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:
Tax treatment of gifts of detached coupons by financial institutions
Position TAKEN:
Deduction pursuant to 110.1(1) of FMV of gift. Deemed disposition of detached coupon pursuant to 69(1)(b)(ii). New rules for financial institutions applies to the deemed disposition.
Reasons FOR POSITION TAKEN:
Provisions of the Act.
5-952134
XXXXXXXXXX Robert Gagnon
Attention: XXXXXXXXXX
September 22, 1995
Dear Sir:
Re: Gifts of Detached Coupons
This is in reply to your letter of August 12, 1995 wherein you requested a technical interpretation concerning the tax treatment of gifts in kind of detached coupons made by financial institutions.
The situation outlined in your letter appears to involve actual proposed transactions with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specified proposed transactions other than as a reply to an advance income tax ruling. The request for an advance income tax ruling should follow the format set out in Information circular 70-6R2. Moreover, the rules in the Income Tax Act ("Act") applicable for financial institutions are complex and the determination of the tax treatment of different scenarios cannot be made without knowing all the facts (including the taxpayers involved and the nature of their activities). We cannot interpret the Act where only hypothetical and unclear situations are submitted. It is the practice of the Department not to answer questions in requests for a technical opinion that relates solely to the accounting treatment of transactions. Although your request does not enable us to comment specifically on the questions you have submitted, we have set out below general comments which may be of assistance to you.
There is no interest coupon on treasury bills. Treasury bills from a government are issued at discount. A pension fund which is a registered pension plan is exempt from tax under the Act on its taxable income. Moreover, the provisions of the Act do not permit the gifting of property by a registered pension plan.
The Act permits a corporation to deduct in computing its taxable income for a taxation year the total of all amounts each of which is the fair market value of a gift (including gifts in kind) made by the corporation in the year to a registered charity and other specified institutions (which do not include, except for a registered Canadian amateur athletic association, an organization which qualifies as a non-profit organization under the Act). Gifts to registered charities are deductible to a maximum of 20% of the corporation's net income for tax purposes. Gifts made during a taxation year in excess of the 20% limit are not deducted by the taxpayer for the year but may be carried forward for five years.
Where a corporation makes a gift in kind (for example, detached coupon), it is deemed under the Act to have received proceeds of disposition equal to the fair market value of the property. Where the corporation is a financial institution for the purposes of the Act (for instance, banks, insurance corporations and trust corporations) and the property gifted is a detached coupon, the rules applicable for the disposition of specified debt obligations apply. These rules are complex and the tax treatment of any gain or loss from the disposition depends amongst other things on the status under the Act of the specified debt obligation (detached coupon) for the financial institution.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretation Directorate
Policy & Legislation Branch
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