23 August 2002 External T.I. 2002-0152695 - CHARITABLE DONATION LOANBACK

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether or not a charitable donation has been made in circumstances where a sum of cash is donated to a registered charity and the same amount is thereafter loaned back to the donor for a specified term with interest payable on a regular basis or in a lump sum at the end of the term.

Position: No

Reasons: Insufficient facts. Does not meet the definition of a gift.

XXXXXXXXXX 						2002-015269
K. Cooper, LL. B.
August 23, 2002

Dear XXXXXXXXXX:

Re. Charitable Donations

This is in reply to your letter of June 13, 2002 wherein you requested our views on whether or not a charitable donation has been made for the purposes of the Income Tax Act (the "Act") in circumstances where a sum of cash is donated to a registered charity and the same amount is thereafter loaned back to the donor for a specified term with interest payable on a regular basis or in a lump sum at the end of the term.

The particular circumstances outlined in your letter appear to be a factual situation involving specific taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Furthermore, your request did not include sufficient information for us to provide you with detailed general comments other than those which follow.

A charitable donation made by an individual or a corporation may only be eligible for a donation credit or deduction under subsections 118.1(3) or 110.1(3) of the Act if the donation is considered to be a gift. To constitute a gift, it is generally understood that there must be a voluntary transfer of property without consideration. Where a taxpayer donates a sum of cash to a registered charity and the same amount is thereafter loaned back to the taxpayer we are of the view that this may not be a voluntary transfer of property by the taxpayer and therefore not a gift. Further, it could be argued, depending on the facts, that in return for the donation the taxpayer is receiving consideration in the form of the loan which would also disqualify the donation from being considered a gift. Even if it could be established that the loan does not constitute consideration for the donation, subsections 118.1(16) or 110.1(6) of the Act may apply to deem the fair market value of the gift to be nil.

We also note that restrictions exist in the Act with respect to the loans the various types of registered charities may make and to whom those loans may be made which may impact on the proposed transactions. For further information, we suggest that you consult our Interpretation Bulletin IT-110R3 and our pamphlet titled "Registered Charities and the Income Tax Act" (RC 4108), both of which are available on the internet through our website at http:\www.ccra-adrc.gc.ca.

With respect to the article attached to your letter, it is not this Directorate's practice to comment on published tax plans.

We hope that our comments will be of assistance. Considering the complexity of the issues involved with respect to this subject matter, you may want to consult with a tax professional.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch