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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
1. Will a gift to charity result in deemed proceeds of disposition pursuant to subparagraph 69(1)(b)(ii) of the Act? Will the donor realize a capital gain?
2. If a registered charity or charitable organization outside of Canada issues a receipt, will the donation qualify as a charitable gift for purposes of section 118.1 of the Act?
3. Will a tax credit be available pursuant to subsection 118.1(3) of the Act in respect of the donation?
4. Must a tax shelter registration number be obtained in respect of the arrangement?
Position:
1. Yes. Question of fact whether there is a capital gain.
2. Issuance of receipt does not determine whether gift was made.
3. Factual determination.
4. Impossible to determine based on hypothetical facts.
Reasons:
1. Legislation.
2. Gift may not be claimed for tax purposes unless receipt is filed; whether not a gift was made depends upon factual circumstances.
3. Charitable organization outside of Canada may or may not be qualified donee and other criteria of subsection must be satisfied.
4. Facts and Legislation.
XXXXXXXXXX 2003-002383
November 21, 2002
Dear XXXXXXXXXX:
Re: Donation of Software
This is in response to your letter that we received on June 12, 2003 in which you request our comments on a hypothetical tax scenario involving the purchase of software and subsequent donation to a registered charity or a charitable organization outside of Canada. In the situation described, the software is purchased at a discount from its fair market value.
You have asked to consider the following questions with respect to your hypothetical fact situation. First, will the gift to charity result in deemed proceeds of disposition pursuant to subparagraph 69(1)(b)(ii) of the Income Tax Act ("the Act"). As a consequence, will the donor realize a capital gain? Second, if the registered charity or charitable organization outside of Canada issues a receipt, will the donation qualify as a charitable gift for purposes of section 118.1 of the Act? Third, will a tax credit be available pursuant to subsection 118.1(3) of the Act? Finally, must a tax shelter registration number be obtained in respect of the arrangement?
The particular situation outlined in your letter appears to relate to a factual one involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments which may be of assistance.
In general, a "gift" for purposes of the Income Tax Act ("the Act") means a voluntary transfer of the donor's property without valuable consideration to the donor. A gift for tax purposes includes a gift in kind, which is a gift of property other than cash. Gifts and gifts in kind to charity are discussed in Interpretation Bulletins IT-110R3, "Gifts and Official Donation Receipts" and IT-297R2, "Gifts in Kind", which are available on the CCRA's website at http://www.ccra-adrc.gc.ca/tax/charities/policy/csp/csp-g01-e.html.
Generally, when a person transfers property by way of a gift inter vivos, the taxpayer (donor) is deemed to have received proceeds of disposition equal to the fair market value of the property pursuant to subparagraph 69(1)(b)(ii) of the Act. If the donor realizes a gain on disposition of the property, the gain will be a capital gain if the gifted property was capital property to the donor for purposes of the Act. Gifts of Capital Property are discussed in CCRA Interpretation Bulletin IT-288R2, "Gifts of Capital Property to a Charity and Others". It is available on the CCRA's website at http://www.ccra-adrc.gc.ca/E/pub/tp/it288r2/README.html.
Subsection 118.1(2) of the Act provides that a gift shall not be included in an individual's charitable gifts for the year for tax purposes unless the donor files an official donation receipt with the Minister of National Revenue. In the hypothetical situation described, the software is acquired by the donor "at a discount from its fair market value". Paragraph 3501(1)(b) of the Income Tax Regulations provides that, where a donation is a gift of property other than cash, the amount to be reported on the official receipt for income tax purposes is the fair market value of the property at the time that the gift was made.
The issuance of a receipt is required as evidence of the gift for purposes of the Act. However, the issuance of a receipt is not, in any of itself, determinative of whether a particular transaction was a gift or of the fair market value of the property at the time that it was transferred. Whether or not a particular transfer of property constituted a gift depends upon the factual circumstances at the time of the transfer. The donor should be able to provide support for the asserted fair market value of the property. Where the property's acquisition and its disposition were very close in time, the acquisition cost of the property will be viewed as relevant to, but not determinative of, its fair market value at the time of the disposition.
Subsection 118.1(3) of the Act provides a tax credit to individuals computed with reference to their charitable gifts for the year to recipients that are qualified donees for purposes of the Act. A registered charity is a qualified donee for purposes of the Act. A "charitable organization outside Canada" would be a qualified donee if it is the United Nations or an agency thereof, a university outside Canada that is prescribed by regulation to be a university the student body of which ordinarily includes students from Canada (listed in Schedule VIII to the Income Tax Regulations) or a charitable organization outside Canada to which Her Majesty in right of Canada has made a gift during the individual's taxation year of the 12 months immediately preceding that taxation year.
A "tax shelter" for purposes of the Act is defined in subsection 237.1(1) of the Act and includes any property in respect of which it is represented that the acquisition of the property will, within four years of the acquisition, generate a combination of tax credits or deductions that will equal or exceed the cost of the property (adjusted for certain "prescribed benefits"). A tax shelter also includes a "gifting arrangement" which is defined in subsection 237.1(1) of the Act to include any arrangement under which it is represented that a person would, if they entered into the arrangement, make a gift to a qualified donee of a property acquired under the arrangement.
Subsection 237.1(4) of the Act prohibits any person from selling a tax shelter before the Minister of National Revenue has issued an identification number for the tax shelter. It is the responsibility of the promoter of the tax shelter to apply to the Minister for the identification number.
It would be impossible to speculate whether a particular hypothetical situation would be a "tax shelter" for purposes of the Act. CCRA Information Circular 89-4, "Tax Shelter Reporting" may provide some useful comments in this regard. It is available on the CCRA's website at http://www.ccra-adrc.gc.ca/E/pub/tp/ic89-4/README.html. Please keep in mind that the definition "tax shelter" has been amended since the release of IC-89-4; therefore, reference should also be had to the current definition of "tax shelter" in subsection 237.1(1) of the Act.
We trust that these comments will be helpful. However, as stated in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently is not binding on the CCRA in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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