Words and Phrases - "gift"


24 January 2019 External T.I. 2018-0773301E5 - Paragraph 69(1)(c) and Nominal Consideration

a transfer structured as a sales agreement for nominal consideration may qualify as a gift

$1 consideration is specified in the legal documentation for a gift of property by a parent to a child solely to ensure the agreement is legally binding. Would s. 69(1)(c) apply, notwithstanding that nominal consideration of $1 would be paid? CRA stated:

In certain circumstances, the Canada Revenue Agency may be willing to accept that the transfer of property between non-arm’s length parties for the nominal amount of $1 could be considered a gift. For example, if the agreement governing the transfer provides for consideration of $1 merely to ensure that the agreement is legally binding, the CRA may consider the transfer to be a gift.

… If it is determined that the transfer of property was a sale for inadequate consideration rather than a gift, paragraph 69(1)(c) would not apply.

Words and Phrases

Fonds de solidarité des travailleurs du Québec (F.T.Q) v. The Queen, 2018 TCC 3, aff'd on s. 18(1)(a) grounds 2019 CAF 36

consideration for "gift" was elimination of obligation to invest the funds

The appellant was the limited partner of a partnership (“SEC”) that had become insolvent during efforts to relaunch a paper mill close to the City of Chandler. A Plan of Arrangement concluded after the commencement of CCAA proceedings contemplated that the mill would be sold to a corporation (SDEIC) formed by the City. The appellant and other creditors of SEC agreed to lend money to SDEIC to finance cost of acquiring and starting-up the mill. The appellant and other creditors of SDEIC then agreed with SDEIC that in the event of a sale of the mill by SDEIC, any resulting loan repayment proceeds would be invested for priority participating units in an LP to be formed having similar objects to SDEIC (being economic development of the Chandler region).

SDEIC was unsuccessful in relaunching the mill, and two years later agreed to sell it to a third party (“Vantek”). A new agreement was entered into under which the appellant and the other creditors of SDEIC would pay the loan repayment proceeds received by them on the Vantek sale to the City of Chandler and the City would provide charitable receipts therefor.

After having cited Martin v. Dupont, 2016 QCCA 47 at paras. 28-31 for the proposition that for there to be a gift there must be “a transfer of property of a donor to a donee without the donor receiving equivalent consideration in return” and that “the donor must have the actual intention to part with the transferred property for the benefit of the donee without receiving a benefit in return” (para. 37), and in finding (respecting the first test) that the appellant had received consideration equal to the two resulting “gifts” by it to the City of $7.2 million and $2.1 million, Ouimet J stated (at paras. 45-6, TaxInterpretations translation):

When the appellant proposed to SDEIC and the City of Chandler to pay these sums to the City of Chandler, the obligation of the appellant towards SDEIC still existed. This obligation did not cease to exist until the moment that SDEIC and the City of Chandler accepted that these amounts would be paid to the City of Chandler. Effectively, the proposition advanced to SDEIC and the City of Chandler was to pay to the City of Chandler the sums of $7,188,435 and $2,078,922 “in lieu” of investing those amounts in a limited partnership.

Since the payment of the sums … to the City of Chandler had the effect of freeing the appellant of its obligation to negotiate in good faith to create a limited partnership, the consideration received by the appellant in exchange for such payment was the amount by which that obligation was extinguished.

After noting (at para. 51) that Hébert v. Giguère [2003] R.J.Q. 89 found that the “fact that a person is relieved of an obligation constitutes a benefit,” Ouimet J found that the above facts indicated the receipt by the appellant of an advantage such that the second “psychological” test for “gift” also was not satisfied.

Accordingly, the two “gifts” were not deductible under s. 110.1(1)(a).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose purpose of payment was to extricate from a regional economic-development obligation rather than to enhance business reputation 220
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts payment relieving of a correlative contractual obligation was not a gift 120

Cassan v. The Queen, 2017 TCC 174

gratuitous transfer is gift irresepctive of absence of benevolent intent

In rejecting (at para. 296) a Crown submission (summarized at para. 249) that “gift” required “detached and disinterested generosity”) Owen J stated:

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
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts common law gift was vitiated by loan to donor at unreasonably low rate 746
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

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

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
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

26 June 2013 External T.I. 2013-0490711E5 F - Disposition en contrepartie de 1$

Could the acquisition of a property for consideration of one dollar qualify as an acquisition by gift for purposes of s. 69(1)(c)? The Directorate referred to the relevance of Quebec law per s. 8.1 of the Interpretation Act, and quoted the statement in s. 1806 of the Quebec Civil Code that:

Gift is a contract by which a person, the donor, transfers ownership of property by gratuitous title to another person, the donee.

After noting that the Civil Code contemplates different types of gifts (including "remunerative gifts and gifts with a charge [where only the net amount donated is considered a donation per s. 1810 CCQ]" and that all "such gifts can be gifts for purposes of paragraph 69(1)(c)," the Directorate stated (TaxInterpretations translation):

Thus, the determination of the nature of a particular transaction, to assess whether it is a true gift or sale, must be made on the basis of the legal relationships created by the contract of acquisition of the property. Indeed, in the absence of an express provision to the contrary in the Act or a finding of sham, the legal relationships created by the contract of acquisition must be respected for taxation purposes.

Editorial note: a donation contract in Québec is considered a unilateral contract by which property is transferred "by gratuitous title."

Words and Phrases

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

The Queen v. Littler, 78 DTC 6179, [1978] CTC 235 (FCA)

A sale by the taxpayer to his sons of shares for their market price at a time when the taxpayer had insider knowledge that an offer would be made for the shares at a price substantially higher than that market price was not a transaction whereby the taxpayer "dispose[d] of property directly or indirectly by way of gift" within the meaning of a former gift-tax provision of the Act. "A contract of sale, which is, by definition, a transfer of property for a consideration, cannot be a gift, which is, by definition, a disposition of property without consideration."

Words and Phrases

Berry v. Warnett, [1980] T.R. 299 (C.A.), rev'd [1980] BTC 239 (HL)

"[T]he ordinary primary meaning of 'gift' is a voluntary transfer of property made without consideration."

Words and Phrases