The Income Tax Act (the “Act”) does not define the term “gift.” At common law, a gift includes property transferred voluntarily, without any contractual obligation and generally with no benefit or advantage of a material character returned to the transferor. In contrast, under the Civil Code of Quebec, a gift is a contract by which ownership of property is transferred by gratuitous title. Therefore, it is possible in civil law for a person to transfer part of the rights of ownership without any material advantage returned (for example, by way of a gift) and to transfer the other part separately for consideration.
Subsections 248(30) to (41), the so-called “split-receipting” rules, have been introduced to bridge the gap between the common law and civil law definitions of gift. While these rules do not contain a statutory definition of “gift,” they make clear that a transfer for partial consideration can qualify as a charitable gift in both the civil law and common law jurisdictions of Canada. The rules were first released on December 20, 2002, were issued in revised form on February 18 and December 5, 2003 and were most recently revised in July 2010 (the “2010 Proposals”). The 2010 Proposals have now been reintroduced in the same form. They retroactively apply in respect of gifts and political contributions made after December 20, 2002.
New subsection 248(30) provides that the existence of an amount of a benefit or an advantage in respect of a transfer of property does not in and of itself disqualify the transfer from being a gift or contribution if: (a) the amount of the “advantage” does not exceed 80% of the fair market value of the transferred property; or (b) the transferor of the property establishes to the satisfaction of the Minister that the transfer was made with the intention to make a gift. New subsection 248(31) defines the eligible amount of a gift as the amount by which the fair market value of the property that is the subject of the gift or contribution exceeds the amount of the “advantage”, if any, in respect of the gift or contribution. The amount of the advantage in respect of a gift or contribution is described in new subsection 248(32) of the Act.
New subsection 248(34) provides technical rules regarding the repayment of debt that previously reduced the eligible amount of a gift. New subsections 248(35) to (39) provide technical rules, regarding the eligible amount of a gift or the value of property transferred and benefits receivable, that apply in calculating the eligible amount of a gift or political contribution. New subsection (40) provides that the rule in subsection 248(30) does not generally apply to inter-charity transfers and new subsection (41) deems the eligible amount of a gift to be nil if a donor fails to provide that information.
According to the Explanatory Notes, “these provisions are intended to reflect the policy that the amount eligible for an income tax benefit to a donor, by way of a charitable donation deduction or credit or a political contributions tax credit, should reflect the economic impact on the donor (before considering the income tax benefit) of the gift or contribution.”
Although the 2010 Proposals have yet to be enacted, they are being administered by the CRA to apply to gifts made as far back as December 20, 2002. In this regard, the CRA has released guidelines relating to the application of the new rules to various situations and fundraising methods commonly used in the charitable sector (Income Tax Technical News No. 26). The guidelines note that, following a period of consultation, some CRA bulletins and publications will need to be revised. In the interim, however, taxpayers are entitled to rely on the guidelines for gifts and contributions made after December 20, 2002.
Currently before the Federal Court of Appeal is a case that considers whether the hearing of an appeal before the Tax Court of Canada may be adjourned for a limited period of time to allow for the enactment of the Proposed Amendments (see Edwards v. HMQ, Court File No. A-349-12). The Tax Court acknowledged that the taxpayer would be prejudiced in the event that the adjournment request was denied, but nevertheless held that his interest in an adjournment was greatly outweighed by the public interest in a timely resolution of the case. The appeal is scheduled to be heard on December 10, 2012.