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 an amount paid or transferred to a registered charity by a real estate agent can be considered as a donation for the purposes of the donation credit under subsection 118.1(3)?
Position: No not in this situation.
Reasons: The law.
XXXXXXXXXX 980559
August 20, 1998
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letter dated February 18, 1998, and our telephone conversation of June 9, 1998 (Cooke/XXXXXXXXXX ) concerning the consequences under the Income Tax Act (the Act) under what you describe as a XXXXXXXXXX.
XXXXXXXXXX
Your request relates to a proposed transaction. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the guidelines set out in the enclosed Information Circular 70-6R (“IC 70-6R”) dated December 30, 1996, issued by Revenue Canada. In this regard you should be aware that paragraph 15(j) of IC 70-6R states that the Department may refuse to rule when a matter on which a determination is requested is primarily one of fact and the facts cannot be established at the time of the request for the ruling. Such a situation may include a determination as to whether a particular deduction or expenditure will be made or incurred for the purpose of gaining or producing income or for some other purpose. Although we are not able to comment specifically on the situation you have provided, we can offer the following general comments.
A charitable donation made by an individual may only be eligible for a donation credit under subsection 118.1(3) of the Act if such donation is considered to be a gift. As indicated in paragraph 3 of 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, except where the benefit is of nominal value.
Where an individual (“customer”) pays an amount to another individual (“agent”) as compensation for services rendered by the agent and the parties agreed that the agent would transfer a portion of that compensation to a registered charity named by the customer it is our view that the customer will have received valuable consideration from the agent in respect of that payment. As such, no portion of the amount transferred by the agent to the registered charity will be considered as a gift eligible for a charitable donation credit by the customer.
Moreover, while the agent would be taxable on the full amount of the compensation received from the customer it is our view that if the agent is required to pay an amount to a registered charity named by the customer that amount would not represent a gift eligible for the charitable donation credit by the agent since it would not appear to be made voluntarily and/or without material benefit or advantage to the agent (see Interpretation Bulletin IT-110R3 Gifts and Official Donation Receipts dated June 20, 1997). In our opinion, it is not necessary for the registered charity to have provided the benefit that disqualifies the transfer of XXXXXXXXXX as a gift. However, it is possible, depending on the facts and circumstances, that the amount paid by the agent may be deductible as a general business expense if the expenditure was reasonable and made or incurred for the purpose of gaining or producing income.
While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 and are not binding on the Department in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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