29 October 1998 External T.I. 9807185 - CHARITABLE REMAINDER TRUST

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:

1. The enquiry concerns the valuation of an inter vivos gift of an equitable interest in a trust to a charity. The situation described is where the property transferred to the charitable remainder trust is jointly owned by a husband and wife, both the spouses have full income entitlement until the death of the first spouse and the surviving spouse has a fixed income entitlement which is less than full income.

2. What is the effect of an inter vivos gift of an equitable interest in a trust on the disbursement quota of the charity?

Position:

1. None.

2. It would be excluded from the calculation of the charity’s disbursement quota to the extent that the gift qualifies for the exclusion for ten year gifts provided in the definition of "disbursement quota" in subsection 149.1(1) of the Act.

Reasons:

1. The Department is in the process of reviewing the positions set out in IT-226R. Accordingly, we are unable to provide any specific comments at this time.

2. Legislation.

XXXXXXXXXX 								980718

Attention: XXXXXXXXXX

October 29, 1998

Dear Sirs:

Re: Gifts of Equitable Interests in a Trust and Disbursement Quota

This is in reply to your letter of February 11, 1998 which was forwarded to us for reply by the Charities Division.

Your letter concerns a situation where an inter vivos gift of an equitable interest in a trust is made to a charity. You have asked for our views on what is an acceptable method in determining the fair market value of the gift in circumstances where the property transferred to the trust is jointly owned by a husband and wife, both the spouses have full income entitlement until the death of the first spouse and the surviving spouse has a fixed income entitlement which is less than full income after the death of the first spouse. You have also asked whether the amount of an inter vivos gift of an equitable interest in a trust can be excluded from the charity’s disbursement quota.

We would advise that the types of situations involving the use of charitable remainder trusts (“CRTs”) considered by us in the past generally fall into one of two categories. The first is where the taxpayer transfers property to an inter vivos CRT, the taxpayer receives the trust’s income and, on the taxpayer’s death, the property is transferred to the charity. The second is where a CRT is created by the will of the deceased taxpayer to hold property gifted by the deceased to a charity, the spouse of the deceased taxpayer receives the trust’s income and, on the spouse’s death, the property is transferred to the charity. The situation you describe involves a joint interest in the property transferred to the CRT and the payment of the trust’s income over multiple lives. Since the Department is currently in the process of reviewing the positions set out in IT-226R, we are unable to provide any comments at this time with respect to your particular situation.

With regard to the charity’s disbursement quota, the Act requires both charitable foundations and organizations to annually spend a specified proportion of donations for which tax receipts are issued, and in the case of charitable foundations a specified percentage of the value of investment assets, on charitable activities or gifts to other charities. Since not all donations to charities may be available to be spent during the year in which they are donated, amount A of the definition of “disbursement quota” in subsection 149.1(1) of the Act provides for certain exclusions. One such exclusion is in respect of a gift received subject to a trust or direction to the effect that the property given, or property substituted therefor, is to be held by the charity for a period of not less than ten years. As stated in paragraph 37 of Information Circular 80-10R, the trust document or direction must be executed by the donor for each gift the donor makes and must clearly identify the donee charity (i.e., the official name and registration number), the amount of the gift, the date the gift is made, the name and address of the donor, and the serial number of the “official receipt” issued to the donor for the gift. Also, the trust or direction should be attached to the charity’s duplicate copy of the receipt and maintained with its other books and records.

To the extent that an inter vivos gift of an equitable interest in a trust is structured to satisfy the exclusion for ten year gifts, it is our view that the amount of the gift would be excluded from the charity’s disbursement quota in the year of receipt, regardless of whether the charity is a private foundation, a public foundation or a charitable organization. We note that amount A.1 of the definition of “disbursement quota” in subsection 149.1(1) of the Act requires gifts that have been previously excluded from the disbursement quota to be added back into the calculation when they are actually spent by the charity.

We trust that the above comments will be of assistance.

Yours truly,

Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c.: Neil Barclay
Director, Charities Division