15 July 2002 External T.I. 2002-0149635 - CHARITABLE GIFT ANNUITY

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:

Taxpayer requested an advance income tax ruling that the administrative positions in IT-111R2 would apply to a proposed transaction involving a charitable gift annuity.

Position: Unable to rule.

Reasons:

Advance income tax rulings are given on our interpretation of how Canadian income tax laws apply to specific proposed transactions. We do not rule on the application of administrative practices.

XXXXXXXXXX 						2002-014963
							Alison Campbell
July 15, 2002

Dear XXXXXXXXXX:

Re: Request for an Advance Income Tax Ruling for XXXXXXXXXX

This is in reply to your letter of June 18, 2002, wherein you request an advance income tax ruling on behalf of the above named taxpayer.

As explained in paragraph 2 of Information Circular IC 70-6R5, an advance income tax ruling is a written statement given by the Directorate to a taxpayer stating how the CCRA will interpret and apply specific provisions of existing Canadian income tax law to a definite transaction or transactions which the taxpayer is contemplating. The CCRA's Interpretation Bulletins, which are not themselves law, comment on our interpretation of income tax law and sometimes contain administrative practices that may not be supported by the relevant tax legislation but are relieving in nature.

Your request relates to the application of the administrative practice contained in Interpretation Bulletin IT-111R2, and not the interpretation of specific provisions of the Income Tax Act (the "Act"). Accordingly, we are unable to provide you with an advance income tax ruling on the proposed transaction described in your letter. However, we would note that a taxpayer is entitled to rely on the comments in an Interpretation Bulletin until the CCRA makes public that the Interpretation Bulletin is being withdrawn or that one or more positions in the Interpretation Bulletin will no longer be followed. We can also provide you with some general comments that we hope will be of assistance to you.

Under common law, a "gift" is a voluntary transfer of property without valuable consideration. Under the current income tax law with respect to charitable gifts, the purchase of a charitable gift annuity from a charity would not be a gift to the charity for income tax purposes because the donor has received the annuity as valuable consideration. Additionally, under the current income tax law, the payments the donor is to receive would be considered an annuity and would be partially taxable to the donor when received. However, the CCRA does provide some relief from the application of the existing law in situations where an individual, who has an interest in the charitable purposes of a charitable organization pays more for an annuity purchased from the charity than the total amount expected to be received as annuity payments. In these instances, the CCRA has adopted the administrative practice as set out paragraph 3 of Interpretation Bulletin IT-111R2, which is as follows:

a) the excess of the purchase price over the amount so expected to be received as annuity payments, is a gift for which the individual is entitled to claim a donation tax credit, and

b) no portion of any annuity payment is taxable in the hands of the individual.

In determining whether a gift has been made, we would confirm that the 1983 Individual Annuity Mortality Table should be used where the annuity is an immediate life annuity for one annuitant. Where the annuity is not immediate or there are multiple annuitants, the Charities Directorate should be contacted for assistance in determining total annuity payments expected to be received. The facsimile number for the Charities Directorate is (613) 952-6020.

Where it is determined that a gift has not been made, because the total annuity payments expected to be received are greater than the amount paid to the charity to purchase the annuity, the 1971 Individual Annuity Mortality Table is to be used in determining the capital element of the annuity payment for purposes of the deduction under paragraph 60(a) of the Act.

We hope our comments will be of assistance. A refund of your deposit will be sent to you under separate cover.

Yours truly,

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