21 August 1998 Ministerial Letter 9818298 - DONATIONS BY SPONSORS TO A LOTTERY

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 cash contributions made by XXXXXXXXXX towards a lottery prize qualify as a charitable gift for income tax purposes if the winner of the lottery has to apply the prize money towards XXXXXXXXXX

Position:

Since each owner has the potential to receive a considerable benefit for the contribution (XXXXXXXXXX ), it is our view that the contribution would not qualify as a gift. However, if XXXXXXXXXX were to make the contribution, it is possible that the contribution would be deductible as a business expense provided the expense was incurred for the purpose of earning income from XXXXXXXXXX and the expense was reasonable in the circumstances.

Reasons: Common law definition of “gift”.

Signed on August 21, 1998

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to respond to your letter addressed to XXXXXXXXXX concerning the issuance of charitable donations receipts to sponsors in connection with a lottery. XXXXXXXXXX sent Mr. Dhaliwal a copy of your letter on June 29, 1998. I am informed that Ms. Jenie Leigh, a departmental official, spoke with you on July 20, 1998, to clarify the issues raised in your letter.

XXXXXXXXXX

I also understand that the Department previously considered this matter and gave the opinion that such contributions would not qualify as a gift since each owner has the potential of receiving a considerable benefit for his or her contribution; XXXXXXXXXX. Accordingly, charitable donations receipts cannot be issued to the owners for their contributions. In light of this, you have asked whether it would be acceptable to the Department if the charitable donations receipts were not issued to the owners involved with the lottery until after the winner’s purchase. By delaying the issuance of the charitable donations receipts as described, you are of the view that it could not be said that the owners, other than the one from whom a vehicle is purchased, have benefited from their contributions. You note that if the contribution had been made by a business, the amount would be deductible as a business expense.

Under subsection 118.1(3) of the Income Tax Act, a gift made by an individual to a registered charity or certain other donees may qualify for a charitable donations tax credit against the individual’s Part I tax otherwise payable. For section 118.1 of the Act to apply, the contribution must be a true “gift” at common law, which is a question of fact. A 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. In order for an expenditure 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.

In the circumstances described, it is the Department’s view that the timing of the issuance of the charitable donations receipts has no relevance in determining whether each owner’s contribution of $XXXXXXXXXX would qualify as a gift for income tax purposes. The contribution must qualify as a gift at the time it is made, which would be when the owners make their cash contributions. At the time of contribution, each of the XXXXXXXXXX owners has the potential of XXXXXXXXXX, which is a form of inducement. Accordingly, the Department remains of the view that the contributions would not qualify as a gift and therefore charitable donations receipts cannot be issued to the owners. However, if XXXXXXXXXX makes a contribution towards the lottery prize, it may deduct the contribution as a business expense provided that it can substantiate that the purpose of the contribution is reasonably related to the process of earning income from the XXXXXXXXXX and that the contribution is reasonable in the circumstances. This is a subjective test and each claim has to be considered on its own merits.

I trust that this information will clarify the Department’s position on this matter.

Yours sincerely,

Bill McCloskey
Assistant Deputy Minister
Policy and Legislation Branch

J. Leigh
July 21, 1998
952-1505