14 January 2002 External T.I. 2001-0101845 - CHARITABLE REMAINDER TRUST

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether a gift has been made to a charity when additional property is transferred to an existing charitable remainder trust.

Position: No.

Reasons:

No gift to the beneficiary has been made because no new property interest has been transferred to the beneficiary, the beneficiary's existing equitable interest has merely been increased.

XXXXXXXXXX 							2001-010184
K. Cooper, LL.B.

January 14, 2002

Dear XXXXXXXXXX:

Re: Charitable Remainder Trust

This is in reply to your letter of September 13, 2001 and our subsequent telephone conversation with XXXXXXXXXX wherein you requested our views with respect to the issues relating to charitable remainder trusts.

The particular circumstances described in your letter appear to be a factual situation involving specific taxpayers. As explained in Information Circular 70-6R4 dated January 29, 2001, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an income tax ruling. Should your situation involve specific taxpayers and completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we can offer the following general comments which may be of assistance.

Our general views with respect to the gifting of residual interests in property can be found in Interpretation Bulletin IT-226R. A residual interest in property, other than real estate, can only be transferred to another person by means of a trust. In most situations, a property is settled in a trust, with the donor retaining an income interest in the trust, and the charity being given the residual interest in the trust. We are of the view that where property is transferred to a trust and a qualified donee is given an equitable interest in the trust such that they are entitled to receive the capital property held in the trust at a time when there are no further income beneficiaries, a gift may have been made by the settlor of the trust to the qualified donee. The property which we consider to have been gifted to the qualified donee is not the property actually transferred to the trust by the settlor, but rather the equitable interest in the trust. The trust has received the property. The qualified donee has received an interest in the trust.

For the purposes of subsection 110.1(1) and 118.1(3), it is necessary for the value of the gift to the qualified donee to be determined. This means that the value of the equitable interest in the trust that was the gift to the qualified donee must be valued. In valuing the equitable interest in the trust, some of the factors which should be considered are, the nature of the property held by the trust, the age of the income beneficiaries, interest rates, mortality tables, and anticipated future economic conditions. As we explained to XXXXXXXXXX, we are unable to provide any specific comments with respect to the valuation of a promissory note.

It is our view that in the situation where additional property is disposed of to an existing trust, with the intention that the donor retain the income interest in the property through the trust and the same beneficiary be the recipient of the residual interest in the property, no gift to the beneficiary has been made because no new property interest has been transferred to the beneficiary. Even if the beneficiary is a qualified donee, the donor is not entitled to a deduction or credit pursuant to subsections 110.1(1) or 118.1(3) in respect of the transfer of the property to the trust for the benefit of the qualified donee because no property has been transferred to the qualified donee, the value of its already existing equitable interest in the trust has merely been enhanced.

We hope that our comments will be of assistance.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch