27 June 1995 External T.I. 9426705 - GIFT OF RESIDUAL INTEREST

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.

		942670
XXXXXXXXXX	A.M. Brake

Attention: XXXXXXXXXX

June 27, 1995

Dear Sirs:

Re: Gift of Residual Interest

This is in reply to your letter of May 10, 1994 to our Charities Division which was forwarded for our response. The situation you describe relates to a residential property on which the XXXXXXXXXX holds a mortgage. You also mentioned that the donors are prepared to purchase a Joint and Survivor Life Insurance Policy with the amount of the insurance payable equal to the actuarially calculated future value of the property and with the client charity as beneficiary. We apologize for the delay in replying.

Although you have asked for a technical interpretation, the situation presented appears to be an actual fact situation. Should this situation involve a proposed transaction, you may wish to submit all relevant facts and proposed transactions for a binding advance income tax ruling. However, should this situation involve actual taxpayers and completed transactions you may wish to submit all relevant facts and documentation (including company names and identification numbers) to the appropriate District Taxation Office for their comments. We are, however, prepared to provide some general comments.

Our Comments

If you will refer to paragraph 3 of Interpretation Bulletin IT-110R2, you will note that certain conditions must be present in order for a donation to be eligible for the credit against tax. We would particularly draw your attention to the third precondition, the transfer must occur without consideration or benefit accruing to the donor or to anyone designated by the donor. A gift for tax purposes must be an outright gift with no conditions upon receipt, no right, privilege, material benefit or advantage may accrue to the donor or to a person designated by him. It is our view that there is a reasonable argument that the assumption of a mortgage by a recipient would constitute "consideration", being a benefit to the donor to the extent that he is relieved of responsibility for the debt. In addition, the Department considers that a charity that has assumed a mortgage has "incurred debts" such that the status of the charity could be affected.

It is our view that the purchase of a Joint and Survivor Life Insurance Policy would not change the fact that the assumption of the mortgage referred to above did constitute "consideration" to the donor. The Policy, itself, if gifted to a charity could qualify as a gift but it would not necessarily alter the benefit to the donor in respect of the assumption of the mortgage by the donee.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch