17 April 2003 External T.I. 2003-0008415 - CHARITABLE GIFT ANNUITIES

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. Will regulations to the Income Tax Act be promulgated that will mandate the how the fair market value of an advantage obtained by a donor in the form of an annuity in a charitable annuity gifting arrangement, is to be determined?

2. Absent regulations, if a model were developed, that would calculate fair market values for annuities, would the CCRA accept the valuations provided by the model?

Position:

1. Our understanding is that presently, the Department of Finance is not intending to promulgate regulations mandating the a basis or method for determining the fair market value of annuities acquired in a charitable gift annuity arrangement.

2. The model would have to withstand the scrutiny of the CCRA on an ongoing basis, to ensure the integrity of fair market values being produced by the model.

Reasons:

1. Finance has not indicated to us, an intention to promulgate such regulations, and does not generally mandate how taxpayers are to determine the fair market value of any property.

2. Any model would have to provide reasonable fair market valuations on an ongoing basis. The values produced the model would also have to withstand the scrutiny of comparisons to fair market values that would have been provided by insurance brokers or services or life insurance companies.

XXXXXXXXXX 							2003-000841
								Alison Campbell
April 17, 2003

Dear XXXXXXXXXX:

Re: Charitable Gift Annuities

This is in reply to your letter of March 12, 2003 with regard to charitable annuities and the proposed amendments to the Income Tax Act which were announced by the Department of Finance in their Technical Bill that was released on December 20, 2002.

In your letter you asked whether the Department of Finance will be promulgating specific regulations to the Income Tax Act which would provide for the basis upon which the fair market value of an annuity issued to a donor as an advantage in a charitable annuity gifting arrangement is to be determined. We can confirm that our understanding is that no such regulations are currently being considered by the Department of Finance. In other words, it is not anticipated that the basis or method used for determining the fair market value of the annuity issued to the donor will be mandated. However, this is a question that you should pose to the Department of Finance.

The fair market value of an annuity stream provided to a donor could be determined by obtaining quotations from professional insurance brokers or services, or insurance companies as to the cost of acquiring an annuity that will provide for the agreed upon stream of payments. However, if as you suggest, a model can be developed and maintained that calculates the cost of annuities which is reasonably consistent with the quotations referred to above, we see no reason why the model could not be used to support the determination of the fair market value of the advantage received by the donor.

This letter should not be construed as our acceptance of any particular model. Any model developed would be subject to scrutiny by the CCRA as to the integrity of the results produced by the model on an ongoing basis.

We trust our comments are of assistance to you.

Yours truly,

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