All About Estates

Gift returned receipt required

The Canada Revenue Agency was asked to speak to the implications of a gift return and their response included some commentary on the impact on the donor.

The situation the CRA was asked to consider involved an individual taxpayer who, in 1981, gave a whole life insurance policy to a charitable foundation raising funds to support a specific college. The gift was made on the condition that the funds be used for a scholarship in a specific program.  Since the program no longer ceased to exist, the foundation was asked to return the policy to the taxpayer.  The foundation agreed to return the policy subject to the confirmation by the CRA that this will not have any negative impact on its registered status.

In the CRA’s view, the return of a gift is normally governed by trust law not tax legislation. A registered charity is not generally allowed to return a charitable gift to the donor since the ownership of the property was transferred to the charity which is then obliged to use the gifted property for its charitable purpose. There is an exception when a charity solicits funds from the public for a specific project that is subsequently cancelled.

Any return of a gifted property by a charity to a donor taking place after March 21, 2011, is subject to tax rules preventing the donor to keep the tax benefits resulting from the credit or deduction claimed for the gift. Under those rules, the donor is deemed not to have ever made the gift regardless of whether the property transfer was deemed to be a gift at law.  The donor’s income tax return in which the charitable credit or deduction was claimed will also likely be reassessed by the CRA.  The comments did not include any reference to the effect of the statute barred tax years.

From the foundation’s perspective, it does not want to be regarded as making a gift to a non-qualified donee which would contravene the Act and could result in the revocation of its registered status.

Executor’s ought to be aware of the tax implications to estates where a gift is returned.

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About Derek de Gannes
Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com

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