2001 Ruling 2001-0064383 - GIFT SUBJECT TO CONDITIONS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1) Whether a donation constitutes a gift for income tax purposes when the donation is subject to various conditions.

2) Where a corporation, one of its shareholders and a charity enter into a deed of gift, will subsection 15(1) apply to include the amount of the donation made by the corporation in the shareholder's income?

Position:

1) Factual determination. In this case, the donation constitutes a gift.

2) No. In this case, the terms of the deed provide that the corporation may make the gift.

Reasons:

1) In previous files, we concluded that the fact that there are conditions attached to a gift, does not, in itself, negate the gift. The donor in this case is freely parting with the funds or property, receives no benefit, other than recognition, in return and the funds or property can never revert to the donor or any related person.

2) The deed provides that the corporation and the shareholder will make a total gift of $XXXXXXXXXX . The deed states that the intent is for the corporation to donate $XXXXXXXXXX and the balance of the total gift will be a bequest by the individual to the charity.

XXXXXXXXXX 						2001-006438

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge receipt of your letters of XXXXXXXXXX.

You advise that to the best of your knowledge and that of the taxpayer referred to above, none of the issues involved in the ruling request is:

I. in an earlier return of the taxpayer or a related person;

II. being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayer or a related person;

III. under objection by the taxpayer or a related person;

IV. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

V. the subject of a ruling previously issued by the Directorate.

In this letter, unless otherwise indicated, all statutory references are to the provisions of the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act"), and the following terms have the meanings specified:

a) "Corporation" means XXXXXXXXXX,

b) "Individual" means XXXXXXXXXX,

c) "Charity" means XXXXXXXXXX,

d) "CCRA" means Canada Customs and Revenue Agency,

e) "Building" means the XXXXXXXXXX; and

f) "X" means the XXXXXXXXXX.

Our understanding of the facts, proposed transactions and their purposes is set out below.

FACTS

1. The Corporation is a "taxable Canadian corporation" and a "private corporation" within the meaning of subsection 89(1). The Corporation is XXXXXXXXXX. The taxation year of the Corporation ends on XXXXXXXXXX. The Corporation's office is in XXXXXXXXXX and its tax centre is in XXXXXXXXXX.

2. The Individual is a significant shareholder of the Corporation holding XXXXXXXXXX% of its shares. The Individual is a resident of Canada living in the XXXXXXXXXX.

3. The Charity is located in XXXXXXXXXX. The Charity is a "charitable organization" within the meaning of subsection 149.1(1). The Charity's charitable registration number is XXXXXXXXXX.

PROPOSED TRANSACTIONS

4. The Individual, the Corporation and the Charity will enter into a deed of gift (the "Deed"). Pursuant to and subject to the terms and conditions of the Deed, the Individual and the Corporation will donate, or the Individual will cause an affiliated corporation to donate, $XXXXXXXXXX to the Charity. The intention of the Individual and the Corporation is that $XXXXXXXXXX will be donated by the Corporation and $XXXXXXXXXX will be donated by bequest of the Individual. The donation will be subject to the condition precedent that the Individual, the Corporation and the Charity receive favourable written tax rulings from the CCRA and the Treasurer of XXXXXXXXXX, or a written legal opinion satisfactory to each of the Individual, the Corporation and the Charity, that the proposed donation qualifies as a charitable gift under the Act and the Income Tax Act (XXXXXXXXXX).

5. The Corporation will donate to the Charity, in XXXXXXXXXX instalments, shares of corporations listed on prescribed stock exchanges having a fair market value of $XXXXXXXXXX (the "Gift"). The payment dates for each of the instalments will be as follows:

XXXXXXXXXX.

The Deed will also provide that the Corporation may make the instalment payments of the Gift at earlier times than as set out above.

6. The Individual will donate an amount to the Charity by designating the Charity in his will and testament (the "Bequest"). The amount of the Bequest will be the future value of $XXXXXXXXXX determined pursuant to the terms of the Deed. The Bequest may be satisfied in cash, shares of corporations listed on a prescribed stock exchange or a combination thereof.

7. The Charity will waive the condition precedent that it receive favourable written tax rulings or legal opinions, as described in 4 above, and the Individual and the Corporation will waive such condition except for receiving a favourable written income tax ruling in favour of the Corporation from the CCRA in respect of the Gift.

8. Pursuant to the Deed, the Charity will use the Gift and Bequest only for the following purposes and in the following order of priority:

a) The expansion (including repayment of the principal and interest under any bona fide construction loan XXXXXXXXXX% of the original proceeds of which were incurred for and spent on such expansion) of the Building at X at the Charity's XXXXXXXXXX;

b) The construction of an addition of an atrium to the Building (the "Atrium") (including repayment of the principal and interest under any bona fide construction loan XXXXXXXXXX% of the original proceeds of which were incurred for and spent on such construction) (the expansion of the Building and construction of the Atrium are referred to collectively herein as the "Project");

c) To secure financing for construction of the Project; and

d) With respect to amounts received on account of the Gift or the Bequest after the completion of the Project, to pay, in the following order of priority:

i) the principal and interest outstanding under any mortgage, charge or other encumbrance on the Building, and

ii) the care, maintenance and refurbishing, from time to time, of the Building.

9. The Individual and the Corporation will use his or its best efforts to assist the Charity in obtaining bank financing for the Project.

10. The Deed will provide that on receipt of the first of the XXXXXXXXXX instalment payments of the Gift or such other dates the Individual and the Corporation agree to in writing, the Charity with the consent of X, the written receipt of which consent is a condition precedent to the making of the instalment payments referred to in 5 above:

a) will rename for a period of not less than XXXXXXXXXX years the Building and any replacement building as the XXXXXXXXXX, and

b) will name for a period of not less than XXXXXXXXXX years the Atrium and any atrium or similar or corresponding structure in any replacement building as the XXXXXXXXXX Atrium or such other name as will be approved by the Individual, the Corporation, the Charity and X prior to completion of construction.

11. Pursuant to the Deed, the Charity will agree, among other things, to use the Building and the Atrium as the Charity's and X's sole and exclusive XXXXXXXXXX of the Charity, to self-insure or otherwise insure the Building and the Atrium and to keep the Building and the Atrium in good condition and repair. The Charity will also agree to provide the Individual and the Corporation with various financial and other reports and information.

12. The initial commencement date of the Project is scheduled for XXXXXXXXXX. Pursuant to the Deed, in the unlikely event that there is undue delay or a cancellation of the Project and if the Charity, the Individual and the Corporation cannot agree upon a mutually acceptable alternative use of the funds, the Charity will transfer and pay, within XXXXXXXXXX days of written demand made by the Individual and the Corporation between XXXXXXXXXX to do so, to another registered charity or "qualified donee" as defined in subsection 149.1(1), an amount equal to the amount of the Gift and Bequest paid to the date of such written demand that has not been expended prior to XXXXXXXXXX as required under the Deed. Similarly, the Charity would be required to transfer unused amounts of the Gift and the Bequest to one or more registered charities or qualified donees in the unlikely event the Charity has been declared bankrupt or insolvent or if there has been another event of default listed in the Deed.

13. Pursuant to the Deed, the Charity and X will use the names referred to in 10 above on certain signs at the Project, the main campus of the Charity and at any successor locations.

14. Other than as set forth in 8 and 12 above, the Individual and the Corporation have not asked for, or been given, any assurances or commitment of any kind as to the manner in which the Gift and the Bequest will be used by the Charity. Pursuant to the Deed, the Individual and the Corporation will not participate actively or be employed in the actual operations, day-to-day of the Charity or X or the construction or operation of the Project.

15. The Gift and the Bequest will be irrevocable in that neither the Corporation and its assigns nor the Individual or his heirs, executors, administrators and assigns or any related person will be entitled to the return of the amounts donated to the Charity.

PURPOSE OF PROPOSED TRANSACTIONS

16. The purpose of the Gift and the Bequest is to support the Charity, particularly with regard to the Project.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, we confirm the following:

A. An amount equal to the fair market value on the date of the donation of an instalment of the Gift of shares donated by the Corporation to the Charity will qualify as a gift described in paragraph 110.1(1)(a) of the Act, provided an official receipt containing prescribed information is filed as required by subsection 110.1(2) of the Act.

B. The undertaking by the Corporation to make the Gift pursuant to the Deed, and the donation of the Gift, will not constitute a benefit conferred on the Individual pursuant to subsection 15(1) of the Act.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R4 dated January 29, 2001 and are binding on the Canada Customs and Revenue Agency provided that the Deed is executed and becomes effective before XXXXXXXXXX.

Yours truly,

Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings
Policy and Legislation Branch