2 February 1998 External T.I. 9729335 - donation to charity

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 the transfer of property to a registered charity qualifies as a gift where the gift is made as a result of some person agreeing to stop litigation on disputed assets and agreeing to the validity of a particular will.

Position:

The transfer does not qualify as a gift.

Reasons:

The transfer is not voluntary and consideration is received for the gift (albeit not from the charity)

972933
XXXXXXXXXX J.E. Grisé

Attention: XXXXXXXXXX

February 2, 1998

Dear Sirs:

Re: Donation to Charity

This is in reply to your letter of October 27, 1997 requesting our views as to whether a donation given in the situation outlined in your letter could be considered a gift for income tax purposes.

Your concern relates to a situation in which an executor and sole beneficiary (the taxpayer) of an estate (Estate A) would give assets and cash to a registered charity from the distribution of the estate. The gift would be made pursuant to an agreement (the agreement) with another estate (Estate B) which would agree, in return for the taxpayer making the gifts, that the ownership of certain assets (the subject of litigation between the two estates) would go to Estate A. The agreement would also settle a dispute relating to which of two wills is valid. The will agreed upon would make the taxpayer executor of Estate B and Estate A would be the beneficiary of a specific cash bequest from Estate B.

A gift for purposes of section 110.1 of the Income Tax Act is a voluntary transfer of property without valuable consideration. As indicated in paragraph 3 of Interpretation Bulletin IT-110R3, generally, a gift is made if all three of the following conditions are met:

(a)some 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. No benefit of any kind may be provided to the donor or to anyone designated by the donor.

In our view, the transfer of the assets and cash by the taxpayer to the registered charity would not qualify as a gift. The transfer is not voluntary since the agreement is a legal obligation that compels the taxpayer to give the assets and the cash to the registered charity. Furthermore, there is a benefit provided to the taxpayer in the form of assets and cash that will go, undisputed, to Estate A. In our opinion, it is not necessary for the registered charity to have provided the benefit that disqualifies the transfer of property as a gift.

The above comments do not constitute income tax rulings and do not apply to a particular transaction. They are not binding on the Department.

Yours truly,

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