21 November 1989 Administrative Letter 58766 F - Gift of Residual Interest to a Charity

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.

November 21, 1989

Dear Sirs:

Re:  Gift of Residual Interest to a Charity

This is in reply to your letter of September 22, 1989 in which you raise questions with respect to the gifting of a residual interest in a property to a charity.

With respect to our position regarding "only those gifts which vest ..." as set out in paragraph 2 of Interpretation Bulletin IT-226 you ask:

1)     If a trust was used to hold the asset that is gifted to a charity with life income continuing to the donor and capital going to the charity at time of death, could the charity issue a tax receipt on the basis set out in IT-226 even if the gift is technically made to a trust as opposed to a charity.

2)     In terms of property, other than real estate, what is Revenue Canada's interpretation of "vest" in order to qualify for a tax receipt?

3)     In the case of charitable giving, could an annuity be structured as follows?:

-      Owner would be the donor

-      The interest income would continue to the donor during his lifetime

-      The charity would be named an irrevocable beneficiary on the contract so at death the capital of the contract would go to the charity.

Our Comments

The Departments interpretation of "vest" in the context of IT-226 is essentially the same as "vested indefeasibly" in Interpretation Bulletin IT-449R. Paragraph 1 of IT-449R states in essence that a property vests indefeasible when a person obtains a right to absolute ownership of it in such a manner that the right cannot be defeated by any future event, even though that person may not be entitled to the immediate enjoyment of all benefits arising from that right.  Where, for instance, there is an appointment of an irrevocable beneficiary in either of a policy insurance or an annuity policy under which the beneficiary obtains the unassailable right to ownership of the capital element of the policy such property would normally be considered to vest indefeasibly.

The answer to your first question is essentially answered in paragraph 1 of IT-449R.  There it states,

     "Where property is held in trust for the benefit of one or more persons it is the Department's view that such property normally vests indefeasibly in the trust and not in a beneficiary thereof.  However, where the Department is satisfied that a property is held in trust solely to carry out the terms of a will under which the ultimate and absolute ownership of that property is bequeathed to a particular individual and the trust arrangement is such that the individual's ownership rights whatsoever to an immediate or future benefit from that property or that rust, the property will be considered to vest indefeasibly in that individual."

Thus, in your example, which concerns an inter vivos trust, it is our view that the charity would not be ale to issue a tax receipt.

Question 2 is answered by IT-449R and in the opening paragraphs of our comments.

The answer to question 3 is yes, an annuity to be gifted to a charity can be structured in the manner outlined in your question 3, however, it is doubtful that a charitable deduction could be allowed at the time the charity is named as beneficiary because it is doubtful that the residual interest is reasonably ascertainable. Although the beneficiary is considered by you to be an irrevocable beneficiary it would appear that, (1) changes can be made to the contract to allow partial withdrawals, and(2) the right is given to surrender the contract providing consent is given by the irrevocable beneficiary.  Thus in our view the capital element of the annuity has not vested indefeasibly.

Where, however, the charity, as beneficiary, has an unassailable right of ownership in the capital element of the annuity and this right cannot be defeated or varied in any way (as set out in paragraph 1 of IT-449R) it would appear that a charitable donation receipt could be issued at the time of vesting in accordance with IT-226.

We trust our comments will be of assistance to you in this matter.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings directorateLegislative and IntergovernmentalAffairs Branch