17 February 1992 Income Tax Severed Letter 9201125 - Gift of Real Property

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: GIFT OF REAL PROPERTY Section(s): 118.1]

920112
H. Woolley
(613) 957-2139

XXX

Attention: XXX

February 17, 1992

Dear Sirs:

Re: Gift of Real Property

This is in reply to your letter of January 9, 1992 wherein you requested our views on whether a taxpayer who donates real property with a substantial fair market value to a Canadian municipality, and receives consideration of $1, would be considered to have gifted the real property to the municipality if payment of such consideration was merely a legal formality to avoid adverse consequences with respect to land transfer tax.

Our Comments

It is our opinion as outlined in paragraph 29 of Information Circular IC 80-10R, dated December 17, 1985, that a gift is "a voluntary transfer of property without consideration. There must be a donor who freely disposes of the property and there must be a donee who receives the property given. No right, material benefit or advantage may be conferred on the donor or a person designated by the donor as a consequence of the gift."

In Her Majesty the Queen v Edmund Littler Sr. [[1978] C.T.C. 235] 78 DTC 6179, the Federal Court of Appeal stated:

• "the word gift in a taxing statute must be taken as referring to what is known to the law as a gift, namely the gratuitous transfer of property."

Whether receiving nominal consideration disqualifies a transfer from being gratuitous, and accordingly "taints" the gift, is unclear from existing jurisprudence.

It is our opinion as outlined in paragraph 13 of Interpretation Bulletin IT-110R2, dated May 16, 1986, that "the Department would find no reason to question a donation in circumstances where an inducement was offered, provided the inducement was of little or no value". It is also our opinion that consideration of $1 for real property with a substantial fair market value, paid merely as a legal formality to avoid adverse consequences with respect to land transfer tax, would not, in and by itself, cause the transfer to be other than a gift provided it is otherwise clearly evident that both parties intended the transfer to be a gift.

We trust our comments are of assistance.

Yours truly,

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch