Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether a donation of shares to a public foundation constitutes a gift for income tax purposes, where the donation is subject to numerous conditions contained in an agreement between the donor's main shareholder and the foundation.
Position:
It constitutes a gift.
Reasons:
In previous files, we concluded that the fact that there are conditions attached to a gift does not, in itself, negate the gift (jurisprudence does not provide that conditions negate a gift). As with the other files, the donor in this case is freely parting with the funds or property, receives no benefit, other than recognition, in return and the funds or property can never revert to the donor or any related person.
XXXXXXXXXX
XXXXXXXXXX 990241
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers.
You advise that to the best of your knowledge and that of the taxpayers referred to above, none of the issues involved in the ruling request is:
I. in an earlier return of the taxpayers or a related person;
II. being considered by a taxation services office or a taxation centre in connection with a previously filed tax return of the taxpayers or a related person;
III. under objection by the taxpayers or a related person;
IV. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
V. the subject of a ruling previously issued by the Directorate.
In this letter, unless otherwise indicated, all statutory references are to the provisions of the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended) (the “Act”), and the following terms have the meanings specified:
a) “Corporation” means XXXXXXXXXX,
b) “Individual” means XXXXXXXXXX,
c) “Foundation” means XXXXXXXXXX,
d) “Charity” means XXXXXXXXXX,
e) “A Co” means XXXXXXXXXX,
f) “B Co” means XXXXXXXXXX, and
g) “The Endowment” means XXXXXXXXXX.
Our understanding of the facts, proposed transactions and their purposes is set out below.
FACTS
1. The Corporation is a “taxable Canadian corporation” and a “private corporation” within the meaning of subsection 89(1) of the Act. The taxation year of the Corporation ends on XXXXXXXXXX. The Corporation’s office is in XXXXXXXXXX and its tax services office is in XXXXXXXXXX. Its tax account number is XXXXXXXXXX. The Corporation is a holding company and is controlled by the Individual.
2. The Individual is a resident of Canada living in the City of XXXXXXXXXX.
3. The Foundation is a “public foundation” within the meaning of subsection 149.1(1) of the Act. The Foundation’s office is in XXXXXXXXXX and its tax services office is in XXXXXXXXXX. The Foundation’s charitable registration number XXXXXXXXXX.
4. The “Charity” is a XXXXXXXXXX. The Charity is a “charitable organization” within the meaning of subsection 149.1(1) of the Act.
PROPOSED TRANSACTIONS
5. The Corporation will donate common shares of B Co, which shares are listed on XXXXXXXXXX Stock Exchange and represent less than XXXXXXXXXX% of all the issued and outstanding shares of B Co, to the Foundation on or before XXXXXXXXXX. If the fair market value of such shares is less than $XXXXXXXXXX, the Individual will donate or cause a corporation he controls to donate to the Foundation additional amounts to make up the difference. The Foundation will upon receipt sell such shares on the open market and expects that the brokerage commission will be waived. The amount of $XXXXXXXXXX to be received by the Foundation is referred to herein as the Gift.
6. The Gift will be subject to an agreement among the Individual, the Foundation and the Charity (the “Agreement”). Pursuant to the Agreement, the funds received by the Foundation are to be designated as and held by the Foundation in perpetuity in The Endowment until all funds in such endowment have been expended in accordance with the terms of the Agreement. The Charity and the Foundation will agree to raise additional funds and transfer or designate matching contributions to The Endowment in the amount of $XXXXXXXXXX. The Endowment will be used by the Foundation for the purpose of transferring or releasing funds to the Charity to XXXXXXXXXX. The Foundation may withdraw and apply capital funds from The Endowment for this purpose without limit to the extent such funds were sourced other than from the Gift. The Foundation may withdraw and apply capital funds from The Endowment sourced from the Gift for this purpose at the rate of $XXXXXXXXXX from the Gift for every $XXXXXXXXXX withdrawn and applied from sources other than the Gift, provided that amounts may be withdrawn and applied for this purpose free of this restriction after XXXXXXXXXX unless the Individual has made a demand as provided for in the Agreement (described in paragraph 7 below). Income earned on the capital funds in The Endowment may be withdrawn at any time for this purpose.
XXXXXXXXXX
7. The Foundation will agree that the primary focus and efforts of its fund-raising will be to raise the moneys required to fully fund theXXXXXXXXXX ($XXXXXXXXXX excluding the Gift). If less than $XXXXXXXXXX of matching contributions are made, the Individual may require, between XXXXXXXXXX, the Foundation to transfer to XXXXXXXXXX an amount equal to the Gift funds not qualified for withdrawal by the Foundation (as described in paragraph 6 above) from The Endowment prior to XXXXXXXXXX. For example,
XXXXXXXXXX
8.
XXXXXXXXXX
9. Neither the Corporation nor the Individual will have the ability to direct how the XXXXXXXXXX will be run. The XXXXXXXXXX will be run by the Charity and, in particular, the Charity will decide who to hire and how services will be provided.
10. The Gift will be irrevocable in that the Corporation, the Individual, any related person and their assigns will not be entitled to the return of any of the amounts donated to the Foundation.
PURPOSE OF PROPOSED TRANSACTIONS
11. The purpose of the Gift is to support the development of theXXXXXXXXXX.
RULING
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are completed as described above, we confirm the following:
An amount equal to the aggregate of (i) the fair market value on the date of the donation of the shares of B Co donated by the Corporation to the Foundation, and (ii) any other amounts donated by the Corporation to the Foundation, as described in paragraph 5 above, will qualify as a gift described in paragraph 110.1(1)(a) of the Act, provided an official receipt containing prescribed information is filed as required by subsection 110.1(2) of the Act.
The above ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996 and is binding on Revenue Canada provided the proposed transactions described in paragraph 5 of this Ruling are completed by XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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