Income Tax Severed Letters - 1998-04-03

Principal Issues:

Whether a gift to a registered charity by a testamentary trust qualifies as a charitable donation under subsection 118.1 of the Act under the following circumstances:

1) The deceased taxpayer’s will clearly outlines which charities are to receive donations and how much each is to receive. The deceased’s will provides that upon the death of his spouse, the estate is to pay a fixed dollar amount to a registered charity or charities. The surviving spouse has an income interest in the trust and consequently will be entitled to receive all the income earned by the trust annually. The children of the taxpayer have a capital interest in the trust. The trustees cannot encroach on the capital of the trust.

2) Same as (1) except the deceased taxpayer’s will only lists a number of charities who would be entitled to receive donations. The will places a maximum dollar value on the total donations to be made. The trustees have discretion as to how much of a donation is to be made (up to the maximum) and which charities will receive donations.

3) Same as (1) except that the trustees have the power to encroach on the capital of the trust.

4) Same as (2) except that the trustees have the power to encroach on the capital of the trust.

Position:

1) Yes, subsection 118.1(5) would apply and the donation can be claimed on the deceased taxpayer’s individual income tax return pursuant to subsection 118.1(3). When the payment is eventually made to the registered charity after the death of the spouse, the trust cannot claim a non-refundable tax credit for a charitable donation under subsection 118.1(3) on the trust return because the deceased taxpayer is the donor, not the trust.

2) In order for subsection 118.1(5) to apply, the terms of the will must expressly state that a specific gift is to be made to the registered charity. This requirement cannot be met if there is discretion on the part of the trustees as to whether or not a gift will be made to the charity.

When there is a distribution from the capital of the trust to the registered charity at the direction of the trustee, the trust can claim a non-refundable tax credit for the charitable donation under subsection 118.1(3) on the trust return.

3) and 4) In cases where the size of a residual or equitable interest at the time of the donation cannot reasonably be determined, such as when a trustee has a right to encroach on the capital of the trust, subsection 118.1(5) does not apply. This position is discussed in paragraphs 3 and 6 of IT-226R, Gift to a Charity of a Residual Interest in Real Property or an Equitable Interest in a Trust.

If a donation is made to a registered charity by the trust, the trust can claim a non-refundable tax credit for the charitable donation pursuant to subsection 118.1(3) of the Act on the trust return.

Reasons:

Principal Issues:

Whether nursery and finishing stage of the production of hogs is farming where a) gain is an average of 25 Kg at the nursery stage and 85 kilograms at the finishing stage and b) producer is guaranteed to receive a minimum amount monthly.

Position:

Yes

Reasons:

Principal Issues:

1. Can the by-laws of a housing co-operative provide for payment of patronage dividends to its members without the co-op losing its exempt status as a non-profit organization (NPO) under paragraph 149(1)(l)? Is there an administrative position that would allow a housing co-operative to keep its exempt status as an NPO under paragraph 149(1)(l) even though its by-laws permit it to pay patronage dividends to its members?

Position:

1. No. The housing co-op would lose its exempt status as an NPO under paragraph 149(1)(l) if its by-laws permitted the payment of patronage dividends to its members. There is no departmental administrative position which would allow the housing co-operative to keep its exempt status when it does not meet the conditions of paragraph 149(1)(l).

Reasons:

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.

		980154
XXXXXXXXXX	B. Kerr

Attention: XXXXXXXXXX

March 11, 1998

Dear Sir:

Re: Advertising & Promotion costs related to a Corporate Golf Tournament

Principales Questions:

Lors de négociations entre l'employeur et les employés, il est entendu que les employés vont accepter une baisse de salaire correspondant à la part des primes d'assurance collective qui sera maintenant assumée par l'employeur. Est-ce que le ministère pourrait invoquer l'article 245 de la Loi pour imposer l'employé sur le salaire brut.

Position Adoptée:

Principal Issues:

Will mandatory $700 paid a technical college each year for use of a laptop computer and applicable software together with access to the college's server still qualify for tuition tax credit if the college were to provide the student with the option to acquire the computer at the end of the student's program at a price based on fair market value.

Position:

The option should not taint the tuition fees.

Reasons:

Principales Questions:

Quelle est la partie du paiement contractuel qui sera appliquée en réduction des dépenses admissibles d'un projet de recherche scientifique et de développement expérimental lorsque le paiement contractuel pourrait couvrir des dépenses non admissibles?

Position Adoptée:

Principal Issues:

Pecking order for transfer of student tuition credits.

Position:

Student; Excess, by spouse if credit claimed under section 118 or 118.8; in the absence of spouse not claiming under 118 or 118.8, it would be the parent or grandparent who claimed a credit under 118; and any other case, the parent or grandparent designated by the student.

Reasons:

Principal Issues:

Whether or not home office expenses can be deducted from employment income, under two different scenarios.

Position:

No, under both situations.

Reasons:

Principal Issues:

Whether or not certain transaction result in gifts.

Position:

General comments on gifts.

Reasons:

Principal Issues:

What portion of land can be considered a principal residence.

Position:

No position given.

Reasons:

Position Adoptée:

Principal Issues:

Meaning of "assistance" for the purposes of the film tax credit under section 125.4. Various scenarios provided. However, in all, the repayment of loans made to the production company by private third parties would depend on projected film revenue.

Position:

Question of fact dependent on the terms of the particular agreement. Where repayment depends on film revenue and it is unlikely that the loan will be repaid, the loan could be forgivable. Accordingly, the loan would be considered as assistance. As well, if the lender is committed to forgive the loan because of insufficient revenue or for any other reason, the loan would be considered to be a forgivable loan.

Reasons:

Principal Issues:

Whether supplying natural gas to a Canadian Municipality for free can be considered a gift when at the same time the taxpayer is entering into a contract for the storage and handling of the supply of the gas.

Position:

Determination of fact.

Reasons: