9 May 2002 External T.I. 2002-0128485 - NON QUALIFYING SECURITY

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Will the reserve provided for in subsection 40(1.01) ever be included in income if the gift remains a non-qualifying security?

Position: No

Reasons: Legislation

XXXXXXXXXX 							2002-012848
K. Cooper, LL.B.
May 9, 2002

Dear XXXXXXXXXX:

Re: Subsection 40(1.01) - Non-Qualifying Securities

This is in reply to your electronic mail addressed to Carl Juneau, Charities Directorate, dated February 20, 2002 wherein you requested our views as to the application of subsection 40(1.01) of the Income Tax Act (the "Act") to gifts of non-qualifying securities.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Subsection 40(1.01) of the Act allows an individual to claim a reserve in respect of a gain resulting from the making of a gift of a non-qualifying security, as defined in subsection 118.1(18) of the Act, to a qualified donee where the gift is deemed by subsection 118.1(13) of the Act not to have been made for the purposes of the charitable donations tax credit. The individual will not be entitled to claim a reserve under subsection 40(1.01) of the Act and, therefore, the gain will be included in the calculation of his/her income for the taxation year where paragraphs 118.1(13)(b) or (c) of the Act apply to deem a gift to have been made because the security ceases to be a non-qualifying security of the individual or because the security is disposed of by the donee, both within 60 months of the time when the gift was made by the individual. The reserve will not be included in income if the security remains a non-qualifying security beyond the 60 month period specified in subsection 118.1(13) of the Act or is not disposed of by the donee within the 60 month period specified in subsection 118.1(13) of the Act. In such circumstances, the individual will not be entitled to a donation credit pursuant to section 118.1 of the Act. As noted in the Explanatory Notes to S.C. 1998, c.19, published by the Department of Finance in respect of subsection 40(1.01) of the Act, the intention was that "the donor will not be required to bring the reserve back into income in the year following the expiration of the period."

We hope that our comments will be of assistance.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

c.c. Carl Juneau
Charities Directorate