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 transfer of private company's shares to private foundation pursuant to deceased taxpayer's will occurred prior to the coming into force of rules in subsection 118.1(13) for non-qualifying securities.
Position: The non-qualifying security rules in subsection 118.1(13) did not apply at the time the shares were received by the foundation.
Reasons: Facts indicated the shares were received by the foundation and therefore the time of the gift was prior to the coming into force date for subsection 118.1(13)
April 3, 2000
CALGARY TSO HEADQUARTERS
Russ Brown Financial Industries
Division
Alison Campbell
2000-000906
Gift of Non-qualifying Securities
This is in reply to the inquiry we received from your office on February 22, 2000, wherein our views were requested with respect to the application of subsection 118.1(13) of the Income Tax Act. In particular, the inquiry related to the application of subsection 118.1(13) to a situation where shares of a private corporation were donated to a private foundation by the will of a taxpayer. The taxpayer died prior to the application date of subsection 118.1(13), but the shares were not disposed of by the private foundation until after the application date 118.1(13). In respect of your inquiry, we provide you with the following general comments which we hope will be of assistance to you.
Subsection 118.1(13) will generally apply when an individual makes a gift of shares of a private corporation to a private foundation with whom the individual does not deal at arm's length. When subsection 118.1(13) applies, it will deem a gift not to have been made for purposes of the charitable donation tax credit in subsection 118.1(1). If the share either ceases to be a non-qualifying security or is disposed of by the donee within 60 months following the date the security was transferred to the donee, there will generally be a gift deemed to have been made at this later time. The rules in subsection 118.1(13) apply not only in cases of inter-vivos gifts, but will also apply in respect of gifts made by will. The application date for subsection 118.1(13), is for "gifts made after July 1997".
It is the department's view that a gift is considered to be made at the time the property which is the subject of the gift is actually received by the qualified donee. With respect to a gift of shares, the time at which the ownership of a share is considered to have been transferred from one person to another, is a question of fact. There is substantial jurisprudence which provides that property is considered to have been disposed of by the transferor and received by the transferee, when the beneficial ownership of the property is transferred. As stated in Interpretation Bulletin IT-170R (Sale of Property - When Included in Income Computation), it is our general view that with respect to shares, beneficial ownership is considered to rest with the person who has the right to receive dividends declared in respect of the share, the right to receive amounts on the liquidation of the corporation and the right to exercise the votes attached to the share. The time at which beneficial ownership is considered to pass from one person to another can only be determined after an examination of the facts surrounding a particular situation.
The information provided to us shows that the resolution of the board of directors of the corporation, to recognize the transfer of the shares of the corporation to the foundation was dated XXXXXXXXXX. The information also includes a share certificate issued in the name of the corporation as of XXXXXXXXXX. Based on this information, it is our view the foundation would likely have been entitled to receive any dividends declared as of XXXXXXXXXX, the foundation would be entitled to receive proceeds of liquidation, if any, if the corporation were liquidated at any time after XXXXXXXXXX, and the foundation would be considered a registered shareholder and eligible to exercise votes in respect of the shares from XXXXXXXXXX onwards. The right to receive dividends, the entitlement to liquidation proceeds and the right to exercise the votes attached to shares, are generally considered the key incidents of ownership of shares. Since the facts we have indicate that the foundation had the incidents of ownership as of XXXXXXXXXX, we would be of the view that the latest possible time that the foundation would be considered to have received the shares and therefore the latest possible time at which the "gift" provided for under the will would be considered to have been made was XXXXXXXXXX.
Based on the foregoing, it is our view that because the gift of shares was actually made before August of 1997, subsection 118.1(13) has no application in respect of this gift. If there is additional information you have which would suggest that ownership of the shares was not passed to the foundation prior to August 1997, this may change our view on this issue and should be submitted to us for further consideration.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.
We trust that our comments will be of assistance to you.
F. Lee Workman
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
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