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 the payment of a portion of an annual municipal tax levy to a registered chartiable foundation in exchange for a reduction of the tax levy is a "gift" for purposes of the Act.
Position: No
Reasons:
1. A gift must be a voluntary transfer of property made without expectation of return or benefit, and the donee must have unfettered discretion as to the use of the property.
2. Depending on the facts, the donee may simply be acting as an agent of the municipality and not the recipient of the funds.
XXXXXXXXXX 2001-010943
January 14, 2002
Dear XXXXXXXXXX:
We are writing in reply to your letter of October 29, 2001 wherein you requested our comments on whether a particular type of transaction would result in one or more taxpayers being able to claim a donation tax deduction or credit. It seems that your question may relate to a specific proposed transaction. We are only able to provide confirmation of the tax consequences of an actual proposed transaction in the context of an advance income tax ruling prepared in accordance with Information Circular IC 70-6R4. We are however, willing to provide the following general comments which we hope will be of assistance to you.
In general terms, the situation you describe is one where a municipality would provide property owners with a reduction of their property taxes, from the amount of property taxes they would otherwise be required to pay, if the property owner makes a contribution of a specified amount to a specific registered charitable foundation. The property owners would make a contribution to the foundation indicating that it is in lieu of a portion of their property tax levy and the foundation would be required to pay these amounts received from the property owners, to the municipality. You question whether the amounts paid by the property owners to the registered charitable foundation could be claimed as amounts for the donation tax credit or deduction, depending on whether the property owner was an individual or corporation.
Pursuant to sections 110.1 and 118.1 of the Income Tax Act (the "Act"), donation tax deductions or credits, respectively, are available in respect of gifts to qualified donees. Qualified donees are defined in sections 110.1 and 118.1 of the Act and include registered charities, municipalities and several other entities. The term "gift" is not defined in the Act, but has been defined in numerous Canadian court decisions. In general, a "gift" for income tax purposes, is a voluntary transfer of property that is made gratuitously by the donor without an expectation of return or benefit. Furthermore, the donee must have unfettered discretion as to the use of the funds in order for it to qualify as a gift. An exception may exist where the gift is subject to a general direction that the donee use the funds for a specific purposes that is within the donee's mandate.
Based on the foregoing, it is our view that the contribution by the property owners to the charitable foundation would not be considered a gift for purposes of the Act, and therefore would not be eligible for a donation tax credit or deduction. The payment of the amount would not be voluntary, as it is a legal obligation of the property owner to pay the amount, regardless of whether they choose to pay it to the municipality or the charitable foundation. Furthermore, if the payment is made to the charitable foundation it is done with the expectation by the property owner that they will pay a lower amount of property taxes for the year than they would pay if they did not contribute to the charitable foundation. This would be considered an expectation of a return or benefit to the donor from the making of the donation. It would also seem that the donee would not have any choice but to turn the funds designated by the property owners as being in lieu of the property tax levy, over to the municipality rather than being able to use the funds in carrying on their charitable activities. Depending on the specific facts regarding the arrangement between the municipality and the foundation, the foundation may be acting as an agent of the municipality in the collection of property taxes rather than the recipient of gifts from property owners.
We hope the foregoing comments will be of assistance to you.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Brach
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