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.
Principal Issues:
Whether donation of storm sewer and easement by individual to municipality could be considered a gift and if yes would it be a gift to a municipality or to Her Majesty.
Position TAKEN:
Storm sewer and easement considered property and could be transferred by way of gift. Question of fact whether municipality receives property as principal or agent of Her Majesty
Reasons FOR POSITION TAKEN:
Department's position as stated in previous correspondence and IT Bulletins.
943069
XXXXXXXXXX Wm. P. Guglich
(613) 957-8953
Attention: XXXXXXXXXX
July 5, 1995
Dear Sirs:
Re: Transfer of a Storm Sewer and Easement to a Municipality
This is in reply to your letter of November 14, 1994 regarding a proposed donation to a municipality of a storm sewer and an easement. We apologize for the delay in our response.
You described the following situation:
?A taxpayer constructs on his property a storm sewer at a cost of approximately $115,000.
?The taxpayer then gifts the storm sewer to the municipality and also grants an easement respecting the property to the municipality so that it can access and service the storm sewer.
?After the storm sewer construction is completed the surface of the property will be used by the taxpayer as a parking lot or it will remain vacant.
You requested our comments respecting: the possible application of section 118.1 of the Act, the determination of the value of the storm sewer and easement to be donated to the municipality, and whether the proposed donation would qualify as a "total crown gift on the premise that the municipality is an agent of the province?
OUR VIEWS
A gift for purposes of the tax credit under section 118.1 of the Income Tax Act (the "Act") is a voluntary transfer of property without valuable consideration.
Property is defined in subsection 248(1) of the Income Tax Act (the "Act") as:
`"Property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes
(a) a right of any kind whatever,...."
Consequently the storm sewer and easement would be considered property and could for purposes of section 118.1 of the Act be transferred to the municipality by way of gift.
Interpretation Bulletin IT-297R2, Gifts in Kind to Charity and Others, discusses the tax consequences of making a gift in kind. Generally, when anything is disposed of to any person by way of a gift, the donor is deemed to have received proceeds of disposition equal to the fair market value of the property. The fair market value of a gift in kind is also the relevant amount for the purposes of calculating, for individuals, the federal tax credit under subsection 118.1(3) of the Act. As for determining the fair market value of the easements and the storm sewer, for purposes of subsection 118.1(1) of the Act, paragraph 6 of Interpretation Bulletin IT- 297R2 states that such determination must be made by a person who is competent and qualified to evaluate the particular property being transferred by way of gift.
For the purposes of determining the adjusted cost base of the easement, paragraph 2 of Interpretation Bulletin IT-264R states that, where the area of the portion of the property in respect of which an easement or right of way was granted is not more than 20% of the area of the total property and the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the total property, the Department, for the purpose of section 43, normally accepts an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of in such cases.
If the easement or storm sewer is a capital property, the donor may also be able to elect under subsection 118.1(6) of the Act respecting the proceeds of disposition and the value of the gift.
In a specific situation it would be a question of fact whether the municipality would receive the easement and storm sewer as principal or as an agent of the province. We understand that ordinarily in matters respecting local storm sewers and related easements the municipality would act as principal and not as agent of the province.
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
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