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:
Charitable foundation issuing annuities
Position:
Comments in IT-111R2 relate to charitable organization as distinct from charitable foundation.
Reasons:
Charitable foundation precluded from having a debt other than certain debts described in subsections 149.1(3) and (4). Debt is cause for revocation of the registration of a charitable foundation.
960072
XXXXXXXXXX A.M. Brake
March 18, 1996
Dear XXXXXXXXXX:
Re: Annuities Purchased from Charitable Organizations
This is in reply to your letter of November 29, 1995 requesting our comments concerning the position set out in Interpretation Bulletin IT-111R2 with respect to a charitable foundation.
Rather than comment specifically on the material submitted, we offer our general comments.
We would like to point out that the comments contained in Interpretation Bulletin IT-111R2, entitled "Annuities Purchased from Charitable Organizations", relate to charitable organizations as distinct from charitable foundations. Paragraph 2 of IT-111R2 states that, "A charitable foundation, as defined in that subsection, should not enter into any arrangements to issue annuities. The registration of a charitable foundation may be revoked if the foundation has, at any time since June 1, 1950, incurred debts other than certain debts described in subsections 149.1(3) and (4). An undertaking to make annuity payments is considered to be a debt incurred by the charity which, in the case of a charitable foundation, is cause for the revocation of its registration."
Paragraph 7 of IT-111R2 allows a charitable organization that issued an annuity to purchase an annuity on the donor's life in order to offset the risk of a donor living beyond the donor's normal life expectancy. While we have stated in the past that it generally does not matter what steps a charitable organization may take to fund its liability under the annuity, it is still our position that the charitable organization has incurred a debt and, in the case of a charitable foundation, is cause for the revocation of its registration.
We apologize for the delay in replying and 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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