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:
Whether a donation constitutes a gift for income tax purposes when the donation is subject to various conditions.
Where a corporation, the controlling shareholder of the corporation and a charity enter into an agreement with respect to a donation, will subsection 15(1) apply to include the amount of the donation made by the corporation in the income of the controlling shareholder?
Whether the amount of the advantage in respect of the naming rights granted to the controlling shareholder is nil for the purposes of draft subsection 248(32).
Position:
Based on the facts, it is our view that the donation would constitute a gift for income tax purposes.
No, the terms of the agreement provide that the Corporation will make the gift.
Factual determination. Provided that there is no prospective economic benefit associated with the naming rights, it is our opinion the amount of the advantage is this case would be nil.
Reasons: Consistent with previous positions.
XXXXXXXXXX 2006-021847
XXXXXXXXXX, 2007
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request - XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the additional information provided in subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).
You advise that to the best of your knowledge and that of the taxpayer referred to above, none of the issues involved in the ruling request:
i. is in an earlier return of the taxpayer or a related person;
ii. is being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayer or a related person;
iii. is under objection by the taxpayer or a related person;
iv. is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; and
v. is the subject of a ruling previously issued to the taxpayer by the Directorate.
Unless otherwise stated, all references to a statute are to the provisions of the Income Tax Act, R.S.C. 1985, 5th Supplement, c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the relevant definitions, facts, proposed transactions and their purposes is set out below.
DEFINITIONS
a) "Board" means the XXXXXXXXXX,
b) "Centre" means the new Centre for XXXXXXXXXX to be established at the Charity,
c) "Charity" means XXXXXXXXXX
d) "Corporation" means XXXXXXXXXX,
e) "CRA" means Canada Revenue Agency,
f) "Faculty" means the XXXXXXXXXX,
g) "Foundation" means the XXXXXXXXXX,
h) "Fund 1" means a limited term expendable fund to be called the XXXXXXXXXX,
i) "Fund 2" means a separate fund to be called the XXXXXXXXXX,
j) "Individual A" means XXXXXXXXXX,
k) "Individual B" means XXXXXXXXXX,
l) "Office" means the new XXXXXXXXXX to be established at the Charity,
m) "Private corporation" has the meaning assigned by subsection 89(1), and
n) "Taxable Canadian corporation" has the meaning assigned by subsection 89(1).
FACTS
1. Individual A is a resident of Canada living in the City of XXXXXXXXXX. Individual A is the President of and controls the Corporation.
2. The Corporation is a taxable Canadian corporation and a private corporation. The Corporation is a holding company. It does not have any subsidiaries. The office of the Corporation is located in XXXXXXXXXX and it files its returns with the XXXXXXXXXX Tax Services Office.
3. The Charity is a university located in XXXXXXXXXX. The Charity is a "charitable organization" within the meaning of subsection 149.1(1) and its charitable registration number is XXXXXXXXXX.
4. The Foundation is a "private foundation" within the meaning of subsection 149.1(1) and its charitable registration number XXXXXXXXXX.
5. Individual B is a resident of Canada and controls XXXXXXXXXX, a holding company. Individual B is a colleague of Individual A. Individual B deals at arm's length with Individual A for the purposes of the Act.
PROPOSED TRANSACTIONS
6. Individual A, the Corporation and the Charity propose to enter into an agreement (the "Agreement") pursuant to which the Corporation will donate and arrange for another person to donate amounts aggregating $XXXXXXXXXX to the Charity. The Agreement will be subject to the receipt of favourable rulings from the CRA or a written legal opinion satisfactory to the Corporation that the proposed donation described in 7a) below qualifies as a charitable gift under the Act.
7. Pursuant to the Agreement:
a) the Corporation will donate to the Charity $XXXXXXXXXX (the "Gift") by no later than XXXXXXXXXX;
b) the Foundation will donate to the Charity $XXXXXXXXXX (the "Scholarship Donation") no later than XXXXXXXXXX; and
c) an additional $XXXXXXXXXX (the "Additional Donation") will be donated to the Charity by the Corporation, or from another legal entity as designated by it, on or before XXXXXXXXXX.
8. The donations listed in 7 above may be made in cash or in shares of a company listed on a stock exchange that is a prescribed stock exchange for the purposes of the Act.
9. Pursuant to the Agreement, the donations will be allocated by the Charity as follows:
a) $XXXXXXXXXX of the Gift will be allocated towards the support of the development of a XXXXXXXXXX for the Faculty. The Charity will establish the Centre which will spearhead development of the XXXXXXXXXX and will develop groundbreaking approaches to technological innovation in XXXXXXXXXX education.
b) $XXXXXXXXXX of the Gift will be allocated towards the establishment of the Office which will be responsible for the development, marketing and conduct of continuing education initiatives in the Faculty.
c) In recognition of the expenditure from the Gift of $XXXXXXXXXX as described above, the Charity will provide a matching contribution of $XXXXXXXXXX of new funding to the Faculty on the basis of $XXXXXXXXXX per year over a XXXXXXXXXX-year period starting in XXXXXXXXXX. These matching funds will be expended at the discretion of the XXXXXXXXXX to support new and existing priorities.
d) $XXXXXXXXXX of the Gift will be allocated towards Fund 1 to support the priorities of the Faculty as further described in 10 below.
e) The Additional Donation when received will be added to Fund 1.
f) The Scholarship Donation will be held in Fund 2 as further described in 13 below.
10. The Charity will be responsible for the management of Fund 1. On the condition that the donation of $XXXXXXXXXX to Fund 1, as described in 9 d) and e) above, has been received by the Charity and invested for a full year before the first distribution from Fund 1, the Charity will guarantee a distribution of $XXXXXXXXXX per year from Fund 1 for a total of XXXXXXXXXX years. The Charity will allocate the annual distribution of $XXXXXXXXXX as follows:
a) $XXXXXXXXXX to support the development of the XXXXXXXXXX referred to in 9 a) above.
b) $XXXXXXXXXX to support the development of the Office referred to in 9 b) above.
c) $XXXXXXXXXX to support the establishment of XXXXXXXXXX.
d) $XXXXXXXXXX to support the establishment of an XXXXXXXXXX.
11. The Charity will provide in perpetuity $XXXXXXXXXX per year of new funding to the Faculty in recognition of the donation of $XXXXXXXXXX towards Fund 1.
12. In recognition of the donations, subject to approval in accordance with the Charity's existing naming policy, the Charity will permanently and irrevocably name and designate in perpetuity the Faculty and all of the constituent departments as the "XXXXXXXXXX". The XXXXXXXXXX will be named by Individual A acting reasonably, with such names to be approved by the Charity in accordance with the Charity's naming policy whose approval will not be unreasonably withheld. Individual A will also be permitted to name XXXXXXXXXX.
13. The Charity will allocate the Scholarship Donation to Fund 2 which will be created in accordance with the terms of the Agreement for the benefit of the Charity's student award program for undergraduate and graduate students in the Faculty. The Charity will be responsible for the management of Fund 2. On the condition that the full $XXXXXXXXXX has been received by the Charity and invested for a full year before the first distribution from Fund 2, the Charity will guarantee a distribution of $XXXXXXXXXX per year from Fund 2 in perpetuity. The Charity will provide a match of the $XXXXXXXXXX distribution so that the support of scholarships will be $XXXXXXXXXX per year in perpetuity. All awards to the recipients will be awarded and administered in accordance with the Charity's existing policy on student awards. Subject to approval in accordance with the Charity's naming policy, the scholarships will be known as the "XXXXXXXXXX" and the recipients of the scholarships will be known as "XXXXXXXXXX".
14. The Faculty will establish the Board to provide consultation and advice to the XXXXXXXXXX on advancement and fundraising initiatives. It will be made up of external volunteers who will contribute their time and expertise and will be paid no fees for their involvement. It is expected that the Board will have between XXXXXXXXXX and XXXXXXXXXX members. Individual A, or in substitution a representative appointed by Individual A, will be entitled to sit on the Board. You advise that neither Individual A nor his substitute will be in a position to control the Board.
15. None of Individual A, Individual B, the Corporation, or XXXXXXXXXX will participate directly or indirectly, except as provided for in this Ruling, in the operation, day to day or otherwise, of the Charity or the Faculty.
16. In the unlikely event that the Faculty may no longer be named and designated as the XXXXXXXXXX by reason of compulsion of valid law enacted by competent, government legislative authority or as a result of the Faculty ceasing to exist, the Charity will consult with Individual A, his heirs or designated representatives to identify a comparable naming opportunity in accordance with the Charity's naming policy.
17. The donations will be irrevocable in that the Corporation, the Foundation, a legal entity designated by the Corporation, any related persons and their assigns will not be entitled to the return of the amounts donated to the Charity.
PURPOSE OF THE PROPOSED TRANSACTIONS
18. The purpose of the proposed donations is to assist the Faculty to achieve its vision through the establishment of XXXXXXXXXX.
RULINGS GIVEN
Provided the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, we confirm that:
A. Provided that there is no prospective economic benefit associated with the naming rights described in the Agreement, the amount of cash donated or, if the shares are listed on a prescribed stock exchange for the purposes of the Act, the fair market value of the shares donated on the date of donation, in satisfaction of the Gift as described in 7 a) above, will qualify as a gift as described in paragraph 110.1(1)(a) if an official receipt containing prescribed information is filed as required by subsection 110.1(2).
B. The undertaking of the Corporation to make the Gift pursuant to the Agreement will not, in and of itself, constitute a benefit conferred on Individual A pursuant to subsection 15(1).
OPINION
Provided that there is no prospective economic benefit associated with the naming rights described in the Agreement, it is our opinion that the amount of the advantage of such naming rights would be nil for the purpose of proposed subsection 248(32) contained in Bill C-33.
The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Gift is made by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2007
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2007
Email this Content