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: It is proposed that an Ontario corporation wholly owned by one individual gift a portfolio of publicly traded shares to a Nova Scotia Company with liability "limited by guarantee" of which that individual is the sole director. We are asked whether the fact that the sole shareholder of the transferor is the sole director of the transferee would negate such a transfer constituting a gift for the purposes of 110.1(3) of the Act. We are also asked whether a Nova Scotia Company with liability "limited by guarantee" would be viewed as a trust for the purposes of subsection 75(2).
Position: The fact that the sole shareholder of the transferor is the sole director of the transferee would not, in and of itself, prevent such a transfer from qualifying as a gift for the purposes of 110.1(3) of the Act. A Nova Scotia Company with liability "limited by guarantee" would not be viewed as a trust for the purposes of subsection 75(2).
Reasons: A gift is a voluntary transfer of property without consideration. Whether or not a gift has been made depends upon the facts. Corporations incorporated under Nova Scotia's Companies Act are corporations for the purposes of the Act.
XXXXXXXXXX 2000-002585
R. Maley
Attention: XXXXXXXXXX
September 25, 2000
Dear Sirs:
Re: Request for Technical Interpretation - Charitable Foundation
This is in reply to your letter of May 12, 2000 in which you have asked for our comments on the application of subsection 110.1(3) of the Act to a proposed transfer of a portfolio of publicly traded shares from an Ontario company wholly owned by an individual, "Mr. A", to a Nova Scotia Company. It is proposed that the Nova Scotia Company be incorporated with liability "limited by guarantee" within the meaning of the Companies Act, R.S.N.S. 1990, c. 81, as amended, and registered as a private foundation for the purposes of the Income Tax Act (Canada). Mr. A will be the sole director of the Nova Scotia Company, which is permitted under provincial law. You have asked for confirmation that the fact that Mr. A is both the sole shareholder of the Ontario company, and the sole director of the Nova Scotia company will not negate the possibility that the transfer of property from the Ontario company to the Nova Scotia company could constitute a gift. You are also seeking confirmation that a Nova Scotia company with liability limited by guarantee would not be viewed as a trust for the purposes of subsection 75(2).
The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of assistance.
In general, subsection 110.1(3) provides that a corporation may make a charitable gift of a capital property to a donee described in any of paragraphs 110.1(1)(a), (b) or (d) on a tax-free roll-over basis where the fair market value of the property gifted exceeds its adjusted cost base to the corporation. The subsection permits the corporation to designate an amount no more than the fair market value of the property at the time it was gifted and not less than its adjusted cost base to the corporation at that time. The designated amount is deemed to be the proceeds of disposition of the property to the corporation and its fair market value for the purposes of the deduction in subsection 110.1(1) of the Act.
The gift must satisfy all of the conditions of subsection 110.1(3). Otherwise, the corporation will have to realize the full gain with respect to the property gifted under paragraph 69(1)(b)(ii) of the Act.
A private foundation is a donee described in paragraph 110.1(1)(a). A gift, for purposes of sections 110.1, is a voluntary transfer of property without valuable consideration. Whether or not a property gifted is a capital property of the corporation making the gift is a question of fact.
The fact that the controlling shareholder of the transferor corporation is the sole director of the recipient foundation would not, in and of itself, negate the possibility of a gift. However, in order for a transfer of property to constitute a gift, there must be no benefit, or expectation of a benefit, to the donor or to any person designated by the donor. Whether a benefit is realized in fact, or is intended would be a question of fact.
As for your second question, a Nova Scotia Company limited by guarantee would not, in our view, constitute a "trust created in any manner whatever" within the meaning of subsection 75(2). Corporations incorporated under Nova Scotia's Companies Act are generally treated as corporations for the purposes of the Act.
While the foregoing comments are not binding on the Canada Customs and Revenue Agency, we trust that they assist. If you should have any questions relating to the proposed objects and registration of a private foundation, inquiries may be made to Charities Directorate of the Canada Customs and Revenue Agency at 613-954-0410 or at 1-800-267-2384.
F. Lee Workman
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
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