23 December 1998 External T.I. 9809615 - CHARITABLE FOUNDATION - DISBURSEMENT QUOTA

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 Department.

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

Principal Issues: Whether a loss on the disposition of marketable securites would be considered an amount expended on charitable activities.

Position: No

Reasons: Meaning of "expended" considerering they were acquired by way of gift.

XXXXXXXXXX 							980961
B. Kerr
Attention:XXXXXXXXXX 

December 23, 1998

Dear Sirs:

Re: Charitable Foundations - Disbursement Quota

This is in response to your letter of April 6, 1998, concerning the meaning of the word “expended” as used in paragraph (a) of A.1 of the definition of “disbursement quota” in subsection 149.1(1) of the Income Tax Act (the “Act”). You have requested our views on whether it would include a loss on the disposition of marketable securities which were originally gifted to a charity subject to a direction they be held for 10-years.

Our Comments

In our view the acquisition of shares would not be considered an expenditure on charitable activities. The charity is not devoting its resources to its own charitable activities. The Act authorizes two types of activities for registered charities. These are the funding of “qualified donees” (mainly other registered charities), and the carrying on of charitable activities. The latter must be the charity’s own activities carried out under its direct control and supervision. Accordingly, in a case where a charity purchases shares the expenditures in acquiring such shares would not count toward meeting the charity’s disbursement quota.

The term “disbursement quota” in subsection 149.1(1) is defined based on a formula containing several variables. Included in the formula is variable “A” which generally includes gifts received in the taxation year, however, paragraph (b) thereof excludes gifts that are subject to a 10-year holding direction. Where this is the case and in a subsequent taxation year and to the extent of the amount of the gift that is expended, the gift will be included in the “A.1” component of the formula.

The word “expended” is not defined in the Act. However, the Concise Oxford Dictionary defines “expend” to mean spend (money, care, time, on object, in doing), and the term “expenditure” to mean spending (of money etc.). Since the marketable securities were gifted to the charity, no money was spent in acquiring them. Accordingly, the loss on disposition would not be considered an amount expended for the purposes of the definition of the term “disbursement quota”.

We trust that these comments will be of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch