Principal Issues: [TaxInterpretations translation] (1) Can a remunerative donation give rise to a donation tax credit? (2) Does the same apply to a discounted sale?
Position: (1) Yes (2) No
Reasons: The transaction is subject to the specific rules of donation, which is a contract named in the Civil Code of Quebec.
XXXXXXXXXX 2005-012543 Michel Lambert CA, M.Fisc. August 1, 2006
XXXXXXXXXX,
Subject: Donation and sale of property
This is further to your fax of April 13, 2005, and our telephone conversations (XXXXXXXXXX/Martineau). You asked us to clarify the position of the Canada Revenue Agency's (the “Agency") on the application of subsections 248(30) et seq. of the Income Tax Act as proposed in the Legislative Proposals Relating to Income Tax of July 18, 2005, to the scenarios described in our interpretation letter 2004-006952.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Our Opinion
1. The concept of gift is not defined in the Act. It is therefore necessary to refer to the civil law or the common law, as the case may be, to establish whether a transfer of ownership of property constitutes a gift. In the scenarios you have submitted to us, we have assumed in applying section 8.1 of the Interpretation Act, that it is the civil law of Quebec that applies to the transfer of the property.
2. The new rules in proposed subsection 248(30) of the Act do not create a presumption of a gift where the value of the consideration received by a donor is less than 80% of the value of the property donated but there is otherwise no gift because of the absence of an intention to make a gift. Whether there is a gift is a question of fact and, in this case, of civil law.
3. Where, in the context of a transfer of property, the general rules of contract and obligation and all the specific conditions of a gift in civil law are satisfied, we are of the view that the gift will generally be considered a gift for the purposes of the Act. In the case of a remunerative gift, proposed subsection 248(31) provides that the eligible amount of the gift is the amount by which the fair market value of the property that is the subject of the gift exceeds the amount of the advantage in respect of the gift.
4. In the first scenario, you indicated that the taxpayer transferred property to a designated cultural institution by way of a gift. We have assumed that this is a gift within the meaning of article 1806 C.C.Q. and that all the conditions for the validity of the deed are satisfied. In this case, we are of the opinion that the taxpayer has made a gift and the eligible amount of the gift, within the meaning of proposed subsection 248(31), is the amount by which the fair market value of the property so transferred exceeds the amount of the advantage in respect of the gift.
5. In the second scenario, you stated that the transfer of the property is by deed of sale and there is no reference to a gift. The substantive conditions do not seem to be satisfied. In that scenario, as described, we are of the view that since the transfer of the property does not result in a gift, that transfer cannot give rise to a gift tax credit or a gift deduction, as the case may be, in computing a taxpayer's income.
6. This does not mean, however, that any transfer of property by way of a deed of sale can never give rise to a gift tax credit or a gift deduction in the calculation of income. Depending on the circumstances, parties may find themselves in the presence of a gift disguised as a sale. In such a case, the parties conceal their real intentions. In order for there to be a gift, the donor must impoverish himself for the benefit of the donee and intend to enrich the donee without consideration. In our view, a transaction that produces the legal effects of a disguised gift will generally be treated as a gift for the purposes of the Act. Whether a deed of sale is a disguised gift is a question that can only be resolved after an examination of the entire file on its merits. The Agency has accepted in the past that a transfer of ownership of property could give rise to a gift in the form of a sale as evidenced by a document, such as that which you sent to us, where the substantive conditions of the gift were satisfied, including the intention to make a gift.
7. For there to be a gift in Quebec civil law, there must be a clear intention to make a gift. The Quebec courts have indicated that this intention cannot be presumed and that, if it cannot be proven, there is a presumption of non-giving. In Yves Jalbert v. Benoît Bernier, 500-22-068277-022, June 16, 2003, Justice Maringo of the Court of Quebec, Civil Division, endorsed the following comments of other Quebec courts: [TaxInterpretations translation]
[42] There must be an intention to give and a "present and irrevocable divestiture of the movable item.”
[43] "The intention to give must flow from facts that are sufficiently precise and concordant to allow a finding of a gift rather than another contract such as a sale, loan or deposit."
[44] In Lijoi v. Rull, Gagnon J. recalled the principle of the presumption of non-giving Nemo facile praesumitur donare: "As a result, a gift by hand requires clearer proof than a simple loan for use."
More specifically, Gagnon J. in Lijoi v. Rull, AZ-97036243 (C.Q.), states the following: [TaxInterpretations translation]
A first observation must be made: no one is presumed to give his property free of charge. That presumption of non-free disposition corresponds to the Latin adage Nemo facile praesumitur donare, which is part of our law.
The Agency will consider these principles before concluding that there is a gift disguised as a sale.
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