29 January 1997 External T.I. 9634945 - DONATIONS TO NPO

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.

		963494
XXXXXXXXXX	B. Kerr

Attention: XXXXXXXXXX

January 29, 1997

Dear Sirs:

Re: Donations to a Non-Profit Organization

This is in response to your letter of September 24, 1996, concerning the deductibility of corporate donations to a non-profit organization.

You have asked whether corporate donations to a non-profit corporation situated on a reserve and comprised of Treaty Indians are deductible. The donations will be used to build a community recreation facility on the reserve.

Our Comments

The situation described in your letter involves actual proposed transactions with identifiable taxpayers. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. However, we can offer the following general comments.

For the purpose of computing the taxable income of a corporation for a taxation year, paragraph 110.1(1)(a) of the Income Tax Act (the "Act") provides, inter alia, a deduction for the amount of a gift made by the corporation in the year to a registered charity or a Canadian municipality. It is a question of fact whether a particular donee is a "registered charity" or a "Canadian municipality".

You have not indicated whether the organization is in fact a registered charity within the meaning assigned by subsection 248(1) of the Act and it is unlikely that the organization would be considered a "Canadian municipality".

If, however, the organization were an Indian band council, depending on the circumstances, it may qualify as a "public body performing a function of government" for the purposes of paragraph 149(1)(c) and as an administrative concession the Department would also recognize it as a Canadian municipality for the purpose of subparagraph 110.1(1)(a)(iv) of the Act.

The Department's position in this regard, as set out in paragraph 11 of former Interpretation Bulletin IT-62, was that band councils that had reached the advanced stage of development required by section 83 of the Indian Act would qualify for exemption under paragraph 149(1)(c) of the Act. Although section 83 of the Indian Act was amended in 1988 deleting the reference to the advanced stage of development, a band council will continue to qualify if it previously qualified under IT-62. For those band councils not "grandfathered", our present policy is to regard Indian band councils as public bodies performing a function of government, where they exercise or have exercised the powers authorized under both sections 81 and 83 of the Indian Act, having passed at least one by-law under each of these sections.

In order to qualify as a charitable donation, there must be a true gift at common law, which is a question of fact. In our view, a true gift is a voluntary transfer of real or personal 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, or charity or like impulses, and not from the constraining forces of any moral or legal duty. The donee must have an unfettered right to use a donation as they wish. However, it is the Department's practice to view donations subject to a general direction from the donor as acceptable, provided that no benefit accrues to the donor, the directed gift does not benefit any person not dealing at arm's length with the donor and decisions regarding utilization of the donation within a program rest with the donee.

For additional comments concerning the meaning of a gift, you may refer to Interpretation Bulletin IT-110R2 entitled "Deductible gifts and official donation receipts" or to Income Tax Ruling ATR 63 concerning "Donations to Agents of the Crown".

We trust that these comments will be of assistance.

Yours truly,

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