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: Clarify the date on which a gift known at common law as a Donatio Mortis Causa ("DMC") is made to a registered charity.
Position: The gift will be considered to have been made on the date that the gift vests completely in the donee, which is the date of the donor's death.
Reasons: By definition a DMC is subject to a condition precedent, which is the death of the donor. Therefore, even though the subject matter of the gift has been delivered to the charity at an earlier date, legal title therein does not vest in the donee until the death of the donor. At any time up until death, the donor may revoke the gift. Accordingly, it is not until the condition precedent has been satisfied that the gift will be considered completed for tax purposes.
XXXXXXXXXX 2007-022841
M. Thomson
December 19, 2007
Dear XXXXXXXXXX:
Re: Gift to a Charity Subject To a Condition Precedent
We are writing in reply to your letter of March 27, 2007 wherein you requested our views as to the timing of a gift, known at common law as a Donatio Mortis Causa ("DMC"), which in your hypothetical example would be made to a registered charity by an Ontario individual.
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.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
As the term "gift" is not defined in the Act, the common law definition of gift is used in the determination of "total charitable gifts" made by an individual for purposes of subsection 118.1(1). The common law definition is described in CRA's Interpretation Bulletin IT-110R3 -Gifts and Official Donation Receipts at paragraph three. It states that in general, there must be a transfer of property voluntarily given with no expectation of right, privilege, material benefit or advantage to the donor or a person designated by the donor. Draft legislation released by the Department of Finance in December, 2002, proposes to permit the recognition of a gift, for tax purposes, in some circumstances where the donor receives consideration or a benefit for the transfer of property. The draft legislation is discussed in CRA Technical News No. 26.
Where a gift is subject to a condition precedent, it is our view that even where the transfer to a registered charity is made voluntarily without expectation of return and the other essential requisites of a gift are satisfied, the gift cannot be completed before that condition is satisfied.
The three requirements for a valid DMC at common law are:
1. the gift must have been made in contemplation of, though not necessarily expectation, of death;
2. the subject matter of the gift must have been delivered to the donee; and
3. the gift must have been made under such circumstances as to show that the property is to revert to the donor if the donor should recover (this condition is sometimes put somewhat differently, and it is said that the gift must be made under circumstances showing that it will only take effect on the death of the donor).
Accordingly, a DMC is subject to a condition precedent, being the donor's death, which must be satisfied before the gift can be completed. Therefore, subject to all the other requirements of a gift being satisfied, it is our view is that the donor would be entitled to a deduction in computing tax payable, to the extent permitted by subsection 118.1(3), for his or her final taxation year.
In our view, in order for a transfer of property to qualify as a DMC, the common law requirements must strictly be satisfied.
While we hope that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R4 and are not binding on the CRA in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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