Principal Issues: [TaxInterpretations translation] Can the foundation issue a donation receipt if the amount paid for an asset exceeds its fair market value and the asset is acquired at an auction?
Position: Question of fact.
Reasons: There must be a gift under the Civil Code. For this purpose, the intention to give must be established.
XXXXXXXXXX 2007-024845 Michel Lambert CA, M.Fisc. September 20, 2007
Dear Sir,
Subject: Auction donation
This is in response to your email of June 12, 2007, to Mr. Sean Sutton in which you asked whether the XXXXXXXXXX Foundation (the Foundation) can issue a donation receipt in the following situation.
As part of a fundraising activity, the Foundation held an auction. One of the lots was a package worth $XXXXXXXXXX. It sold for $XXXXXXXXXX. The value of the lot was communicated to the bidders in advance.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act"). Any reference to a proposed legislative provision is a reference to the proposals contained in Bill C-33 An Act to amend the Income Tax Act, including with respect to foreign investment entities and non-resident trusts, and the bijural expression of certain provisions of that Act, and related legislation.
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
The Act does not define the term "gift" which is a private law concept. Consequently, to determine whether a gift exists, reference must be made to the civil law or the common law, depending on the law applicable to the transaction. This is in accordance with section 8.1 of the Interpretation Act, which calls for the use of the applicable provincial law (either the common law or the civil law) to determine legal relationships for the purposes of applying federal legislation that has private law aspects.
Article 8.1 of the Interpretation Act reads as follows:
Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province’s rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied.
Consequently, in order to establish whether there is a gift for the purposes of the Act, it is necessary to establish whether there is a gift under the applicable private law. The remainder of our response assumes that the private law applicable to the situation you have submitted to us is the Civil Code of Quebec (the "Civil Code").
Article 1806 of the Civil Code states that a gift is a contract by which one person, the donor, transfers ownership of property by gratuitous title to another person, the donee.
The Act uses the term "don" in French and "gift" in English. The Civil Code uses the term "donation" in French and "gift" in English. We are of the view that the terms "don" and "donation" are synonyms and that their use refers to the same concept.
The question of whether there is a gift under the Civil Code can only be resolved after considering all the relevant facts. In particular, the will of the parties must be taken into account, and only an analysis of these wills will make it possible to determine whether there is a donation or some other contract. Consequently, we cannot establish whether there has been a donation in the situation you have submitted to us.
In your letter, you referred to the tax rule on the intention to make a gift. To this end, proposed subsection 248(30) provides as follows:
The existence of an amount of an advantage in respect of a transfer of property does not in and by itself disqualify the transfer from being a gift to a qualified donee if
(a) the amount of the advantage does not exceed 80% of the fair market value of the transferred property; or
(b) the transferor of the property establishes to the satisfaction of the Minister that the transfer was made with the intention to make a gift.
In common law, as in civil law, there must be a clear intention to make a gift in order to enrich the donee for there to be a gift. Unlike the Civil Code, which provides for different types of gifts for transfers of property, including remunerative gifts, gifts with encumbrances, disguised gifts and indirect gifts, the common law considers that there is no gift where the donor receives an advantage or consideration in return for the property transferred. Thus, it contains a presumption that a person cannot intend to give property if the person receives consideration or an advantage as a result of the transfer of the property.
The new rules in proposed subsection 248(30) were enacted to counter this presumption, applicable at common law only, where the person makes a gift but receives consideration or an advantage in return.
Your question is essentially a question of civil law and we are of the opinion that subsection 248(30), as proposed, has no impact in finding the solution. In our view, what constitutes a gift in civil law is a gift for federal income tax purposes.
In conclusion, in order to establish whether the difference between the value of the package and the price obtained, i.e. $ XXXXXXXXXX, constitutes a gift, in whole or in part, it is necessary to determine whether there is a gift in civil law of that amount or of part of that amount. If it is determined that there is a gift, a donation receipt may be issued as provided for in section 3501(1) of the Income Tax Regulations for an amount equal to the amount of the cash gift.
As stated in Information Circular 70-6R5, this opinion is not an advance income tax ruling and is not binding.
Best regards,
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
cc: Isaac Piotrkowski