Section 118.1

Table of Contents

Subsection 118.1(1) - Definitions

Right to Receive Production

Articles

R. Ashton, "Leasing: Recent Developments", 1997 Corporate Management Tax Conference Report, c. 11.

Total Charitable Gifts

Cases

French v. Canada, 2016 FCA 64

Parliament may have intended what constitutes a gift outside Quebec to be partly informed by the Civil Code

In his 2000 to 2002 taxation years, the taxpayer made gifts to a registered charity that were funded from personal funds and from loans tied to the gifts. His Notice of Appeal stated that had he been a resident of Quebec, he would have been entitled to a deduction under s. 118.1 respecting the cash portion of the gifts given that the Civil Code recognized split gifts, i.e., that gifts could be made even where consideration was received, and that “Parliament did not intend for section 118.1…to produce radically different results for taxpayers in Québec that would not apply to taxpayers in the rest of Canada.” In reversing a decision of the Tax Court to strike these pleadings, Noël JA stated (at para. 42) that “it cannot be said with certainty that the meaning of ‘gift’ prior to the [December] 2002 amendments excluded the notion of split gift in the common law provinces,” and then stated (at para. 44):

[T]he appellant does not invoke uniformity for the sake of uniformity. The appellant’s plea is based on the broader proposition that Parliament intended to recognize split gifts, wherever made, in line with the civil law. Given that it would have been open to Parliament to attribute to the word gift a meaning which coincides with the civil law and that it is arguable that this is what Parliament intended, there is no basis for striking the appellant’s plea at this stage… .

Words and Phrases
gift
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 Parliament may have intended what constitutes a gift outside Quebec to be partly informed by the Civil Code 165

Canada v. Castro, 2015 DTC 5113 [at 6266], 2015 FCA 225, rev'g sub nom. David v. The Queen, 2014 DTC 1111 [at 3236], 2014 TCC 117

inflated charitable receipt not a "benefit" vitiating a gift (donative intent issue not properly raised)
rev'g on other grounds sub nom. David v. The Queen, 2014 DTC 1111 [at 3236], 2014 TCC 117

The taxpayers received charitable receipts for 10 times the amount of contributions, paid in cash, made by them to a registered charity. Woods J had allowed charitable credits for the amount of the cash donations made (see summary sub nom David).

Before allowing the Minister's appeal on the basis that the receipts were not in prescribed form (see summary under s. 118.1(2)), Scott JA dismissed the Minister's alternative argument that the inflated charitable receipt was itself a benefit that could vitiate a charitable gift. He stated (at para. 47):

...[T]he respondents were not involved in a leveraged charitable donation scheme in which their cash donations were connected to pretence documents as in Berg or a kickback of part of the donation as in Webb. ...

The trial judge was reasonable in refusing, on procedural grounds, to consider the Minister's position that the taxpayers lacked donative intent (paras. 37-39).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(2) inflated charitable receipt was invalid 171
Tax Topics - Income Tax Act - Section 248 - Subsection 248(32) inflated charitable receipt not an "advantage" 114
Tax Topics - Income Tax Regulations - Regulation 3501 inflated charitable receipt was invalid 171
Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 Regs read in context of enabling legislation 70
Tax Topics - Statutory Interpretation - Interpretation Act - Section 32 inflated charitable receipt not an "advantage" 114

Canada v. Berg, 2014 DTC 5028 [at 6664], 2014 FCA 25, rev'g infra

intent to be enriched from tax credits

The taxpayer purchased timeshare units for cash equaling their fair market value and issued bogus promissory notes for nine times the units' fair market value as purported additional consideration for the units. He then donated the units to a registered charity and received charitable receipts for 10 times the units' fair market value.

In rejecting a submission that the taxpayer was entitled to credits for the cash portion of his "gift," on the basis that he received no benefit under this "deal" other than the charitable receipts, Near JA stated (at para. 28):

[I]t was not open to the judge to conclude that the pretence documents were "of no value" at the time that Mr. Berg consummated the "deal." ... He used them to support his initial claim for inflated tax credits.

Furthermore, the taxpayer did not have the requisite donative intent, as he "did not intend to impoverish himself by transferring the timeshare units" but instead "intended to enrich himself ... from inflated tax credit claims" (para. 29).

Kossow v. Canada, 2014 DTC 5017 [at 6622], 2013 FCA 283

Maréchaux principle applies to benefits from third parties

The taxpayer participated in an avoidance scheme similar to the one in Maréchaux, in which she made donations, financed as to 80% by a non-interest-bearing loan with a term of 25 years received from one of the promoters ("Talisker"), in order to obtain tax credits greater than her cash outlay (of 20% of her reported gift amount). The evidence indicated that virtually all of the cash portion of her donation was indirectly used to pay fees, and that the 80% financing received from Talisker was used, through a series of transactions, to in turn finance Talisker. There was no evidence that the art works, which supposedly were to be purchased for a charity with the donated funds, actually existed.

In finding no "gift," as the taxpayer had received a significant financial benefit as the recipient of long-term, interest-free loans as part of the same transactions, Near JA stated (at para. 25):

In my view, Maréchaux stands for two propositions, as follows:

(a) a long-term interest-free loan is a significant financial benefit to the lender; and

(b) a benefit received in return for making a gift will vitiate the gift, whether the benefit comes from the donee or another person.

Respecting point (b), Near JA rejected the taxpayer's submission that McNamee v. McNamee, 2011 ONCA 533, established that a gift is only vitiated by the donor's receipt of a benefit if the donee (rather than a third party) provided it.

Maréchaux v. Canada, 2010 DTC 5174 [at 7315], 2010 FCA 287, aff'g 2009 DTC 1379 [at 2095], 2009 TCC 587

cash portion of a leveraged "donation" is not a gift

The taxpayer agreed in December 2001 to make a $100,000 donation to a charitable foundation, comprising $20,000 of his own funds and $80,000 from a non-interest bearing 20-year loan. He spent a further $10,000 of his own funds on a "security deposit" together with an insurance policy to ensure against the risk that the security deposit would not accrete to $80,000 in 20 years' time. In January, 2002, the taxpayer assigned the security deposit and the insurance policy to the lender (who was owned by the tax shelter promoter) in complete satisfaction of the $80,000 loan.

Evans JA found that the donation was not a gift, given the Tax Court finding that the $80,000 interest-free loan was a significant benefit that the taxpayer obtained only by making the donation. Furthermore, the taxpayer had a reasonable expectation at the time of making the donation that he would be able to assign the security deposit and the insurance policy to the lender in satisfaction of the loan, which represented a further benefit to him. It was irrelevant that the benefits came from a third party.

The Court of Appeal agreed with Woods J.'s further finding that the taxpayer's $20,000 initial outlay was also not a gift. She stated (at TCC para. 49): "There is just one interconnected transaction here, and no part of it can be considered a gift that the appellant gave in expectation of no return."

Slobodrian v. Canada (Minister of National Revenue), 2006 DTC 5625, 2005 FCA 336

The Court followed its earlier decision in Slobodrian v. Queen, 2003 DTC 5632, 2003 FCA 350 in finding (at p. 5626) that "the mere supply of services without compensation involves no property and hence cannot form the subject matter of a gift".

Canada v. Doubinin, 2005 DTC 5624, 2005 FCA 298

A finding of the Tax Court Judge that the taxpayer had not made a gift of $6,887 to a registered charity with an expectation that he would be issued a tax receipt for $27,548, but that this was a mere possibility, was not made in a capricious manner or without regard to the evidence and, accordingly, the donation made by the taxpayer qualified as a gift.

Canada (Attorney General) v. Nash, 2005 DTC 5696, 2005 FCA 386

A company ("CVI") operated a program through which it sold groups of limited edition prints to individuals, arranged for appraisal and located registered charities to whom the prints could be donated on behalf of the individuals.

The Court found that the Tax Court Judge had committed two errors: in accepting valuation evidence based on the retail market for individual prints when there was a normal market (that through which CVI actually purchased the prints) for the groups of prints the valuator was required to value; and in finding that the fair market value of the property was approximately three times the amount paid for the property by CVI with no credible explanation for the apparent three-fold increase.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 117

Slobodrian v. Canada (Minister of National Revenue), 2003 DTC 5632, 2003 FCA 350

A retired physics professor who agreed to carry out research activities without remuneration pursuant to a contract between Public Works Canada on behalf of the Canadian Space Agency, and the University from which he was retired, was not entitled to a charitable credit for the value of the services performed by him. "The word 'gift' ... in a taxing statute must be taken as referring to what is known to the law as a gift, namely the gratuitous transfer of property (tangible or intangible) ..." (p. 5633), and as the statutory definition of property in s. 248(1) did not expand the word property beyond its normal meaning, the mere supply of services without compensation involved no property and, hence, could not form the subject matter of a gift. Furthermore, he did not provide receipts that complied with Regulation 3510.

Woolner v. Canada (Attorney General), 99 DTC 5722 (FCA)

Contributions made by the taxpayers to the First Mennonite Church that were designated as contributions to be applied to a student mutual aid programme did not qualify as a gift (i.e., "a voluntary transfer of property from one person to another gratuitously and not as the result of a contractual obligation without anticipation or expectation of material benefit" (p. 5723)), given that such contributions were made with the anticipation that their children would be provided with a bursary.

The Queen v. Friedberg, 92 DTC 6031 (FCA), rev'd 93 DTC 5507, [1993] 4 S.C.R. 285

The taxpayer purchased for $12,000 an antique textile collection which had been identified and brought to his attention by an employee of the Royal Ontario Museum, loaned the collection to the museum, then donated it after a certificate was issued by the Cultural Property Review Board for its appraised value of $229,437. The taxpayer was permitted a deduction for that latter amount under s. 110(1)(b.1). However, the taxpayer was denied a deduction with respect to the alleged donation by him of a second textile collection in a similar series of transactions given that the relevant documents established a direct transfer of title from the original owner of the textile collection to the museum. It was also noted (p. 6034) that if the original owner "had agreed to pass the title to the taxpayer, she would have undoubtedly insisted on a guarantee that the Collection be given to the ROM, which would also have defeated the legal conclusion that there was a gift of the textiles to the ROM from the taxpayer."

In reaching this conclusion, the Court stated (at p. 6032):

[A] gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Substance 111
Tax Topics - General Concepts - Tax Avoidance subjective intention does not alter transactions 150

The Queen v. Burns, 88 DTC 6101 (FCTD), aff'd 90 DTC 6335 (FCA)

The taxpayer whose daughter was a member of a Canadian Ski Association training squad, was not entitled to deduct payments made by him to the Association because they were not gifts. Pinard, J. found that there was an understanding or arrangement between the taxpayer and the Association that he would pay it certain sums of money and it would allow his daughter to participate in its Training Squad. However, even if there were no contractual obligation on the taxpayer, the taxpayer received a benefit from his contributions in the form of the development and ski training provided for his daughter. In order for there to be a gift "the donor must be aware that he will not receive any compensation other than pure moral benefit."

The Queen v. McBurney, 85 DTC 5433, [1985] 2 CTC 214 (FCA)

In order for a transfer of property to be a "gift", the property generally must be transferred voluntarily and not as the result of a legal obligation, with no advantage of a material character being received by the transferor by way of return. Donations made by the respondent parent to a private school which blended religious teaching with the teaching of secular subjects, were held not to be deductible because they were made out of a "sense of personal obligation on the part of the respondent as a Christian parent to ensure for his children a Christian education and, in return, to pay money to the operating organizations according to their expectations and his means." In addition, the payments fulfilled the respondent's legal obligation under the Education Act (Ontario) to ensure that his children received satisfactory instruction at some school.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 165 - Subsection 165(3) 50

The Queen v. Zandstra, 74 DTC 6416, [1974] CTC 503 (FCTD)

The taxpayer, whose two children were attending at the Canadian Christian School at Jarvis, Ontario (which was a registered charity) paid $590 to the school in 1968, and deducted $390 as a charitable contribution, on the basis that the non-deductible tuition portion of the payment was $200. The Department reassessed on the basis that the tuition component was $200 per child, rather than $200 per family.

The Crown's appeal was allowed. The payments "were not payments made without consideration and cannot therefore be considered 'gifts' ... . [E]ach parent here received a consideration, i.e., the Christian education of his children."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 177 - Subparagraph 177(b)(iv) 156

See Also

Morrison v. The Queen, 2018 TCC 220

gift was not vitiated by benefits

One of the taxpayers (Morrison) participated in a charitable gift program (the “CGI Program”) under which he purchased pharmaceuticals for a cheque of $9,500 and then donated the pharmaceuticals to a registered charity and received a charitable receipt for $56,502.80. CRA reassessed on the basis that the pharmaceuticals had a fair market value (“FMV”) of $1,759.35, so that the balance of the claimed amont of the gift-in-kind by him was denied. The gift-in-kind had been valued by the promoter based on data such as Ontario list prices for the pharmaceuticals. However, the Crown expert evidence was that Canadian pharmacies actually paid up to 80% less than the wholesaler catalogue prices for generic pharmaceuticals. Moreover, the pharmaceuticals were delivered outside Canada.

In confirming this assessment, Owen J found (at paras 127, 129 and 131):

… Since the pharmaceuticals were not (and could not be) imported into Canada for sale, the approach to valuation adopted for the CGI Program is patently flawed since it is using a Canadian market (Ontario) to value generic pharmaceuticals that cannot be sold in that market.

Mr. Morrison did not present independent evidence of the fair market value of the pharmaceuticals he donated to EBF in 2003. …

Mr. Morrison acquired pharmaceuticals worth $1,759.80 for $9,500 and donated those pharmaceuticals to EBF. There is no benefit associated with overpaying for the pharmaceuticals. While Mr. Morrison may have received a tax receipt for $56,502.80, based on the assumed facts and the evidence the inflated amount of the tax receipt was not a result of “pretence documents” and therefore was not a benefit that vitiated the gift.

Morrison also participated in the “CHT Program” under which they or other clients would make a cash donation to a registered charitable foundation (Foundation A) , apply to be considered as a potential Class A beneficiary of CHT, which was a trust, CHT would then distribute certificates to the successful applicant supposedly representing entitlements to pharmaceuticals, and the client would donate those certificates to a registered charitable foundation. After finding that no basis had been established for any value to the donation of the certificates, Owen J then found that Morrison was entitled to a credit respecting his cash donation, stating (at paras 158, 160, 161, 162):

[C]ontrary to the representations in the marketing materials …he received no pharmaceuticals from CHT and donated nothing of value to MCF in 2004. Accordingly, the cash donation resulted in no adjunct benefit to Mr. Morrison.

The receipt of an inflated tax receipt for the in-kind donation to MCF in 2004 is not a benefit to Mr. Morrison in and of itself. Mr. Morrison was not a willing or knowing participant in the use of “pretense documents”. …

… I accept that Mr. Morrison had no knowledge of how the cash would be disbursed once gifted to the cash charity….

I reject the Respondent’s position that the cash donation was a fee payable to participate in the CHT Program. [T]here is no evidence that he was obligated to make a cash donation, that the cash donation was a condition precedent to appointment as a Class A beneficiary or that the cash donation was a fee payable for appointment as a Class A beneficiary.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus taxpayers had the burden of disproving the Minister’s assumptions about their gift tax shelter about which they knew virtually nothing 400
Tax Topics - General Concepts - Fair Market Value - Other Ontario list price of generic pharmaceuticals substantially exceeded their FMV in the international market 201

Markou v. The Queen, 2018 TCC 66

leveraged donations were integrated transactions no component of which had a “donative intent”

The taxpayers, who resided in Quebec or Ontario, participated in the same leveraged donation program as had been found to not entitle the taxpayer in Maréchaux to any charitable donation credits. Of the amounts pledged by the taxpayers in 2001 and 2002 to a charitable foundation (the “Foundation”), they would borrow amounts from a subsidiary of the promoter for between 80% to 85% of the pledged amount, and contribute the balance in cash. The Program allowed participants to assign a security deposit and deposit accretion insurance policy received by them as part of the program to the lenders in full payment of the loan at any time after January 15 of the year following the year the loan was made, and each of the taxpayers did so.

In response to a submission that the loans did not give rise to a benefit vitiating the taxpayers having made “gifts,” Paris J stated (at para. 77):

[T]he loans were not repayable 20 or 25 years, bore no interest and could be extinguished almost immediately by assignment of the security deposit and insurance policy (the "put option"). … Maréchaux [noted] that it is "self-evident that a person who has the use of borrowed money, repayable in twenty years’ time, without having to pay interest has thereby received a significant benefit” [and that] "the ‘put option’ was a significant benefit provided to the donor by the lender in return for the payment."

The taxpayers submitted in the alternative that they were entitled to a charitable donation tax credit for the cash portion of their donations, submitting (at para. 80) that “the theory that consideration vitiates a gift is not based on the common law but is, rather, a recent innovation of revenue officials.” Paris J in rejecting this submission and finding that the cash portion also did not qualify as a gift under Quebec law stated (at paras. 108-109):

"It would appear that donative intent in civil law, as in common law, is always an essential element of a gift, even a partial gift. "

"Therefore, whether the civil law or common law meaning of the word “gift" in 118.1 is used, the result would be the same in these cases because none of the Appellants had the requisite donative intent with respect to the cash portion of the amounts transferred to the Foundation. Just as in Maréchaux, in each case before me there was just one interconnected transaction and no part of it can be considered a gift that was given in expectation of no return. "

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(30) donative intent no longer is required for split gifts 268

Murji v. The Queen, 2018 TCC 7 (Informal Procedure)

no intent to impoverish

The promotional materials of Strategic Gifting Group (“Strategic,” or “SGG”) contemplated that participants would make a cash donation to a participating charity, and receive a donation of shares from a non-resident philanthropist (later discovered to be fictitious) and also donate those shares (which the evidence indicated were worthless but which were treated by SGG as having a value of up to 12 times that of the cash donation) to the charity. Up to 90% of the cash donations were paid by the charity to Strategic in payment of Strategic fees. The charities subsequently issued revised receipts which reflected the amount of the cash donations net of the fees paid by the charity to Strategic. The Minister reassessed to only allow credits based on the revised receipt amounts.

Before dismissing the taxpayers' appeals, Favreau J stated (at paras 47, 52):

Mr. Murji and Mr. Khan had no donative intent as they did not intend to impoverish themselves.

By making gifts of cash to On Guard and to Pilgrim, respectively, Mr. Murji and Mr. Khan acted as “investors”. They each received a significant benefit by doing so, which vitiates any cash gift they may have made.

He also found that the amount of the cash donations made by the taxpayers was net of the promoter fees which the donee charity was required to bear.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 3501 - Subsection 3501(1) - Paragraph 3501(1)(h) the cash portion of a donation made to a charity was reduced by the fees paid by it to the tax shelter promoter 228
Tax Topics - Income Tax Act - Section 237.1 - Subsection 237.1(1) - Tax Shelter charitable gifting arrangements with high promised credits was a tax shelter 172

Cassan v. The Queen, 2017 TCC 174

common law gift was vitiated by loan to donor at unreasonably low rate

In December 2009, the taxpayers participated in a program that had both an investment and gifting component. The investment program entailed each taxpayer purchasing a minimum of 10 limited partnership units in an Ontario LP indirectly controlled by the shareholder of the promoter, mostly with the proceeds of a loan from a trust (“FT”), with most of the funds so received by the LP being lent to a BVI corporation (“Leeward”) and then circled back to FT through a loan to a second trust (“DT”), and a loan by DT to FT.

Under the gifting component, each taxpayer transferred $10,200 to a registered charity (“TGTFC”) of which $10,000 per LP Unit was funded by a loan from FT (the “TGTFC Loan” – maturing in February 2019) that required that the borrowed funds be so transferred to TGTFC and that bore interest at 7.85% p.a., of which 3.75% p.a. was required to be paid annually in cash (“cash-pay interest”) and the balance was to be funded through with further cash advances from the lender (“capitalized interest”), namely, FT. The $10,200 (for which TGTFC issued a charitable receipt) was transferred to TGTFC under a pledge executed by the taxpayer and TGTFC, which required TGTFC: to invest 98.04% of the amount (i.e., $10,000) in secured debt obligations (the “TGTFC Notes”) issued (together with a security interest) by Leeward; to hold the TGTFC Notes until maturity on December 31, 2028 and which bore interest of 4.75% of which 3.75% was cash-pay interest, and the balance capitalized interest of 1% (which would cause the amount owing thereunder to accrete by over 1/3 by 2028); and to disburse 90% of its interest received in cash on the TGTFC Notes to charities (taken from a list) designated by the taxpayer. The TGTFC Notes had priority over the loans made by the LP to Leeward under the investment component.

Leeward lent to DT the proceeds from issuing the TGTFC Notes and DT immediately lent the same amount to FT. These secured loans had the same or similar terms as the loans referred to above in connection with the investment component, (i.e., a 2028 maturity and 7.85% p.a. interest).

Leeward also invested $2,575 in Class D Notes (the “Man Notes”) issued by a U.K.-based investment manager (“Man Investments”) and with a return dependent on the return realized on an underlying pool of assets managed by it. The return on the Man Notes to December 31, 2028 was required to be at least 9.61% p.a. in order for Leeward to be able to discharge the TGTFC Notes when they matured in 2028.

In confirming CRA’s complete denial of charitable credits to the taxpayers (and before turning to the effect of the split-receipting rule in s. 248(32) and the limited-recourse amount rule in s. 142.3(7)), Owen J stated (at para 272):

Maréchaux and Kossow hold that a transfer of property is not gratuitous if a benefit flows to the transferee as part of an interconnected series of transactions that includes the transfer of property. …

In finding that there was such a benefit here by virtue of the TGTFC Loan having been made at an unreasonably low rate of interest, Owen J stated (at paras 311, 314, 316):

I find it especially difficult to believe that an arm’s length commercial lender in the same circumstances would lend such significant amounts, which accumulate over 9 years to become even larger amounts, at a rate that is only roughly 1% above the rate on a 10-year residential mortgage.

In addition, the credit application forms provided FT with ranges of income and assets instead of hard numbers… . In my view, a lender in these circumstances would require detailed information to support the creditworthiness of the Appellants … and would require full disclosure of all liabilities… .

… I conclude that a commercially reasonable interest rate on the TGTFC Loans would be no less than… 10%. On the basis of this rate, Mr. Johnson [the Crown’s valuation expert] calculated a benefit per LP Unit of $1,475 for the 9-year term of the TGTFC Loans.

Before so concluding, Owen J noted (at para. 303) that “the tax credit provided by section 118.1 cannot be a benefit that disqualifies a transfer of property to a qualified donee from being a gift” and (at para. 296, after stating at para. 291 that “benevolence is not a requirement for a gift” and in rejecting a Crown submission (summarized at para. 249) that “gift” required “detached and disinterested generosity”):

Donative intent does not require the transferor to have a particular motive for making the transfer. Rather, donative intent simply requires that the transferor intended to transfer the property gratuitously.

Words and Phrases
donative intent
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 143.2 - Subsection 143.2(12) although borrowing by taxpayers had a term of 9.3 years, they had a reasonable expectation of refinancing with the promoter’s assistance 466
Tax Topics - Income Tax Act - Section 143.2 - Subsection 143.2(7) - Paragraph 143.2(7)(a) loans were not bona fide in that not handled with commerciality 655
Tax Topics - Income Tax Regulations - Regulation 7000 - Subsection 7000(2) - Paragraph 7000(2)(d) no requirement to accrue interest on index-linked note in a year when the return thereon was not determinable 577
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) interest on loan to acquire LP units was deductible as there was a prospect of gross income being allocated by LP in 19 years’ time 583
Tax Topics - Statutory Interpretation - Realization Principle amount should not be recognized until ascertainable 67
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(c) gratuitous transfer is gift irresepctive of absence of benevolent intent 50

Mariano v. The Queen, 2015 DTC 1209 [at 1331], 2015 TCC 244

no gift where no intent for impoverishment and where gifted property not yet identified

The taxpayers were participants in leveraged donation transactions, which were intended to result in a step-up of the adjusted cost base of courseware licences (e.g., on how to use Microsoft products) under ss. 69(1)(c) and 107(2) (apparently with a view to avoiding s. 248(35)) before the licences were donated by them at a higher stipulated value to a registered charity ("CCA").

A Bahamian corporation ("Phoenix') acquired various courseware licenses, at costs of 13.3 to 26.7 cents each from a Florida corporation ("Infosource") which also packaged and sold such licences in the course of its business, and gifted most of them to a Canadian–resident Trust (with the balance being sold to raise cash to fund its purchase price). Ostensibly, the licences then were distributed to the program participants such as the taxpayers as capital beneficiaries of the Trust, with the participants then donating them to CCA. The participants also made cash donations to a second registered charity ("Millennium"), which redonated 80% of those amounts to CCA and used the balance to pay fees and other expenses. It was "clear…that any participants in the program knew that their cheques for the cash contribution [to Millennium] would not be cashed until they were notified they were accepted as capital beneficiaries [of the Trust] and, thus, would be receiving the further benefit of Licence distributions for further gifting" (para. 38). The participants were issued charitable receipts for three or more times their cash outlay (and perhaps 800 times the cost to Phoenix of the licences (para. 125)).

Pizzitelli J upheld the Minister's disallowance of the taxpayers' charitable tax credits. Among other reasons (including that the transactions were a sham - see summary under general concepts - sham), Pizzitelli J found that, as in Berg, the taxpayers had no donative intent for either the licence or cash gifts. Despite the pains taken by the promoters to separate out the two gifts, it was clear that the two were part of a single interconnected series of transactions (para. 48), and that the taxpayers did not seek to impoverish themselves by making the gifts, but rather to receive a net tax benefit. The taxpayers argued that they were necessarily impoverished through the act of giving away the gift property. Pizzitelli J stated (at para. 22):

The concept of impoverishment means more than depriving oneself of property; it clearly means depriving oneself of property in such a manner as to not benefit from such deprivation.

A further barrier to finding that the participants had gifted the licences is that their Deeds of Gift indicated that the subject licences were as described in "Schedule A," which had not yet been attached. The determination of the type and number of licences which were "allocated" to each participant was not determined until subsequently, based on a computer algorithm. Pizzitelli J stated (at para. 51):

This is prima facie evidence the Appellants could not have owned the Licences they say they voluntary gifted… . It simply defies common sense to suggest someone can voluntarily give a property he does not yet know of or otherwise has any way of specifically identifying.

See summaries under general concepts - sham, general concepts - fair market value, s. 104(1), and s. 107(2).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other courseware licences valued at modest initial cost, given relevant wholesale market and depressive effect of huge volumes purchased 289
Tax Topics - General Concepts - Ownership no acquisition of unascertained property 66
Tax Topics - General Concepts - Sham taxpayer involvement in deceit unnecessary 357
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) void for lack of certainty of objects 208
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) delegation of power of appointment to promoter not authorized 222
Tax Topics - Income Tax Act - Section 248 - Subsection 248(35) attempted use of initial gift to step-up ACB under s. 69(1)(c) 238

French v. The Queen, 2015 TCC 35

tax results in common and civil law need not be uniform

The taxpayer participated in the same donation scheme as in Kossow. The taxpayer, who was not a Quebec resident, sought to apply the Quebec civil law concept that "a remunerative gift ... constitutes a gift ... for the value in excess of that of the remuneration." His notice of appeal argued that consistency in the law ought to prevent the Income Tax Act from applying differently in different jurisdictions.

C Miller J granted the Minister's motion to strike the civil law argument from pleadings, calling it (at para. 22) "hopeless." Sections 8.1 and 8.2 of the Interpretation Act specifically reject uniformity in favour of bijuralism, to say nothing of the Harmonization Act, jurisprudence preceding the enactment of ss. 8.1 and 8.2 (see St. Hilaire, 2001 FCA 63), published articles, and s. 94 of the Constitution Act, 1867.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 tax results in common and civil law need not be uniform 125

Webb v. The Queen, 2004 TCC 619 (Informal Procedure)

donation motivated by kickbacks; jurisprudence does not establish that tax motivations cannot vitiate a gift

The taxpayer made a donation equal to his annual income to a charity (whose registration was revoked shortly thereafter). Bowie J found there was overwhelming indirect evidence that the taxpayer received significant peripheral kickbacks for this donation, which vitiated any donative intent. He upheld the Minister's decision to disallow the taxpayer's claim for charitable tax credits.

Regarding the point made in Doubinin that a tax benefit would not typically be considered a "benefit" vitiating a charitable gift, Bowie J stated (at para. 18):

I do not read [Doubinin] as purporting there to extend what was said ... in Friedberg to suggest that a scheme ... to claim tax credits for charitable donations in excess of the donations actually made ... [to] not be considered a benefit within the context of the definition of what constitutes a gift.

Johnson v. The Queen, 2014 DTC 1097 [at 3185], 2014 TCC 84 (Informal Procedure)

payment to a third party to induce charity to generate fraudulent receipt

The taxpayer claimed donations, equal to approximately half of his salary, allegedly made to a registered charity ("CFCD") in three consecutive taxation years. The charity's president ran an "accounting" business on the side, in which false receipts were generated from CFCD in exchange for payments from taxpayers equal to 10% of their amounts. VA Miller J found that as the taxpayer had purchased receipts rather than making any donation, his claims were properly denied.

David v. The Queen, 2014 DTC 1111 [at 3236], 2014 TCC 117 (Informal Procedure)

credits based on cash portion where inflated receipts

The taxpayers or their spouses donated cash and, in some instances, household goods to a registered charity. The Minister assumed that the taxpayers "in consideration for a charitable receipt from [the charity,] would pay 10% of the face value of the receipt amount, plus a commission, to her tax preparer." The taxpayers did not succeed in establishing that they donated more than 10%.

After stating (at para. 61) that "the issuance of an inflated tax receipt should not usually be considered a benefit that negates a gift," and that although "the appellants likely knew that they were claiming inflated tax credits ... this is not a sufficient reason to deny the tax credits altogether" (para. 64), Woods J found that the taxpayers were eligible for credits based on 10% of the receipt amounts, and directed that any penalties be deleted. As to whether the taxpayers had donative intent (whose absence would vitiate a "gift"), the Minister had not raised this issue in pleadings.

Carson v. The Queen, 2014 DTC 1006 [at 2520], 2013 TCC 353 (Informal Procedure)

donated space must constitute an enforceable right in order to be property

The taxpayer and his wife allowed a charity to use two rooms of their house for free (an office and a storage room), and claimed charitable credits for the fair market value of the use of the rooms (i.e. rent). C Miller J disallowed these credits, as the charity had no legally enforceable right to the space - and without an enforceable right, there was no property to donate.

However, C Miller J disagreed with CRA's position in 2003-0018595 that a grant of use cannot constitute a transfer of property. Manrell provides that "property" entails some exclusive right to make a claim against someone else (para. 6).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property donated space must constitute an enforceable right in order to be property 107

Hall v. The Queen, 2013 DTC 1241 [at 1313], 2013 TCC 314 (Informal Procedure)

no charitable registration, no discrimination

Pizzitelli J found that there was no discrimination in denying the taxpayer charitable credits for donations made to the International Association of Scientologists, which was not a registered charity, because nobody is entitled to credits for donations to entities that are not registered charities.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Subsection 15(1) no charitable registration, no discrimination 45

Bandi v. The Queen, 2013 DTC 1192 [at 1032], 2013 TCC 230 (Informal Procedure)

The taxpayer participated in a donation scheme in which participants supposedly would acquire office software licences for a bulk rate and donate them for charitable receipts reflecting the ostensible fair market value (i.e. non-bulk rate) of the licences:

  1. A corporation ("Multisolve") would sell transferable software licences to an individual ("Intermediary") for $468 each. In lieu of cash payment, Multisolve would take vendor take-back charges over the licences for $468 (the "Liens").
  2. The Intermediary would donate the licences to a Trust.
  3. The participants would be named capital beneficiaries of the Trust.
  4. The Trust would distribute the licences to the participants as gifts.
  5. The participants would donate the licences to a charitable Foundation, along with a $468 cash "donation" to discharge the Liens.

The taxpayer received two charitable receipts, one for $468 per licence in respect of the cash portion, and one for $1031 per licence on the basis of a $1499 fair market value less the $468 Liens.

Hogan J upheld the Minister's decision to fully deny charitable credits claimed by the taxpayer. The taxpayer advanced no evidence that the software had existed. Respecting the cash "donation," there was a lack of donative intent given the taxpayer would not have paid the cash without the understanding that he would receive the software licences from the Trust, and the cash "donation" was earmarked to discharge the Lien.

See also the summary under s. 237.1(6).

Berg v. The Queen, 2013 DTC 1018 [at 93], 2012 TCC 406, rev'd supra

The taxpayer purchased timeshare units for cash (as to 1/9 of the consideration) and promissory notes (as to the balance), and then donated the units (which had a fair market value equal only to the cash portion of the "donation") to a registered charity. The Minister reassessed the taxpayer on the basis that neither the leveraged portion of his donation nor his actual cash outlay qualified for a charitable receipt. Bocock J. found that the promissory notes were pretences and did not reflect a bona fide obligation of the taxpayer - and that he asked for a discharge of such purported obligations only because of the risk that someone might subsequently mistake them for genuine obligations.

He also found that the cash outlay generated a credit, notwithstanding that the taxpayer's biggest motivation for making the outlay was to obtain a tax benefit. After reviewing the jurisprudence to the effect that charitable receipts do not, by themselves, represent a tangible or potential benefit that vitiates a finding of "gift," he concluded (at para. 48):

In the absence of some other benefit received beyond the Inflated Tax Receipts, no legal authority suggests donative intent as defined by the case law relevant to section 118.1 of the Act has been vitiated or nullified to the extent of the value of the Cash Donation Amount.

Bocock J. found (at para. 35) that Maréchaux was "easily distinguishable" on the basis that the promissory notes and transaction documents in the present case were legally ineffective - they provided no "tangible or potential benefit to the Appellant" beyond camouflaging the true amount of the gift from CRA.

Grossett v. The Queen, 2012 DTC 1185 [at 3465], 2012 TCC 179 (Informal Procedure)

The taxpayers relied on charitable receipts which showed donations amounting to approximately 25% of their annual income, and which had been obtained from a tax planner who had subsequently been convicted for selling fraudulent charitable receipts to taxpayers. Paris J. affirmed the Minister's finding that no gifts had in fact been made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) implausibly large charitable receipts 57

Coleman v. The Queen, 2010 DTC 1096 [at 3000], 2010 TCC 109, aff'd 2011 DTC 5040 [at 5651], 2011 FCA 82

The corporate taxpayer was indirectly controlled by the individual taxpayer. The two taxpayers contributed funds to a charitable organization that provided bursaries and scholarships. The organization's program was to have prospective students at various Christian colleges solicit donations. The student would then be eligible for a bursary generally of 80% of the amount raised and a scholarship of up to 20%. Because the candidates soliciting the taxpayers' donations were the individual taxpayer's children, Miller J. found that the contributions were not charitable gifts. He found at para. 35 that the taxpayers had an "understanding, indeed a knowledge, at the time of the donation, that 80 to 100% of monies they donated would go to cover the education cost of those students who solicited the funds - primarily their offspring."

Russell v. The Queen, 2009 TCC 548, 2009 DTC 1371 (Informal Procedure)

C. Miller, J. followed the Nash decision in finding that quantities of art purchased by the taxpayers and immediately donated to charities had a fair market value equal to their purchase price. In rejecting the taxpayers' submission that the fair market value determination should be based on the retail market (i.e. what the art might be sold for to the public by galleries), he stated (at para. 25) that this argument "ignores the reality that the buyers/donors have no access to that retail market, other than through a gallery" and that he could speculate "that the buyers/donors might go knocking on the galleries' doors to sell in bulk, but this would not yield the retail price the gallery would sell the art for, only the wholesale price the gallery would buy the art for".

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 136

Benquesus v. The Queen, 2006 DTC 2747, 2006 TCC 193

It was found that the taxpayer's father, in transferring funds to a charitable foundation, had thereby made a transfer to his children of loans owing to them by the foundation, with the result that they were entitled to a charitable credit when they subsequently forgave a portion of the monies owing to them. The evidence supported that their father had intended to gift monies to them, the courts presume acceptance by a donee so that here, the fact that the children were aware of the transfer to the Foundation and were generally aware of the terms, with sufficient particularity to establish acceptance of the gift by them, and the effective control that they exercised over the money established that there had been a completed gift.

Klotz v. The Queen, 2004 DTC 2236, 2004 TCC 147, aff'd 2005 DTC 5279, 2005 FCA 158

The taxpayer purchased prints from a promoter at approximately $300 per print (which the promoter contemporaneously had purchased for approximately U.S.$10 to U.S.$50 per print) and immediately donated the prints to Florida State University for an appraised value of approximately $1,000 per print. After noting that the best evidence of the fair market value of the prints was the value in a contemporaneous arm's-length purchase transaction, i.e., the purchase at $300 per print, rather than what it might be possible with "world enough and time" to sell the occasional print for in a New York gallery, Bowman A.C.J. found that the fair market value of the prints was $300 each.

Nadeau v. The Queen, 2003 DTC 18 (TCC)

Employees of a college who wished to have a computer at home would make a payment to a charitable foundation associated with the college, with the foundation applying the money to the purchase of the computer and issuing a charitable receipt for 80% of that amount to the employee (the personal-use of the computer being estimated to be 20%). The payments did not qualify as gifts given that the making of a gift "implies gratuitousness, a disinterested donor in the absence of any consideration" (p. 23).

Dutil v. The Queen, 95 DTC 281 (TCC)

After confirming the Minister's reassessment that had been made on the basis that a painting donated by the taxpayer to a gallery have been over-valued by a factor of approximately five times, Dussault TCJ. went on to indicate (at p. 287) in obiter dicta "it may be seriously doubted whether such a gift even exists in the true sense when the taxpayer's sole motivation is clearly to enrich himself, not impoverish himself".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 152

Administrative Policy

2017 Ruling 2016-0628181R3 - Donation of shares to private foundation

residue paid under terms of spousal trust to charitable beneficiary was not a gift

The estate of B gifts her shares of a portfolio holding company (“Holdco”) to a private foundation, with Holdco thereafter using its liquid assets to redeem the common shares held by the private foundation. The balance of the Holdco shares were held before B’s death in a spousal trust, whose terms in the wills of B’s deceased husband (A) provided that the residue (including such shares) was to be transferred to the Foundation on B’s death. CRA opined that this latter transfer to the Foundation was not a gift by the spousal trust. In its summary, it stated:

The distribution by the spousal trust to the foundation was made in accordance with the terms of the testator’s will and therefore, the spousal trust would not be considered the donor.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(13) - Paragraph 118.1(13)(c) gift of NQS in portfolio company cured when company wound-up into charity 183
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1.2) s. 129(1.2) denies a dividend refund on the wind-up of a private company bequeathed (but not gifted) to a private foundation 256
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(15) gift of shares (NQS) of portfolio company retroactively deemed to be made in terminal year once company wound up into charity 98

2016 Ruling 2016-0634031R3 - Donation to a municipality

contributions to a legal defence fund of public interest could qualify as charitable contributions by routing them through a municipal-controlled fund
Background

The Municipality (which is a qualified donee) passed a resolution supporting a cause, and has been given full party status with respect to the hearing dealing with the appeal in a particular matter. The Fund was established by two not-for-profit corporations (ACO and BCO) as a collaborative effort to pay for the legal expenses incurred in the defence in [the appeal] respecting the County. Donations to the Fund have been accepted by ACO and BCO. The donations were not tax deductible.

Proposed transactions

The Municipality, ACO and BCO will enter into an agreement to establish the Municipal Fund. The agreement will provide, among other things, that all donations to the Municipal Fund will be deposited to the Municipal Fund bank account set up by the Municipality, the responsibility of ACO and BCO will be to work with a lawyer in facilitating a cost effective process for defending the action, and they may also provide fundraising efforts for the Municipal Fund, the Municipality will at its sole and absolute discretion reimburse expenditures relating to legal expenses and disbursements incurred in defending the action, and when all expenditures are complete any remaining funds in the Municipal Fund will be made available to support activities that in the sole discretion of the Municipality are beneficial to the County’s XX.

The Municipality will use the bank account to reimburse, at its sole discretion, legal invoices and other related expenses to the action and will maintain full control and ownership of the funds as required under the Policy. The lawyer will be retained by ACO and BCO and will not be directly engaged by the Municipality. Both ACO and BCO will submit the legal invoices to the Municipality for reimbursement, at which time the Municipality will have full authority and discretion to reimburse these organizations.

An Individual will donate $XX to the Municipal Fund controlled by the Municipality in respect of which donation the Municipality proposes to issue an official receipt for an eligible amount of $XX. The Individual and persons or partnerships not dealing at arm’s length with the Individual will not receive any benefit or advantage (as defined under s. 248(32)) in respect of the donation to the Fund.

Purpose of proposed transactions

The purpose of the Municipality entering into an agreement to maintain and control the Municipal Fund as a project of community interest is to allow for donations to the Municipal Fund to be eligible as gifts under “total charitable gifts” as defined under subsection 118.1(1).

The purpose of the Individual’s proposed donation is to contribute to the Municipal Fund in order to help offset the legal expenses.

Ruling

Subject to the limitations in s. 118.1 and provided that an official receipt is filed as required under s. 118.1(2), the cash donation made by the Individual to the Municipal Fund will qualify as a gift to the Municipality for purposes of the definition of “total charitable gifts” in s. 118.1(1), and the eligible amount of the gift will be $XX less the amount of the advantage, if any, in respect of the gift as defined in s. 248(32).

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Meaning of "gift"

1.2 Under the common law, “a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor” (The Queen v Friedberg, [1992] 1 CTC 1, 92 DTC 6031 (FCA)). Generally, for purposes of sections 110.1 and 118.1, a gift under common law is made if a taxpayer has donative intent, and all three of the following conditions are satisfied:

  • there must be a voluntary transfer of property to a qualified donee;
  • the property transferred must be owned by the donor; and
  • no benefit or consideration must flow to the donor.

1.3 Under the civil law, Article 1806 of the Civil Code of Québec (C.C.Q.) provides that a gift is a contract by which the donor transfers ownership of property to the donee by gratuitous title.

It is generally accepted that a transfer is made by gratuitous title when:

  • the transfer impoverishes the donor to the benefit of the donee and is made without any corresponding consideration; and
  • it is the donor's intention to enrich the donee without receiving any corresponding consideration.

The donor’s intention to enrich the donee does not need to involve the full value of the transferred property. Therefore, a transfer of property for partial consideration may result in a gift under the civil law. For example, under the civil law, it is possible to sell a property to a qualified donee at a price below fair market value, resulting in a gift of the difference, if all the other requirements of the civil law are met. Article 1810 of the C.C.Q. also formally recognizes the validity of gifts with partial consideration that are remunerative gifts or gifts with a charge.

Words and Phrases
gift

21 January 2016 Roundtable, 2016-0624851C6 F - Spousal sharing of charitable gifts made by will

gifts made by will of the deceased can no longer be treated as gifts by a surviving spouse

For deaths occurring after 2015, will it be possible to include donations made by the estate of an individual in donations made by the surviving spouse or common-law partner in the particular year or any of the five preceding taxation years? CRA responded (TI translation):

Since proposed clause (c)(i)(C) [of “total charitable gifts”] above does not include a gift made by the estate of a spouse or common-law partner, we are of the view that the total charitable gifts of a surviving spouse or common-law partner for a taxation year or any of the five preceding taxation years, will not include the eligible amount of a gift made by such an estate. Therefore, following these amendments, the administrative practice respecting gifts made in the context of the death of an individual no longer applies for deaths after 2015.

2015 Ruling 2014-0532201R3 - Corporate reorganization

donation and sale-back of public company shares

A privately-held Canadian corporate group usesits shareholdings in a public company to maximize the benefit from a corporate contribution to a charitable foundation established by the spouse of one of their individual shareholders. One of companies in the group is donates its shares to the foundation (claiming the s. 38(a.1) exemption), with the Foundation then immediately selling those shares to another group company for cash. Some related transactions occur in order to utilize the benefit of the s. 110.1 deduction for charitable donations.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 38 - Paragraph 38(a.1) donation of pubco shares to foundation and immediate cash sale to affiliate 474
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3) cancellation of upstream shareholding on s. 88(1) wind-up 61

30 September 2015 External T.I. 2015-0590501E5 F - Spousal sharing

gift allocation between spouses still permitted after 2015

An individual and his spouse each make a charitable gift of $10,000 in a year, and they wish to allocate $17,000 to the individual as his gift, and $3,000 to his spouse. What is CRA's policy on the allocation of gifts between spouses or common law spouses before 2016 or after 2015? CRA stated (TaxInterpretations translation):

[A]n individual can claim a tax credit for gifts which he, his spouse or common law spouse made in the course of the given year or the five preceding taxation years. Taking into account this administrative position, an individual and his spouse or common law spouse who otherwise satisfies the other conditions stipulated in section 118.1 respecting the income tax credit for a charitable gift for a taxation year can, for years before 2016, choose the most advantageous allocation for purpose of a deduction claim under subsection 118.1(3).

…As for the 2016 taxation year…an individual and his spouse or common law spouse who otherwise satisfies the other conditions stipulated in section 118.1 respecting the income tax credit for a charitable gift could continue to share, in the most advantageous manner, charitable gifts made by each of them, for purposes of a claim under subsection 118.1(3).

…[S]uch an arbitrary allocation of charitable gifts would also be possible for deduction claims for the five taxation years following the given taxation year, insofar as the unused portion of the eligible amount of the gift, as defined in subsection 248(1), is concerned.

12 February 2015 External T.I. 2014-0550771E5 F - Allocation à des bénévoles - chantier particulier

mission work volunteers foregoing allowances

A registered charity sends volunteers on missions to developing countries and pays them an allowance of $X per day. After finding that "remuneration that is quite unrepresentative of the services rendered would not be taxable," CRA turned to a question as to whether the charity could issue donation receipts in accordance with CPC-012 if the volunteers declined the allowance, and stated (TaxInterpretations translation):

[S]uch policy applies only to reimbursement of expenses incurred by the volunteers for the account of the charitable organization and not to allowances which are paid to them.

See summary under s. 5(1).

Words and Phrases
volunteer
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Business Source/Reasonable Expectation of Profit modest compensation to volunteers qua independent contractors not income 98
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) quite unrepresentative remuneration: exempt 98
Tax Topics - Income Tax Act - Section 6 - Subsection 6(6) mission work under 2 years in LDCs 97

16 June 2014 STEP Roundtable, 2014-0523061C6 - Trust audit issues

executors lacked power to make gift

In the course of commenting on common audit issues for trusts, CRA stated:

Compliance issues are often encountered [respecting]…gifts by will. … 2012-047216117 dealt with the issue of whether the executors of an estate were empowered to make a gift to charities, and thus claim a deduction pursuant to subsection 118.1(3) in computing the tax payable by the estate. Based on the terms of the will in the particular case, it was our view that the executors did not have the power to make such a gift.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(21) capital gain distributed to different beneficiary 131
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) benefit conferred when trust shares redeemed at undervalue 190
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) taxpayer stuck with two-transaction form 147
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees legal and accounting expenses 39
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) settlor taking back undervalued freeze shares 70

22 May 2014 External T.I. 2014-0526131E5 - Donation of a fossil

donation of fossil custody

Would the value of the custody of a fossil transferred to a qualified donee can be considered a charitable gift" CRA stated tht this was a legal question on which it would not comment in the absence of further particulars.

27 January 2014 Internal T.I. 2012-0472161I7 - Gifts by Will

gifts. v. distributions made to charities

///?page_id=909#2012-0472161I7">s. 107(2)]: The Deceased had three wills in respect of defined components of her estate, including a second will in respect of the "Secondary Estate." CRA found that the second will did not accord the executors the discretion to make a gift to specified Charities, so that s. 118.1(5) did not deem distributions made to the Charities to have been gifts made by the Deceased. CRA also quoted E9918215 that:

it is a question of fact to be determined based on the specific wording of the will and the intentions of the trustees…whether the payment of amounts to a registered charity by a testamentary trust represent a distribution out of income to a beneficiary of the trust…within the scope of subsection 104(6), or are a charitable donation made by the trust for which a tax credit under subsection 118.1(3) may be claimed by the Estate

and further stated:

even if [the Executors] could make such a gift, pursuant to subsection 248(28)…, any trust [i.e., estate] income payable to the Charities that would be accounted for under section 118.1… as a gift from the Trust could not also be deducted under subsection 104(6)… and vice versa, by the Trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) gifts v. distributions made to charities 159
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5) gifts. v. distributions made to charities 62

P113 – "Gifts and Income Tax" 2013

Fair market value (FMV)—This is usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 38

2012 Ruling 2012-0466731R3 - Donation of flow-through shares

Donors (mostly Canadian-resident individuals) as well as non-donors use cash to subscribe for flow-through shares of a listed Canadian resource company, pursuant to a subscription agreement entered into by a dealer as their agent (the Agent), so that Canadian exploration expenses will be renounced to the subscribers.

The Donors issue directions to the Agent to transfer a portion (the Donated Shares) of their shares to the account of the relevant registered charity, which issues a charitable receipt. Independent persons (the Liquidity Providers) agree to purchase the Donated Shares for their fair market value from the charities. The Liquidity Providers also agree to purchase the balance of the Donors' shares (the Sale Shares) for their fair market value.

The charities receiving Donated Shares will pay a financial services fee to the Agent for its services in selling the Donated Shares to the Liquidity Providers; and Donors who sell Sale Shares will also pay a financial services fee to the Agent for its services in selling those shares to the Liquidity Providers. Mr. X, who is not a Donor, will also sell his shares on the same terms.

Rulings include:

...an amount equal to the fair market value of the Donated Shares will qualify as a gift for the purposes of the definition of "total charitable gifts" in s. 118.1(1) provided an official receipt is filed...

16 April 2013 External T.I. 2013-0477981E5 F - Interpretation of Gift

ability to opt out of a compulsory contribution to an employer-aligned charity would not necessarily establish a “gift”/Quebec “gift” is CCQ “donation”

A Quebec collective agreement requires each employee to annually pay a specified amount to a pre-established registered charity whose mission supports that of the employer, which also is charitable. In a variation (the second situation), an employee may opt out of the obligatory contribution by written notice. Would these contributions qualify as gifts?

After stating that

what constitutes a “donation” in civil law is a “don” for the purposes of the Act

CRA stated (respecting the first situation):

[T]he employees are subject, by virtue of the collective agreement, to an obligation to remit a predetermined annual amount to the foundation, which prevents the remitted amount from being a donation.

Respecting the option in the second situation:

[This] would not suffice, by itself, to be able to conclude that an employee who had not exercised the option had necessarily made a donation. … [One should] determine the reasons for not having made a written request and … if there was an intention to make a donation.

Words and Phrases
gift don

28 November 2010 CTF Roundtable, 2010-0389111C6 - Leveraged Donation Arrangements

CRA will generally not consider advance ruling requests for leveraged donation schemes such as the one considered in Maréchaux. CRA listed conditions under which it would refuse to make a ruling. In addition to five factors present in a Maréchaux-style scheme (essentially amounting to leveraging a donation with "borrowed" funds that do not represent a genuine economic burden on the donor or gain to the charity), the list included:

  • The funds loaned to the taxpayer circle back to the lender.
  • The use of a limited partnership or other structure permits losses or other deductions to flow through to investors.
  • Offshore money managers or investment accounts are used.
  • There is uncertainty about certain aspects such as valuation and questions of fact such as arm's-length issues.

3 December 2003 External T.I. 2003-001859 -

A person allowing a charity to use office space at no charge would not be viewed as a transfer of property (i.e., a divesting of property by the donor and a vesting of the property in the registered charity) and, accordingly, would not qualify for a credit.

24 September 1996 T.I. 962770 (C.T.O. "Donations/Tuition Fees")

Unlike teaching or other training, religious training is not viewed as consideration for purposes of the definition of a gift.

13 August 1996 T.I. 960061 (C.T.O. "True Gift") (See also 30 August 1994 T.I. 933441)

"It is the Department's practice to view donations subject to a general direction from the donor as acceptable, provided that no benefit accrues to the donor, the directed gift does not benefit any person not dealing at arm's length with the donor and decisions regarding utilization of the donation within a program rest with the donee."

4 January 1996 T.I. 952477 (C.T.O. "Donation of Residual Interest")

"The gift of an 'object' (within the meaning of 'total cultural gifts' in subsection 118.1(1) and the disposition of an 'object' (within subparagraph 39(1)(a)(i.1)) refers to the gift and disposition of all interests in the object or objects. Consequently, a gift of a residual interest in an object would not be viewed as the gift of an object."

6 July 1995 T.I. 950356 (C.T.O. "118.1(1)")

"A right to use property (e.g., a helicopter or equipment) for a period of time could be considered a property and a donation of a right to use a property, depending on the facts in a particular case, could be considered a gift in kind. Where it is established on the facts in the case that a donation is a gift in kind, the donor is deemed to have received proceeds of disposition equal to the fair market value of the property donated."

5 October 1994 External T.I. 5-942164 -

Listing of the four requirements that must be met in order for a transfer of property to qualify as a gift.

In valuing an equitable interest in a trust that has been donated, "the general approach is to value the various interests taking into consideration the fair market value of the property itself, the current interest rates, the life expectancy of any live tenants, or current terms of certain tables, and any other factors relevant to this specific case."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 11

21 September 1994 External T.I. 5-94149 -

Although a gift to a pooled fund remainder interest charitable trust could be considered to be a gift to a charity of an equitable interest in the trust provided that there could be no encroachment on capital, in this case it would be very difficult to determine the value of the interest in the trust because the property in the trust consisted of various investments. Accordingly, it was unlikely that a tax credit would be allowed.

13 September 1994 External T.I. 5-942227 -

"Although gifts directed to a person designated by a donor are not eligible for an income tax receipt, donations made to a Canadian municipality can be subject to a general direction, but only in respect of the particular program in which the donations are to be used. Decisions regarding the utilization of the donations within the program must remain the exclusive responsibility of the municipality.

8 August 1994 External T.I. 5-941513 -

The payment by an individual of expenses that she has incurred in performing services for the benefit of the charity does not constitute a gift to the charity even if the individual has voluntarily contributed her time.

25 July 1994 External T.I. 5-941850 -

A purchase of kosher-approved products from various retailers does not meet any of the conditions for a charitable gift, i.e., the voluntary transfer of property (usually cash) by a donor to a registered charity with no consideration or benefit accruing to the donor or to anyone designated by the donor as a result of the transfer.

7 June 1994 External T.I. 5-940574 -

In response to a question whether a life insurance policy will qualify as a charitable donation where a taxpayer names more than one charity as the beneficiary under the policy, RC stated:

"In order to absolutely assign a life insurance policy, the donor must transfer absolutely, unconditionally and otherwise than as security, all rights, title and interest in the policy. Accordingly, in our view, a life insurance policy cannot be absolutely assigned to more than one registered charity."

19 January 1994 T.I. 932689 (C.T.O. "Annuities Purchased from Charitable Organizations")

Providing a donor makes an irrevocable contribution directly to a registered charity in return for life annuity, it does not matter what steps the charity may take to fund its liability under the annuity.

1994 Institute of Chartered Accountants of Nova Scotia Roundtable Q. 7, 7-940145 -

Where a registered charity has solicited individual contributions of capital to the charity in exchange for immediate guaranteed payments to the individual for life at a specified rate, the charity is not restricted as to the steps it may take to facilitate payment of the annuity. It may purchase an annuity from a recognized annuity issuer, either in the name of the donor or in its own name with a direction to pay in favour of the donor. The amount of the gift to the charity will be equal to the amount, if any, by which the amount of the payment to the charity exceeds the total of the annuity payments expected to be received by the donor pursuant to the life expectancy tables provided in IT-111R.

12 January 1993 T.I. 922833 (November 1993 Access Letter, p. 506, ¶C117-208; Tax Window, No. 28, p. 28, ¶2368)

A gift (i.e., a voluntary transfer of property without consideration and without conditions) is considered to occur where an individual has paid more for an annuity purchased from a charity than the total amounts expected to be received as annuity payments. Where the annuity payments vary with fluctuations in the interest rate, it is not possible to determine the amount of the donation, and the charitable organization is not authorized in these circumstances to issue any receipt.

The comments in IT-111R do not apply where the charitable organization issues a term deposit instead of an annuity to the donor.

14 July 1992 External T.I. 5-921248 -

A taxpayer will be permitted a credit, on the purchase of an annuity from a charitable organization, based on the difference between the purchase price paid by him and the expected total amounts to be received by him under the annuity.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(a) 17

24 March 1992 T.I. (March 1993 Access Letter, p. 76, ¶C109-126; Tax Window, No. 18, p. 24, ¶1827)

The irrevocable gift of a covenant which runs with land and is binding on the landowner and his successors in title can qualify as a gift.

12 March 1992 T.I. and 13 March 1992 Memorandum (Tax Window, No. 17, p. 10, ¶1802)

In order for an Indian band council to be recognized as a municipality, the council, at a minimum, must have enacted one valid by-law under section 81 of the Indian Act and one valid by-law under section 83 of the Indian Act.

In order for a gift of land to an Indian band to qualify, it must become part of the "Reserve" pursuant to an Order-in-Council.

9 October 1991 T.I. (C.T.O. Fax Service Doc. No. 233; Tax Window, No. 11, p. 18, ¶1514)

In the case where a "donation" is made to a Canadian municipality with a request that the municipality pass the money on to a community group with which the municipality has little or no active involvement, the payment will not be considered a gift to the municipality if the municipality is merely acting as a conduit in respect of payments received on behalf of the organization.

September 1991 T.I. 1991-92 [FMV excludes GST]

FMV excludes GST

If a corporation or individual donated a work of art to a public cultural institution, does the tax receipt reflect the fair market value plus the original GST paid on the original purchase? CRA responded:

The amount recorded on the receipt does not include the amount of GST paid on the original purchase. In fact, the fair market value of property at a particular point in time does not include any costs incurred by the donor.

26 August 1991 T.I. (Tax Window, No. 8, p. 20, ¶1413)

A surviving spouse may claim a tax credit in the year of death in respect of a gift bequeathed by the will of the deceased spouse, to the extent not previously claimed.

10 April 1991 Memorandum (Tax Window, No. 2, p. 24, ¶1191)

A charitable organization may issue an official receipt for a gift of future breeding rights.

25 February 1991 T.I. (Tax Window, Prelim. No. 3, p. 28, ¶1125)

Where the annuity payment on an annuity purchased from a charitable organization varies with fluctuations in the interest rate, it is impossible to calculate the amount of the gift and no charitable donation receipt may be issued.

88 C.R. - F.Q.2

A premium paid prior to the transfer of a life insurance policy to a charity is not deductible as a charitable donation.

81 C.R. - Q. 38

A taxpayer who transfers property to a trust of which a charity is the capital beneficiary has not thereby made a gift to a charity.

IT-86R "Vow of Perpetual Poverty".

Where an individual agrees that a salary to which he is legally entitled will be paid to a religious institution and he, in return, will receive board, lodging and a small living allowance, the difference between the salary assigned or paid over by him to the religious institution and the value of the board, lodging and living allowance will be treated as a charitable donation.

IT-226R "Gift to a Charity of a Residual Interest in Real Property or an Equitable Interest in a Trust".

Articles

Blake Bromley, "Flaunting and Flouting The Law of Gift: Canada Customs and Revenue Agency's Philanthrophobia", Estates Trusts and Pensions Journal, Vol. 21 No. 3, June 2002, p. 177.

Ghosh, Robson, "Charity and Consideration", British Tax Review, 1993, No. 6, p. 496: Discussion of the concept of no consideration.

Paragraph (c)

Subparagraph (c)(i)

Clause (c)(i)(A)

Administrative Policy

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 9, 2017-0705231C6 F - Gift of a Life Insurance Policy and Subrogated Own

no guidance on whether designating a charity as a contingent policyholder generates a charitable credit

The will of Mr. Donor provided for a gift of his life insurance policy on the life of his daughter (which was originally intended to be transferred to his daughter, but this became inappropriate) to a private foundation (the “Private Foundation”). This gift was made by his estate (a graduated rate estate) within three years of his death. Could the GRE claim a gift of $500,000 in his terminal return (assuming sufficient income)? If the Private Foundation was currently designated as contingent policyholder, so that on his death there would be an automatic transfer of the policy to it, would a different result obtain?

After finding, under the first alternative, that “the tax credit for charitable gifts could be claimed in Mr. Donor's final return,” CRA stated:

As to whether the gift could be included in the "total charitable gifts" under clause (c)(i)(A) of that definition under subsection 118.1, it would be necessary to determine whether such a transfer would constitute a gift under the applicable private law, and at what point in time any such donation would be made under the applicable private law. This issue is a private law matter in respect of which the CRA will not provide an interpretation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7) - Paragraph 148(7)(a) gain by estate on gift of policy based on cash surrender value 169
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(i) - Clause (c)(i)(C) claim in terminal return for charitable gift made by estate under individual’s will 416

Clause (c)(i)(C)

Administrative Policy

8 May 2018 CALU Roundtable Q. 4, 2018-0745851C6 - Timing of donations from an estate

CRA is reviewing its administrative practice that a gift can be claimed in a terminal return before it is made

CRA has stated that a donation tax credit can be claimed on the deceased taxpayer’s final return so long as the registered charity receives a letter from the estate advising of the gift and its value and the registered charity issues a letter to the estate acknowledging the gift and stating that it will accept the gift. Does this longstanding administrative practice continue to apply to gifts made by an estate that arose after 2015 so that a donation tax credit can be claimed on the deceased individual’s final tax return at a time before the property is actually transferred to a qualified donee?

Where the gift (whose amount is known) cannot be completed within the 60-month period (for example, because of litigation) would the CRA’s administrative practice be available to allow a gift to be made beyond the 60-month period such that it would be considered to meet the conditions in s. 118.1(5.1) with regards to the timing of the gift? CRA responded:

The CRA is currently reviewing the administrative practice with respect to the timing of donation claims with respect to the eligible amount of gifts made by GREs or former GREs and claimed on a deceased individual’s final T1 return.

Any such administrative relief will not extend to gifts of property transferred to qualified donees more than 60 months after the individual’s death since these gifts do not meet the conditions of subsection 118.1(5.1). Accordingly, such gifts cannot be claimed on the tax return of the individual for the year of death. Property that is subject of a gift that is transferred to the donee more than 60 months after the date of death can be claimed by the estate in the year the gift is made or in any of the five subsequent years.

24 July 2017 External T.I. 2017-0698191E5 - Gift of securities by executors of a will

estate gift of cash proceeds of s. 70(5) securities can be carried back to terminal return

S. 118.1(5.1)(b) applies to most gifts made by a graduated rate estate of property that was acquired by it on and as a consequence of the deceased’s death “or is property that was substituted for that property.” CRA indicated that this substituted property concept applied where the deceased held appreciated mutual fund units whose cost was stepped up on the death under s. 70(5) and with the executors then determining to sell some of the units and gift the cash proceeds to a registered charity. The significance of this was that the donation credit could be claimed under s. (c)(i)(C) of the definition of “total charitable gifts” in s. 118.1(1) in the deceased’s terminal return, thereby helping to offset some of the tax on the s. 70(5) gain.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5) - Paragraph 118.1(5)(b) an estate gift of sales proceeds of s. 70(5) property can be carried back to the terminal return 161
Tax Topics - Income Tax Act - Section 38 - Paragraph 38(a.1) - Subparagraph 38(a.1)(ii) s. 38(a.1)(ii) zeroes post-death appreciation on estate-donated shares 195

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 9, 2017-0705231C6 F - Gift of a Life Insurance Policy and Subrogated Own

claim in terminal return for charitable gift made by estate under individual’s will

The will of Mr. Donor provided for a gift of his life insurance policy on the life of his daughter (which was originally intended to be transferred to his daughter, but this became inappropriate) to a private foundation (the “Private Foundation”). On his death, the policy had a cash surrender value, adjusted cost basis and fair market value of $200,000, $50,000 and $500,000, respectively. This gift was made by his estate (a graduated rate estate) within three years of his death. Could the GRE claim a gift of $500,000 in his terminal return (assuming sufficient income)?

CRA first noted that the gain on death would be based on the policy's cash surrender value of $200,000. After referencing the three requirements in s. (c)(i)(A) of "total charitable gifts," CRA noted respecting the first condition that “where subsection 118.1(5) applies to a gift, the gift is generally deemed to have been made by the individual's estate at the time the property to which the gift relates is transferred to the qualified done,” and that s. 118.1(4.1) “provides that subsection 118.1(5) applies … to a gift made by the individual’s estate,” and then stated:

If, as you stated, the transfer of ownership of the interest to the Private Foundation was made within three years of the death, subsection 118.1(5.1) would apply because the property that was the subject of the gift (the interest in the policy) was acquired by the estate on and as a consequence of the death. In such circumstances, the eligible amount of the gift could be included in the total charitable gifts for the taxation year of death under clause (c)(i)(C) of the definition of "total charitable gifts" in subsection 118.1(1). Consequently, the tax credit for charitable gifts could be claimed in Mr. Donor's final return.

If the Private Foundation was currently designated as contingent policyholder, so that on his death there would be an automatic transfer of the policy to it, would a different result obtain? Before turning to s. (c)(i)(A), CRA stated:

[T] he eligible amount of this gift could not be included in the total charitable gifts for the taxation year of death under clause (c)(i)(C) of the definition "total charitable gifts" in subsection 118.1(1). Subsection 118.1(5) would not apply because in this situation the gift would not be made by Mr. Donor under his will nor would it be made by his estate and would not be deemed to have been made as a consequence of the death of Mr. Donor by virtue of subsection 118.1(5.2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7) - Paragraph 148(7)(a) gain by estate on gift of policy based on cash surrender value 169
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(i) - Clause (c)(i)(A) no guidance on whether designating a charity as a contingent policyholder generates a charitable credit 203

Subparagraph (c)(ii)

Administrative Policy

7 October 2016 APFF Financial Strategies and Financial Instruments Roundtable Q. 8, 2016-0651731C6 F - Gift by a Former Graduated Rate Estate

gifts made in Year 5 by a but-for GRE can only be claimed before death or in Years 5 to 10

The condition in s. (c)(ii)(B) of the “total charitable gifts” definition that the trust be a graduated rate estate (GRE) must be tested in the given year, i.e., that in which the gift is claimed rather than that of the gift. Accordingly, a deduction can be made during years 1, 2 or 3 of a GRE for gifts made in years 4 and 5 of an estate which would be a GRE but for the passage of 36 months.

(a) Does CRA agree that nothing in the Act prevents the test of a trust being a GRE for such purposes being applied in the year of deduction of the gift?

(b) If this is not the case, does this mean that the gift made in year 4 or 5 by an estate which would have been a GRE but for the passage of 36 months cannot benefit from the deduction in years 1, 2 or 3 of the GRE?

In responding negatively to Q.(a), CRA stated:

For the purposes of clause (c)(ii)(B) of this definition, the trust must be a GRE at the time the gift is made, not in the year the gift is deducted in computing the tax payable.

In confirming the proposition in Q.(b), CRA referenced s. 118.1(5.1), and then stated:

Assuming that all conditions in the definition of "total charitable gifts" in proposed subsection 118.1(1) are satisfied, a gift made by a former GRE more than 36 months after the individual's death, but within 60 months after the death, can be claimed in the following years:

  • the taxation year of the individual's death [citing s. (c)(i)(C) of the “total charitable gifts definition”],
  • the taxation year preceding that of the individual's death [citing s. (c)(i)(C)],
  • the taxation year of the estate in which it made the gift [citing s. (c)(ii)(A)],
  • one of the five taxation years of the estate following that in which the gift was made [citing s. (c)(ii)(A).

However, the eligible amount of a gift cannot be included in the "total charitable gifts" of an estate for a preceding taxation year of the estate, namely, for years 1, 2 and 3 in your example.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5.1) qualification of gift made in Year 5 of former GRE 105

29 November 2016 CTF Roundtable Q. 6, 2016-0669661C6 - 84.1 and the Poulin/Turgeon Case

right of GREs to carry forward donations for five years

Under clause (c)(ii)(A) of the definition of total charitable gifts in subsection 118.1(1), can a graduated rate estate, which has made a gift, use the gift in the five years following the donation? In responding affirmatively, CRA stated:

Clause (c)(ii)(A) of the definition of "total charitable gifts" in subsection 118.1(1) applies to the GRE. This has the consequence that the eligible amount of a gift can be included in the calculation of total charitable gifts of a GRE or a former GRE for the taxation year in which the donation is made or in the five taxation years following the donation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) touchstones for accommodation party 158
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) Poulin is consistent with CRA's previous statements on employee buycos 119

Clause (c)(ii)(B)

Administrative Policy

19 April 2017 External T.I. 2016-0625841E5 F - Gift of equitable interest in a trust

(c)(ii)(A) rather than (c)(ii)(B) applies where a GRE charitably donates a capital interest in a charitable residual trust created by will

In order for a charitable gift by a graduated rate estate gift to be included in the total charitable donations of the estate (or the deceased) under (c)(ii)(B) of the definition in s. 118.1(1) of "total charitable gifts," there is a requirement inter alia that s. 118.1(5.1) deems the gift to have been made by the estate. S. 118.1(5.1) references “property that was acquired by the estate on and as a consequence of the death.”

CRA considered that s. 118.1(5.1) does not apply where a GRE donates a capital interest, in a charitable residual trust created by will, to a qualified donee. However, this did not have much significance as:

under (c)(ii)(A) of the [same] Definition, the eligible amount of a gift of an interest in a trust could be included in the computation of the total charitable gifts of the GRE in the taxation year in which the gift is made or in any of the five subsequent taxation years [until claimed].

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5.1) s. 118.1(5.1) does not apply where a GRE donates a capital interest in a charitable residual trust created by will 243

Total Crown Gifts

Administrative Policy

ATR-63, 20 April 1995 "Donations to Agents of the Crown"

In the absence of a specific provision to this effect in an organization's enabling legislation, RC required an opinion from the Deputy Attorney General of the province that the organization was a Crown agent.

Although decisions regarding specific beneficiaries must be the exclusive responsibility of the entity to which the donations are made (in this case, the organization), here "the direction that the donations be used for particular purposes was not binding and was in such general terms that it was clear that the exclusive responsibility regarding the use of the funds remained with the organization".

20 January 1995 External T.I. 5-950041 -

Given that s. 53 of the College and Institute Act, R.S.B.C. 1979, c. 53 provided that an institution was for all its purposes an agent of the Crown in right of the Province, a gift to a college designated as a provincial institute under that Act qualified as a gift to the provincial Crown.

16 December 1992 T.I. 923559 (C.T.O. "Crown Gifts to Agents of Her Majesty")

A gift to a foundation established under the University Foundation Act (Ontario) qualifies as a gift to an agent of the provincial Crown.

Total Cultural Gifts

Cases

Canada v. Malette, 2004 DTC 6415, 2004 FCA 187

It was agreed that the fair market value of 981 individual works of art by a Canadian artist named Harold Feist that the taxpayer donated to the Art Gallery of Algoma was reduced by a "blockage discount" (i.e., the depressive effect on the value of individual items that occurs due to the fact that the number of items offered for sale exceeds the number of willing buyers); and the references to "object" in the singular in the legislation did not establish that a blockage discount must not be applied.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 55

Total Ecological Gifts

Administrative Policy

4 March 2014 External T.I. 2013-0513251E5 - Ecogifts

conservation easement must be permanent

Under the Nova Scotia policy of no net loss of wetlands, a consultant may assume a wetland restoration or creation obligation in consideration for the reduction of other wetlands. In discharging this obligation, the consultant may approach landowners respecting the restoration of their lands to wetlands. After any resulting restoration, a conservation easement in favour of the province or a registered charity may be registered on title. Would the landowner be considered to have made a gift?

In the course of a general discussion, CRA stated that it

generally does not recognize temporary transfers of property as gifts… . Accordingly… a conservation interest created for a specified term is not a gift of land within the meaning of an ecological gift in subsection 118.1(1) and paragraph 110.1(1)(d)… .

5 February 1997 T.I. 963345

The grant of an easement in fulfilment of a pre-condition to subdivision approval would not qualify as a gift.

Total Gifts

Administrative Policy

25 October 1994 Internal T.I. 7-942317 -

Pursuant to s. 70(2), a deceased taxpayer is considered to be another person whose only income for the year is the value of rights or things as shown on the separate return. Accordingly, for purposes of the determination under the definition of "total gifts", the balance of the deceased taxpayer's income is shown in the other tax return as if he were a different taxpayer having only that income for the year.

Subsection 118.1(2) - Proof of gift

Cases

Canada v. Castro, 2015 DTC 5113 [at 6266], 2015 FCA 225, rev'g sub nom. David v. The Queen, 2014 DTC 1111 [at 3236], 2014 TCC 117

inflated charitable receipt was invalid

The taxpayers received charitable receipts for 10 times the amount of contributions, paid in cash, made by them to a registered charity. Woods J had allowed charitable credits for the amount of the cash donations made (see summary sub nom David).

After finding that the inflated receipt was not - in itself - a benefit that would vitiate a gift (see summary under s. 118.1(1) - total charitable gifts), Scott JA allowed the Minister's appeal on the basis that the receipts did not comply with Reg. 3501(1)(h) as they did not show the amount of the cash gifts and that Reg. 3501(6)(b) applied, which deems a receipt to be spoiled if it incorrectly records the amount of the cash gifts.

Jurisprudence (e.g. Mitchell) that "allowed for some flexibility on the basis that all the information was, in any event, readily available to the Minister" (para. 76) was not applicable, as such information was not so available here and Reg. 3501(6) unambiguously and specifically requires that a receipt accurately record the cash donation (paras. 78-80).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts inflated charitable receipt not a "benefit" vitiating a gift (donative intent issue not properly raised) 145
Tax Topics - Income Tax Act - Section 248 - Subsection 248(32) inflated charitable receipt not an "advantage" 114
Tax Topics - Income Tax Regulations - Regulation 3501 inflated charitable receipt was invalid 171
Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 Regs read in context of enabling legislation 70
Tax Topics - Statutory Interpretation - Interpretation Act - Section 32 inflated charitable receipt not an "advantage" 114

See Also

Guobadia v. The Queen, 2016 TCC 182 (Informal Procedure)

inflated cash receipt not a “receipt”

The taxpayer was disallowed her claims for several charitable donations for the 2007 and 2008 taxation years for which she may have actually given approximately 10% of the purported cash donation amounts. The registration of two of the charities had since been revoked for issuing inflated receipts.

Smith J found that the receipts invalid, stating (at paras 31, 32 and 45):

… [A] receipt is a written document delivered in exchange for the receipt of money, goods or services, reflecting the actual amount of money or the fair market value of the property or services received.

It follows that a document, though it bears the title “receipt” or “charitable receipt” …, may not be treated or accepted as such if it does not accurately reflect the money paid or the fair market value of the property or services actually provided in exchange.

… [A]lthough the donation receipts in question are described as “official receipts” …, they are not in fact receipts as that term is ordinarily understood.

Smith J went on to find that the “receipts” in any event did not satisfy the requirements of Reg. 3501.

Words and Phrases
receipt
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 3501 receipts invalid for showing inflated amounts 314

Shahbazi v. The Queen, 2016 TCC 129 (Informal Procedure)

description of property mandatory

The taxpayer made two in–kind charitable donations of large amounts of household goods in 2006 and 2007 for which he was issued receipts for $20,000 and $15,000. The Minister disallowed the tax credits.

Woods J dismissed the appeal on the basis that the tax receipts were deficient, stating (at para 19):

Even if some flexibility in interpreting the necessary requirements is appropriate, it is not possible in my view to completely overlook the requirement that a tax receipt for a donation of non-cash property must contain a brief description of the property donated. I would note that the language in s. 118.2(1) of the Income Tax Act is mandatory. This conclusion is also supported by...Castro... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 3501 property description mandatory 70

Slobodrian v. The Queen, 2003 DTC 1252 (TCC)

A retired professor who provided his services free of charge for a research project performed for the Department of Public Works was not entitled to a credit based on the value of the services given that there was no evidence of any property that had been given by him to the Government of Canada and he did not file prescribed receipts with the Minister.

O'Brien Estate v. MNR, 91 DTC 1349 (TCC)

No receipt from a charity was required for a bequest to the charity of the residue of the testator's estate upon the death of the life tenant. Mogan J. stated (pp. 1353-1354):

"Even if the gift by will were an immediate bequest, it is unlikely that any tangible value would be transferred to the charity until a year after death when the executors would have brought together for administration the assets of the deceased. ... But when a tangible gift is not in fact made and the registered charity is given only an intangible but vested future interest in property, the charity cannot be expected to issue a receipt because the value of the gift can frequently be determined only with the knowledge of many facts (like the age and health of the life tenant as in this case) which may not be available to the charity ..."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5) 79

Administrative Policy

10 February 1993 T.I. (Tax Window, No. 28, p. 20, ¶2419)

Where an individual has made an anonymous gift through an agent, she will not be able to comply with the requirements of Regulations 3501 that the receipt shows her name and address, with the result that no credit will be available.

21 October 1992 T.I. 922450 (September 1993 Access Letter, p. 420, ¶C117-201)

A charitable organization can issue a receipt for the inter vivos gift to it of an equitable interest in a trust, as described in IT-226R, paragraph 3. In the case of property other than real property, the longer the period before full ownership of the property passes to the charity, the more difficult it is to establish the value of the interest.

IT-110R2 "Deductible Gifts and Official Donation Receipts"

25 October 89 T.I. (March 1990 Access Letter, ¶1150)

The total charitable gifts made in the year can be utilized before the utilization of cultural gifts from preceding taxation years, and there is no requirement to use up prior years' donations first.

Subsection 118.1(3) - Deduction by individuals for gifts

Total charitable gifts

Subsection 118.1(4) - Gift in year of death

Administrative Policy

31 May 1995 Internal T.I. 7-950491 -

Where an executor of an estate or a trustee has a right to encroach on the capital of the estate or trust, no tax credit in respect of a donation of the capital is allowed because the size of the donation cannot reasonably be determined.

Subsection 118.1(5) - Gift by will

See Also

Turcotte v. ARQ, 2015 QCCA 396

no s. 104(6) deduction for testamentary gift distributed to charity and deducted under s. 118.1(5)

An estate which, under the Quebec equivalent of s. 118.1(5), had claimed a charitable credit in the terminal return of the deceased for a gift directed to be made in the will, was precluded from also claiming a deduction under the equivalent of s. 104(6)(b) in the estate return on the basis that paying the gift to the charity in question was a distribution of income.

See summary under s. 104(6).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) no s. 104(6) deduction for testamentary gift distributed to charity and deducted under s. 118.1(5) 292

O'Brien Estate v. MNR, 91 DTC 1349 (TCC)

The testator in his will provided for the payment of any or all of the income of the trust fund to his nephew for life without any power to encroach on capital, and for payment of the residue on the death of the nephew to a charity. The testator was held to have made a gift for purposes of s. 110(2.1) and (1.2) equal to an actuarial estimate of the value of the future payments to be made to the charity.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(2) 146

Administrative Policy

2 January 2014 Internal T.I. 2013-0490141I7 - Charitable Donations

s. 118.1(5) applied where discretion in gift mechanics

The Will of the "Deceased" provided that half the residue of the Estate was to be transferred to the "Foundation," a registered charity. The primary assets of "Holding" (a majority of whose (Class A) shares were held by the Deceased, and the balance (as Class B shares) were held by his two non-resident children) were marketable securities. After Holdings redeemed the children's Class B shares and issued Class Z common shares to the Estate for a nominal subscription price:

  1. Holding sold its marketable securities (in contradiction to 6 below, described as substantially all its marketable securities) to the Estate for a demand note;
  2. Holdings declared capital and eligible dividends, and satisfied them by issuing demand notes;
  3. Holdings redeemed the Estate's shares;
  4. the Estate sold the Class Z shares to the children;
  5. the Estate apparently gifted demand notes (issued in 2) to the Foundation;
  6. Holding apparently discharged these notes by delivering marketable securities to the Foundation; and
  7. (at some point) the Estate gifted marketable securities (apparently, the ones purchased by it in 1) to the Foundation (and also made a cash donation).

The bequest to the Foundation was partly satisfied by a direct transfer of marketable securities by the Estate, perhaps as described in 7. In rejecting a submission of the executors ("Trustees") that they had "sufficient discretion to decide… how to make that donation" so that it would not qualify as a charitable bequest at the time of death under s. 118.1(5), and so that the Estate could instead claim the donation tax credit under s. 118.1(3), the Directorate quoted from 2001-009020 that a gift by an individual generally will so qualify:

if the terms of his or her will provide for a donation of a specific property, a specific amount or a percentage of the residual of the individual's estate to charity, it is clear from the terms of the will that the trustee is required to make the donation, the estate is able to complete the donation after the payment of its debts, and the donation is made to a qualified donee

and then stated:

Nothing in the terms of the Will provided for any discretionary powers vested in the Trustees to modify this specific bequest.

And in the Supplement further stated:

A gift of the residue or a specified portion of the residue of an estate can be a Gift of Will when the FMV of the subject residue could be reasonably ascertained at the time of death of the deceased.

Respecting the character of the donated notes being non-qualifying securities, the Directorate stated:

Generally, pursuant to paragraph 118.1(13)(c), where the non-qualifying security is disposed of by the donee within 60 months, the donor may be treated as having made the gift (the value of which is deemed pursuant to that paragraph) at this later time. However, it should be noted that by virtue of subsection 118.1(15), in this case, for purposes of section 118.1, the gift shall be deemed to have been made by the Deceased immediately before his death.

Respecting "marketable securities transferred by Holding on behalf of the Estate to the Foundation" (apparently as described in 5 and 6 above), the Directorate stated:

the better view is that…[this] constitutes a gift by will under subsection 118.1(5)… and is deemed to have been made by the Deceased immediately before his death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(13) s. 118.1(5) applied where gift of subsidiary notes satisfied with subsidiary property 184

27 January 2014 Internal T.I. 2012-0472161I7 - Gifts by Will

gifts. v. distributions made to charities

The Deceased had three wills in respect of defined components of her estate, including a second will in respect of the "Secondary Estate." CRA found that the second will did not accord the executors the discretion to make a gift to specified Charities, so that s. 118.1(5) did not deem distributions made to the Charities to have been gifts made by the Deceased.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) gifts v. distributions made to charities 159
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts gifts. v. distributions made to charities 198

11 October 2013 APFF Roundtable, 2013-0492791C6 F - Gift by will

potential executor discretion re corporate/estate split of gift might preclude as "gift"

The executors named in a will, who are different than the directors of a corporation of which the testator was the shareholder, are directed in the will to make a gift to a registered charity equal to $100,000 minus all sums given to the charity by the corporation following the death of the testator. In response to a submission that such a gift by the executors would qualify under s. 118.1(5) given that the directors are different from the executors (unlike the facts in 2012-0453131C6 F), CRA stated (TaxInterpretations translation):

[T]he testamentary clause which you submitted leaves a certain discretion to the executor, which would prevent the gift from qualifying as a gift by will. Furthermore, this type of bequest is not a gift of a specific property, of a precise amount, nor a precise percentage of the residue of an estate. In this regard, a gift of a specific property is the gift of property in kind rather than of money.

14 June 2012 External T.I. 2011-0430131E5 - Subsection 118.1(5) - Gift by Will

non-discretion test

Respecting an inquiry as to the situation where a charity does not receive the property donated under the deceased's will (a specified percentage of the residue of the estate) until two years after death, CRA stated:

[A] gift is considered to have been made "by the individual's will" where the executor of the estate is required to transfer a specific property or amount to a recipient that is a qualified donee. An amount is certain, in this regard, if there is no discretion given to the executor as to whether the gift can be made or as to the amount of the gift (e.g., a specific bequest, a gift of residue, or a specified portion of the residue can be a gift by will). A gift, the occurrence or quantum of which is subject to the discretion of an executor, is not a gift by will.

25 November 2005 External T.I. 2005-0139611E5 - Gift of Art by Will

A will indicated that pieces of art in the estate that the spouse did not select within one year of death would be donated to the charity. Because the executor would not have any discretion on whether the paintings would be donated following the one-year period, this gift would qualify as made by the testator's will.

9 August 2000 External T.I. 2000-002918 -

If, under the terms of a will, a guaranteed annuity had been donated to a charitable organization, the deceased would be entitled to a non-refundable tax credit based on the fair market value of the annuity.

11 October 1994 External T.I. 5-941667 -

"Subsection 118.1(5) of the Act does not apply in respect of the death benefit paid on a life insurance policy to a registered charity where the registered charity has been designated as the beneficiary under the policy and no mention of the policy is made in a will."

9 July 1992 External T.I. 5-921172 -

The payment of proceeds of a life insurance policy pursuant to a designation of a beneficiary in a document other than a will would not constitute a gift by will.

20 December 1989 Memorandum (May 1990 Access Letter, ¶1229)

Where a taxpayer purchases an annuity of which its registered charity is the beneficiary on his death, or where a registered charity is named as the beneficiary under a life insurance contract, no gift is made for purposes of s. 118.1(5) on death.

16 October 89 T.I. (March 1990 Access Letter, ¶1150)

Where Mr. A in his Will provides a life interest to his surviving wife (who is not permitted to encroach), with the residue of the estate on her death to be transferred to a registered charity, Mr. A will be deemed to have made a gift of the residue to the registered charity in the taxation year in which he dies, and his legal representative will be eligible to make the designation under s. 118.1(6) in Mr. A's final return.

Articles

D. Bruce Ball, Brenda R. Dietrich, "Bequests and Estate Planning", Personal Tax Planning, 1999 Canadian Tax Journal, Vol. 47, No. 4, p. 995.

Paragraph 118.1(5)(b)

Administrative Policy

24 July 2017 External T.I. 2017-0698191E5 - Gift of securities by executors of a will

an estate gift of sales proceeds of s. 70(5) property can be carried back to the terminal return

Following the death of the deceased in 2016, the executors of his estate (a graduated rate estate) sell mutual fund units (whose adjusted cost base had been stepped-up under s. 70(5)) in order to make a charitable donation in their discretion. Could the donation of the cash (viewed as substituted property) be deducted in the terminal return pursuant to s. 118.1(5.1) and s. (c)(i)(C) of the definition of “total charitable gifts” in s. 118.1(1)? CRA responded:

[P]ursuant to subsection 248(5), the cash would be property substituted for the property that was acquired by the estate on and as a consequence of the death of the deceased (the mutual fund units acquired by the estate upon the death of the deceased that were subsequently sold and cash realized). Therefore, as subsection 118.1(5.1) would apply to the donation the donation credit can be claimed on the final return of the deceased pursuant to clause (c)(i)(C) of the definition of “total charitable gifts” in subsection 118.1(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(i) - Clause (c)(i)(C) estate gift of cash proceeds of s. 70(5) securities can be carried back to terminal return 129
Tax Topics - Income Tax Act - Section 38 - Paragraph 38(a.1) - Subparagraph 38(a.1)(ii) s. 38(a.1)(ii) zeroes post-death appreciation on estate-donated shares 195

Subsection 118.1(5.1) - Direct designation — insurance proceeds

Administrative Policy

19 April 2017 External T.I. 2016-0625841E5 F - Gift of equitable interest in a trust

s. 118.1(5.1) does not apply where a GRE donates a capital interest in a charitable residual trust created by will

A graduated rate estate ("GRE") donated a capital interest, in a charitable residual trust created by will, to a qualified donee. Is it eligible for the donation tax credit and would s. 118.1(5.1) apply?

After noting that, in order for the gift to be included in the total charitable donations of the estate (or the deceased) under (c)(ii)(B) (or s. (c)(i)(C)) of the definition in s. 118.1(1) of "total charitable gifts" (the “Definition”), there was a requirement inter alia that s. 118.1(5.1) deem the gift to have been made by the estate, CRA stated:

Subsection 118.1(5.1) applies in particular to a gift made by a GRE of an individual whose death occurs after 2015 if the subject of the gift is property that was acquired by the estate on and as a consequence of the death or is property that was substituted for that property.

...[T]he subject of the gift is the capital interest in the trust and… such capital interest in the trust cannot have been acquired by the GRE at the time of the individual's death or as a consequence of the death. Therefore, subsection 118.1(5.1) does not apply.

However, under (c)(ii)(A) of the Definition, the eligible amount of a gift of an interest in a trust could be included in the computation of the total charitable gifts of the GRE in the taxation year in which the gift is made or in any of the five subsequent taxation years.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(ii) - Clause (c)(ii)(B) (c)(ii)(A) rather than (c)(ii)(B) applies where a GRE charitably donates a capital interest in a charitable residual trust created by will 163

8 February 2017 External T.I. 2017-0684481E5 - Status as a graduated rate estate

estate can make a gift qua GRE before it has filed its first return

The estate of Mr. X, who died on January 15, 2016, and which makes a charitable donation on February 15, 2017, meets all of the requirements to be a graduated rate estate (“GRE”), except that it does not meet the requirements in paras. (c) and (d) of the GRE definition solely due to it not having filed its return of income for its first taxation year until thereafter (on April 1, 2017). Can this donation be treated as a GRE donation and claimed in the deceased’s final return? CRA responded:

[T]he wording of the Act does not prevent a donation to which subsection 118.1(5.1) will apply from being made by an estate prior to its filing of its return of income for its first taxation year.

Accordingly…as long as the estate of Mr. X meets all of the requirements in the GRE definition at the time of the filing of its first return of income on April 1, 2017, subsection 118.1(5.1) will apply to the donation if the requirements contained therein are met. In that case, the eligible amount of the donation can be claimed in the deceased’s return of income for the year of death or the immediately preceding year, or in the GRE’s return of income for the year of the donation or the previous year of the GRE. Any unused donation amount can be carried forward from the year in which the donation is made and claimed by the GRE within the limits in the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Graduated Rate Estate gift can be made qua GRE before paras. (c) and (d) satisfied 44

7 October 2016 APFF Financial Strategies and Financial Instruments Roundtable Q. 8, 2016-0651731C6 F - Gift by a Former Graduated Rate Estate

qualification of gift made in Year 5 of former GRE

Where an estate which otherwise would still be a graduated rate estate but for the passage of 36 months from the date of death makes a charitable gift in Year 5 of the estate (i.e., within 60 months of the death as required by s. 118.1(5.1)), that gift can be claimed in the year of death of the deceased or in the preceding year (s. (c)(i)(C) of the “total charitable gifts definition”), or (under s. (c)(ii)(A)) in the year of the gift or in one of the five following years (i.e., in Years 5 to 10), but cannot be claimed in any of Years 1 to 4.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(ii) gifts made in Year 5 by a but-for GRE can only be claimed before death or in Years 5 to 10 355

10 June 2016 STEP Roundtable Q. 1, 2016-0634871C6 - GREs and Testamentary Trusts

estate must continue to satisfy the other GRE requirements following 36 mos.

A deceased taxpayer’s will provides that the division of the estate assets into a spousal and children’s trust. As donations now must be made by the general estate and not the other testamentary trusts, does this mean that the general estate must remain until the donations are made (up to the 60th month)?

CRA indicated that although, by definition, a graduated rate estate can exist for a maximum of 36 months after death, proposed s. 118.1(5.1) provides that estates which cease to be GREs solely by reason that 36 months have passed since death, can make a donation within 60 months of death. However, all of the other requirements of the GRE definition, must be met, including that the estate arose on or as a consequence of the individual’s death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Graduated Rate Estate division of an estate into testamentary trusts may accelerate (perhaps back to inception) the demise of the estate as a GRE 415
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Testamentary Trust - Paragraph (b) trusts on estate residue arise on death 88

19 September 2015 STEP Roundtable, Q. 11

share redemption proceeds – but not by a dividend – are substituted property

Amended s. 118.1(5.1) require that a donation be a gift of "property that was acquired by the estate on and as a consequence of the death" or "property that was substituted for that property." The individual, at death after 2015, held "Holdco" owning appreciated marketable securities. The estate is directed by will to make a donation.

Scenario 1

Holdco sells the securities and pays a dividend to the graduated rate estate, which makes the donation. Would the cash from the dividend be considered substituted property?

CRA responded that the estate has not replaced the Holdco shares received on death, so that the cash dividend is not property substituted for the Holdco shares. As the requirement in s. 118.1(5.1)(b) is not met, only the estate could claim a donation in the year or in the five subsequent taxation years.

Scenario 2

Estate transfers the shares of Holdco under s. 85(1) to Newco and takes back high PUC shares of Newco. Holdco is wound up and Newco receives the marketable securities (whose adjusted cost base has been "bumped" under s. 88(1)(d).) Newco uses the proceeds of sale of the securities to purchase for cancellation some of the estate's shares. Estate uses such cash to make the charitable donation. Is the donation is made with substituted property?

CRA responded that, as the shares of Holdco (which were received on death) are disposed of in exchange for the Newco shares, the Newco shares are substituted property. Furthermore, the cash received on the purchase for cancellation would be substituted property for the cancelled Newco shares and, under the extended meaning of "substituted property" in s. 248(5)(a), that cash also would be substituted property for the Holdco shares. Accordingly, s. 118.1(5.1)(b) would be satisfied.

Articles

Jessica Fabbro, "Dying to Donate – Determining Charitable Donation Tax Credits on Death after 2015", Tax Topics, Wolters Kluwer, Number 2249, April 16, 2015

Allocation of gifts on death (p.2)

The amended Legislation will no longer deem all charitable gifts to have been made by the deceased immediately prior to the deceased's death. Instead, all charitable gifts made by the deceased on his or her death will be deemed to have been made by the deceased's estate at the time the property is transferred to the donee. [fn 12: Subsection 118.1(5), effective 2016] … While this would seemingly eliminate the deceased's ability to claim the CDTC [charitable donations tax credit] on his or her terminal tax return or penultimate tax return, the definitions of "total charitable gifts", "total cultural gifts", and "total ecological gifts" have all been amended to allow the executors to allocate the charitable gifts made by the deceased on death between the deceased and the deceased's estate, provided that the deceased's estate is a "graduated rate estate" at the time the gift is made.

Spousal credit claim (p. 3)

[N]one of the amendments will permit the deceased's spouse to claim the CDTC with respect to charitable gifts made by his or her spouse on death. Furthermore, the CRA has confirmed that it will no longer apply this administrative position to gifts made under a wilt, as the gift will no longer be deemed to have been made by the deceased, but is deemed to have been made by the estate instead. [fn 20: … 2014-0555511E5…] As a result, after the amendments are in force, spouses will have less flexibility with respect to the allocation of charitable gifts between themselves than they did under the CRA's former administrative position.

Need for further valuations at gift time (p. 3)

[U]nder the current legislation, no further valuations are required when the property is transferred to the donee, because the charitable gift is deemed to have been made by the deceased at the exact same time the deceased is deemed to have disposed of all of his or her assets. However, under the amended legislation, the gift is deemed to have been made by the estate at the time the property is transferred to the donee. If the gift is not a cash gift, the executors will likely have to carry out another valuation of the gifted property at the time the gift is made,…

Potential for gifts to be made after estate ceases to be graduated rate estate (p.4)

The treatment of charitable gifts made by estates that are not graduated rate estates is particularly disconcerting for gifts of all or a portion of the residue of more complex estates, as these estates may take more than 36 months to fully administer and would therefore cease to be graduated rate estates before the gifted property can be transferred to the donee. Similarly, if the estate is the subject of litigation, the executors of the estate may be unable to transfer property that is the subject of a charitable gift within 36 months after the donor's death and the estate may cease to be a graduated rate estate before the gifted property can be transferred.

Individuals can mitigate the risks that their charitable gifts will not be completed within 36 months after their death by making Direct Designation Gifts [from RRPs etc.] instead of making their charitable gifts under a will, as the assets comprising the Direct Designation Gifts will not form part of the deceased's estate. Another alternative for individuals who anticipate having a complex estate would be to make specific bequests to qualified donees in their will instead of making a gift of the residue,…

Subsection 118.1(6) - Gifts of capital property

Administrative Policy

28 June 1993 T.I. (Tax Window, No. 32, p. 11, ¶2605)

The election under s. 118.1(6) is available in respect of the gift of an equitable interest in a trust.

15 January 1991 T.I. (Tax Window, Prelim. No. 3, p. 5, ¶1093)

The election is not available to a spousal trust under which the trust property is to be distributed to registered charities after the death of the spouse, as in such case the spouse trust would not be considered to have made a gift.

20 October 89 T.I. (March 1990 Access Letter, ¶1151)

Mr. X dies leaving assets in a spousal trust with power to the trustees to encroach on capital and with the direction that the residue of the trust is to be donated to a charitable organization on the spouse's death. On the death of the spouse, s. 118.1(6) will not apply to limit the fair market value proceeds deemed to be received pursuant to s. 104(4)(a) because it was Mr. X by his Will, rather than the spousal trust, which made the donation. Because of the power of encroachment, Mr. X could not be considered to have made a gift at the time of his death, so that s. 118.1(5) could not apply.

IT-297R2 "Gifts in Kind to Charity and Others"

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Immediate reduction of capital gain/deferred credit (pp. 197-8)

A subsection 118.1(6) election can be made in respect of a gift of non-qualifying securities to immediately reduce the capital gain realized, in respect of the gift, even though the charitable donation tax credit is available only at a subsequent time. [F.n.259 – CRA document no. 2013-0486701E5, July 15, 2013.] For example, assume that a trust holds private company shares with a fair market value of $1 million and a $100,000 cost, and it wants to donate the shares to a private foundation. If the trustees donate the shares to the foundation, the trust is subject to tax in respect of a $450,000 taxable capital gain. However, the trustees can make an election under subsection 118.1(6), in which case the trust is deemed to have disposed of the shares for an amount equal to their adjusted cost base so that no gain is realized. Subsection 118.1(13) provides that the gift is not made until a subsequent year when the shares cease to be non-qualifying securities or are disposed of by the foundation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Income Tax Conventions - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(41) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Subsection 118.1(7.1) - Gifts of cultural property

Articles

Innes, "Gifts of Cultural Property by Artists", Estates and Trust Journal, Volume 12, No. 3, March 1993.

Subsection 118.1(13) - Non-qualifying securities

Administrative Policy

2 January 2014 Internal T.I. 2013-0490141I7 - Charitable Donations

s. 118.1(5) applied where gift of subsidiary notes satisfied with subsidiary property

A testator bequeathed half the residue of his estate to a charitable foundation. The executors apparently satisfied this bequest, in part, by having an investment holding company issue notes to it in satisfaction of dividends, gifted the notes to the foundation, with the notes being paid off with a transfer of marketable securities by the holding company to the foundation. In finding that the testator was thereby deemed by s. 118.1(5) to have made a gift in his terminal year, the Directorate noted that "nothing in the terms of the Will provided for any discretionary powers vested in the Trustees to modify this specific bequest," and stated:

Generally, pursuant to paragraph 118.1(13)(c), where the non-qualifying security is disposed of by the donee within 60 months, the donor may be treated as having made the gift (the value of which is deemed pursuant to that paragraph) at this later time. However, it should be noted that by virtue of subsection 118.1(15), in this case, for purposes of section 118.1, the gift shall be deemed to have been made by the Deceased immediately before his death.

See summary under s. 118.1(5).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5) s. 118.1(5) applied where discretion in gift mechanics 545

15 July 2013 External T.I. 2013-0486701E5 - Gift by will of a non-qualifying security

There is a gift by will of a non-qualifying security ("NQS") to a qualified donee where the legal representative of the deceased individual makes a designation under s. 118.1(6) in respect of the gift. The correspondent submitted that s. 118.1(5) applies to deem the gift of the NQS to have been made immediately before the death of the deceased individual for proceeds of disposition equal to the amount designated under s. 118.1(6), so that s. 118.1(5), rather than s. 70(5)(a), is the provision causing recognition of any capital gain in the terminal return. CRA instead found that the NQS was deemed to be disposed of by s. 70(5)(a), albeit for the designated proceeds under s. 118.1(6) rather than for fair market value proceeds:

Subsection 118.1(13), which applies for the purpose of section 118.1, provides that where at any particular time an individual makes a gift of a NQS ... and the gift is not an excepted gift, the gift is deemed not to have been made. However, paragraph 118.1(13)(a) provides an exception from this deeming rule for the purpose of applying subsection 118.1(6) to determine the proceeds of disposition of the NQS.

Essentially, notwithstanding that a gift by will of a NQS is deemed not to have been made, the legal representative may, by reason of the exception in paragraph 118.1(13)(a), designate an amount as the proceeds of disposition of the NQS under subsection 118.1(6) to reduce the amount of any capital gain that might otherwise result from the disposition of the NQS. In such circumstances, the designated amount in respect of the NQS (rather than its FMV as provided for in paragraph 70(5)(a)) is used in calculating the amount of the capital gain arising on the deemed disposition of the NQS immediately before the individual's death.

... However, for capital gain purposes, paragraph 70(5)(a) operates to deem the NQS to have been disposed of immediately before death but the proceeds of disposition would be the designated amount under subsection 118.1(6).

Articles

Wolfe D. Goodman, "Commentary on Some Revenue Canada Rulings Regarding Charitable Gifts", Goodman on Estate Planning, Vol. VIII, No. 4, p. 642.

Paragraph 118.1(13)(c)

Administrative Policy

2017 Ruling 2016-0628181R3 - Donation of shares to private foundation

gift of NQS in portfolio company cured when company wound-up into charity
Background

At the date of death of B (who had survived her husband A) she held common shares of Holdco and a testamentary spousal trust held the balance of Holdco’s shares. A private foundation (the “Foundation”) that had been established by A and B was the beneficiary of the spousal trust on B’s death. She was deemed to realize a capital gain under s. 70(5)(a) (and the spousal trust realized a capital gain under s. 104(4)(a).)

Proposed transactions

Pursuant to B’s wills, B’s estate will gift its Holdco common shares to the Foundation. Thereafter, Holdco will redeem all of the Holdco common shares held by the Foundation for an amount equal to their fair market value, paid in cash or in kind using the Holdco assets.

Ruling

B will be deemed to have made a gift of property to the Foundation in accordance with s. 118.1(13)(c) if the above redemption occurs and the other s. 118.1(13)(c) conditions are met, and such gift of property will be deemed under s. 118.1(15) to have been made by B in her terminal year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1.2) s. 129(1.2) denies a dividend refund on the wind-up of a private company bequeathed (but not gifted) to a private foundation 256
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts residue paid under terms of spousal trust to charitable beneficiary was not a gift 133
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(15) gift of shares (NQS) of portfolio company retroactively deemed to be made in terminal year once company wound up into charity 98

Subsection 118.1(15)

Administrative Policy

2017 Ruling 2016-0628181R3 - Donation of shares to private foundation

gift of shares (NQS) of portfolio company retroactively deemed to be made in terminal year once company wound up into charity

The estate of B gifts her shares of a portfolio holding company (“Holdco”) to a private foundation, with Holdco thereafter using its liquid assets to redeem the common shares held by the private foundation. CRA ruled that, notwithstanding the status of the gifted shares as non-qualifying securities, the gift will be recognized under s. 118.1(13)(c) once the gifted shares are disposed of by virtue of their redemption - and that such gift will be deemed under s. 118.1(15) to have been made by B in her terminal year (so that her s. 70(5) gain on the shares can be sheltered).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(13) - Paragraph 118.1(13)(c) gift of NQS in portfolio company cured when company wound-up into charity 183
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1.2) s. 129(1.2) denies a dividend refund on the wind-up of a private company bequeathed (but not gifted) to a private foundation 256
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts residue paid under terms of spousal trust to charitable beneficiary was not a gift 133

Subsection 118.1(17)

Administrative Policy

11 May 2009 External T.I. 2009-0307941E5 - Back to Back Loans provisions

s. 118.1(17) applies to each of multiple NAL donors even if loan-back is to only one donor

2009-0307941E5 dealt with two donors (not dealing with each other at arm’s length) who each made a cash gift to the same donee, and with one of the donors using part of the gift (as a result of the loan-back to it of gifted cash) as described in s. 118.1(16)(c)(ii). This resulted in a reduction not only in the amount of the gift made by that donor, but also by the other. CRA stated:

Subsection 118.1(17) of the Act applies on a taxpayer by taxpayer basis and as such, where multiple individuals gift to a qualified donee and a person with which these individuals do not deal at arm's length uses property of the donee and the property was not used in the carrying on of the donee's charitable activities, the provision will be applied to each donor separately. Accordingly where two donors, who do not deal at arm's length with each other, each make a gift of cash to a charity and an amount is loaned back by the charity to one of the donors, the amount of the loan appears to be taken into account in determining the deemed fair market value of the gift made by each of the donors. We have brought this result to the attention of the Department of Finance … .

…[T]he Act does not provide for the reinstatement of a gift … in the event the property used by the donor or person not dealing at arm's length with the donor is returned to the charity.

Finance

6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.15

no plan to address double recognition of a loanback benefit under s. 118.1(16)

2009-0307941E5 dealt with two donors (not dealing with each other at arm’s length) who each made a cash gift to the same donee, and with one of the donors using part of the gift (as a result of the loan-back to it of gifted cash) as described in s. 118.1(16)(c)(ii). This resulted under s. 118.1(17) in a reduction not only in the amount of the gift made by that donor, but also by the other. What are the policy considerations in this situation? Finance responded:

The reduction in the value of a gift is calculated on an individual basis for each taxpayer. This means that if two or more persons not dealing at arm’s length make a donation to the same charity, the use of the property donated by one of them will reduce the value of each one's gift, even if one of them does not use the property. These provisions clearly evince a demarcation between a property owned and used by a charity and a property owned and used by a donor. Adding a rule to apportion the reduction in the value of the gift would add a great deal of complexity to the tax rules surrounding charitable giving while opening the door to new opportunities for abuse of the provisions of the ITA.

Where the value of a gift is reduced as a result of the application of subsections 118.1(16) and (17), and the property donated is subsequently returned to the donee, the value of the gift is not restored. The addition of such a rule could create problems where the use of the property alternates between the donor and the donee. In such circumstances, it would be necessary to constantly monitor the use of the property that was donated to a registered charity.

...[I]n general, a reduction in the value of a gift in a situation involving several persons not dealing at arm's length, or the absence of a rule to restore the value of a gift that has previously been reduced, are not inconsistent with the objective of preventing taxpayers from obtaining benefits from gifts made to a qualified donee.

Subsection 118.1(18) - Non-qualifying security defined

Administrative Policy

May 1998 Conference for Advance Life Underwriting Round Table, Q. 13, No. 9807000

The provisions of ss.118.1(18)(a) and (b) will not be applicable where father, who owns all the shares of Holdco together with a promissory note issued by Holdco, with Holdco holding a promissory note issued by Opco whose common shares are owned by father's children and whose voting redeemable preferred shares are owned by Opco, donates the shares and note of Holdco to a registered charity; however, GAAR may be an issue if it can reasonably be concluded that the real gift to the charity is the promissory note of Opco.

May 1998 Conference for Advance Life Underwriting Round Table, Q. 12, No. 9807000

A remainder interest in a charitable reminder trust is not a security described in any of paragraphs (a) to (c) in the definition of "non-qualifying security".

Subsection 118.1(19) - Excepted gift

Administrative Policy

19 June 2015 STEP Roundtable, Q. 12

testamentary gift of shares which are non-qualifying securities to public foundation not excepted

Given that s. 118.1(5)(a) provides that a testamentary gift made to a public foundation is deemed to be made by the estate, will such a gift of unlisted shares which are non-qualifying securities be an "excepted gift" under s. 118.1(19)?

CRA responded that as the estate typically will be a "personal trust" under the s. 248(1) definition and, under s. 251(1)(b), a personal trust generally will be deemed not to deal at arm's length with a person which is beneficially interested in it then, assuming that the public foundation is a beneficiary of the estate, the estate will be deemed not to deal at arm's length with the foundation. Accordingly, the gift of the shares, which are non-qualifying securities as defined in s. 118.1(18), will not qualify as an "excepted gift" under s. 118.1(19).

Subsection 118.1(26)

Administrative Policy

31 March 2017 External T.I. 2016-0630351E5 - Return of a gift

return of gift made 35 years ago

In 1981, the taxpayer gifted a whole life insurance policy to a charitable foundation that raises funds for a specific college on condition that the funds be used by the college for scholarships in a specific program, which now no longer exists. The taxpayer has contacted the foundation, requesting a return of the policy, which the foundation is prepared to consider. Before turning to the potential negative impact on the foundation if it did so, CRA stated:

Where a registered charity or other qualified donee returns a gift to a donor, there are rules in the Act to ensure that the donor cannot improperly retain tax assistance in the form of a charitable donation tax credit or deduction in respect of the transfer of property. These rules address situations where a transfer of property was not a gift at law and an official tax receipt had been issued by the qualified donee, as well as situations where a transfer of property was a gift at law and nevertheless has been returned. …

Where the original property is returned, the taxpayer is deemed not to have disposed of the property nor to have made a gift. If the returned property is not the original property, the original disposition will not be recognized but the taxpayer will be considered to have disposed of the original property at the time the returned property is transferred to the taxpayer for deemed proceeds of disposition. The taxpayer’s tax return may be reassessed to the extent that the reassessment relates to the transfer (such as the disallowance of the charitable donations tax credit or deduction or to address the disposition of the original property).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(1) - Charitable Foundation gift potentially could be returned by charity pursuant to a condition subsequent 161
Tax Topics - Income Tax Act - 101-110 - Section 110.1 - Subsection 110.1(15) return of gift made 35 years previously by charity 280