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.
Principal Issues: Does the donor's payment to a Municipality for expenses incurred qualify as a gift?
Position: NO.
Reasons: The expenses are those of the donor whether paid directly or through the municipality.
2004-006980
XXXXXXXXXX Luisa A. Majerus, C.A.
(613) 946-3558
June 22, 2004
Dear XXXXXXXXXX :
Re: Gift - Expenses Incurred by a Donor
This is in reply to your letter of March 29, 2004 requesting our views on whether the City of XXXXXXXXXX (the "City") can issue donation receipts to the donors of trees for the costs of removing and transporting trees to designated sites.
The City, under their "Donate a Tree" program (the "program"), is proposing to issue donation receipts for the fair market value ("FMV") of any trees donated by the citizens and accepted by the City. The citizen ("donor") will be responsible for the costs of the removal and transportation of the tree(s) from his/her property to the designated site. The City will arrange for the tree removal and transportation with independent tree removal companies. Since the invoice for the tree removal costs will be issued to the City the donor will be required to send a cheque to the City for the expected costs before the tree is removed.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Pursuant to sections 110.1 and 118.1 of the Income Tax Act (the "Act"), a taxpayer may be entitled to charitable donation tax deductions or credits in respect of gifts made to qualified donees. The term "qualified donees" is defined in subsection 149.1(1) of the Act and includes registered charities, the Crown, Canadian municipalities and several other entities. The term "gift" is not defined in the Act, but has been defined in numerous Canadian court decisions. In general, a "gift" for income tax purposes, is a voluntary transfer of property that is made gratuitously by the donor without an expectation of return or benefit. Draft amendments to the Act, which were released by the Department of Finance on December 20, 2002, propose to recognize a gift, for tax purposes, in some circumstances where a donor has received an advantage that is consideration or other benefit for property transferred to a qualified donee after December 20, 2002.
Based on the foregoing, it is our view that the donation of the tree by the donor to the City would likely qualify as a gift and the City can issue a receipt in respect of the fair market value of the tree. However, it is also our view that the payment by the donor to the City in respect of the costs of removal and transportation of a tree would not constitute a gift and therefore could not be receipted by the City since the funds transferred represent a payment for services that the donor is required to incur. In this regard, absent the City's requirement that the transportation and removal costs be routed through the city, the donor would have paid such costs directly to the contractor.
Although the foregoing comments are not binding on the Canada Revenue Agency, we hope they will be of assistance to you.
Yours truly,
F. Lee Workman
Financial Institutions Team
Income Tax Rulings Directorate
Policy & Planning Branch
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