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 definition "gifting arrangement" within the meaning of the definition in subsection 237.1(1) limited to situations in which a property is acquired under an agreement and, in the same agreement, the property is to be given to a charity?
Position: No.
Reasons: The meaning of "arrangement" is broad and does not require the existence of an agreement.
XXXXXXXXXX 2004-009819
February 22, 2005
Dear XXXXXXXXXX:
Re: Section 237.1 - "Gifting Arrangement"
This is in response to your letter dated October 13, 2004 in which you request our comments on a hypothetical tax scenario. In the situation described, a financial institution promotes and sells flow-through shares to its customers. The customers may, after fully utilizing the deductions to which their shareholding entitles them, gift the shares to a registered charity. The financial institution promotes the charity to its customers, including the customers who purchase the flow-through shares.
You have asked for our view as to whether the hypothetical tax scenario would be viewed as a tax shelter for purposes of Income Tax Act (the Act) on the basis that it is a "gifting arrangement" within the meaning defined in subsection 237.1(1) of the Act. There appears to be two concerns in this regard. First, you wish to have confirmation that the financial institution's promotion of the charity to its customers does not constitute a "gifting arrangement" on the basis that there is no agreement to acquire property.
Second, you wish to have confirmation that the promotion and sale of flow-through shares to its customers does not constitute a "gifting arrangement" because there is no agreement in place between the financial institution and the customers that the gift will be made. It is your view that the definition "gifting arrangement" would apply only to those situations where a donor acquires property under an agreement and, under the same agreement, the property acquired is then gifted to a donee.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
A "tax shelter" for purposes of the Act is defined in subsection 237.1(1) to include certain "gifting arrangements". A gifting arrangement includes any arrangement under which it may reasonably considered, having regard to statements or representations made or proposed to be made, that a person would, if they entered into the arrangement, make a gift to a qualified donee of a property acquired under the arrangement.
It is generally not possible for the Canada Revenue Agency (CRA) to speculate whether particular hypothetical situations would be a "tax shelter" for purposes of the Act. We would note, however, that the term "arrangement" has a broad meaning and has been judicially interpreted as meaning "something less than a binding contract or agreement, something in the nature of an understanding between two or more persons - a plan arranged between them which may not be enforceable at law". For example, see Mort v. Canada (1993) 1 CTC 99 at 107 (TCC) citing Lord Denning in Newton v. The Commissioners of Taxation (1958) 2 All E.R. 759 at 763.
As such, it is our view that the application of the definition "gifting arrangement" would not be limited to situations where a donor acquires property under an agreement and, under the same agreement, the property acquired is to be gifted to a registered charity.
We trust that these comments will be helpful. However, as stated in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently, is not binding on the CRA in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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