On May 31, 2017 the Canada Revenue Agency (the "CRA") released its view on whether a transfer of publicly listed securities by a corporation to its sole shareholder that is a private foundation for no proceeds would result in a taxable capital gain. In particular, the CRA was asked whether the transfer would be considered a "gift" to a "qualified donee" for purposes of paragraph 38(a.1) of the Income Tax Act (Canada) (the "ITA"), thereby deeming the taxable capital gain resulting under subsection 69(4) to be zero. The CRA stated that the answer depends on whether the transfer of the shares constitutes a "gift" at law.

Under subsection 69(4) of the ITA, a corporation that transfers property to its shareholder for inadequate consideration is deemed to have disposed of the property for consideration equal to the property's fair market value. This would generally result in a taxable capital gain to the corporation making the transfer. However, subsection 38(a.1) deems the taxable capital gain to be zero when the property is transferred to a "qualified donee" as a "gift". The taxpayer asked the CRA whether the transfer of publicly traded shares to its parent that is a private foundation would be considered a "gift" under subsection 38(a.1).

Ultimately, the CRA concluded that the specific facts and circumstances of the transfer must be reviewed to determine whether the transfer meets the requisites of a "gift" under common law. According to the CRA, a property transfer is only considered a "gift" under the common law if each of the following conditions is satisfied:

  1. The taxpayer had the intent to donate;
  2. The transferred property was owned by the donor before the transfer;
  3. The property was transferred to the qualified donee voluntarily; and
  4. The donor receives no benefit or consideration for the transfer.

CRA Views 2016-0642621E5: Donation to private foundation.

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