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 a gift made to a foreign charity by a corporation wholly owned by a foreign trust, would result in the application of subsections 56(2) and 214(3).
Position:
Based on the facts in this case, No.
Reasons:
The foreign charity is prescribed by section 3503 of the regulations for the purposes of subparagraph (a)(vi) of the definition of "charitable gifts in subsection 110.1(1). The donation by the corporation to the foreign charity is, based on the facts, a "gift" for the purposes of the Act as there are no obligations by any person to make a contribution to the foreign charity which will be considered to have been satisfied as a consequence of the corporation making the gift.
XXXXXXXXXX 2000-004741
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance income tax ruling request, XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, and subsequent correspondence of XXXXXXXXXX, in which you request an advance income tax ruling on behalf of the above named taxpayer. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the taxpayers involved:
none of the issues involved in the ruling request
(i) is in an earlier return of the taxpayer or a related person,
(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person,
(iii) is under objection by the taxpayer or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate;
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Facts
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
1) XXXXXXXXXX (the "Company") is a corporation governed by the laws of the Province of XXXXXXXXXX and is a taxable Canadian corporation as defined by subsections 248(1) and 89(1), for the purposes of the Act. The Company's corporate account number is XXXXXXXXXX, it files its returns at the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Tax Services Office.
2) XXXXXXXXXX (the "Trust") is a testamentary trust that is resident in the XXXXXXXXXX and a non-resident of Canada for purposes of the Act.
3) The Trust was formed on XXXXXXXXXX, as a consequence of the death of XXXXXXXXXX (the "Deceased"), an individual who was resident and domiciled in the XXXXXXXXXX. The sole trustee of the Trust is a resident of the XXXXXXXXXX.
4) Under the terms of the Deceased's will, one-half of the assets in the estate after payment of certain specific bequests and expenses, were to be held in trust and the income paid to the surviving spouse for the remainder of the spouse's life. The other one-half of the assets and income were to be held upon a trust for the benefit of organizations recognized as charitable under the laws of XXXXXXXXXX. Upon the death of the spouse, the assets held in trust for the spouse's benefit were to be combined with the assets and income held in the Trust for the benefit of charitable organizations.
5) Within XXXXXXXXXX years of the death of the spouse, the trustee of the Trust was required, under the terms of the will, to specify one or more organizations recognized as charitable under the laws of XXXXXXXXXX, which would become the beneficiaries of the Trust holding all of the residuary assets and income. If no organizations were selected by the trustee, a charitable organization specified in the will, would become the sole beneficiary of the Trust.
6) Within XXXXXXXXXX years of the death of the spouse, the trustee caused a charitable foundation (the "XXXXXXXXXX Foundation") to be created. The XXXXXXXXXX Foundation was then named as the sole beneficiary of the Trust. The trustee of the Trust is the sole director of the XXXXXXXXXX Foundation and the XXXXXXXXXX Foundation is a resident of the XXXXXXXXXX.
7) The purpose of the XXXXXXXXXX Foundation is to make donations to XXXXXXXXXX (Charity A) and XXXXXXXXXX (Charity B) and entities related to Charity A and Charity B. Charity A, Charity B and the related entities to which the XXXXXXXXXX Foundation may provide funding, are charitable organizations under the laws of XXXXXXXXXX and are resident in the XXXXXXXXXX.
8) Among other assets, the Trust holds all of the issued and outstanding shares of the Company. The shares of the Company are the only Canadian assets of the Trust. The Company earns income primarily from portfolio investments.
9) There is no obligation on the trustee, by way of the will or otherwise, to distribute income to the XXXXXXXXXX Foundation in any given year, nor is there any obligation on the XXXXXXXXXX Foundation to make gifts to Charity A, Charity B or entities related thereto, in any given year.
10) There are no declared and unpaid dividends on the shares of the Company.
11) Charity A is a foreign university prescribed by section 3503 of the regulations for the purposes of subparagraph (a)(vi) of the definition of "charitable gifts in subsection 110.1(1).
Proposed Transaction
12) The Company will make a donation to Charity A in the amount of XXXXXXXXXX.
Purpose of the Proposed Transaction
13) The purpose of the proposed transaction is to support the development, programs and objectives of Charity A.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, our rulings are as follows:
A. We confirm that with respect to the proposed transaction described in paragraph 12 above, paragraph 214(3)(a) will not apply to deem a dividend to have been paid to Trust in the amount of the donation made by the Company to Charity A.
The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001 and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager, Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Branch
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