2002 Ruling 2002-0174333 - GIFTS BY WILL

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:

The trustees of the subject estate are directed by the will to make gifts to specified charities in specified amounts. The will gives the trustees a choice as to how the gifts may be completed. One of the permitted methods for satisfying the bequests involves steps that may negate the transfers being viewed as gifts at law. The trustees ask whether the gifts would be viewed as gifts by will within the meaning of subsection 118.1(5) and 118.1(15) if that method is not used.

Position: The gifts are gifts by will within the meaning of subsection 118.1(5).

Reasons:

The terms of the will clearly specify the following: the identity of the recipients, the quantum of the gifts, that the trustees are required to make the gifts, that the recipients of the gifts are qualified donees, and that the estate will be able to complete the gifts after payment of its debts.

XXXXXXXXXX 							2002-017433

XXXXXXXXXX, 2002

Dear Sirs:

Re: Advance income tax ruling request
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 the information provided in subsequent correspondence and during our telephone conversations in connection with your request (XXXXXXXXXX).

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 a 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:

DEFINITIONS

"adjusted cost base" ("ACB") has the meaning assigned by section 54;

"arm's length" has the meaning assigned by subsection 251(1);

"Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7);

"charitable organization" has the meaning assigned by subsection 149.1(1);

"Company" means XXXXXXXXXX, further described in 2, below;

"Estate" means Estate of the late Mr. A;

"Mr. A" means the late XXXXXXXXXX;

"paid-up capital" ("PUC") has the meaning assigned by subsection 89(1);

"private foundation" has the meaning assigned by subsection 149.1(1);

"public foundation" has the meaning assigned by subsection 149.1(1);

"registered charity" has the meaning assigned by subsection 248(1);

"taxable Canadian corporation" has the meaning assigned by subsection 89(1);

"total charitable gifts" has the meaning assigned by subsection 118.1(1);

"Trust" means the XXXXXXXXXX;

"Trustees" means XXXXXXXXXX;

"Will" means the last Will and Testament of Mr. A as amended by the 10 Codicils.

Facts

1. Mr. A died on XXXXXXXXXX. Prior to his death, Mr. A was an individual resident in Canada within the meaning of the Act. His last residence was situated at XXXXXXXXXX. His personal income tax return for the taxation year ended XXXXXXXXXX was filed at the XXXXXXXXXX Tax Centre. His social insurance number was XXXXXXXXXX.

2. At the time of his death, Mr. A owned the following shares of the Company, a Canadian-controlled private corporation and a taxable Canadian corporation:

Preferred

XXXXXXX

XXXXXX

XXXXX

XXXXXXX

XXXXXX

XXXXX

3. The authorized share capital of the Company consists of an

? Unlimited number of XXXXXXXXXX preferred shares with a non-cumulative dividend not exceeding XXXXXXXXXX% per annum, redeemable and retractable for an amount equal to the consideration for which such shares were issued (i.e., $XXXXXXXXXX per share).

? Unlimited number of XXXXXXXXXX preferred shares with a non-cumulative dividend not exceeding XXXXXXXXXX% per annum redeemable and retractable for an amount equal to the consideration for which such shares were issued (i.e., $XXXXXXXXXX per share).

? Unlimited number of voting XXXXXXXXXX preferred shares (one vote per share), retractable for an amount equal to the consideration for which such shares were issued (i.e., $XXXXXXXXXX per share), not entitled to any dividends.

? Unlimited number of voting XXXXXXXXXX common shares (one vote per share).

? Unlimited number of non-voting XXXXXXXXXX common shares, convertible into XXXXXXXXXX preferred shares at the option of the shareholder on a one-for-one basis.

4. The only other issued and outstanding shares of the Company are XXXXXXXXXX common shares and XXXXXXXXXX preferred shares. The Trust owns these shares.

5. The PUC and ACB of each share of the Company owned by Mr. A at the time of his death was:

Preferred

XXXXXX

XXXXX

XXXX

PUC
XXXXXX

XXXXXXX

XXXX

ACB
XXXXXX

XXXXXXX

XXXX

6. The Will appointed the Trustees as executors and trustees of the Estate. All of the Trustees are resident in Canada within the meaning of the Act.

7. In the Will, the property of Mr. A for which he had the power of appointment or disposal was given, devised and bequeathed, to his Trustees. The Will sets out how the Estate is to be administered and divided and the powers of the Trustees. The Will was passed before notaries and is an authentic document.

8. The Trustees of the Estate control the Company through the XXXXXXXXXX preferred shares.

9. XXXXXXXXXX the Will instructs the Trustees to pay the following as particular legacies without interest within XXXXXXXXXX after the date of Mr. A's death (i.e., on or before XXXXXXXXXX):

XXXXXXXXXX.

10. The Trustees do not have any discretion regarding whether the gifts will be made. However, the following provision in the Will gives the Trustees discretion to either fund the gifts with the assets of the Estate or, subject to compensation by the Estate, to direct the Company to make the said gifts:

XXXXXXXXXX.

11. The Will does not provide any direction with respect to whether the gifts must be made in cash or other property.

12. With the exception of the XXXXXXXXXX, each registered charity named in XXXXXXXXXX the Will is either a charitable organization or public foundation. The XXXXXXXXXX is a registered charity that is a private foundation.

13. Mr. A dealt at arm's length with the directors, trustees, officers and other like officials of each registered charity named in XXXXXXXXXX the Will.

Proposed Transactions

14. On or before XXXXXXXXXX, the Trustees will transfer to each registered charity listed in XXXXXXXXXX the Will and described in 9 above, XXXXXXXXXX preferred shares of the Company having an aggregate fair market value equal to the amount of the gift the Will specifies be made to that charity.

15. Immediately following the proposed transfers of XXXXXXXXXX preferred shares to each registered charity, the Company will purchase for cancellation all the XXXXXXXXXX preferred shares owned by those charities for an amount equal to their aggregate redemption value.

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to carry out the directions in XXXXXXXXXX the Will to make the gifts to the registered charities.

Rulings requested and given

Provided 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. Pursuant to subsection 118.1(5) of the Act, the gifts described in 14 above, other than the gift to the XXXXXXXXXX shall, for the purposes of section 118.1 of the Act, be deemed to have been made by Mr. A immediately before he died and accordingly, the fair market value of the gifts will be included, subject to subsection 118.1(4), in determining the total charitable gifts of Mr. A for the XXXXXXXXXX taxation year, and

B. Pursuant to subsection 118.1(15) of the Act, the gift described in 14 above to the XXXXXXXXXX shall, for the purposes of section 118.1 of the Act, be deemed to have been made by Mr. A immediately before he died (except that, the amount of interest payable under any provision of the Act is the amount that it would be if subsection 118.1(15) did not apply to the gift) and accordingly, the fair market value of the gift, as determined in accordance with paragraph 118.1(13)(c), will be included, subject to subsection 118.1(4), in determining the total charitable gifts of Mr. A for the XXXXXXXXXX taxation year.

Comments

Nothing in this ruling should be construed as confirming the status of any of the organizations benefited by XXXXXXXXXX the Will pursuant to the proposed transactions as being registered charities, charitable organizations, public or private foundations for the purposes of the Act.

The Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
Section Manager
Financial Industries Division
Income Tax Rulings Directorate