writing on the topic of charity law for several years and been published in numerous publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and has been cited as an expert in many publications including the National Post.Read more here
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