24 September 1996 Income Tax Severed Letter 9613015 - Gift — consideration

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 unspecified token benefits together with a promise to rename a City owned facility after a corporate donor (who proposes to pay to restore the facility) is consideration for making a donation, in determining whether the transfer constitutes a gift.

POSITION:

Renaming the City facility after the donor, in and by itself, should not impair the gift status of the transfer.

REASONS:

Naming a Public owned facility such as a hospital wing or naming scholarships after the donor would not cause the transfer not to be a gift. A general direction is acceptable such as to a specific program provided that no benefit accrues to the donor or to persons with whom the donor does not deal at arm's length and that decisions regarding the utilization within the program rest with the donee.

961301 XXXXXXXXXX A.M. Brake

Attention: XXXXXXXXXX

September 24, 1996

Dear Sirs:

Re: Corporate Gift To A Canadian Municipality

This is in reply to your letter of April 15, 1996, wherein you asked for confirmation that a payment by a Canadian Corporation to a Canadian Municipality (the "City") under the circumstances outlined in your letter would be deductible in computing the taxable income of the corporation.

Facts

1. A taxable Canadian corporation (the "Corp") proposes to make a donation to the City, in the current year and also proposes to pledge to make a donation of a specific amount, each year, over the next few years.

2. The Corp markets most of its products outside Canada. Canadian sales are less than 5% of the Corp's total sales.

3. The City proposes to use the funds for refurbishment of City-owned facility. The City will issue a receipt for the donation.

4. As a token of gratitude, the City proposes to rename the facility after the corporate donor. Also, the City proposes some token benefits.

The fact situation which you set out is quite specific and it appears that it may relate to definite contemplated transactions. Assurance as to the tax consequences of contemplated transactions can only be given in response to a request for an advance income tax ruling. If you wish to obtain any binding commitment with respect to an actual case with facts similar to your example, an advance income tax ruling request should be submitted. We do, however, provide the following comments for your information.

Our Comments

Subsections 118.1(2) and (3) of the Income Tax Act permit a deduction from tax payable, within specified limits, for gifts made to registered charities, if supported by official receipts. Paragraph 3 of Interpretation Bulletin IT-110R2 states that a gift for income tax purposes, is a voluntary transfer of property without valuable consideration. A gift is made in any circumstance where all three of the conditions listed below are satisfied.

a) Some property - usually cash- is transferred by a donor to a registered charity.

b) The transfer is voluntary. Any legal obligation on the payor would cause the transfer to lose its status as a gift.

c) The transfer is made without expectation of return. No valuable consideration - no benefit of any kind - to the donor or to anyone designated by the donor may result from the payment.

Based on your analysis of the law relating to "charitable gifts", it would seem that your only concern lies with respect to condition (c) above, ie., what constitutes a gift in relation to the information contained in fact 4 above, outlining what the City is promising in return, if the transfer is made. Specifically, to rename the facility after the corporate donor together with the City proposing to offer some token benefits.

In the true sense of a gift, the donee must have an unfettered right to use the money. However, a general direction is acceptable, such as to a specific program, provided that no benefit accrues to the donor or any persons that do not deal at arm's length with the donor and that decisions regarding the utilization within the program rest with the donee. In addition, generally, in our view, naming a public owned facility or naming scholarships after the donor, should not, in and by itself, impair the gift status of a transfer.

Since we have no details on the aforementioned token benefits, we are unable to provide comments.

The foregoing comments are given in accordance with the practice of providing opinions referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

We trust our comments will be of assistance to you.

Yours truly,

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