2001 Ruling 2001-0090553 - GIFT SUBJECT TO CONDITIONS

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:

1) Whether a donation constitutes a gift for ITA purposes when the donation is subject to various conditions; 2) Where a corporation, its controlling shareholder and private foundation enter into an agreement with respect to a donation will subsection 15(1) apply to include the amount of the donation made by the corporation in the shareholder's income; 3) whether the undertaking to make the donation and the making of the donation by the private foundation will constitute a personal benefit conferred on a member of the foundation for the purposes of the definition "charitable foundation".

Position: 1)Yes; 2) No; 3) No

Reasons:

1) In previous files, we concluded that the existence of certain conditions attached to the gift does not, in itself, negate the gift. The general view is that the donation would qualify as a gift if the donor is freely parting with the funds or property, receives no benefit, other than recognition, in return and the funds or property can never revert to the donor or any related person. 2) The corporation, its sole shareholder and private foundations are all parties to the agreement. 3) No material benefit.

XXXXXXXXXX 							2001-009055

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re. Advance Income Tax Ruling Request

XXXXXXXXXX
- Charitable Donation

This is reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. 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 referred to above, none of the issues involved in the ruling request is:

(i) in an earlier return of the taxpayers or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person;

(iii) under objection by the taxpayers or a related person;

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

(v) the subject of a ruling previously issued by the Directorate.

In this letter, unless otherwise indicated, all statutory references are to the provisions of the Income Tax Act, R.S.C. 1985, 5th Supplement, c.1, as amended, (the "Act"), and all terms used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and their purposes is as follows:

Definitions

The following terms have the meanings specified:

a) "CCRA" means Canada Customs and Revenue Agency;

b) "Individual" means XXXXXXXXXX;

c) "Corporation" means XXXXXXXXXX;

d) "Private Foundation" means XXXXXXXXXX;

e) "Donors" means the Individual, the Corporation, and the Private Foundation;

f) "Foundation" means XXXXXXXXXX;

g) "Hospital" means XXXXXXXXXX;

h) XXXXXXXXXX; and

i) "Department" means the Hospital's Department of XXXXXXXXXX.

Facts

1. The Individual is a resident of Canada living in the XXXXXXXXXX.

2. The Corporation is a "taxable Canadian corporation" and a "private corporation" within the meaning of subsection 89(1). The corporation's taxation year ends on XXXXXXXXXX and its head office is in XXXXXXXXXX and its tax services office is in XXXXXXXXXX. Its tax account number is XXXXXXXXXX. The Corporation is controlled by the Individual.

3. The Private Foundation is a "private foundation" within the meaning of subsection 149.1(1) and it makes donations to "qualified donees" for the purposes of the Act. The Private Foundation's office is in XXXXXXXXXX.

4. The Foundation is a "charitable organization" within the meaning of subsection 149.1(1). The Foundation's office is in XXXXXXXXXX The Foundation makes donations to the Hospital.

5. The Hospital is a "charitable organization" within the meaning of subsection 149.1(1) and it operates a public hospital in the XXXXXXXXXX.

Proposed transactions

6. Subject to receiving the rulings herein, the Individual, the Corporation, the Private Foundation, the Foundation and the Hospital will enter into an agreement (the "Agreement") whereby the Individual will donate, or will cause to be donated by the Corporation or the Private Foundation, subject to the terms of the Agreement, certain amounts to the Foundation.

7. Pursuant to the Agreement, the Individual will guarantee that the Foundation will receive donations of XXXXXXXXXX:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX; and

(c) XXXXXXXXXX.

8. If less than the full $XXXXXXXXXX pledged by XXXXXXXXXX and its employees has been donated to the Foundation, the Donors will donate the difference to the Foundation on or before XXXXXXXXXX. The amounts referred to in paragraphs 7(a), (b), (c), and this paragraph, to the extent donated by the Donors, will hereinafter be referred to as the "Gift".

9. Pursuant to XXXXXXXXXX the Agreement, the Individual agrees to XXXXXXXXXX donate any amounts not yet paid, other than the amount referred to in paragraph 7(c) of this ruling request, by XXXXXXXXXX and to pay the unpaid portion of the amount referred to in paragraph 7(c) XXXXXXXXXX.

10. The donations to be made by Donors will only be made in cash or in marketable securities listed for trading on a North American stock exchange. If shares of a publicly traded corporation are donated, such shares will be valued at their closing price of a board lot on the date of the donation.

11. The Foundation will donate to the Hospital amounts equal to the amounts donated to the Foundation pursuant to the Agreement to be used only for research, remodelling, refurbishing and equiping of the primary public hospital facility operated by the Hospital.

12. XXXXXXXXXX.

13. XXXXXXXXXX.

14. XXXXXXXXXX, the Foundation and the Hospital may be required to donate to one or more "qualified donees" for the purposes of the Act, whose charitable activities include activities relating to medical research, medical education or improvement of patient care as directed by the Individual, his heirs, executors, administrators and assigns, an amount equal to the portion of the $XXXXXXXXXX paid to the date of such default calculated to maintain the purchase power parity thereof and to pay to the Individual, his heirs, executors, administrators and assigns legal costs and expenses, if any, in relation to the enforcement, if necessary, of any material provision of the Agreement.

15. The Donors have not asked for, or been given, any assurances or commitment of any kind as to the manner in which the donations will be used by the Foundation or the Hospital except as specified in paragraph 11.

16. The donations to be made by the Donors will be irrevocable in that none of the Individual, his heirs, executors, administrators and assigns, the Corporation and its assigns, the Private Foundation and its assigns and other related persons will be entitled to the return of the amounts donated to the Foundation.

Purpose of proposed transactions

1. The purpose of the Gift is to support the Foundation and the Hospital.

Rulings requested and 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. An amount equal to the fair market value on the date of the donation of an installment of the Gift donated by the Individual to the Foundation will qualify as a gift for the purposes of the definition of "total charitable gifts" in paragraph 118.1(1)of the Act, provided an official receipt containing prescribed information is filed as required by subsection 118.1(2) of the Act.

B. An amount equal to the fair market value on the date of the donation of an installment of the Gift donated by the Corporation to the Foundation will qualify as a gift as described in paragraph 110.1(1)(a) of the Act, provided an official receipt containing prescribed information is filed as required by subsection 110.1(2) of the Act.

C. The undertaking by the Corporation to make installments of the Gift and the donation of an installment of the Gift will not, in and of itself, constitute a benefit conferred on the Individual pursuant to subsection 15(1) of the Act.

D. An amount equal to the fair market value on the date of the donation of an installment of the Gift donated by the Private Foundation to the Foundation will qualify as a gift for the purposes of paragraph 149.1(4)(b) of the Act.

E. The undertaking by the Private Foundation to make installments of the Gift and the donation of an installment of the Gift will not, in and of itself, constitute a personal benefit conferred on the Individual, a member of the Private Foundation, for the purposes of the definition of "charitable foundation" in subsection 149.1(1) of the Act.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R4 dated January 29, 2001 and are binding on the Canada Customs and Revenue Agency provided that the Agreement is executed and becomes effective before XXXXXXXXXX.

Yours truly,

Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate