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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether gifts by direct designation in an insurance policy or RRSP/RRIF provided for in subsections 118.1(5.1) and (5.3) are gifts "of capital received by way of bequest or inheritance" and thereby excluded from the calculation of the disbursement quota in subsection 149.1(1).
Position:
Such payments are not gifts for the purposes of subsection 149.1(1) and are, therefore, not included in the DQ.
Reasons: Legislation
XXXXXXXXXX 2002-013354
K. Cooper, LL.B.
January 16, 2003
Dear XXXXXXXXXX:
Re. Gifts by Direct Designation
This is in reply to your letter dated January 30, 2002, which was forwarded to us from the Charities Directorate, and our subsequent telephone conversations (Cooper & Workman/XXXXXXXXXX) in which you requested our comments with respect to the interpretation of the definition of "disbursement quota" (the "DQ") in subsection 149.1(1) of the Income Tax Act (the "Act") in particular circumstances. You specifically requested that we confirm that gifts by direct designation in an insurance policy or RRSP/RRIF provided for in subsections 118.1(5.1) and (5.3) of the Act are gifts "of capital received by way of bequest or inheritance" and thereby excluded from the calculation of the "disbursement quota" by virtue of paragraph A(a) of that definition in subsection 149.1(1) of the Act.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments which may be of assistance.
Prior to the enactment of subsections 118.1(5.1), (5.2) and (5.3) of the Act, the payment of life insurance or RRSP/RRIF proceeds to a registered charity as a result of a direct beneficiary designation would not amount to a gift for the purposes of the Act because the payment was viewed as the fulfillment of a legal obligation contrary to the requirements of a gift. Such payments are now deemed to be gifts for the purposes of section 118.1 when the requirements of subsections 118.1(5.1) and (5.3) of the Act are satisfied. However, because these payments have not been deemed to be gifts for purposes other section 118.1, they are not gifts for purposes the calculation of the DQ pursuant to the definition in subsection 149.1(1) of the Act and, therefore, are not included therein. We believe that this is an unintended result and have discussed the possibility of an amendment to the Act to remedy the technical problem with the Department of Finance.
Given our interpretation above, the question of whether the payments are gifts "of capital by way of bequest or inheritance" within the exclusion in paragraph A(a) of the DQ definition in subsection 149.1(1) of the Act is moot. However, we have some concern regarding whether such payments are gifts of capital and whether they are made by way of bequest or inheritance. Accordingly, we have made a recommendation to the Department of Finance that this concern be addressed at the same time that they examine the technical problem in the DQ definition.
Should you wish to pursue this issue further, we suggest that you contact the Tax Policy Branch of the Department of Finance, who are responsible for tax policy, by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.
We hope that our comments will be of assistance.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings
Policy and Legislation Branch
c.c.: Ed Short
Department of Finance
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