6 July 1995 External T.I. 9503565 - 118.1(1)

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 provision, free of charge, of a helicopter and other capital equipment to a Canadian University for use in its research projects could be considered a gift.

Position TAKEN:

Yes a donation of a right to use property could be considered a gift in kind, however, a donation of services is not a gift.

Reasons FOR POSITION TAKEN:

A right to use property (eg., a helicopter or equipment) for a period of time could be considered a property. Therefore, a donation of a right to use a helicopter or equipment for a period of time could be considered a gift in kind. Services is not property therefore can not be gifted.

		950356
XXXXXXXXXX	Wm. P. Guglich

July 6, 1995

Dear XXXXXXXXXX:

This is in reply to your letter of January 25, 1995 concerning the provision by an individual, free of charge, of a helicopter and other capital equipment to a Canadian University for use in its research projects.

You requested our opinion as to whether the University could issue a charitable donation receipt for an amount equal to the normal charges for such equipment.

A gift, for purposes of sections 110.1 and 118.1 of the Income Tax Act (the "Act"), is a voluntary transfer of property without valuable consideration, from a donor, who must freely dispose of his or her property, to a donee, who receives the property given. The transaction may not result directly or indirectly in a right, privilege, material benefit or advantage to the donor or to a person designated by the donor. To qualify, the donation must be in the form of an outright gift. Any legal obligation on the donor would cause the transfer to lose its status as a gift. Further, in order for an expenditure to be considered a gift, it must be made without conditions, from detached and disinterested generosity, out of affection, respect, or charity or like impulses, and not from the constraining forces of any moral or legal duty. The donee must have an unfettered right to use a donation as they wish. However, it is the Department's practice to view donations subject to a general direction from the donor as acceptable, provided that no benefit accrues to the donor, the directed gift does not benefit any person not dealing at arm's length with the donor and decisions regarding utilization of the donation within a program rest with the donee (i.e., XXXXXXXXXX).

Interpretation Bulletin IT-297R2, Gifts in Kind to Charity and Others, discusses the tax consequences of making a gift in kind. Paragraph 3 of IT-297R2 states that a "gift in kind, however, does not include a gift of services". It is a question of fact whether in a particular case a donation to a University, free of charge, of the use of a helicopter or equipment would be a donation of services or a donation of a right to use property.

A right to use property (eg., a helicopter or equipment) for a period of time could be considered a property and a donation of a right to use a property, depending on the facts in a particular case, could be considered a gift in kind. Where it is established on the facts in the case that a donation is a gift in kind the donor is deemed to have received proceeds of disposition equal to the fair market value of the property donated. The fair market value of the gift in kind is also the relevant amount for purposes of calculating, for individuals, the federal tax credit under subsection 118.1(3) of the Act.

A registered charity may issue chartiable donation receipts for gifts in kind. The amount recorded on the receipt would be the fair market value of the gift in kind.

On the other hand if it is established on the basis of the facts in a particular case that it is a donation of services it would not be considered a gift in that services are not property and a federal tax credit under subsection 118.1(3) of the Act would not be available to the individual. However, as stated in Paragraph 3 of Interpretation Bulletin IT-110R2: "There is nothing to prohibit a charity from paying for services and later accepting the return of all or a portion of the payment as a gift provided it is returned voluntarily. The donor must in such in such an arrangement, account for the taxable income that would be realized either as remuneration (in which case the charity would be obliged to issue a T-4 slip) or as business income."

We are forwarding for your information Interpretation Bulletins IT-297R2 and IT-110R2.

We trust our comments will be of assistance.

Yours truly,

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