18 March 2003 External T.I. 2003-0000175 - 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:

Can air travel reward points be the subject of a gift to a registered charity?

Position:

Reward points are property that may be the subject of a gift to a registered charity. If reward points are transferred to the charity, it is the fair market value of the reward points themselves, at the time the points are transferred to the charity, that must be used in determining the amount of the donation tax credit. If the points are redeemed to acquire property and the acquired property is transferred to the charity, the property that is the subject of the gift will be the acquired property and it is the fair market value of the acquired property at the time it is transferred to the charity that is relevant to the determination of the donation tax credit. Taxpayer also referred to new draft guidelines on split receipting as they may or may not be relevant depending on the taxpayer's specific situation.

Reasons:

A gift for purposes of the donation tax credit requires there to be a voluntary transfer of property. Property is broadly defined for purposes of the Act and would include reward points such as Airmiles points, and therefore, if voluntarily transferred to a charity could be the subject of a gift. The donation tax credit must be based on the fair market value of the property donated, at the time the property is gifted to the charity.

XXXXXXXXXX 							2003-000017
								Alison Campbell
March 18, 2003

Dear XXXXXXXXXX:

Re: Donation of Airmiles

We are writing in response to your facsimile dated January 24, 2003, in which you requested our views on a gift of travel reward points made by an individual taxpayer to a registered charity. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed. Where the transaction is complete, your concerns should be addressed to your local Tax Services Office. We can however, provide you with some general comments.

For a taxpayer to be considered to have made a gift for purposes of the charitable donation tax credit in section 118.1 of the Income Tax Act (the "Act"), the taxpayer must have made a voluntary transfer of property to a qualified donee with the intention of benefiting the donee. A registered charity is a qualified donee for purposes of the Act. The gift is considered to have been made in the taxation year that the property which is the subject of the gift is transferred to the charity. Assuming that the donor, or a person not at arm's length with the donor, has not received an advantage from the charity in exchange for the donated property, the amount of the donation tax credit will be based upon the property's fair market value at the time of transfer to the charity. Subsection 118.1(2) of the Act requires that a claim for a donation tax credit be supported by a tax receipt containing prescribed information. The required contents of the receipt are set out in section 3501 of the Regulations to the Act, and among other things, require the receipt to describe the property received and the fair market value of the property.

It is our view that reward points granted under various programs that enable a member of the program to redeem the points for numerous items, including airplane tickets, are property that may be the subject of a gift, provided the particular program permits a transfer of the points to the intended recipient. Where an individual makes a gift of reward program points to a registered charity, the individual would be entitled to claim a donation tax credit based on the fair market value of the points at the time the points were transferred to the charity. The tax credit may be claimed in the year of the transfer to the charity or in any of the five following taxation years.

Where an individual redeems reward points under a program of which the individual is a member to acquire airplane tickets, and then voluntarily transfers the airplane tickets to a registered charity, the individual will be considered to have made a gift of airplane tickets rather than a gift of reward points. Accordingly, for the purposes of the donation tax credit in section 118.1 of the Act, the gift will be considered to have been made at the time the airplane tickets are transferred to the charity and it is the fair market value of the airplane tickets at that time that is relevant in determining the amount of the donation tax credit. We note that in the case you described, the reward points were redeemed by the charity to acquire airline tickets at some time after the time that the reward points were received by the charity. In such circumstances, it is not clear that the value of the airline tickets acquired with the points is a reasonable estimate of the fair market value of the reward points at the time the reward points were transferred to the charity.

The Department of Finance recently released draft legislation (December 2002) that addresses transfers of property to a qualified donee, such as a registered charity, in circumstances where the donor or a person not at arm's length with the donor has received an advantage in connection with the donation of property to the charity. The CCRA issued Income Tax Technical News #26 "Draft Proposed Guidelines on Split-Receipting", in connection with the proposed draft legislation. These guidelines may or may not be relevant to your particular situation but we enclose a copy of them for your reference.

While the foregoing comments are not binding on the Canada Customs and Revenue Agency, we hope that they will be of assistance to you.

Yours truly,

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