24 August 1995 External T.I. 9517035 - GIFT OF TRUST INTEREST TO A CHARITY

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:

donation of trust interest to charity

Position:

as stated in IT-111R

Reasons:

taxpayer received incorrect advice- gift to charity can only be made in accordance with RCT published position

		           		951703
XXXXXXXXXX              	L. Holloway
(613) 957-2104

Attention: XXXXXXXXXX

August 24, 1995

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your request for an "Advance Ruling" dated June 22, 1995. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by Revenue Canada (copies attached). All ruling requests submitted must conform to these requirements before a request will be considered by the Department. However, we can offer the following general comments as to the tax consequences of the proposal of the

XXXXXXXXXX

Interpretation Bulletin IT-226R entitled "Gift to a charity of a residual interest in real property or an equitable interest in a trust" explains in paragraph 3:

3.An equitable interest in a trust is created upon the transfer of any property (including real property) to a trust with the requirement that the property be distributed to a beneficiary at some future date (e.g. when an income interest of another person ends). Where such an interest is created for the benefit of a charity, that interest may qualify as a gift for the purposes of subsection 110.1(1) or 118.1(3).

A gift of an equitable interest could be made through a testamentary trust or an inter vivos trust. For example, assume that a trust is created by the will of a deceased taxpayer to hold property gifted by the deceased to a registered charity. The terms of the will require the trustees to pay all of the income earned by the trust to the taxpayer's surviving spouse and, on the death of the taxpayer's spouse, to transfer the property to the registered charity. Neither the spouse nor any other person has the power to encroach on the capital of the trust. In this case, a testamentary gift of an equitable interest in a trust is considered to have been made and the taxpayer is deemed by subsection 118.1(5) to have made a gift of the interest to the registered charity in the taxation year in which the taxpayer died.

A gift of a residual interest to a charity is separate and distinct from an individual purchasing an annuity from a charity. As indicated in paragraph 1 of IT-111R the Department does recognize that certain registered charities solicit individuals to make irrevocable contributions of capital to the charity in exchange for immediate guaranteed payments to the individual for life at a specified rate depending on life expectancy. Such arrangements are considered to be annuity contracts for purposes of the Income Tax Act and the annuity payments are included in computing the annuitant's income under paragraph 56(1)(d). Paragraph 60(a) provides for the deduction from income of the capital element of the annuity payments as determined by Part III of the Income Tax Regulations. This position is an administrative position which operates only where an individual pays more for the annuity than the total amount expected to be received back as annuity income. In such a case, the Department is prepared to take the view that the excess of the purchase price over the amount so expected to be returned is a gift and the individual is entitled to a tax credit in respect of the gift to the extent allowed by subsection 118.1(3) provided an official receipt is produced in accordance with Part XXXV of the Income Tax Regulations. No portion of any annuity payment would be taxable in the hands of the individual in this circumstance as the payment would only represent a return of capital.

Therefore, unless XXXXXXXXXX will themselves be making capital contributions to the Church we do not see how this administrative position would apply to the situation described in your letter. The gift of residual interest, to the Church, has been made by the deceased. The income beneficiaries of the trust can not gift this capital to the Church as the Church is already the owner of the interest as the capital beneficiary of the trust.

Should the contemplated transaction be different from that described in your letter we would be pleased to re-examine the proposal resubmitted in accordance with IC 70-6R2.

We trust our comments will be of assistance to you.

Yours truly,

T. Murphy
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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