2096 Ruling 9604463 - GIFT BY WILL

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:

Routine rulings respecting the application & interaction of 118.1(1), (4), (5), (6), 70(5) & Regulation 3501(1.1)

Position:

Where 118.1(5) applies and a designation is made under 118.1(6) subsection 70(5) shall not apply.

Reasons:

Subsection 118.1(6) allows taxpayers rep. to designate amount other then FMV.

		960446
XXXXXXXXXX	

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX wherein you requested certain amendments to the advance income tax ruling issued to the above referenced taxpayer January 22, 1996 (file # 951864). This ruling incorporates these amendments and replaces the January 22, 1996 ruling. The original ruling request was by your letters dated XXXXXXXXXX.

We understand that to the best of your knowledge and that of the taxpayers involved:

(i) none of the issues involved in the requested rulings is being considered by a District Taxation Office or a Taxation Centre in connection with a tax return already filed, and

(ii) none of the issues involved in the requested rulings is the subject of any notice of objection or is under appeal.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. XXXXXXXXXX (the "Deceased") died on or about XXXXXXXXXX (the "Date of Death") in the City of XXXXXXXXXX The Deceased's Last Will and Testament (the "Will") is dated XXXXXXXXXX Probate of the Will was granted by the XXXXXXXXXX A notarial copy of the Will was attached as Schedule "A" to your letter of July 13, 1995.

2. The Deceased was, at the time of his death, the registered and beneficial owner of approximately XXXXXXXXXX acres of land in the City of XXXXXXXXXX and the dwelling situated thereon (collectively called the "Property"). The dwelling has recently been destroyed by fire.

3. Subparagraph 3(d) of the Will, provides for the manner in which the Trustees are to deal with the Property. The Trustees are to retain the Property until the "House Termination Date", as defined in the Will, and attempt to lease the Property. On or before the House Termination Date, the Trustees are required to donate the Property to the Corporation of the City of XXXXXXXXXX (the "City") as a park for use by the public or such other purpose as the City deems beneficial, provided that the lands be maintained in a park-like condition (the "Intended Use"). If the Trustees cannot reach an agreement with the City, the Property is to be donated to another public or charitable body for the Intended Use, failing which the Property is to be sold and the net proceeds shall fall into the residue of the Estate.

4. The House Termination Date is defined in the Will to mean the date ten years after the death of the Deceased, or if earlier, one year after the earliest of the following dates:

a) The date on which the Trustees can foresee there not being sufficient funds in the residue of the Estate to continue to maintain the house; and

b) Such other date as the Trustees in their absolute discretion may determine.

5. The Trustees have determined that it is appropriate to transfer the Property to the City subject to reaching a satisfactory agreement with the City and obtaining a satisfactory advance income tax ruling. The Property has not been leased by the Trustees since the Date of Death.

6. The tax return (the "Terminal Return") for the Deceased's final taxation year for the period from XXXXXXXXXX until the Date of Death (the "Terminal Tax Year") has not been filed. Calculated on the assumption that there is no capital gain with respect to a disposition of the Property in the Terminal Tax Year, the accountant for the Deceased and the Estate has determined the net income of the Deceased for the Terminal Tax Year to be $XXXXXXXXXX.

7. The Trustees have selected XXXXXXXXXX as the taxation year end of the Estate. Tax returns have been filed by the Trustees for the Estate's taxation years ended XXXXXXXXXX.

8. The Property was owned by the Deceased since prior to December 31, 1971 (the "V-Day"). The fair market value of the Property as at V-Day has been determined to be $XXXXXXXXXX A formal appraisal has not been obtained and the Trustees do not intend to obtain a formal appraisal.

9. The fair market value of the Property as at the Date of Death has been determined by the Trustees to be $XXXXXXXXXX A formal appraisal has not been obtained and the Trustees do not intend to obtain a formal appraisal.

10. Neither the Deceased nor the Estate has deducted any capital cost allowance with respect to the Property.

11. The net income of the Deceased for the 1992 taxation year was $XXXXXXXXXX.

Proposed Transactions

12. The Trustees and the City propose to complete the transfer of the Property from the Estate to the City pursuant to the draft agreement (the "Draft Transfer Agreement") in the form which was attached as Schedule "A" to your letter dated January 29, 1996, together with such other documents as are required to convey the Property to the City. The Draft Transfer Agreement provides inter alia, that the City may apply to the appropriate court to amend the terms in the event that circumstances have radically changed so that the terms are longer appropriate.

13. The Trustees intend to obtain the consent of the residuary beneficiaries of the residue of the Estate to the Draft Transfer Agreement.

14. The Trustees intend to obtain from the City a receipt (the "Receipt") containing prescribed information, with respect to the transfer of the Property to the City, as set out in subsection 3501(1.1) of the Income Tax Regulations (the "Regulations").

15. The Trustees intend to designate in the Deceased's Terminal Return, pursuant to subsection 118.1(6) of the Income Tax Act (the "Act"), an amount equal to the Deceased's adjusted cost based (the "ACB") for the Property, together with the Receipt. The Trustees intend to reflect the ACB of the Property as being equal to $XXXXXXXXXX which they believe to be the fair market value of the Property as at V-Day.

Purpose of Proposed Transaction

16. The purpose of the transfer of the Property to the City pursuant to the Draft Transfer Agreement is for the Trustees to comply with the terms of the Will.

17. The purpose of designating, pursuant to subsection 118.1(6) of the Act, an amount equal to the Deceased's ACB of the Property is to avoid incurring a capital gain to the Deceased or the Estate and the income tax liability relating thereto with respect to the difference between the fair market value of the Property immediately before the death of the Deceased and the ACB of the Property, being its fair market value at V-Day.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, additional information and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described herein, our rulings are as follows:

A. Gifts of Property made to the City will qualify as gifts to a "Canadian municipality" within the meaning of the definition of "total charitable gifts" in subsection 118.1(1) of the Act provided the City qualifies as a municipality under the Ontario Municipal Act. The deceased will be entitled to claim a tax credit for such gift, calculated in the manner provided in subsection 118.1(3) of the Act, provided that the individual files a receipt for the gift containing prescribed information as required by subsection 118.1(2).

B. The fair market value, subject to the application of subsection 118.1(6) of the Act, of gifts of Property made to the City pursuant to the Draft Transfer Agreement will be included in the deceased's "total charitable gifts" within the meaning of subsection 118.1(1) of the Act, provided the consideration referred to in the recital of the Draft Transfer Agreement does not exceed a nominal amount.

C. Pursuant to subsection 118.1(5) of the Act gifts of Property made to the City pursuant to the Will and the Draft Transfer Agreement shall, for the purposes of section 118.1, be deemed to have been made by the deceased in the taxation year in which the deceased died.

D. Provided the gift of Property made to the City, pursuant to the Draft Transfer Agreement, represented capital property to the deceased, pursuant to the definition of this term in section 54 of the Act, and the fair market value of the Property, at the time the gift is made, or where subsection 118.1(5) applies the time the gift is deemed to be made, exceeds its adjusted cost base to the deceased, the deceased's legal representative may, in the deceased's return of income under section 150 of the Act for the year in which the gift is made, or where subsection 118.1(5) of the Act applies, for the year in which the gift is deemed to have been made, designate an amount equal to the adjusted cost base. Such designated amount shall pursuant to subsection 118.1(6) of the Act be deemed to be the deceased's proceeds of disposition of the Property and, for purposes of subsection 118.1(1), the fair market value of the gift made by the deceased.

E. Provided subsection 118.1(5) of the Act applies as described in Ruling C above and a valid designation pursuant to subsection 118.1(6) is made as described in Ruling D above, subsection 70(5) shall not apply to redetermine the proceeds of disposition or, for purposes of subsection 118.1(1), the fair market value otherwise determined under subsection 118.1(6).

F. Pursuant to paragraph 3501(1.1)(h) of the Regulations, the City will be required to show on the official receipt the fair market value of the donated Property at the time beneficial title in the Property passes to the City.

G. A designation described in subsection 118.1(6) of the Act may be made in a return of income under section 150, that is late filed, for the year in which the gift is made or, where subsection 118.1(5) applies, for the year the gift is deemed to have been made.

H. The general direction as to the use of the Property by the City, contained in the Draft Transfer Agreement will not, in and by itself, adversely affect Rulings A through G above provided that:

a. the direction is not binding or enforceable,

b. no benefit accrues to the Deceased,

c. the transfer of the property to the City does not benefit any person not dealing at arms length with the Deceased, and

d. final decisions regarding utilization of the property rest with the City.

We are unable to confirm your ruling requests numbered 4.10(1),(2) and (3) as the issues concerned tax-related calculations nor 4.10(4) since a specific provision of the Act was not identified.

The above rulings, which are based on the Act in its present form and do not take into consideration any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and Special Release thereto dated September 30, 1992 and are binding on Revenue Canada, Taxation provided that the proposed transactions are completed by XXXXXXXXXX.

Comments

I. Nothing in this ruling should be construed as implying that Revenue Canada, Taxation has agreed to or reviewed the determination of the fair market value or adjusted cost base of any particular asset referred to herein.

II. In the event that the fair market value of the donated property on V-Day is reduced after the original designation has been made, the Act does not preclude the deceased's legal representative from requesting that the Department accept an amended designation so that the designated amount does not exceed the ACB of the property. Information Circular 84-1 describes the Department's assessing practices regarding revision of permissive deductions.

III. Subsection 118.1(6) of the Act deems the amount designated to be the fair market value of the gift only for purposes of subsection 118.1(1). Subsection 118.1(6) of the Act does not deem the designated amount to be the fair market value of the donated property for purposes of Regulation 3501(1.1)(h).

IV. Provided the donation of the Property to the City is the only charitable gift in the Deceased's final taxation year, the Deceased's "total gifts" for that year, for purposes of subsection 118.1(3) of the Act, will be the lessor of:

a) the amount designated pursuant to subsection 118.1(6), and

b) 1/5 of the deceased's income for the year.

V. The gift of the Property to the City, deemed by subsection 118.1(5) of the Act to have been made in the year of death, shall pursuant to subsection 118.1(4) be deemed to have been made by the Deceased in the immediately preceding taxation year to the extent that an amount in respect thereof is not deducted in computing the Deceased's tax payable in the year of death. The Deceased's "total gifts" for the taxation year preceding the year of death, for purposes of subsection 118.1(3) of the Act, will be the lessor of:

a) the deemed amount pursuant to subsection 118.1(4) plus the fair market value of any gifts made in the year, and

b) 1/5 of the deceased's income for the year.

VI. We are not aware of any additional tax credits or deductions that may be available under the Act, other then those described above, in respect of the donation of the Property.

VII. We are unable to provide a ruling on the issue of whether a particular transfer of property will be a gift for purposes of section 118.1 of the Act. The term "gift" is not defined in the Act and therefore assumes its common law meaning. In our view, a gift at common law is a voluntary transfer of property 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 a donation to be considered a gift, it must be made without conditions, from detached and disinterested generosity, out of affection, respect, charity or like impulses. This determination can only be made upon a complete examination of all of the facts and cannot be made in advance. At this time the Department has not made a determination whether the proposed transfer of the Property to the City pursuant to the Draft Transfer Agreement would qualify as a gift for purposes of section 118.1 of the Act.

Yours truly,

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