1 October 1998 External T.I. 9815655 - GIFT OF CAPITAL PROPERTY

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: -gift of capital property
-exchange of shares

Position: general comments

Reasons: not enough info

XXXXXXXXXX
981565
October 1, 1998 B. Kerr

Dear Sir:

Re: Gift to Registered Charity and Transfer of Property

This is in response to your letter of March 30, 1998 requesting our opinion on the tax implications of two proposed transactions, one involving a gift of capital property to a registered charity and the other involving an exchange of shares.

Our Comments

The situation described in your letter involves an actual fact situation. As it relates to a proposed transaction, assurance as to the tax consequences will only be given in an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in the enclosed copy of Information Circular IC-70-6R3 dated December 30, 1996 issued by Revenue Canada. However we can offer the following general comments.

Generally, a taxpayer who disposes of a capital property by way of gift is deemed to have received proceeds of disposition equal to the fair market value of the property at that time under the provisions of paragraph 69(1)(b) of the Income Tax Act (the “Act”). If the fair market value of the property exceeds its adjusted cost base, the taxpayer will realize a capital gain as a result of such a disposition. However, subsection 118.1(6) provides for a designation that can reduce a capital gain that would otherwise result from the application of the deemed disposition rules in paragraph 69(1)(b) of the Act when an individual makes a gift of capital property to a registered charity. We are enclosing a copy of Interpretation Bulletin IT-288R2 which explains how this designation works.

With respect to the second situation, you have not provided us with enough facts to provide any comments other than that the Act contains several rollover provisions such as subsection 85(1) or section 85.1 that could apply to reduce or defer the capital gain depending on the circumstances of a particular situation.

We trust these comments will be of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate