8 August 2002 External T.I. 2002-0141755 - DONATION OF REWARD POINTS

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:

1) If reward points can be gifted to a qualified donee, are the points to be valued at the time they are transferred to the qualified donee or at the time the points are redeemed by the qualified donee for property, for purposes of issuing a donation receipt?

2) How would one determine the fair market value of the reward points at the time the points are transferred?

Position:

1) Time of transfer.

2) If the points are not transferable, there is no gift and the determination of fair market value of points is unnecessary. If the points could be transferred, the fair market value would have to be considered on a case-by-case basis.

Reasons:

1) Legislation clearly provides that if a taxpayer wishes to claim a donation tax deduction or credit in respect of a gift to a qualified donee, the taxpayer must provide a tax receipt as proof of the gift. Furthermore, the relevant regulations provide that the tax receipt must show the fair market value of the donated property at the time the gift of the property was made.

2) Our understanding is that under most, if not all, reward points programs the points are not transferable. One of the requisites of a gift for income tax purposes is that property be transferred to a qualified donee.

XXXXXXXXXX 								2002-014175
									Alison Campbell
August 8, 2002

Dear XXXXXXXXXX:

Re: Donation of Reward Points

We are writing in respect of your letters dated May 13 and August 1, 2002, for our comments on a proposal to donate reward points, such as frequent flyer points, to a qualified donee. In particular, you have asked whether the value of donated reward points could be determined at the time such points are redeemed by the qualified donee, for the purposes of issuing donation receipts. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject of an advance income tax ruling request submitted in accordance with the guidelines established in Information Circular IC 70-6R5. However, we are prepared to provide the following general comments.

In respect of your question as to whether the fair market value of "reward points" must be determined, for purposes of issuing a tax receipt, at the time they are received by the qualified donee, or at the time that the qualified donee redeems the points, subsections 110.1(2) and 118.1(2) of the Income Tax Act (the "Act") provide that a claim for a donation tax deduction or credit must be accompanied by a receipt issued by a qualified donee that has been prepared in the manner prescribed in section 3501 of the regulations to the Act (the "Regulations"). Subparagraphs 3501(1)(h)(ii) and 3501(1.1)(h)(ii) of the Regulations are quite specific in requiring that an official donation receipt must clearly show the fair market value of the donated property (where it is a donation of property other than cash) at the time that the gift of property is made.

A gift for purposes of sections 118.1 and 110.1 of the Act involves, in addition to other conditions that must be satisfied, a transfer of property to a qualified donee. The Act does not specify when a "transfer of property" is to be considered to have taken place.

The courts have frequently stated that a "transfer of property" is considered to take place at the time that the transferor divests himself of the property and the property vests in the transferee. Therefore, it is our general view that a gift is considered to be made at the time the donor divests himself of the property being gifted and the property is vested in the qualified donee. With respect to reward points, while we would generally agree that they constitute property for purposes of the Act, it is our understanding that most, if not all, reward point plans do not permit the transfer of points. Only the person who is the member of the reward points plan and who earned the points can redeem the reward points. Where a donor would not be permitted to transfer reward points to a qualified donee, the issue raised in your letter as to whether it is possible to determine the fair market value of reward points at the time of transfer becomes irrelevant.

In the event a particular reward points program does permit the transfer of reward points from a plan member to a qualified donee, such that the qualified donee could redeem the reward points, the fair market value of the reward points on the date that they are transferred to the qualified donee would have to be determined so that a tax receipt could be issued in prescribed form. Since each reward points program would have its own terms and restrictions, and even within a particular reward points program there would likely be different restrictions depending upon criteria such as the level of membership or the number of points involved, it is unlikely that the proper approach to the determination of fair market value of reward points from one gifting situation to another would be consistent. Each situation would have to be considered based on the specific facts.

We would note that in our view the position in IT-470R "Employee Fringe Benefits" regarding the timing of income inclusions in respect of frequent flyer points earned while travelling at the employer's expense is not relevant in addressing the issue of the time that the fair market value of reward points should be determined for purposes of issuing a tax receipt under section 3501 of the Regulations. The comments in IT-470R dealing with frequent flyer points address the application of paragraph 6(1)(a) of the Act. Paragraph 6(1)(a) of the Act generally requires the value of any benefits of any kind whatever received or enjoyed by virtue of an office or employment to be included in income. Section 3501 of the Regulations however, requires a determination of the fair market value of donated property at the time the gift was made. The wording of the two provisions is very different and therefore it is not unreasonable that there would be differences in the application of the two provisions.

Your letter of August 1, 2002, concerns the donation of airline tickets to a qualified donee. In this case, the property that is the subject of the gift would be airline tickets and not reward points. Accordingly, it is the fair market value of the airline tickets at the time that they are transferred to the qualified donee that must be reported on the tax receipt issued by the qualified donee.

As a final point, we would note that the interpretation you propose, which would permit the fair market value of reward points for receipting purposes to be determined at the time the reward points are redeemed by the qualified donee rather than at the time the gift of the reward points is made, would require a legislative amendment to the Act. Any requests for amendments to the Act should be directed to the Department of Finance as this is within their area of responsibility.

While the foregoing comments are not binding on the Canada Customs and Revenue Agency, we trust that they are helpful.

Yours truly,

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