1 October 1990 External T.I. 9024345 F - Charitable Gifts

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.

19(1)

October 1, 1990

Dear Sirs:

This is in reply to your letter of September 7, 1990 requesting our views as to whether, for purposes of the Income Tax Act (the Act), there would be a gift of property in the following hypothetical situations:

1.     A charitable foundation (the "Foundation") owns the beneficial and legal interest in real property (the "Property") in fee simple.

2.     The Foundation has offered a charitable organization (the "Organization") the use and occupation of the Property rent free or for a nominal rent of $1.00 for a period of two years.

3.     The organization will use the Property in carrying out its charitable objects.

4.     Alternatively the Foundation leases the Property to the Organization for a fair market rental of $24,000 per year, and the Foundation gifts the $24,000 to the Organization.

In our view there would not be a gift of property in the rental arrangement described in item 2. As explained in paragraph 3 of IT-110R2 (Special Release), a gift, for purposes of sections 110.1 and 118.1 of the Act, is a voluntary transfer of property without valuable consideration. Charging rent which is less then the fair market rental value could not in our view be considered to be a voluntary transfer of property.

In the alternative situation described in item 4 there could be, for purposes of sections 110.1 and 118.1 of the Act, a gift of property (i.e., $24,000 cash or $24,000 rent receivable). As stated in paragraph 6 of IT-297R2 valuation of a gift in kind (i.e., rent receivable) is based on the fair market value as of the date on which beneficial ownership is transferred from the donor to the donee. A gift must, of course, be a true gift. It could not, for example, be a transfer pursuant to a contractual obligation related to the lease.

We trust this will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch