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 shares transferred to a trust the residual capital beneficiary of which will be a charity are subject to the reduced rate in determining the taxable capital gain provided for in paragraph 38(a.1).
Position:
NO
Reasons:
To qualify the shares must be disposed of to a qualified donee which does not include a trust. The gift in this case would be a residual interest in the trust and not the shares.
XXXXXXXXXX 991761
Attention: XXXXXXXXXX
June 30, 1999
Dear Sirs:
This is in reply to your fax dated June 24, 1999 concerning certain income tax implications associated with the use of an intervivos charitable remainder trust to make a gift to a registered charity.
Where a taxpayer transfers property to a charitable remainder trust such that a registered charity is the irrevocable capital beneficiary of the trust, the capital of the trust cannot be encroached upon and the transferor is the income beneficiary during that person’s lifetime generally the taxpayer will be entitled to a tax credit in respect of the value of the interest in the trust vesting in the charity at that time.
Any capital gain realized by the settlor in respect of the property transferred to the trust will not be eligible for the reduced rate for calculating the taxable capital gain provided for in paragraph 38(a.1) of the Income Tax Act (the “Act”) since the property would be disposed of to a trust which is not a qualified donee for purposes of that provision.
While paragraph 8 of IT-226R is presently under review, until such time as it is revised taxpayers are entitled to rely upon it in identical circumstances. This paragraph does provide that an election pursuant to subsection 118.1(6) of the Act can be made in respect of capital property transferred by a settlor to a charitable remainder trust for the benefit of a charity.
While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding upon the Department in respect of a specific situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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