On May 17, 2017, CRA released document 2016-0630351, which is composed of a letter dated March 31, 2017. In the view, CRA provided its response to the questions “1) Can a registered charity return a gift of a life insurance policy to a donor?” and “2) If so, what are the tax consequences to the registered charity and to the donor?” In 1981, the donor gifted a life insurance policy to a foundation which supports a college. The gift was intended to form a scholarship for a specific program. That program, though it existed at the time of the gift, no longer exists. The donor therefore believed that a condition of the gift was not fulfilled, and requested that the gift be returned. The foundation would be willing to do so if CRA could assure the donor there would be no “negative impact on its registered status”.
The technical interpretation first refers the donor to Guidance CG-016 Qualified donees – Consequences of returning donated property, and notes that in most cases a charity cannot return a gift. It then says that there are some cases in which a charity may be obligated to return gifts due to trust law, but that those are ultimately a decision for the court, rather than CRA, to make as those scenarios do not fall under the Income Tax Act (“ITA”). As to the tax consequences, the letter points to the rules under the ITA which apply in situations where there was no gift at law or there was a gift at law that needed to be returned, and the charity had given the donor a charitable donation receipt. In such a case, the donor cannot retain the tax benefit of such a receipt.
For the potential impact on a qualified donee, the letter refers to Guidance CG-016 and to the Returning a gift to a donor webpage. It recommends that “before returning gifted property, qualified donees should determine if other provincial or federal legislation might affect their ability to legally return donated property.” It further warns that “a registered charity that returns gifted property could be regarded as making a gift to a non-qualified donee or providing an undue benefit, which are contraventions of the Act and could result in sanctions that include revocation of registered status.” The letter ends by saying that the determination of whether the gift can be legally returned is beyond the scope of the technical interpretation. The view is an important reminder that when donors and charities are discussing the potential return of charitable property, the common law and provincial jurisdiction should also be considered in addition to any potential income tax consequences.