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: Are the shares of a private corporation that is controlled by an individual that are to be gifted to a registered charity pursuant to the terms of an individual's will on death non-qualifying securities such that subsection 118.1(5) of the Act will not apply?
Position: Question of fact since it involves a determination as to whether the individual's estate would be dealing with the corporation after the time the gift is made. However, assuming the estate is arm's length with the corporation after the gift is made the shares would not be non-qualifying securities.
Reasons: For the purpose of the definition of non-qualifying security in subsection 118.1(18) the relationship must be determined after the gift is actually made to the registered charity and not when the gift would otherwise be deemed to be made.
XXXXXXXXXX 990111
Attention: XXXXXXXXXX
May 20, 1999
Dear Sirs:
Re: Gift of a Private Corporation Shares
This is in reply to your letter dated January 15, 1999, wherein you are requested our comments with respect to the tax consequences under the Income Tax Act (the "Act") where shares of a private corporation to a registered charity are donated to a registered charity.
In your letter you indicate that the terms of an individual's will provides that upon the individual's death the shares of a private corporation controlled by him/her will be gifted to a specific registered charity. You also indicated that while the gift of shares is irrevocable (i.e., the executor has no discretion whether to make the gift or not) until such time as ownership of the shares actually passes to the particular registered charity from the deceased individual's estate, the estate will own the shares and control the corporation.
Your question is where subsection 118.1(5) of the Act would apply to deem the gift to have been made by the individual immediately before the time of his death, but for the fact that paragraph 118.1(13)(a) of the Act appears to apply to deem the gift not to have been made at that time, will the shares will be considered to be owned by the registered charity, rather than the estate, for the purposes of the definition of a non-qualfying security in subsection 118.1(18) of the Act?
Your request appears to relate to a proposed transaction. Confirmation of the income tax consequences of 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 the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30,1996, issued by Revenue Canada. However, if the situation relates to a completed transaction a request for the Department's views must be made to your local Tax Services Office. Notwithstanding the above we can offer the following comments which we caution may or may not be applicable to your particular fact situation.
In order for any of the provisions of section 118.1 of the Act to apply a gift of property must actually be made. For example, while the terms of an individual's will may specify that a gift of a specified property is to be made to a registered charity upon the death of the individual no gift is actually made until such time, if ever, that the individual's estate complies with the deceased individual's intentions and transfers ownership of the particular property to the charity. Therefore, while subsection 118.1(5) of the Act may apply to deem the gift to have been made immediately before the time of the individual's death this subsection cannot operate until such time as the gift is actually made.
Subsection 118.1(13) of the Act provides, inter alia, that for the purpose of section 118.1 of the Act (other than this subsection) where at any particular time an individual makes a gift of a "non-qualifying security" (including the time the gift, but for this subsection, would be deemed to be made under subsection 118.1(5) of the Act) and the gift is not an "excepted gift" the gift will be deemed not to have been made at that particular time. Subsection 118.1(13) of the Act also provides that where the particular security either ceases to be non-qualifying security or is otherwise disposed of by the donee within sixty months after that particular time a gift will be deemed by to have been made by the individual at that later time (subject to the application of subsection 118.1(15) of the Act).
A "non-qualifying security" is defined in subsection 118.1(18) of the Act to include, inter alia, a share (other than a share listed on a prescribed stock exchange) of the capital stock of a corporation with which the individual or the estate, as the case may be, does not deal at arm's length immediately after that time. In our view, the time referred to in subsection 118.1(18) means the time the gift is actually made (i.e., when the ownership of the property is transferred to the particular charity).
An "excepted gift" is defined in subsection 118.1(19) of the Act as a gift made by the taxpayer ("donor") of a security that is a share where the donee is not a private foundation, the donor deals at arm's length with the donee, and where the donee is a charitable organization or a public foundation, the donor deals at arm's length with each director, trustee, officer and like official of the donee.
It remains a question of fact as to whether an individual or an individual's estate, as the case may be, would be dealing with a particular private corporation on an arm's length basis after the time the gift is made or whether all the conditions in subsection 118.1(19) would be met in a particular situation. However, where the individual, or the estate, as the case may be, no longer controls the corporation and is not otherwise considered to be dealing with the corporation on a non arm's length basis (see subsection 251(1) of the Act) after the ownership of the shares are transferred to the particular charity pursuant to the terms of a deceased individual's will such shares will not be non-qualifying securities. Accordingly, once the gift of shares is actually made to the registered charity it will be deemed to be made immediately before the deceased individual's death pursuant to subsection 118.1(5) of the Act.
While we trust that our comments will be of assistance to you as indicated in paragraph 22 of IC-70-6R3 this opinion is not a ruling and accordingly, it is not binding on Revenue Canada.
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch
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