Considering that the Income Tax Act devotes quite a bit of attention to the issue of gifts, it is perhaps surprising that there is no precise definition of “gift” or the “act of giving” or “receiving a gift” in the Act. In part, this is because centuries of case law have refined the concept of gift-giving (lawyers have even developed a word for the act of giving or receiving a gift – “gifting”). There are a variety of different kinds of gifts:

An inter vivos gift is one in which the donor parts with his or her property while living, ie a donor who has no reason to believe death is imminent donates money to a charity. In order for the gift to be valid, there must be three elements: 1) there must be the intention to give a gift, 2) there must be an actual item to gift, and 3) there must be delivery of the item (although in some cases constructive delivery can be acceptable).

The intention to give a gift refers to a unilateral decision to give a gift where one does not intend there to be any reciprocal benefits (see my last article on undue benefits [CF September 15]). The second element illustrates the principle that one cannot gift away services, which is why one cannot receive a tax receipt for donating services to a charity.

Finally, the necessity of delivery of a gift is obvious (is a gift really given if it isn’t received?). However, not every item lends itself to easy delivery. Money can be delivered relatively simply; however if the donation is real estate, furniture, or a car, delivery could become quite complicated. Real estate in particular must be properly transferred according to the relevant laws. Other items can be delivered in a variety of ways (for example, a car may be delivered simply by handing over the keys).

Until recently, gifts to charities were only receiptable where the entire donation qualified as a gift (ie there was no reciprocal benefit). However, recent amendments to the Income Tax Act allow charities to give tax receipts for the gift part of a donation. These are called the split-receipting rules and are based on the definition of a gift. Critical to these rules is the question of reciprocal benefit for the donation. If a donor gives a charity $100 for a piece of art worth $50, s/he is only entitled to a tax receipt for $50. This raises obvious questions of valuation.

The second type of gift occurs where the donor makes a gift in contemplation of his/her own death. Where a donor makes a gift in expectation of imminent death, but then recovers, the gift is automatically revoked. On the other hand, if the gift is made in contemplation of one’s death, the gift will survive death so long as there has been delivery of the gifted item (such as in a will where the donor knows that the gift will occur at some point).

From a practical perspective, charities should be sure to include an acknowledgement of some kind (such as a check box) stating that a gift or bequest is not made in the expectation of an imminent death. Without this acknowledgement, charities may find themselves open to legal action with the donor’s heirs.

Another way to transfer property is to create a trust for another person. With a trust, one could divide ownership or use of a particular asset. For example, one could create a situation where one individual is entitled to the use of the capital of the property, whereas another is entitled to the income. Another possibility exists where one individual is entitled to absolute use of the property during his or her lifetime, after which the property passes to another individual.

Example: Daniela owns a home with an attached rental apartment; she decides that she would like the local Red Cross to receive income from the apartment. Daniela could create a trust whereby she is entitled to live in the home but the Red Cross is legally entitled to all rental income from the apartment. Daniela could even stipulate that this entitlement is to continue beyond her lifetime.

Example 2: Elana owns an orange tree and decides that her friend Aviva should be entitled to ownership of the tree but she would like to donate the fruit of the tree to the local soup kitchen. Elana can create a trust whereby Aviva owns the tree but the fruit of the tree legally belong to the soup kitchen.

From the donor’s perspective, the drawback to this type of situation is that the creation of these types of property interests is not reversible (although in certain circumstances a trust in favour of one charity can be transferred to another charity, if the original charity ceases to exist).

Modern charities have at their disposal a variety of mechanisms to structure gifts to ensure both that donors are comfortable with their donations and that they can maximize their gift. Given the remarkable sophistication with which the charity sector has approached the structuring of inter vivos gifts, it is only a matter of time before the same sophistication and sales approach is applied to the other types of gifts. Considering the generosity of Canadians, surely such creativity will be greeted enthusiastically.