REVENUE CANADA TAXATION MEMORANDUM
DATE AUG 5 1987
TO- HAMILTON DISTRICT OFFICE
FROM- HEAD OFFICE Specialty Rulings Directorate R.B. Day (613) 957-2136
ATTENTION R.G. Wells
Business Files AuditRE: XXXX Gift of Canadian Cultural Property ----------------------------------
We are writing in reply to your memorandum of July 8, 1987, and further to ours of January 30, 1987.
We have reviewed the May 19, 1987, letter from XXXX (along with the notes of your various interviews and discussions) and find that there is nothing contained therein that would alter the views set out in our previous memorandum. There are, however, certain statements in that letter which require further comment.
Page 2, paragraph 2 -------------------
Although the agreement between the taxpayer and XXXXXXXX appears to give the XXXX an unfettered right to possess the art objects, the sequence of events to date do not clearly indicate this to be the case.
Page 2, paragraph 3 -------------------
In our previous memorandum, we set out several reasons for the view that no gift had, in fact, been made. One factor was the continuous possession of the art objects by the taxpayer. It was not, by any means, the only basis for our opinion.
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Departmental practice has been to deny a taxpayer a deduction under paragraph 110(1)(a), (b) or (b.1) where there is evidence of any form of "loan-back" agreement. The basis for this position is that no gratuitous transfer of property has taken place. Hence, no gift has actually been made in a legal sense. An exception to this practice is noted in Interpretation Bulletin IT-226 wherein it is stated that a deduction can be made under paragraphs 110(1)(a) or (b) for a gift of a residual interest to a registered Canadian charitable organization or other recognized organization or to Her Majesty. This exception does not, however, extend to gifts made under paragraph 110(1)(b.1) of the Act.
With respect to the other comments on this page, it is our view that no gifts have in fact been made in XXXX and agree that 110(1)(b.1) does not contemplate the gift of a residual interest in such property as suggested by the taxpayer's previous advisors.
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We have no objection to the taxpayer's representative "redoing" the transaction in 1987 or some other taxation year. If this is permitted, we would want firm written undertakings with respect to the following:
1. They would agree not to file a Notice of Objection or appeal to the Tax Court of Canada with respect to the proposed XXXX reassessments.
2. The certificates issued by the XXXX would be cancelled and surrendered to this Department.
3. The art objects would be delivered to the XXXX prior to the end of 1987 (or if in a subsequent taxation year before the end of that year).
4. Subsequent to the gift, there would be no collateral agreements, either oral or in writing whereby the art objects would (or could) be loaned back to this taxpayer, his heirs or assigns.
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch