A corporation (the donor) made charitable gifts in 2007, as well as in 2015 to 2017, to a registered charity (a private foundation). Interest-bearing loans were made in 2012 and 2015, by the foundation to the donor and to persons not dealing at arm’s length with the donor, resulting in the use of the foundation’s property to which s. 118.1(16)(c)(ii) applied.
The Directorate confirmed that, pursuant to the ordering rules in s. 118.1(17), the fair market value (FMV) of the gifts made in 2015 to 2017 could be reduced by the outstanding amounts of the loans made in 2012 and 2015 if no loan amount had been applied under s. 118.1(16) to reduce the FMV of the 2007 charitable gifts. After noting that by virtue of s. 110.1(6), ss. 118.1(16) and (17) apply to corporate gifts, the Directorate stated:
[S]ubsection 118.1(17) of the Act does not restrict any portion of a property described in subparagraph 118.1(16)(c)(ii) of the Act, that has not been applied to reduce the FMV of a previous gift, from being applied to reduce the FMV of a gift made in a subsequent year. For example, in the situation you describe, at each particular time the 2007 and 2015 to 2017 gifts were made, the conditions of subparagraph 118.1(16)(c)(ii) of the Act were present with respect to the loans made in 2012, but no portion of such loans was applied to reduce the FMV of the charitable gifts made to the private foundation in 2007. In such situation, the FMV of the unpaid amount of such loans, at each particular time the charitable gifts were made in 2015 to 2017, can be applied to reduce the FMV of those gifts, pursuant to subsections 118.1(16) and 118.1(17) of the Act.