14 August 1990 Income Tax Severed Letter ACC9313 - Gifts of Residual Interest to a Charity

24(1)                                         Glen Thornley
                                              (613) 957-2101

Attention: 19(1)

Dear Sirs:

Re: Gifts of Residual Interest to a Charity

This is in reply to your letter of July 4, 1990 in which you suggest that the position taken about gifts of a residual interest to a charity in our letter of November 21, 1989 to 24(1) is different from that taken in our letter to you of December 28, 1989. The question asked by 24(1) was as follows: "If a trust was used to hold the asset that is gifted to a charity with life income continuing to the donor and capital going to the charity at time of death, could the charity issue a tax receipt on the basis set out in IT-226 even if the gift is technically made to a trust as opposed to a charity? " Note that the question was phrased in terms of whether a tax receipt could be issued in respect of the asset. Our answer, based on the limited information provided, was that the charity could not issue a receipt as, in our view, the property vested in the trust. Reference was made to IT-449R which would appear to support this view.

Our answer to a similar question with similar facts but given in mush more detail in your letter of December 28, 1990, was based on the fact that although the property vested in the trust the donor had in fact made an irrevocable donation to the charity of a capital interest in that trust. Thus both answers would appear to be correct based on our understanding of the hypothetical facts. If, however, the two arrangements are identical then the reply to you in our December 28, 1989 letter is probably the better answer.

We caution that our replies are not advance income tax rulings but are merely opinions based solely on the information given. These opinions might very well change upon a review of all of the facts and particularly after an examination of all pertinent documentation.In this respect, when property is considered to vest it must in all cases vest indefeasibly. In cases where property is transferred to a trust under an irrevocable trust agreement such as in the case of the Irrevocable Charitable Trust Agreement included with your December 28, 1990 letter, they must be "iron clad" agreements under which no encroachment could be made on the capital of the trust.

This is not apparent from a review of that Agreement. Where encroachment is possible under the arrangement referred to above no gift would be considered made to the charity. Where a particular fact situation exists and proposed transactions are involved we suggest you seek an advance income tax ruling pursuant to the guidelines in Information Circular 70-6R.

We trust our comments will prove helpful.

Yours truly, for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch