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: Valuation of gifts of publicly traded shares
Position: Provided general comments only.
Reasons: No specific fact situation involved. Charities Division was seeking our general views with respect to the valuation of gifts of publicly traded shares including electronic transfer of shares.
January 17, 2001
Charities Directorate Income Tax Rulings
Carl Juneau Directorate
Director J. Leigh
Policy and Communications Division 952-1505
2000-004374
Valuation of Publicly Traded Securities
This is in response to your memorandum of August 23, 2000 requesting our views on the valuation of a gift of publicly traded securities (either in certificate form or electronically) when the gift is made during a donor's lifetime.
Your concern stems from the fact that there may be a few days delay between the date the donor signs over the securities to a charity and the date the securities are registered in the company books in the name of the charity. Since the amount of the gift reflected on the official tax receipt is the fair market value of the property when it is gifted, you have asked for our comments as to when the gift is made in these circumstances. In particular, you wonder whether a gift of shares in the form of share certificates should be treated differently from an electronic transfer of shares. Attached to your memorandum was a copy of an article written by Kayla D. Stevenson entitled "Green Thumb Gardening: Practical tips on gifts of publicly-listed securities" presented at the Canadian Association of Gift Planners Conference held in May 2000.
We note that Jane Waterfall of your Division asked us for our informal views on this matter on an urgent basis since she was in the process of preparing a speech to be delivered to professional advisors on October 3, 2000. We verbally provided general comments to Ms. Waterfall on September 14, 2000 and specific comments on her draft speech on October 2, 2000. The comments in this memorandum essentially reflect our general views as expressed to Ms. Waterfall.
Date of gift
Black's Law Dictionary, sixth edition, defines the term "gift" as:
A voluntary transfer of property to another made gratuitously and without consideration...Essential requisites of "gift" are capacity of donor, intention of donor to make gift, completed delivery to or for donee, and acceptance of gift by donee.
In the case of a gift of publicly traded shares, we understand that such shares may be transferred to a charity in certificate form which may be mailed or hand-delivered to the charity. Alternatively, the shares may be electronically transferred from the donor's account to the charity's account. In our view, the particular facts of the situation must be considered in determining when the requisites of a gift have been met.
If an endorsed share certificate or an unendorsed share certificate accompanied by a signed stock power is hand-delivered to the charity, it would seem reasonable to consider the gift to have been made at the time the charity receives and accepts the gift assuming that the other requisites of a gift are met.
Where an endorsed share certificate or an unendorsed share certificate accompanied by a signed stock power is mailed to the charity, the deeming rule in paragraph 248(7)(a) of the Income Tax Act (the "Act") may apply. Specifically, paragraph 248(7)(a) of the Act provides that for the purposes of the Act, anything (other than a remittance or payment described in paragraph 248(7)(b) of the Act) sent by first class mail or its equivalent will be deemed to have been received by the person to whom it was sent on the day it was mailed. Notwithstanding the broad language used in this provision, when it was added in 1985, the Department of Finance explanatory notes indicated that the intent of the provision was to confirm the administrative practice with respect to the date of filing of tax returns and elections and the date of receipt of amounts sent by mail. If paragraph 248(7)(a) of the Act applies to deem the charity to have received the share certificate on the day it was mailed, it is our view that there must still be acceptance of the gift by the charity before the gift is completed.
In the course of our review, we also considered whether the common law principle which establishes the payment date as the time of the delivery of the cheque if the cheque is honoured would be relevant in determining the timing of a gift of a share certificate sent by mail (see paragraph 33 of IC 80-10R and paragraph 21 of IT-110R3). It is our understanding that the scope of this common law principle has not been extended beyond the mailing of cheques. Also, we note that there are different considerations with a gift in kind as opposed to a payment by cheque. Specifically, delivery is but one of the requisites of a gift and, similar to our comments with respect to the application of paragraph 248(7)(a) of the Act, receipt and acceptance do not always go hand in hand since a charity may refuse acceptance of a particular gift for various reasons. For example, the shares may be in a company the business of which conflicts with the charity's values causing the charity to reject the gift offered or the donor may have imposed certain conditions as to the intended use of the gift which may not be feasible from the charity's standpoint.
With respect to electronic transfers, the Act does not specifically contemplate this manner of gifting shares. We understand that an electronic transfer of shares can take up to several days to complete depending on the procedures used by the brokerages involved. In your memorandum, you commented that this poses new obstacles in valuation when the specific time of the gifting is questionable. In this regard, we understand that Ms. Waterfall has asked for input from the gift planning community.
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Valuation
Once the date of the gift is determined, the next step is to establish the value of the gift. In our view, the appropriate valuation method to use is what is reasonable in the circumstances. As you have noted, Valuation Services, in a letter dated May 4, 1998, expressed the view that the mid-point between the high and the low trading prices for the day provides an adequate basis for the determination of fair market value on normal market trading. We suggest that you contact Valuation Services if you need further assistance with valuation issues.
We hope that our comments are of assistance. Should you require assistance in the course of your consultations with the gift planning community, please do not hesitate to contact us.
F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
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