| 24(1) | 5-902434 |
| Bill Guglich | |
| (613) 957- 2102 |
19(1)
October 1, 1990
Dear Sirs:
This is in reply to your letter of September 7, 1990 requesting our views as to whether, for purposes of the Income Tax Act (the Act), there would be a gift of property in the following hypothetical situations:
1. A charitable foundation (the "Foundation") owns the beneficial and legal interest in real property (the "Property") in fee simple.
2. The Foundation has offered a charitable organization (the "Organization") the use and occupation of the Property rent free or for a nominal rent of $1.00 for a period of two years.
3. The organization will use the Property in carrying out its charitable objects.
4. Alternatively the Foundation leases the Property to the Organization for a fair market rental of $24,000 per year, and the Foundation gifts the $24,000 to the Organization.
In our view there would not be a gift of property in the rental arrangement described in item 2. As explained in paragraph 3 of IT-110R2 (Special Release), a gift, for purposes of sections 110.1 and 118.1 of the Act, is a voluntary transfer of property without valuable consideration. Charging rent which is less then the fair market rental value could not in our view be considered to be a voluntary transfer of property.
In the alternative situation described in item 4 there could be, for purposes of sections 110.1 and 118.1 of the Act, a gift of property (i.e., $24,000 cash or $24,000 rent receivable). As stated in paragraph 6 of IT-297R2 valuation of a gift in kind (i.e., rent receivable) is based on the fair market value as of the date on which beneficial ownership is transferred from the donor to the donee. A gift must, of course, be a true gift. It could not, for example, be a transfer pursuant to a contractual obligation related to the lease.
We trust this will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch