Free itnews-26-lp-e.pdf - Canada

Income Tax Technical News
No. 26

December 24, 2002
Canada Customs and Revenue Agency Agence des douanes et du revenu du Canada

w w w. c r a . g c . c a

In This Issue Proposed Guidelines on Split-Receipting The INCOME TAX TECHNICAL NEWS is produced by the Policy and L e g i s l a t i o n B r a n c h . I t i s p r o v i d e d f o r i n f o r m a t i on p u r p o s e s o n l y a n d d o e s n o t r e p l a c e t h e l a w. I f yo u h a v e a n y c o m m e n t s o r s ug g e s t i o n s a b o u t t h e m a t t e r s d i s c us s e d i n t h i s p u b l i c a t i o n , p l e a s e s e n d t h e m t o : Manager, Technical Publications and Projects Section Income Tax Rulings Directorate Policy and Legislation Branch C a n a d a C u s t o m s a n d Re v e n u e A g e n c y O t t a wa O N K 1 A 0 L 5

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Proposed Guidelines on Split-Receipting
O ve r vi ew T h e C a n a d a C u s t o m s a nd R e v e n u e A g e n c y ( C C R A ) h a s c om p l e t e d i t s r e v i e w o f wh a t c o n s t i t u t e s a g i f t f o r p u r p o s e s o f t h e I N C O M E T A X A C T ( t h e A c t ) . T h i s r e v i e w wa s i n i t i a t e d a s a c o n s e q u e n c e o f t h e d e c i s i o n s i n v a r i o u s c o u r t c a s e s t h a t s e e m t o c a l l i n t o q u e s t i o n wh e t h e r t h e t r a d i t i o n a l m e a n i n g o f g i f t u n d e r c om m o n l a w i s s t i l l t h e a p p r o p r i a t e standard. Furthermore, the traditional definition of gift disqualifies as a g i f t a t r a ns f e r o f p r o p e r t y f o r p a r t i a l c o n s i d e r a t i o n , n o t wi t h s t a n d i n g t h a t t h e r e i s a c l e a r g i f t e l e m e n t a n d d o n a t i v e i n t e n t , a r e s u l t wi t h wh i c h t h e g o v e r n m e n t a n d , a p p a r e n t l y, t h e c o u r t s a r e n o t c o m f o r t a b l e . A c c o r d i n g l y, a f t e r c o n s u l t a t i o n wi t h r e p r e s e n t a t i v e s o f t h e Departments of Justice and Finance, the CCRA has developed i n t e r p r e t a t i o n a l g u i d e l i n e s t h a t a r e t o b e f o l l o we d i n d e t e r m i n i n g wh e t h e r a t r a n s f e r o f p r o p e r t y r e s ul t s i n t h e m ak i n g o f a g i f t f o r purposes of the Act. On December 20, 2002, the Department of Finance released proposed amendments to the Act to facilitate the i n t e r p r e t a t i v e a p p r o a c h b e i n g a d o p t e d b y t h e C C R A . A s we l l , e x i s t i n g i n t e r p r e t a t i o n b u l l e t i n s a n d p u b l i c a t i o n s wi l l b e r e v i s e d t o r e f l e c t t h e s e
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i n t e r p r e t a t i v e g u i d e l i n e s , a n d t o d e al wi t h a n u m b e r o f t h e m o r e c o m m o n g i f t i n g s i t u a t i o n s . W h i l e t i m e wi l l b e a l l o we d f o r i n t e r e s t e d parties to provide comments before the publications are so revised, t h e s e p r o p o s e d g u i d e l i n e s m a y b e f o l l o we d i n t h e i n t e r i m . U n d e r l y i n g t h e C C R A ' s i n t e r p r e t a t i v e a p p r o a c h t o d e t e r m i n i n g wh e t h e r t h e r e i s a g if t i n s i t u a t i on s o t h e r t h an wh e r e t h e r e i s a n o u t r i g h t t r a n s f e r o f pr o p e r t y f o r n o c o n s i d e r a t i o n i s t h a t t h e r e b e a c l e a r donative intent to make a gift. T h e k e y e l e m e n t s t o t h is i n t e r p r e t a t i v e a p p r o a c h a r e a s f o l lo ws : ( a ) T h e r e m u s t b e a v o l u n t a r y t r a n s f e r of p r o p e r t y t o t h e d o n e e wi t h a clearly ascertainable value. (b) Any advantage(1) received or obtained by the donor or a person n o t d e a l i n g a t a r m ' s l e ng t h wi t h t h e d o n o r i n r e s p e c t o f t h e t r a n s f e r m us t b e c l e a r l y i d e n t i f i e d a n d i t s v a l u e a s c e r t a i n a b l e . I f i t s v a l u e c an n o t b e r e a s o n a b l y a s c e r t a i n e d , n o c h a r i t a b l e t a x d e d u c t i o n o r c r e d i t wi l l b e a l l o we d . I n t h i s r e g a r d , t h e d o n e e wi l l be required to identify the advantage and the amount thereof on a n y r e c e i p t p r o v i d e d t o t h e d o n o r i n a c c o r d a n c e wi t h t h e p r o p o s e d amendments to section 3501 of the INCOME TAX REGULATIONS. In
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respect of valuations, the donee should consider obtaining a q u a l i f i e d i n d e p e n d e n t v a l u a t i o n o f t he a m o u n t o f t h e a d v a n t a g e . ( c ) C o n s i s t e n t wi t h t h e c a s e l a w, i n o r d e r f o r t h e r e t o b e a g i f t there must be a clear donative intent to enrich the donee. It is recognized that the determination of donative intent is a s u b j e c t i v e d e t e r m i n a t i o n wh i c h c a n b e d i f f i c u l t t o e s t a b l i s h . I n this regard, it is proposed that the Act be amended(2) so that a t r a n s f e r o f pr o p e r t y wi l l n o t n e c e s s a r i l y b e d i s q u a l i f i e d f r o m b e i n g a gift, provided the amount of the advantage does not exceed 80% of the value of the property transferred to the donee. I n e x c e p t i o n a l c i r c u m s t an c e s wh e r e t h e a m o u n t o f t h e a d v a n t a g e e x c e e d s 8 0 % o f t h e v a l u e o f t h e t r an s f e r r e d p r o p e r t y, t h e t r a n s f e r may still nevertheless qualify as a gift under the proposed amendments, provided the donor is able to establish to the s a t i s f a c t i o n o f t h e M i n i s t e r t h a t t h e r e wa s a n i n t e n t i o n t o m a k e a gift. ( d ) G e n e r a l l y, t h e p r o p o s e d d e f i n i t i o n o f a n e l i g i b l e a m o u n t o f a g i f t ( 3 ) wi l l b e t h e e x c e s s o f t h e v a l u e o f t h e p r op e r t y t r a n s f e r r e d t o t h e d o n e e o v e r t h e am o u n t o f t h e a d v a n t a g e p r o v i d e d t o t h e d o n o r . I t i s r e c o g n i z e d t h a t , wh e t h e r i n c o n n e c t i o n wi t h f u n d
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r a i s i n g e v e n t s o r d i r e c t g i f t s t o a c ha r i t y, a d o n o r m a y b e p r o v i d e d wi t h s o m e a d v a n t a g e b e c a u s e t h e d o n e e wi s h e s t o p r o v i d e t h e d o n o r wi t h a t o k e n o f g r a t i t u d e f o r m a k i n g t h e g i f t . I t i s f u r t h e r r e c o g n i z e d t h a t t h e a p p r e c i a t i o n o f s u c h g i f t s wi l l v a r y f r o m d o n o r t o d o n o r . A c c o r d i n g l y, t h e C C R A i s pr e p a r e d t o a d m i n i s t r a t i v e l y p r o v i d e f o r a D E M I N I M I S t h r e s h o l d t h a t wi l l s i m p l i f y m a t t e r s f o r b o t h d o n o r s a n d d o n e e s wh e r e s u c h a d v a n t a g e s a r e o f insignificant value. The current de MINIMIS threshold set forth in t h e c u r r e n t v e r s i o n o f I nt e r p r e t a t i o n B u l l e t i n I T - 11 0 R 3 , G I F T S A N D O F F I C I A L D O N A T I O N R E C E I P T S , wi l l b e r e v i s e d t o pr o v i d e t h a t t h e amount of the advantage received by the donor that does not e x c e e d t h e l e s s e r o f 1 0% o f t h e v a l u e o f t h e p r o p e r t y t r a n s f e r r e d t o t h e c h a r i t y a n d $ 7 5 wi l l n o t b e r e g a r d e d a s a n a d v a n t a g e f o r p u r p o s e s o f d e t e r m i n i n g t h e e l i g i b l e a m o u n t a s s e t f o r t h i n t he p r o p o s e d d e f i n i t i o n . N o t e t h a t t h e r ev i s e d D E M I N I M I S t h r e s h ol d wi l l n o t a p p l y t o c a s h o r n e a r c a s h a d v a n t a g e s ( e . g . , t h i s m ay include redeemable gift certificates, vouchers, coupons). Guidelines T h e f o l l o wi n g g u i d e l i n e s p r o v i d e t h e C C R A ' s v i e w o f t h e m a n n e r i n wh i c h t h e e l i g i b l e a m o u n t a n d t h e am o u n t o f t h e a d v a n t a g e a r e t o b e
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d e t e r m i n e d wi t h r e g a r d t o v a r i o u s s it u a t i o n s a n d f u n d r a i s i n g e v e n t s or activities, taking into account that, in many cases, there is not a readily available market value comparison of the inducement or advantage provided to the donor. In particular, the guidelines address: · fund raising dinners · charity auctions · lotteries · c o n c e r t s , s h o ws a n d s p o r t i n g e v e n t s · golf tournaments · membership fees · charitable annuities · mortgaged property F u n d R a i s i n g E ve n t s o r Ac t i vi t i e s The guidelines below have general application to all fund raising events or activities:
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· T h e at t e n d a n c e o f c e l e b r i t i e s a t f u n d r a i s i n g e v e n t s wi l l n o t b e v i e we d a s a n a d v a n t a g e p e r s e . A ny i n c r e m e n t a l a m o u n t p a i d f o r t h e r i g h t t o p a r t i c i p a t e i n a n a c t i v i t y wi t h a p a r t i c u l a r i n d i v i d u a l ( e . g . , d i n n e r , g o l f ) wo u l d , h o we v e r , n o t b e v i e we d a s a g i f t . · T h e v a l u e o f a n y c o m p l i m e n t a r y b e n e f i t s p r o v i d e d t o a l l p a r t ic i p a n t s f o r a t t e n d i n g t h e e v e n t ( e . g . , p e n s a n d k e yc h a i n s ) a n d t h e v a l u e o f d o o r a n d a c h i e v e m e n t p r i z e s t h a t al l a t t e n d e e s a r e e l i g i b l e f o r b y s i m p l y a t t e n d i n g t h e e v e n t wi l l b e v i e we d a s a n a d v a n t a g e u n l e s s t h e a g g r e g a t e v a l u e o f s u c h i t e m s , p e r t i c k e t s o ld , d o e s n o t e x c e e d the lesser of 10% of the ticket price and $75. For the purpose of establishing the eligible amount, and therefore the amount of the t a x r e c e i p t , t h e v a l u e o f d o o r a n d a c h i e v e m e n t p r i z e s wi l l b e aggregated and allocated on a pro rata basis to all participants. · F o r t h e p u r po s e o f d e t e r m i n i n g wh i c h i t e m s wi l l b e v i e we d a s a n a d v a n t a g e f o r p u r p o s e s o f a p p l yi n g t h e D E M I N I M I S r u l e , t h e C C R A wi l l a d o p t t h e p o s i t i o n t h a t t h e v a l u e o f t h e a ct i v i t y t h a t i s t h e o b j e c t o f t h e f u n d r a i s i n g e v e n t , wh i l e a n a d v a n t a g e t o b e t ak e n i n t o a c c o u n t i n d e t e r m i n i n g t h e e l i g i b l e a m o u n t , wi l l n o t b e i n c l u d e d f o r t h i s p u r p o s e ( e . g . , t he v a l u e o f a m e a l a t a f un d r a i s i n g d i n n e r ,

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the value of a comparable ticket for a concert, the value of green f e e s , c a r t r en t a l a n d m e a l a t a g o l f t o u r n a m e n t ) . Fund Raising Dinners T h e v a l u e o f a c o m p a r a b l e m e a l p r o v i d e d b y a c o m p a r a b l e f a c i l i t y wi l l h a v e t o b e a s c e r t a i n e d . I f t h e e v e n t is h e l d a t a r e s t a u r a n t , t h e n t h e p r i c e t h e r es t a u r a n t wo u l d c h a r g e a r e g u l a r c u s t o m e r wo u l d b e t h e c o m p a r a b l e v a l u e . I n t h is r e g a r d , i t is a c c e p t a b l e t o t a k e i n t o a c c o u n t group or banquet rates. G e n e r a l l y, t h e r i g h t t o pa r t i c i p a t e i n a n a u c t i o n t o b e h e l d a t t h e d i n n e r wi l l n o t b e v i e we d a s c o n s t i t u t i n g a n a d v a n t a g e . Example

· A c h a r i t y h o l d s a f u n d r a i s i n g d i n n e r f o r wh i c h 5 0 0 t i c k e t s a r e s o l d
at a cost of $200 each.

· A comparable meal could be purchased for $100, excluding GST,
P S T a n d g r at u i t i e s .

· T h e d o o r p r iz e s a r e a t r i p h a v in g a v a l u e o f $ 3 , 0 0 0 a n d j e we l l e r y
having a retail value of $500 ($3,500/500 or $7 per attendee).
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· E a c h a t t e n d e e r e c e i v e s a l o g o p e n a n d k e y c h a i n wi t h a n
aggregate retail value of $10. Determination of eligible amount: T ic k e t p r i c e Less: meal Eligible amount $200 $100 $100

A s a r e s u l t o f a p p l yi n g t h e D E M I N I M I S t h r e s h o l d , t h e v a l u e o f t h e d o o r p r i z e s a n d t h e c o m p l i m e n t a r y i t e m s r e c e i v e d b y a d o n o r wi l l n o t b e v i e we d a s a n a d v a n t a g e i n d e t e r m i n i n g t h e e l i g i b l e a m o u n t , s i n c e t h e t o t a l v a l u e o f s u c h p r i z es a n d i t e m s i s $ 1 7 p e r d o n o r , wh i c h i s l e s s than the lesser of 10% of $200 ($20) and $75. I n t h i s c a s e , t h e a m o u n t o f t h e a d v a n t a g e i s $ 1 0 0 , wh i c h i s n o t m o r e t h a n 8 0 % o f t h e t i c k e t pr i c e ( $ 1 6 0 ) . A c c o r d i n g l y, a t a x r e c e i p t m a y b e i s s u e d f o r t he e l i g i b l e a m o u n t .

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C h a r i t y Au c t i o n s G e n e r a l l y, i t i s C C R A ' s p o s i t i o n t h a t t h e r e wi l l n o t b e a n e l i g i b l e a m o u n t wi t h r e s p e c t t o it e m s o b t a i n e d a t c h a r i t y a u c t i o n s o n t h e basis that the bid determines the value of the various items put up for auction. H o we v e r , wh e r e t h e v a l u e o f a n i t em i s c l e a r l y o t h e r wi s e ascertainable (e.g., there is a retail price for the item) and m a d e k n o wn t o a l l b i d d e r s i n a d v a n c e , a n e l i g i b l e a m o u n t wo u l d b e p r e s e n t wh e r e t h e a m o u n t b i d i s i n e x c e s s o f t h e p o s t e d v a l u e . W h e r e d o n a t i v e i n t e n t c a n b e e s t a b l i s h e d , wh i c h m a y b e t h e c a s e wh e r e t h e p o s t e d v a l u e o f t h e i t e m d o e s n o t e x c e e d 8 0 % o f t h e a c c e p t e d b i d , a t a x r e c e i p t m a y b e i s s u e d f o r t he e l i g i b l e a m o u n t . Example

· A corporate retailer donates a mountain bike to a charity and the
charity puts it up for auction.

· T h e v a l u e o f t h e b i k e i s $ 4 0 0 a n d t h i s a m o u n t i s p o s t e d wi t h
the item.

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· A n y s u c c e s s f u l b i d o f $ 50 0 o r g r e a t e r wo u l d e n t i t l e t h e b i d d e r t o
a d o n a t i o n r e c e i p t e q u a l t o t h e e xc e s s o f t h e b i d p r i c e o v e r $ 4 0 0 ( i . e . , t h e e l ig i b l e a m o u n t i s t h e e x c e s s ) . T h e r e t a i l e r d o n a t i n g t h e b i k e wi l l b e e n t i t l e d t o r e c e i v e a t a x r e c e i p t f o r $ 4 0 0 . I f t h i s r e p r e s e n t s a g i f t o n t h e p a r t o f t he r e t a i l e r , t he r e t a i l e r wi l l h a v e r e v e n u e o f $ 4 0 0 p u r s u a n t t o s e c t i o n 6 9 a n d a d o n a t i o n d e d u c t i o n o f $ 4 0 0 . I f t h e bi k e c o s t t h e r e t a i l e r $ 2 5 0 , t h e r e s u l t wo u l d b e a p r o f i t o f $ 1 5 0 f o r t a x p u r p o s e s . ( 4 ) I t i s t h e C CR A ' s o p i n i o n t h a t wi t h r e g a r d t o c e r t a i n p e r s o n a l i t e m s s u c h a s , b u t n o t l i m i t e d t o , t h e j e r se y o f a h o c k e y p l a y e r , t h e r i g h t t o p l a y g o l f wi t h a p a r t i c u l a r p e r s o n , a n d t h e r i g h t t o d i n e wi t h a p a r t i c u l a r p e r s o n , t h e v a l u e o f t h e it e m wi l l b e t h e a m o u n t o f t h e b i d s u c h t h a t t h e r e wi l l n o t b e a n e l i g i b l e a m o u n t . L o t t e ri e s I t i s o u r v i ew t h a t p a r t i c i p a n t s i n l o t t e r i e s , wh i l e p e r h a p s i n f l u e n c e d i n c h o o s i n g wh i c h l o t t e r y t h e y wi l l p a r t i c i p a t e i n b y t h e i d e n t i t y o f t h e o r g a n i z i n g c h a r i t y, a r e p r i m a r i l y m o t i v a t e d b y t h e c h a n c e t o wi n t h e s i g n i f i c a n t p r i z e s t h a t a r e o f f e r e d . T h e r e f o r e , i n s o m e c a s e s , wh i l e
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there may be an element of donative intent, in our view the amount of the advantage cannot be reasonably quantified. A c c o r d i n g l y, i t c o n t i n u e s t o b e o u r v ie w t h a t n o p a r t o f t h e c os t o f a l o t t e r y t i c k e t i s a g i f t wh i c h m a y b e r e c e i p t e d f o r i n c o m e t a x p u r p o s e s . C o n c e r t s , Sh ow s a n d Sp o r t i n g E ve n t s While a particular event may be a charity fund raiser and all or a p o r t i o n o f t he p r o c e e d s d e s i g n a t e d i n f a v o u r o f a c h a r i t y, t h e r e wi l l n e e d t o b e c l e a r e v i d e n c e t h a t t h e t ic k e t p r i c e i s i n e x c e s s o f t h e u s u a l a n d c u r r e n t t i c k e t p r i c e t o a l lo w a f i n d i n g t h a t t h e r e is a n eligible amount. Where the amount of the advantage (including the u s u a l a n d c u r r e n t t i c k e t p r i c e ) i s 8 0% o r l e s s o f t h e a c t u a l t i c k e t price, a tax receipt may be issued for the difference. If there is no reasonably comparable event, then no portion of the ticket price can b e v i e we d a s a n e l i g i b l e a m o u n t . Example

· T ic k e t s a r e s o l d f o r $ 2 0 0 t o a f u n d r a i s i n g c o n c e r t f e a t u r i n g
P e r f o r m e r X.

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· E a c h p a r t i c i p a n t r e c e i v e s a P e r f or m e r X t - s h i r t t h a t n o r m a l l y s e l l s
for $20 and a CD that retails at $15.

· P e r f o r m e r X p u t o n a s im i l a r c o n c e r t i n O t t a wa 8 m o n t h s a g o a s
p a r t o f h e r r e g u l a r t o u r a n d t h e t i c k e t p r i c e wa s $ 1 0 0 . Determination of eligible amount: Actual ticket price Less: Comparable noncharity ticket price Complimentary items Advantage Eligible amount $ 100 $ 35 $ 135 $ 65 $ 200

T h e v a l u e o f t h e c o m p l i m e n t a r y i t e m s i s $ 3 5 , wh i c h e x c e e d s t h e l e s s e r o f 1 0% o f $ 2 0 0 ( $ 2 0 ) a n d $ 7 5 . A c c o r d i n g l y, t h e c o m p l i m e n t a r y i t e m s a r e r eg a r d e d a s a n a d v a n t a g e a n d m u s t be t a k e n i n t o a c c o u n t i n determining the eligible amount.

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In this case, the amount of the advantage is $135. Since this amount does not exceed 80% of the actual ticket price ($160), a tax receipt m a y b e i s s u e d f o r t h e e li g i b l e a m o u n t ( $ 6 5 ) . Golf Tournaments T h e f o l l o wi n g i n d i c a t e s t h e C C R A ' s v i e w i n d e t e r m i n i n g t h e v a l u e o f t h e v a r i ou s c o m p o n e n t s t h a t m a y b e p r e s e n t a t a f u n d r a is i n g golf tournament for the purpose of determining the amount of the advantage received by a participant. 1. Green fees

· N o r m a l g r e e n f e e s t h a t wo u l d o r d i n a r i l y b e c h a r g e d t o a n o n m e m b e r p l a y i n g t h e c o u r s e a t t h e t im e o f t h e e v e n t .

· N o a m o u n t wo u l d b e a l l o c a t e d t o m e m b e r s wh e r e m e m b e r s a r e
not required to pay green fees. 2. Cart rental

· R e g u l a r c o s t o f a c a r t r en t a l .

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3.

Meals

· P r i c e t h a t wo u l d b e c h a r g e d i f t h e m e a l we r e p u r c h a s e d
separately at the course. 4. Complimentary items

· A m o u n t t h a t wo u l d h a v e t o b e p a i d t o a c q u i r e t h e m e r c h a n d i s e a t
t h e d o n a t i n g r e t a i l o u t l e t o r t h e o u t l et f r o m wh i c h t h e m e r c h a n d i s e wa s o b t a i n e d . 5. Door and achievement prizes

· The retail value of all such prizes is to be aggregated and
allocated pro rata to all attendees. 6. Hole-in-one prize

· G i v e n t h a t t h e a p p r o xi m a t e o d d s o f a h o l e - i n - o n e f o r a n a v er a g e
g o l f e r o n a n y g i v e n p a r - 3 a r e o v e r 4 0 , 0 0 0 t o 1 an d t h e f a c t t h a t such prizes are not guaranteed to be given (in fact, they are r a r e l y a wa r d e d ) , t h e C CR A a c c e p t s t h a t f o r a n y p a r t i c u l a r p a r t i c i p a n t t h e v a l u e o f t h e c h a n c e t o wi n t h e p r i z e i s n o m i n a l , and therefore can be ignored.
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7.

Raffle tickets

· W h e r e t h e r a f f l e i s c o n du c t e d s e p a r a t e l y, t h e c o s t o f r a f f l e
t i c k e t s i s n o t c o n s i d e r e d a g i f t ( th i s is e s s e n t i a l l y a l o t t e r y) , a n d t h e v a l u e o f t h e v a r i o u s p r i z e s t h a t wi l l b e wo n i s n o t t a k e n i n t o account in determining the amount of the advantage.

· N o t e t h a t if p a r t i c i p a t i o n i n t h e r a f f l e i s i n c l u d e d i n t h e
p a r t i c i p a t i o n f e e , t h e p r iz e s wi l l b e t r e a t e d a s d o o r p r i z e s . Example

· A c h a r i t y h o l d s a f u n d r a i s i n g g o l f t o u r n a m e n t wi t h a p a r t i c i p a t i o n
fee of $200.

· T h e r e a r e 1 0 0 p a r t i c i p a n t s i n t h e t ou r n a m e n t s o m e o f wh o m a r e
members of the golf course.

· The regular green fee for non-members on that day is $50. · Members are not required to pay green fees. · T h e c a r t r e n t a l ( i n c l u d e d i n t h e p a r t ic i p a t i o n f e e ) i s n o r m a l l y $ 2 0 .

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· E a c h p a r t i c i p a n t r e c e i v e s g o l f b a l l s wi t h a r e t a i l p r i c e o f $ 1 5 . · The retail price of supplied food and beverage excluding GST,
P S T a n d g r at u i t i e s i s $ 30 .

· The retail value of door and achievement prizes is $2,000
($2,000/100 or $20 per participant).

· T h e r a f f l e t ic k e t s f o r a c h a n c e t o wi n a n u m b e r o f o t h e r p r i z e s a r e
s o l d s e p a r a t e l y ( i . e . , t h e p u r c h a s e o f s u c h t i c k et s i s n o t r e q u i r e d ) .

· T h e h o l e - i n - o n e p r i z e i s t h e u s e o f an a u t o m o b i l e f o r o n e ye a r .

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Determination of eligible amount Participation fee Less: Green fee Cart rental Complimentary items/door and achievement prizes Food and beverage Hole-in-one prize Advantage Eligible amount (non-members) $ 50 $ 20 $ 35 $ 30 $ 0 $ 135 $ 65 $ 200

T h e t o t a l v a lu e o f t h e c om p l i m e n t a r y i t e m s a n d t h e d o o r a n d a c h i e v e m e n t p r i z e s of $3 5 t o e a c h p a r t i c i p a n t e x c e e d s t h e l e s s e r o f 1 0 % o f t h e p a r t i c i p a t i o n f e e o f $ 20 0 ( $ 2 0 ) a n d $ 7 5 . A c c or d i n g l y, s u c h i t e m s c o n s t i t u t e an a d v a n t a g e i n d e t e r m i n i n g t h e e l i g i b l e amount. I n t h e c a s e o f n o n - m e m b e r s , t h e am o u n t o f t h e a d v a n t a g e i s $ 1 3 5 a n d a t a x r e c e i p t m a y b e i s s u e d f o r t h e e l i g i b l e a m o u n t o f $6 5 . I f t h e
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amount of the advantage exceeded 80% of the participation fee ( $ 1 6 0 ) , a t ax r e c e i p t c o u l d n o t b e i s s u e d d u e t o t h e a b s e n c e o f donative intent. I n t h e c a s e o f m e m b e r s , t h e e l i g i b l e a m o u n t wo u l d b e i n c r e a s e d t o $ 1 1 5 b y t h e g r e e n f e e t h a t t h e y wo u l d o t h e r wi s e n o t h a v e b e e n r e q u i r e d t o p a y. I f t h e g o l f c o u r s e n o r m a l l y o f f e r s g ro u p r a t e s t hi s wo u l d b e t a k e n i n t o a c c o u n t . I n t h e a b o v e e x a m p l e , i f t h e c o u r s e o f f er s a r e d u c e d g r e e n f e e o f $ 4 0 f o r t o u r n a m e n t s wh e r e t h e r e a r e m o r e t h a n 5 0 p a r t i c i p a n t s , t h e n $ 4 0 i n s t e a d o f $ 5 0 wo u l d b e u s e d f o r n o n - m e m b e r g r e e n f e e s , wh i c h wo u l d r e s u l t i n a n e l i g i b l e a m o u n t o f $ 7 5 . Membership Fees W h e t h e r o r n o t t h e r e i s a n e l i g i b l e a m o u n t a s s o c i a t e d wi t h t h e p a ym e n t o f m e m b e r s h i p f e e s o r o t h e r a m o u n t t o a r e g i s t e r e d c h a r i t y o f wh i c h a n i n d i v i d u a l i s a m e m b e r wi l l b e d e t e r m i n e d o n t h e b a s i s o f wh e t h e r t h e m e m b e r s h i p f e e o r ot h e r a m o u n t e x c e e d s t h e a m o u n t o f t h e a d v a n t a g e . I f t h e am o u n t o f t h e a d v a n t a g e i s 8 0 % o r le s s o f t h e

­ 19 ­

p a ym e n t t o t h e c h a r i t y, a t a x r e c e i p t m a y b e i s s u e d f o r t h e e li g i b l e amount. Example

· The purpose of the registered charity is the promotion of
Canadian theatre.

· F o r a c o n t r i b u t i o n o f $ 2 5 0 , a c o n t r ib u t o r wi l l r e c e i v e t h e f o ll o wi n g : · r e c o g n i t i o n a s a d o n o r i n t h e c h a r i t y ' s n e ws l e t t e r ; · a s u b s c r i p t i o n t o t h e c ha r i t y' s q u a r t e r l y n e ws l e t t e r ( o t h e r wi s e
available free of charge);

· the right to attend annual meetings; · a m o n t h l y c a l e n d a r o f p e r f o r m a n c e s ( o t h e r wi s e a v a i l a b l e f r e e o f
charge);

· an advance invitation to certain performances; · a n i n v i t a t i o n t o d r e s s r eh e a r s a l s ( o p e n t o t h e g en e r a l p u b l i c ) ; · a p e wt e r k e y c h a i n ( n o r m a l l y s o l d f o r $ 1 0 ) ;

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· a d i s c o u n t f o r c e r t a i n pe r f o r m a n c e s ( v a l u e o f $4 0 ) ; a n d · parking vouchers (value of $40).
Determination of eligible amount Contribution Less: Complimentary items Key chain $ 10 $ 40 $ 40 $ 90 $ 160 $ 250

*Discount *Parking vouchers
Advantage Eligible amount

Since the amount of the advantage ($90) received by a contributor is less than 80% of $250 ($200), donative intent may be presumed and a tax receipt may be issued in the amount of $160.

*The

o n u s is o n t h e c h ar i t y t o p r o v i d e a v a l u e f o r t h e s e i t em s . T h e v a l u e m u s t b e r e a s o n a b l e , g i v e n t h e f a c t s of t h e p a r t i c u la r situation.

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O t h e r Si t u a t i o n s C h a r i t a b l e An n u i t i e s T h e a d m i n i s t r a t i v e p o s i t io n wi t h r e g a r d t o c h a r i t ab l e a n n u i t i e s i s wi t h d r a wn w i t h r e g a r d t o a n n u i t i e s i s s u e d a f t e r De c e m b e r 2 0 , 2 0 0 2 . T h e i n c o m e t a x t r e a t m e n t p r o v i d e d f o r i n t h e c u r r e n t v e r s i on o f I n t e r p r e t a t i on B u l l e t i n I T - 1 1 1 R 2 , A N N U I T I E S P U R C H A S E D F R O M C H A R I T A B L E O R G A N I Z A T I O N S , wi l l c o n t i n u e t o a p p l y wi t h r e g a r d to annuities issued before December 21, 2002. T h e a d m i n i s t r a t i v e p o s i t io n h a s n o b a s i s i n l a w a n d c a n n o t b e continued as a consequence of the proposed subsection 248(33), wh i c h p r o v i d e s f o r a c os t f o r p r o p e r t y a c q u i r e d f r o m t h e c h ar i t y i n the making of a gift. R a t h e r , wh e r e a n a m o u n t i s c o n t r i b u t e d t o a c h a r i t a b l e o r g a n i z a t i o n by a donor, and the advantage received by the donor is a stream of g u a r a n t e e d p a ym e n t s f or a p e r i o d o f t i m e , t h e e li g i b l e a m o u n t wi l l b e e q u a l t o t h e e x c e s s o f t h e a m o u n t co n t r i b u t e d b y t h e d o n o r o v e r t h e a m o u n t t h a t wo u l d b e p a i d a t t h a t t im e t o a n a r m ' s l e n g t h t h i r d p a r t y to acquire an annuity to fund the guaranteed payments.

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N o t wi t h s t a n d i n g t h e wi t h d r a wa l o f t h e a d m i n i s t r a t i v e p o s i t i o n , charitable annuities are likely to continue as a means of fund r a i s i n g , a n d m a y we l l b e m o r e a d v a n t a g e o u s t o t h e d o n o r . C o n s i d e r t h e f o l l o wi n g c o m p a r a t i v e e x a m p l e : F a c t s:

· A d o n o r m a k e s a $ 1 0 0 , 0 0 0 c o n t r i b u t i o n t o a c h ar i t a b l e o r g a n i z a t i o n . · T h e d o n o r ' s l i f e e x p e c t a n c y i s 8 ye a r s ( a s s u m e t h e d o n o r l i v e s
8 ye a r s ) .

· T h e d o n o r is t o b e p r o v id e d a n n u i t y p a ym e n t s o f $ 1 0 , 0 0 0 p e r
year ($80,000).

· T h e c o s t o f a n a n n u i t y t h a t wi l l p r o v i d e $ 8 0 , 0 0 0 o v e r 8 y e a r s
is $50,000. T a x t r e a t m en t u n d e r c u r r e n t a d m i n i s t r a t i v e p r a c t i c e :

· T h e d o n o r r e c e i v e s a t a x r e c e i p t f o r $ 2 0 , 0 0 0 f o r t h e ye a r
of donation.

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· T h e d o n o r r e c e i v e s i n t o t a l $ 8 0 , 0 0 0 i n a n n u i t y p a ym e n t s t a x - f r e e .
T a x t r e a t m en t ­ p r o p o s e d :

· T h e d o n o r r e c e i v e s a t a x r e c e i p t f o r $ 5 0 , 0 0 0 f o r t h e ye a r o f
donation.

· T h e d o n o r r e c e i v e s i n t o t a l $ 8 0 , 0 0 0 i n a n n u i t y p a ym e n t s , o f wh i c h
$ 3 0 , 0 0 0 wi l l b e i n c l u d e d i n i n c o m e o v e r 8 ye a r s . M o r t g ag e d P r o p e r t y W h e r e p r o p e r t y s u b j e c t t o a m o r t g a g e i s t r a n s f er r e d t o a c ha r i t a b l e organization as a donation, all relevant factors, such as e n c u m b r a n c e s o t h e r t h an m o r t g a g e s , wi l l n e e d t o b e t a k e n i n t o a c c o u n t i n d e t e r m i n i n g t h e v a l u e o f t h e t r a n s f e r r e d p r o p e r t y. W i t h regard to determining the eligible amount, the terms and conditions o f t h e m o r t ga g e m u s t b e t a k e n i n t o ac c o u n t i n d e t e r m i n i n g t h e a m o u n t o f t h e a d v a n t a g e . I n ot h e r wo r d s , th e i m p l i c a t i o n s o f a "f a v o u r a b l e " or "unfavourable" mortgage must be reflected in the amount of the advantage received by the transferor that takes the form of being r e l i e v e d o f t h e m o r t g a g e . A c c o r d i n g l y, p r o v i d e d t h a t t h e e l i g i b l e

­ 24 ­

a m o u n t i s a t l e a s t 2 0 % o f t h e v a lu e o f t h e t r a n s f er r e d p r o p e r t y, a t a x receipt may be issued for the eligible amount. Example

· A b u i l d i n g i s t r a n s f e r r e d t o a c h a r i t ab l e o r g a n i z a t i o n wh e r e i n
the only advantage given by the charitable organization is the assumption of a mortgage placed on the building.

· T h e v a l u e o f t h e b u i l d i n g d e t e r m i n e d wi t h o u t r e f e r e n c e t o t h e
mortgage is $1,000,000.

· The amount of the outstanding mortgage to be assumed by the
charitable organization is $400,000. I n o r d e r t o d e t e r m i n e t h e e l i g i b l e a m o u n t , i t wi l l b e n e c e s s a r y t o v a l u e t h e m o r t g a g e . I f t h e t e r m s a nd c o n d i t i o n s o f t h e m o r t g a g e ( e . g . , i n t e r e s t r at e , t e r m ) a r e re p r e s e n t a t i v e o f t h e c u r r e n t m a r k e t , t h e e l i g i b l e a m o u n t i n t h e a b o v e e x a m p l e wo u l d b e $ 6 0 0 , 0 0 0 . I f t h e t e r m s a n d c o n d i t i o n s o f t h e m o r t g a g e we r e " u n f a v o u r a b l e " ( e . g . , h i g h i n t e r e s t r a t e) s u c h t h a t t h e m o r t g a g o r wo u l d h a v e t o p a y a t h i r d p a r t y $ 4 5 0 , 0 0 0 t o a s s u m e t h e m o r t g a g e , t h e e l i g i b l e a m o u n t wo u l d be $550,000.
­ 25 ­

I f yo u h a v e a n y c o m m e n t s r e l a t i n g t o t h e s e g u i d e l i n e s , p l e a s e s e n d them to: Director, Financial Industries Division Income Tax Rulings Directorate Policy and Legislation Branch C a n a d a C u s t o m s a n d Re v e n u e A g e n c y O t t a wa O N K 1 A 0 L 5 W e a s k t h a t y o u p r o v i d e y o u r c o m m e n t s b e f o r e M a r c h 3 1 , 20 0 3 . S h o u l d y o u r e q u i r e f u r t h e r i n f o r m a t io n , p l e a s e c o n t a c t F. Lee Workman at (613) 957-3497 or Jenie Leigh at (613) 952-1505.

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Footnote 1 As defined in proposed subsection 248(31). 2 Proposed subsection 248(32). 3 As defined in proposed subsection 248(30). 4 I f t h e r et a i l e r c h a r a c t e r i z e s t h e t r a n s f e r o f t h e b i k e a s a p r o m o t i o n o r a d v e r t i s i n g e x p e n s e , t h i s wi l l n o t r e s u l t i n a n y r e v e n u e o r g i f t t o t h e r e t a i l e r , b u t t h e r e t a il e r wi l l b e e n t i t l e d t o i n c l u d e t h e b i k e c o s t o f $ 2 5 0 i n i t s c o s t o f g oo d s s o l d .

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