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 a gift of a residual interest in a trust to a U.S. charity will be treated as a gift to a registered charity for purposes of the Income Tax Act and will give rise to a tax credit within the prescribed limits of subsection 118.1(3) of the Act?
Position:
Yes
Reasons:
Paragraph 6 of Article XXI of the Canada-U.S. Tax Convention provides that, for purposes of Canadian income tax, gifts to "an organization that is a resident of the United States, that is generally exempt from United States tax and that could qualify in Canada as a registered charity if it were a resident of Canada and created or established in Canada", are treated as gifts to a registered charity. However, paragraph 6 of Article XXI of the Convention limits the amount of gifts that entitle the Canadian resident to a tax credit to the income of the Canadian resident arising in the United States.
3-960093
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letters of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-mentioned taxpayer with respect to the proposed transactions described below.
To the best of your knowledge and that of your clients, none of the issues involved in this ruling is being considered by a Tax Services Office or a Taxation Centre in connection with any tax return already filed and none of such issues is under objection.
FACTS
XXXXXXXXXX is a citizen of the United States and a long-time resident of XXXXXXXXXX.
2. As a citizen of the United States, XXXXXXXXXX is required to file annual income tax returns with the United States federal government and as a Canadian resident XXXXXXXXXX is also required to file annual income tax returns in Canada.
3. All of XXXXXXXXXX returns have been properly filed.
4. As a citizen of the United States, XXXXXXXXXX will be subject to estate tax at the time of XXXXXXXXXX death.
5. XXXXXXXXXX owns a significant number of shares of XXXXXXXXXX which is a U.S. publicly-traded company.
PROPOSED TRANSACTION
6.XXXXXXXXXX will establish a Charitable Remainder Unitrust, to be known as the " XXXXXXXXXX " (the "Trust"), in the United States, in accordance with section 4 of Revenue Proclamation 90-31 and sections 664(d)(2) and (3) of the United States Internal Revenue Code (the "Code").
7.XXXXXXXXXX will settle the Trust with shares of XXXXXXXXXX having a fair market value of $XXXXXXXXXX.
8.The Trust will have a U.S. trustee, the XXXXXXXXXX (the "Trustee"). XXXXXXXXXX and XXXXXXXXXX family members have no financial interest in the Trustee.
9.XXXXXXXXXX will receive, in each taxable year of the Trust, an amount equal to the lesser of the Trust's income for the year and at least 7% of the net fair market value of the assets of the Trust valued as at the first day of each taxable year of the Trust.
10.The Trust agreement will provide that upon XXXXXXXXXX death, the Trustee will distribute the capital of the Trust to XXXXXXXXXX which qualifies as a charitable organization in the United States, pursuant to section 501(c)(3) of the Code.
11.XXXXXXXXXX will not retain a capital interest in the assets contributed to the Trust.
12.The Trustee will have complete control over the assets of the Trust and will make every effort to maintain the value of the Trust's assets.
13.Based on XXXXXXXXXX life expectancy, the present value of the capital interest in the Trust will be approximately $XXXXXXXXXX
PURPOSE OF THE PROPOSED TRANSACTIONS
14.XXXXXXXXXX wishes to make a charitable donation to XXXXXXXXXX.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions, and the proposed transactions are completed as described above, our rulings are as follows:
A.Provided that XXXXXXXXXX is a charitable organization within the meaning of section 501(c)(3) of the Code, a gift of a capital interest in the Trust to XXXXXXXXXX will be treated as a gift to a registered charity for Canadian tax purposes, pursuant to Article XXI(6) of the Canada - U.S. Tax Convention.
B.The gift of a capital interest in the Trust to XXXXXXXXXX will entitle XXXXXXXXXX to a tax credit, calculated in the manner provided in subsection 118.1(3) of the Income Tax Act (the "Act"), on the basis that the value of the capital interest in the Trust will be included in calculating XXXXXXXXXX "total charitable gifts" pursuant to the definition of that term in subsection 118.1(1) of the Act, provided that XXXXXXXXXX files a receipt for the gift containing prescribed information as required by subsection 118.1(2) of the Act and that the value of the capital interest in the Trust at the time of the donation can be determined.
C.In determining the amount of the tax credit referred to in Ruling B above, paragraph 6 of Article XXI of the Convention will apply, such that the tax credit will be calculated only by reference to XXXXXXXXXX income arising in the United States.
This Ruling should not be seen as confirmation of the accuracy or treatment of the values referred to herein.
These rulings are subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, and are binding on the Department provided the proposed transactions described in paragraphs 6 and 7 of this Ruling are completed by XXXXXXXXXX
Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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