20 October 1993 External T.I. 9323655 F - Gifts - Partial Rights Retained by Donor

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Gift to the Crown

This is in reply to your letter of August 18, 1993 in which you requested a ruling as to the validity of the established value of a gift to the Crown in right of XXXXXXXXXX

You referred to a specific transaction whereby the ownership of certain property would pass from the current owner to the XXXXXXXXXX You stated the appraised value and also the amount which the current owner and the proposed recipient agree represents the fair market value of the property.

Our Comments:

The situation you described involves specific taxpayers and specific contemplated transactions. As explained in Information Circular 70-6R2 dated September 28, 1990, assurance as to the tax consequences of proposed transactions is provided by the Rulings Directorate but only on an advance income tax rulings basis and only with respect to the taxpayers identified in such rulings. A fee is charged for advance rulings and the procedure to request an advance ruling is described in our Information Circular.

However, even if the parties involved were to request an advance income tax ruling, we would not be able to rule on the fair market value of any property. Valuation is a question of fact and, as noted in paragraph 14 of the Information Circular, is not a matter on which we rule.Although we are unable to provide any opinion in respect of the specific case you have described, we have set out below some comments of a general nature.

Right of First Refusal -

Although typically a right of first refusal can be exercised only at a price equal to the fair market value of the property at the time of exercising the right, it is our view that the existence of a right of first refusal would disqualify a transfer of property from being viewed as a gift.

Contingent Right to Receive Proceeds -

A gift involves a voluntary transfer of real or personal property from a donor who gratuitously disposes of the property to a donee who receives the property given. There must be no right, privilege, material benefit or advantage that accrues to the donor or to a person designated by the donor. If a donor has a right (even if it is only a contingent right) to receive any proceeds for a property, then there is no gifting and no official receipt for tax purposes may be issued.

Agreement as to Future Usage -

It is possible to register a restrictive covenant on land, declaring to what uses the property may or may not be put. If a person were to gift a parcel of land with such a covenant registered thereon, the value of the gift would not be as high as a gift of the same parcel of land without such a covenant.

We trust that our comments are of assistance.

Yours truly,

R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch