23 December 1999 Ministerial Letter 9931938 - GIFT OF REAL PROPERTY BY NON-RESIDENT

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:

A non-resident donates a gift of real property situated in Canada to a registered charity in Canada. Can the non-resident elect under subsection 118.1(6) even if the registered charity is not a prescribed donee for the purposes of paragraph 118.1(6)(b)?

Position: Yes.

Reasons:

Paragraph 118.1(6)(a) applies to gifts of capital property made by all individuals, regardless of whether or not they are resident in Canada, provided that the other requirements of that provision are met. Accordingly, it is not necessary to look to paragraph 118.1(6)(b) to provide a result that is already available under paragraph 118.1(6)(a).

Signed on December 23, 1999

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your letter of September 2, 1999, concerning the application of subsection 118.1(6) of the Income Tax Act in circumstances where a resident of the United States makes a gift of real property situated in Canada to XXXXXXXXXX. As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

You advise that the Trust is a registered charity for Canadian income tax purposes and a registered charity in the United States. Since the Trust deals frequently with residents of the United States who wish to donate real property situated in Canada, the Trust would like to issue tax receipts to the United States donors for American income tax purposes. With regard to Canadian income tax, you are of the view that the United States donors should be able to designate under subsection 118.1(6) of the Act an amount to reduce or eliminate any gain resulting from the gift. To achieve this result, we understand that you wrote to the Department of Finance requesting that the Trust be designated as a "prescribed donee" for the purposes of paragraph 118.1(6)(b) of the Act. We further understand that the Department of Finance considered it unnecessary to prescribe the Trust for this purpose since it is a Canadian registered charity and therefore United States donors of taxable Canadian property to the Trust may already elect under subsection 118.1(6)(a) of the Act.

Subsection 118.1(6) of the Act allows an individual who donates property to a charity to designate an amount between the adjusted cost base and the fair market value of the donated property to be both the proceeds of disposition for purposes of calculating the gain on the disposition and the fair market value of the gift for purposes of the charitable donation tax credit. Paragraph 118.1(6)(a) of the Act provides for a designation where an individual makes a gift of capital property to a donee described in the definition of "total charitable gifts", "total Crown gifts" or "total ecological gifts" in subsection 118.1(1) of the Act. Paragraph 118.1(6)(b) of the Act provides for a designation where a non-resident individual makes a gift of real property situated in Canada to a prescribed donee. As noted in your letter, The Nature Conservancy is the only prescribed donee listed in section 3504 of the Income Tax Regulations for this purpose.

The CCRA's position is that paragraph 118.1(6)(a) of the Act applies to gifts of capital property made by all individuals, regardless of whether or not they are resident in Canada, if the other requirements of that provision are met. In the situation described, the Trust is a registered charity for Canadian income tax purposes and is therefore a donee described in the definition of "total charitable gifts" in subsection 118.1(1) of the Act. Accordingly, it is our view that the designation under paragraph 118.1(6)(a) of the Act would be available to a United States donor who makes a gift of real property situated in Canada to the Trust.

In your letter, you asked whether the fact that the Trust is also a registered charity for American tax purposes has any bearing on the response from the Department of Finance. In our view, the Trust's status for United States tax purposes is not relevant since paragraph 118.1(6)(a) of the Act is the applicable provision based on the Trust's registered status for Canadian income tax purposes. In this regard, we agree with the Department of Finance that it is not necessary to look at paragraph 118.1(6)(b) of the Act to provide a result that is already available under paragraph 118.1(6)(a) of the Act.

I cannot comment on matters relating to the issuance of donation receipts by the Trust to its United States donors for American tax purposes. For clarification of the United States tax rules, I suggest that you consult with your tax advisors or the Internal Revenue Service.

I trust that this information clarifies the CCRA's position on this matter.

					Yours sincerely,

					Bill McCloskey
					Assistant Commissioner
					Policy and Legislation Branch
J. Leigh
952-1505
993193/1999-001383
December 16, 1999