21 October 1992 Income Tax Severed Letter 9224505 - Charitable Remainder Trust

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.

5-922450
R. Albert
24(1) (613) 957-2140

Attention: 19(1)

October 21, 1992

Dear Sirs:

Re: 24(1)

We are writing in response to your letter of June 9, 1992 which was forwarded to us for reply from the Charities Division. You have requested our views as to whether your charitable organization can issue a donation receipt for income tax purposes for donors 24(1) with your charity.

Our Comments

Interpretation Bulletin IT-226R discusses the requirements which must be met for an inter vivos donation of an equitable interest in a trust to qualify as a gift for purposes of the Income Tax Act (the "Act"). From paragraph 2 of IT-226R, Revenue Canada - Taxation, considers a gift to have been made if all of the following requirements are met:

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"a) 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.

b) The property must vest with the recipient organization at the time of transfer. A gift is vested if:
• i) the person or persons entitled to the gift are in existence and are ascertained, ii) the size of the beneficiaries' interests are ascertained, and iii) any conditions attached to the gift are satisfied.
• c) The transfer must be irrevocable.
• d) It must be evident that the recipient organization will eventually receive full ownership and possession of the property transferred.

Once it is established that a gift has been made, the value of the gift at the time of the transfer must be determined before it can be claimed for income tax purposes." When determining value, paragraph 5 of IT-226R says that valuation will vary according to the type of gift and that "the general approach is to value the various interests taking into consideration the fair market value of the property itself, the current interest rates, the life expectancy of any life tenants, and any other factors relevant to the specific case."

Paragraph 3 of IT-226R states: "...an example of an inter vivos gift of an equitable interest in a trust is where a taxpayer transfers a property to a trust and the trustee is instructed to pay all of the income earned by the trust to the taxpayer during the taxpayer's lifetime and, on the death of the taxpayer, to transfer the property to a registered charity. If all of the requirements listed in 2 above were satisfied at the time of the transfer to the trust, an inter vivos gift of an equitable interest in a trust is considered to have been made at that time."

Based on the information provided to us,

24(1)

Paragraph 5 of IT-226R states that: "the method of valuing a residual interest in real property or an equitable interest in a trust, whether it be for the purpose of determining the amount of a charitable donation or other tax consequences, will vary according to the type of gift, other interests in the property or trust and the documentation providing for the gift. The general approach is to value the various interests

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taking into consideration the fair market value of the property itself, the current interest rates, the life expectancy of any life tenants, and any other factors relevant to the specific case. In the case of property other than real property, the longer the period before full ownership of the property is passed to the charity, the more difficult it is to establish its value." In our view, it would be very difficult to determine the value of an equitable interest in a trust the property of which consisted of shares.

24(1)

We trust that these comments will be of assistance. For your information, we have enclosed a copy of IT-226R.

Yours truly,
G. Thornley
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

cc: R. Davis
Director
Charities Division

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