24 December 1997 External T.I. 9729125 - GIFT TO MUNICIPALITY

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 supplying natural gas to a Canadian Municipality for free can be considered a gift when at the same time the taxpayer is entering into a contract for the storage and handling of the supply of the gas.

Position:

Determination of fact.

Reasons:

If the gifting of the gas is contingent on getting the handling and storage contract, it might not be a true gift.

972912
XXXXXXXXXX A.M. Brake

Attention: XXXXXXXXXX

December 24, 1997

Dear Sir:

Re: Gift in Kind to Canadian Municipality

This is in reply to your letter of October 24, 1997 relating to whether the supply of natural gas to a Canadian Municipality constitutes a donation for which an official tax receipt may be issued. You state that the taxpayer who is in the business of marketing natural gas intends to supply natural gas to a municipality in the form of a gift but intends to charge the municipality a service fee for the storage and handling of the supply of the gas. You state that the storage and handling services will be dealt with under a separate agreement from the transfer of the supply.

OUR COMMENTS

Subsection 110.1(1) of the Income Tax Act (the "Act") permits a deduction in computing the taxable income of a corporation, within specified limits, for gifts made to qualified donees, if supported by official receipts issued in accordance with the Income Tax Regulations. Subparagraph 110.1(1)(a)(iv) of the Act lists a "Canadian Municipality" to be such a qualified donee. As indicated in paragraph 3 of Interpretation Bulletin IT-110R3, Gifts and Official Donation Receipts, a gift is a voluntary transfer of property without valuable consideration. Generally, a gift is considered to have been made if all of the following conditions are satisfied:

(a) property (usually cash) is transferred by a donor to a registered charity;

(b) the transfer is voluntary; and

(c) the transfer is made without expectation of return.

It is a question of fact based on all the particular circumstances of this case as to whether all three of the above conditions have been met. In this regard, it would seem that condition (a) can be met. Before a final determination of whether or not the gifting of the natural gas meets the tests in (b) and (c), it would be necessary to review all of the terms and conditions of the contract for the storage and handling of the supply of the gas along with the conditions under which the gift is made. In general terms, it would seem that there is some expectation of return from the contract for the storage and handling of the gas, thereby questioning whether or not a gift will in fact be made. It should be noted as well that, even if the gift of the natural gas qualified under the above conditions, paragraph 69(1)(b) of the Act would apply to deem the proceeds to be at fair market value.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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