19 May 2004 Internal T.I. 2004-0056491I7 - Foundation to file tax return as corp or trust?

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.

Principal Issues: Is the XXXXXXXXXX a corporation or a trust?

Position: It is a corporation holding the property of XXXXXXXXXX in a trust.

Reasons: The original settlement clearly indicates the intent to create a trust, and both the charitable objects of the trust and the subject matter have been clearly established. Note that external publications support that it not absolutely necessary that all property of a charitable corporation be considered to be held in trust (although the presumption would be that it held in trust)

 		May 19, 2004

	International Tax Services Office	HEADQUARTERS
	T3 Non-Resident Trust Section	Annemarie Humenuk		

	Attention:  Rose Wilcox
		2004-005649

XXXXXXXXXX

This is in response to your memorandum of January 13, 2004, in which you ask whether the above noted foundation is a trust or a corporation.

As stated in XXXXXXXXXX its Articles of Association, the XXXXXXXXXX was incorporated under the law of XXXXXXXXXX in XXXXXXXXXX to administer the trust created by XXXXXXXXXX, a resident of the U.S. The foundation is exempt from income tax in the U.S. under section 501(c)(3) of the Internal Revenue Code. The organizations described in that provision of the Code are commonly referred to as charitable organizations. The income generated from the investment of the funds contributed by XXXXXXXXXX are used by the foundation to XXXXXXXXXX.

Although the foundation is not a resident of Canada, some of its investments are in partnerships that carry on business in Canada. The foundation does not qualify as a registered charity in Canada as it was not created or established in Canada and is not resident in Canada.

In a 1973 paper to the Canadian Bar Association entitled Taxes and Charitable Corporations, which can be found in the Canadian Bar Association publication, Corporate Law Reform and Canadian Not-for-profit Corporations, Peter Cumming discusses the difficulties in applying a Canadian Business Corporation Act to a charitable corporation. He concludes that a charitable corporation does not necessarily need hold its property in trust and that an absolute gift to a charitable corporation, even in the expectation of the use of the gift for charitable purposes, would presumably be free of trust law such that the directors of the corporation would not be restricted in their investment choices.

However, based on the information provided XXXXXXXXXX, it seems that XXXXXXXXXX clearly intended to create a trust with his initial contribution and that he established the parameters of how the funds were to be used. As a result, it is our view that the foundation is both a corporation and a trust in that the corporation is the corporate trustee of the trust created by XXXXXXXXXX.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

T. Murphy
Section Manager
for Division Director
International & Trusts Division
Policy and Planning Branch

??