12 May 1994 Administrative Letter 940972A - 110.1(1)

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:

WHETHER A GIFT IN KIND WILL QUALIFY AS A GIFT FOR PURPOSES OF SECTIONS 110.1 AND 118.1?

Position TAKEN:

A GIFT IN KIND COULD QUALIFY AS GIFT FOR PURPOSES OF SECTIONS 110.1 & 118.1.

Reasons FOR POSITION TAKEN:

THE DEPARTMENT'S POSITION AS REFLECTED IN IT-297R2.

INSTITUTE OF CHARTERED ACCOUNTANTS OF ALBERTA

ROUNDTABLE - MAY 12, 1994

QUESTION 1. GIFTS IN KIND TO A CHARITABLE ORGANIZATION

Subsection 110.1(1) of the Income Tax Act provides for a deduction in respect of "the fair market value of a gift made by the corporation in the year" to a charitable organization. IT-297R2 (Gifts in kind to charities and others) discusses Revenue Canada's views on this issue. The Bulletin seems to sanction the donation of a non-cash gift to a charitable organization, in exchange for a receipt for tax purposes made out for the fair market value of the asset gifted. It is the responsibility of the corporate donor to account for the tax consequences of the disposition of the asset. Where fair market value exceeds adjusted cost base, the corporation may make a designation under subsection 110.1(3).

Recently, a rumour has surfaced that Revenue Canada will now require the corporate donor to make a cash donation to the charity, followed by a cash purchase of the asset by the charity from the corporation for the same amount. This does not seem to be consistent with subsection 110.1(1), nor would it appear to allow for a designation to be made under subsection 110.1(3).

Can Revenue Canada comment on the above and indicate whether there has been a change in the Department's policies regarding gifts in kind by corporations?

DEPARTMENT'S POSITION

Paragraph 3 of the Special Release to IT-110R2 states: "a gift for purposes of sections 110.1 and 118.1 is a voluntary transfer of property without valuable consideration".

Property is defined in subsection 248(1) of the Income Tax Act (the "Act") as:

`"Property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes

(a) a right of any kind whatever, a share or a chose in action,

(b) unless a contrary intention is evident, money,

(c) a timber resource property, and

(d) the work in progress of a business that is a profession;'

Paragraph 1 of IT-297R2 states that a "gift" includes a "gift in kind" and paragraph 3 describes the types of property that may and may not be considered gifts in kind. There is no requirement in the Act that the gift must be a cash donation followed by a cash purchase of the asset by the charity for the amount of the cash donation.

Where the fair market value of capital property donated to the charity exceeds the adjusted cost base subsection 110.1(3) of the Act provides an election respecting the donors proceeds of disposition and the amount of the gift.

There has been no change in the Department's position respecting gifts in kind as reflected in IT-297R2.

Wm. P. Guglich

April 21, 1994
940972