27 June 2003 External T.I. 2003-0181975 - CHARITABLE DONATION TAX CREDIT

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:

We are asked to comment on a specific completed transaction. Property was transferred to a qualified donee for consideration in year 1. Pursuant to a written agreement, the donee was to receive cash consideration for the transfer and a donation receipt. No receipt was issued due to consideration given. In year 11, a valuation was obtained suggesting property gifted could have been divided into sets with one set having a fair market value equal to the cash consideration for the transfer. We are asked whether the written agreement could be amended, on a retroactive basis, to reflect gift of one set, sale of other, then a donation receipt issued in year 12, and a tax credit claimed by the donor.

Position:

General comments given as to when a gift is completed, and the time limits for claiming a donation tax credit.

Reasons:

Question of fact to be determined by Audit having regard to all documentation.

XXXXXXXXXX 							2003-018197
R. Maley
June 27, 2003

Dear XXXXXXXXXX:

Re: Section 118.1 of the Income Tax Act

This is in reply to your letter of December 4, 2002 requesting our views as to whether XXXXXXXXXX could issue a tax receipt in respect of a gift made to XXXXXXXXXX on XXXXXXXXXX and whether the recipient of the receipt could thereon claim a tax credit pursuant to section 118.1 of the Income Tax Act ("the Act").

In general, a gift is defined as a voluntary transfer of property without consideration. The essential requisites of a gift are: intention and capacity of the donor to make the gift, completed delivery to a donee and acceptance of a gift by the donee. For example, see paragraph 3 of IT-209R "Inter Vivos Gift of Capital Property". Proposed amendments to the Act will allow the CCRA to recognize a gift, for tax purposes, in certain circumstances where a donor receives consideration for a property transferred after December 20, 2002. Reference in this respect may be had to the CCRA's Income Tax Technical News No. 26.

Subsection 118.1(3) of the Act defines the donation tax credit that may be claimed in a taxation year by individuals in respect of charitable gifts made by them. The amount of that may be claimed is determined with reference to the individual's "total gifts" as defined in subsection 118.1(1), which in turn is computed with reference to the individual's "total charitable gifts" for a taxation year.

Subsection 118.1(1) defines an individual's "total charitable gifts" for a taxation year to be the total of each amount that is the fair market value of a gift (other than a Crown gift, cultural gift or ecological gift) made by the individual in the year or in any of the 5 immediately preceding taxation years to a registered charity or other qualifying donee described in that definition.

Thus, while there is no time restriction set out in the Act limiting when a qualified donee may issue a receipt in respect of a particular gift, there is a time limit for the donor to claim the gifted amount for tax purposes. This time limit is defined with respect to the time the gift is legally completed.

In our view, once a gift has been made, neither the subsequent issuance of a receipt nor the subsequent valuation of the gifted property would effect the available time for the donor to claim a tax credit in respect of the gift.

Obviously, a qualified donee should never issue a receipt unless it is satisfied that it has received a property that legally constituted a gift at the time that the property was received. If a receipt is issued, the amount of the receipt is to be the fair market value of the property at the time of the gift (see section 3501 of the Income Tax Regulations), as opposed to the time of any subsequent valuation of the transferred property.

In any event, the issuance of a receipt is in no way determinative of whether a transaction is a gift. Whether or not a particular transfer of property constituted a gift depends upon the factual circumstances at the time of the transfer.

The assessment of completed transactions (and all relevant evidence pertaining thereto) falls within the jurisdiction of Audit Directorate. Specific queries in that respect must be referred to your local Tax Services Office. For this reason, we are not in a position to conclusively reply to every question you have posed to us. Audit Directorate's response to such questions would be made only after a complete review of the relevant facts, including all relevant documentation.

However, we suspect that you will appreciate, from the information we have been able to provide, that the assessment you are seeking may be difficult to maintain. As we understand the few facts you have described to us, the original agreement could not be viewed as evidencing a gift, as cash consideration changed hands at the time the property was transferred. Hence, the assessment you are seeking will depend, in part, upon the evidentiary value of a retroactive amendment to that agreement made 12 years after transaction was completed, in establishing the proposition that the original intent was to undertake two separate transactions, one a sale of property, one a gift. Moreover, the position you are seeking appears to be motivated by a valuation obtained 11 years after the transaction was completed.

Finally, should the facts as currently asserted prove to be supportable on assessment, and a receipt is issued to the donor, there remains the question whether that donor could realize any benefit from the tax credit in section 118.1 of the Act, given the passage of time since the property was transferred. (As noted, the tax credit may only be claimed for the taxation year in which a gift is made, and the five following years).

While the foregoing comments are not binding on the Canada Customs and Revenue Agency, we trust that they will assist you in resolving your questions.

Yours truly,

F. Lee Workman
Section Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate