{"id":5186,"date":"2017-06-07T18:14:41","date_gmt":"2017-06-07T22:14:41","guid":{"rendered":"https:\/\/www.millerthomson.com\/restricted-gifts-happens-condition-gift-can-no-longer-fulfilled\/"},"modified":"2026-01-20T11:54:35","modified_gmt":"2026-01-20T16:54:35","slug":"restricted-gifts-happens-condition-gift-can-no-longer-fulfilled","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/social-impact\/restricted-gifts-happens-condition-gift-can-no-longer-fulfilled\/","title":{"rendered":"Restricted gifts: What happens when the condition of the gift can no longer be fulfilled?"},"content":{"rendered":"\n

Donors frequently provide gifts to charities to be used for a specific purpose or toward specific programs\/initiatives.  These gifts are commonly referred to as restricted gifts<\/em> and, by accepting such gifts, charities are obliged to apply the gift pursuant to the terms upon which the gift was made. But, what happens when the purposes of the charity change or the program no longer exists? In a recent technical interpretation, the Canada Revenue Agency (\u201cCRA\u201d) provided its views on when a gift could be returned to a donor and the potential consequences\/considerations for both the donor and the charity in returning a gift.<\/p>\n\n\n\n

Under the circumstances in question, the donor gifted a life insurance policy to a foundation under the express condition that the foundation establish a scholarship for a specific program of a specified college.  This initiative fit within the purposes of the foundation and so the gift was accepted and the scholarship fund created.  After some time, the college stopped offering the specific program, resulting in the foundation\u2019s inability to continue to fulfil the conditions of the gift (i.e., individuals were no longer able to enrol in the specified program, so scholarships for the program could no longer be awarded).  After being asked by the donor to return the life insurance policy, the foundation asked CRA to provide it with comfort that there would be no negative impact on the foundation\u2019s registered status if it obliged the donor\u2019s request.  While CRA refrained from confirming the precise income tax treatment that would be applied, it made the following comments:<\/p>\n\n\n\n

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  1. In most cases, returning a gift to a donor is prohibited. This is because at law a gift\u00a0 transfers ownership of the gifted property from the donor to the charity.\u00a0 However, as mentioned above, where a restricted gift is made, the charity is obliged to apply the gift pursuant to the terms upon which the gift was made. CRA acknowledged that the circumstances under which a gift can be returned are primarily a matter of provincial trust law rather than tax law.<\/li>\n\n\n\n
  2. The tax consequences applicable to the donor where a gift is returned are set out in the Income Tax Act<\/em> (Canada). Generally speaking, the taxpayer is deemed not to have disposed of the property nor to have made a gift.\u00a0 As a result, the taxpayer\u2019s income tax return for the year(s) in which the taxpayer claimed the donation tax credit\/deduction may be reassessed as it relates to the transfer.<\/li>\n\n\n\n
  3. Before returning a gift, charities need to consider whether the return of the gift could be regarded as making a gift to a non-qualified donee or providing an undue benefit, both of which could result in sanctions, including revocation of registered status. Charities are recommended to consult CRA Guidance CG-016<\/a> \u2013 Consequences of returning donated property.\u00a0 The requirements pursuant to this guidance are discussed below.<\/li>\n<\/ol>\n\n\n\n

    Pursuant to the Act and CG-016, where a charity returns a gift with a value over $50, an information return is required to be submitted to CRA within 90 days after the return of the gift and must take the form of a letter, addressed to the Audit Section, setting out the following:<\/p>\n\n\n\n