22 April 1997 External T.I. 9702295 - CHARITABLE DONATIONS AND 56(2)

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:

Is 56(2) applicable to a bona-fide gift ?

Position:

Not generally, however it remains a question of fact.

Reasons:

Bona fide gift ivolves no benefit

		                           970229
XXXXXXXXXX	                                 	C. Tremblay

Attention: XXXXXXXXXX

April 22, 1997

Dear Sirs:

Re: Charitable Donations and subsection 56(2) of the Income Tax Act (the "Act")

This is in reply to your letter of January 27, 1997, wherein you requested our comments on four different fact situations involving a bona fide donation by a Canadian corporation where the controlling shareholder is either a resident or a non-resident and the charity is either a foreign charity or a registered charity.

The situations that are described appear to involve a series of actual proposed transactions. It is the practice of this Department to comment on such transactions only by way of advance ruling. Should you wish to request an advance ruling on these or other transactions which may be proposed, please refer to Information Circular 70-6R3 for the procedure to be followed. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.

In our view a true gift is a voluntary transfer of real or personal property from a donor, who must freely dispose of his or her property, to a donee, who receives the property given. The transaction may not result directly or indirectly in a right, privilege, material benefit or advantage to the donor or to a person designated by the donor. To qualify, the donation must be in the form of an outright gift. Further, in order for an expenditure to be considered a gift, it must be made without conditions, from detached and disinterested generosity, out of affection, respect, or charity or like impulses, and not from the constraining forces of any moral or legal duty. The donee must have an unfettered right to use a donation as they wish. However, it is the Department's practice to view donations subject to a general direction from the donor as acceptable, provided that no benefit accrues to the donor, the directed gift does not benefit any person not dealing at arm's length with the donor and decisions regarding utilization of the donation within a program rests with the donee.

Accordingly, in our view, the provisions of subsection 56(2) of the Act will not generally apply where there is a true gift as discussed above. This is so regardless of whether the controlling shareholder of the corporation making the gift is a resident or a non-resident or whether the charity is a registered charity or a foreign charity. However, the Canadian corporation would not be eligible for a deduction pursuant to section 110.1 of the Act where the charity is not a "registered charity" for the purposes of the Act.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch