2002 Ruling 2001-0114453 - GIFTS TO A MUNICIPALITY

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 the City can issue official receipts for gifts it will have received in the course of a fundraising campaign to improve the Park it owns where the City intends to undertake the fundraising campaign with the assistance of the Association.

Position: Yes

Reasons:

The City owns the Park. The City is responsible to fund capital improvements of the Park. The City will receive the donations and will have control of the use of the funds.

XXXXXXXXXX 								2001-011445

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX ("City") - Business Number XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling on behalf of the above named taxpayer. We also acknowledge your letters of XXXXXXXXXX providing us with additional information and related documents in connection with your request.

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 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.

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

Facts

1. The City is a Canadian municipality which is exempt from Part I tax pursuant to paragraph 149(1)(c).

2. You have advised that the XXXXXXXXXX (the "Association") qualifies as a non-profit organization as described in paragraph 149(1)(l). The Association is a corporation with share capital established in XXXXXXXXXX as an XXXXXXXXXX.

3. XXXXXXXXXX.

4. The objects of the Association include the erection or leasing of any structures, buildings and enclosures in any place in or near the City; the promotion of industries, arts and sciences; the exhibition of every variety of thing and being found in animal and vegetable life and mineral product; and the exhibition of products, wares and goods generally exhibited at fairs. The Association uses the facilities that comprise the XXXXXXXXXX ("Park") to fulfill its objects and to make the Park available to the greatest possible use to the citizens of the City and the people of XXXXXXXXXX.

5. The Park is owned by the City and located within its municipal boundaries. The Park's facilities include buildings, parking areas, grandstand, XXXXXXXXXX and supporting infrastructures.

6. The Park is operated and managed by the Association which has stewardship responsibilities over the Park's facilities which are evidenced in a City by-law and in a long-term nominal cost operating lease with the City. An agreement between the City and the Association was first entered into in XXXXXXXXXX for the purpose of leasing to the Association certain lands and buildings, now the Park, owned by the City. The City and the Association entered into an other long-term nominal cost operating lease agreement on XXXXXXXXXX (the "Agreement") which was to remain in force until XXXXXXXXXX and which replaced the original XXXXXXXXXX agreement. An addendum dated XXXXXXXXXX was signed between the City and the Association in which the term of the Agreement was extended to XXXXXXXXXX.

7. The Association under the Agreement can erect out of its own funds structures and buildings on the Park. All such structures and buildings are to comply with the City's bylaws and become part of the Park. Upon termination of the Agreement these structures and buildings will become the property of the City.

8. The Association has agreed under the Agreement to use all diligence, and to the extent that it has funds available, to do what is necessary to beautify the lands found on the Park and to keep the buildings on the Park in a good and sufficient state of repair. The Agreement provides that the Association assumes responsibility for capital expenditures as may be appropriate from time to time. The Agreement also provides that the Association will to the best of its ability improve the Park and in this regard, as noted in 7 above, has the right to erect out of its own funds additional structures and buildings on Park lands. In this regard, you advise that:

(i) consistent with the Association's mandate to maintain Park operations capital improvements required to be funded by the Association (through park operations) are limited to those required to replace smaller items of equipment and similar assets as they end their operating service life,

(ii) the funding of capital additions and betterment of the Park has not historically been sourced from Park operations nor could it be expected in the future due to limitations in funds that can be generated from the Park's operations by the Association,

(iii) the historical financial results of the Association indicate that funds generated from the operation of the Park have been, at best, sufficient to maintain Park assets and not, in any significant way, sufficient to make new capital expenditures or betterment to existing assets,

(iv) historically, significant additions to Park assets such as XXXXXXXXXX were funded by the City and Provincial grants,

(v) annual grants from the City have been utilized to supplement Park maintenance and to replace existing capital assets in operations and for betterment, and

(vi) the City is, in all substantive respects, responsible for obtaining the funding for significant capital expansion of, or for significant betterment of Park assets. The source of such funds may include other levels of government and donations from private individuals, corporations and organizations.

9. The Park is in need of capital maintenance and improvements. Funds are required to proceed with such betterments.

10. The City has over the years provided funds to the Association through grants as was necessary to permit the Association to operate and manage the Park in an efficient manner. It has also provided over the years, as noted above, additional funding through grants for the capital maintenance and improvements of the Park. In XXXXXXXXXX it provided a special capital grant to the Association in the amount of $XXXXXXXXXX. The City considers it in the public interest and for the benefit of the City's citizens that additional grants be provided to the Association so as to provide for the continued operation of the Park. The City, however, is under no legal or contractual obligation to provide any level of funding to the Association. Such funding has been provided over the years by the City to the Association solely on the basis that the City wants to ensure that the Park is maintained and operated for the benefit of the City and the benefit of the residents of the City.

Proposed Transactions

11. The City, with the assistance of the Association, intends to undertake a capital fundraising campaign for the capital maintenance and improvements of the Park and in this regard will seek donations from the community. The intent is that donations would be solicited by the Association for the City and for the XXXXXXXXXX. The Association has a more direct connection to a number of organizations and other corporations and individuals that can be contacted in the fundraising campaign since it is involved in the day-to-day operations of the Park.

12. The City will also participate directly in certain of the fundraising activities. The City Manager and some of the city councilors as board members will be involved in this campaign.

13. The City will receive all the donations, referred to in paragraph 11, from the donors both individual and corporate. The funds will be the property of the City. The funds will be included in the general revenues of the City. The present estimate of the total funds which the City would like to raise in this campaign is $XXXXXXXXXX. While it is intended that the funds raised from the campaign be used to make grants to the Association for the betterment of the Park the City is under no legal or contractual obligation to use the funds for this purpose.

14. The City will receive and control the use of the funds with the intent of granting the amounts raised by the campaign to the Association for the betterment of the Park.

15. You have advised that the fundraising campaign is not intended as an alternative to raising funds for the improvements to the Park by way of increased municipal tax levies. If the fundraising campaign is not undertaken or not successful the improvements to the Park will be limited to those that can be made from the existing resources of the City and any funds raised under the campaign.

Purpose of the proposed transactions

The purpose of the proposed transactions is to raise funds for capital maintenance and improvements to the Park which is owned by the City.

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:

We confirm that

A. An amount equal to the fair market value of a gift made by an individual to the City, referred to in paragraph 13 above, will be included in the calculation of the individual's "total charitable gifts" as defined in subsection 118.1(1), provided an official receipt containing prescribed information is filed as required by subsection 118.1(2).

B. An amount equal to the fair market value of a gift made by a corporation to the City, referred to in paragraph 13 above, will be included in the calculation of the corporation's charitable gifts as described in paragraph 110.1(1)(a), provided an official receipt containing prescribed information is filed as required by subsection 110.1(2).

C. The City may issue an "official receipt" within the meaning of section 3500 of the Income Tax Regulations, to a donor, for a gift described in rulings A and B above.

The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 17, 2001 and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch