The Concept of a Gift/Don
Comparative Study - Civil Law
Common Law - Tax Law

1. Civil law

1.1 Terminology

The Income Tax Act uses the term “gift”, translated in French by “don. Whereas the English term is the one used in the Civil Code of Quebec[8], the French term is a synonym of the French term “donation” used in the Civil Code of Quebec.[9] Hence, there are no terminological problems, as such, associated with the use of the term don.

Under the Civil Code of Lower Canada (C.C.L.C.), gifts and wills were grouped under the heading “Gifts inter vivos and by will/Des donations entre vifs et testamentaires.[10] Liberalities were grouped under a common heading.[11] Furthermore, gifts were qualified as “acts”[12] when they involved an indefeasible contract between two people, the donor and the donee.[13] In this regard, the gift was distinct from the will, which essentially is a revocable unilateral act.[14]

The Civil Code of Quebec uses a different approach. Gifts fall under nominate contracts covered in Book Five - Obligations, which specific requirements are completed with the more general requirements for all obligations.[15] Wills, on the other hand, fall under Book Three - Successions, since they consist of a unilateral act through which a natural person provides for the administration and devolution of his or her patrimony after death.[16]

The difference between wills and contracts of gift is greater in the Civil Code of Quebec than in the Civil Code of Lower Canada. The only point they share is that both of them are liberalities. From this point of view, the use of the term gift/don in the Income Tax Act would produce a reference that might lead to its being limited only to gifts under the Civil Code of Quebec, wills being set aside because they are not a “gift” within the meaning of the Civil Code of Quebec.

1.2 General principles

Gifts are defined as follows under article 1806 C.C.Q.:

La donation est le contrat par lequel une personne, le donateur, transfère la propriété d'un bien à titre gratuit à une autre personne, le donataire; le transfert peut aussi porter sur un démembrement du droit de propriété ou sur tout autre droit dont on est titulaire.

La donation peut être faite entre vifs ou à cause de mort.

Le contrat à titre onéreux est celui par lequel chaque partie retire un avantage en échange de son obligation.

Le contrat à titre gratuit est celui par lequel l'une des parties s'oblige envers l'autre pour le bénéfice de celle-ci, sans retirer d'avantage en retour.

Gift is a contract by which a person, the donor, transfers ownership of property by gratuitous title to another person, the donee; a dismemberment of the right of ownership, or any other right held by the person, may also be transferred by gift.

Gifts may be inter vivos or mortis causa.

A contract is onerous when each party obtains an advantage in return for his obligation.

When one party obligates himself to the other for the benefit of the latter without obtaining any advantage in return, the contract is gratuitous.

A concurrent reading of these two articles reveals that a gift consists in the transfer from one person to another of property or a patrimonial right that has pecuniary value where the donor receives no benefit in return:

This article should be read in conjunction with article 1381 C.C.Q., which makes a distinction between an onerous contract and a gratuitous one:

First of all, just to put these changes in context, we have to admit that there has been no change in the concept of a gift: this remains a liberality based on two elements, one being material, the other intention. The material element involves the donor's impoverishment to the benefit of the donee and without any corresponding consideration. The intentional element involves the donative intent, which is precisely the desire to enrich the donee without any consideration.[17]

The first essential element characterizing any gift is the need to have a transfer of a property or pecuniary right from the donor to the donee. This element must be present since a gift requires that there be impoverishment for the donor.[18] The Civil Code of Quebec specifies that a dismemberment of the right of ownership such as a servitude could also be the object of a gift.[19] For instance, a taxpayer could give a servitude that could become the object of a gift of an ecologically sensitive property that would be eligible for a deduction or tax credit under the Income Tax Act[20] On the other hand, the gratuitous contribution of services could not constitute the object of a gift.[21]

The second element, donative intent, requires that the donor receive no benefit, even indirect, as consideration for the transfer to the donee; the gift must not be made by way of the settlement of a moral or natural obligation.[22]

On the other hand, donative intent need not involve the full value of the right constituting the object of the gift since the Civil Code of Quebec specifically provides that a gift may be remunerative or with a charge; in this case, the gift will involve the value in excess of this remuneration or charge.[23] The gift of an immovable conditional upon assuming the hypothec charged to it or with a right of use belonging to the donor would represent examples of gifts with a charge.[24] A gift made to reward the donee for services rendered to the donor would constitute a remunerative gift for the value in excess of the services rendered.[25]

Gifts are divided into two categories: gifts inter vivos and gifts mortis causa.[26]

1.3 Gifts mortis causa

A gift mortis causa becomes effective on the donor's death, which transfers the right that is the object of the gift.[27] Thus, inasmuch and for as long as the donor is alive, a gift mortis causa remains revocable and the right forming the object of the gift remains in the hands of the donor.[28] This type of gift is only valid if it is made by a marriage contract.[29] Furthermore, the donees of a gift mortis causa are limited to those individuals who are specifically mentioned in article 1840 C.C.Q., which is to say future spouses, spouses, their respective children and their common children born or yet unborn.[30] Therefore, in Quebec, a charitable organization could not receive a giftmortis causa.

1.4 Gifts inter vivos

The second type of gift is the gift inter vivos. To be valid, it requires that the donor effectively divest himself or herself of the right that is the object of the gift in favour of the donee.[31] This is the basis of the saying: Donner et retenir ne vaut (“What is once given, is given for good and all.”). On the other hand, any gift can be conditional inasmuch as the condition is not potestative, which means it does not depend on the discretion or will of the donor.[32] Any gift subject to a condition where the donor has the choice to act or refrain to act at his own will is invalid because the donor can choose not to give simply by not fulfilling the condition; the donor does not completely transfer the property given as he can withdraw the gift at will.

This principle implies that a gift inter vivos must involve existing property, which is to say property that the donor owns at the time of the making of the gift or expressly undertakes to acquire.[33] The gift of property to come will be deemed to be a gift mortis causa, thus permissible only by a marriage contract; however, one involving existing and future properties will be a valid gift inter vivos for existing property but will only be valid by a marriage contract for future property.[34]

A gift inter vivos made during the deemed mortal illness of the donor is null as having been made mortis causa, whether or not death follows, but if the donor recovers, such gift can be subsequently validated.[35] A gift by a donor by reason of the imminence of his or her death because of illness is null, whether the donor dies or not from such illness. If the donor survives the illness and confirms the gift by a subsequent act, the gift will be valid; moreover, if he survives and leaves the donee in possession of the property for three years, the gift will also be valid.[36]

1.5 Technical rules

Since a gift is a contract, it must respect all of the general conditions applicable to such.[37] The principle is that any person is capable of making a gift, barring the special rules concerning minors and protected persons of full age.[38]

Contracts for gifts must be made by notarial act en minute. The contract is subject to absolute nullity if it does not respect this form, subject to the exceptions set out in the Civil Code of Québec mentioned hereinafter.[39] They must be published in order to be enforceable against third parties.[40] Barring such exception, the gift of any movable or immovable property must be made by a notarial act en minute.[41]

The exceptions to this technical rule are as follows.

The first one is the manual gift of movable property. This involves the delivery of a movable object to the donee by the donor at the very moment that the parties mutually consent to the gift. If the donor delivers the movable property and places it in the possession of the donee at that point, this gift is valid and requires no registration since the delivery and immediate transfer of possession serve as proxies.[42] The delivery of the movable property then becomes an essential element that is indispensable to the gift and a substitute for the act en minute.[43]

Thus, the gift of an amount of cash could be made without any formality other than the exchange of consents and the transfer of the cash to the donee. However, property, such as some corporate shares and debts, which require specific formalities to effect their transfer, cannot constitute a manual gift since the delivery cannot be made through a simple handing-over of the property or title unless the latter is negotiable at face value.[44] For example, debts or obligations that become one with the act or title by which they are constituted, as a bearer note or a promissory note, could be the object of a manual gift; but corporate shares whose transfer requires formalities such as the approval of the board of directors could not be the object of a gift as delivery of the title is not sufficient to complete the transfer of property.

Indirect and disguised gifts also constitute exceptions to the formal requirements of gifts. Such gifts also require the donative intent on the part of the donor with regards to the transfer of ownership of a property to the donee without consideration. If these basic conditions are met, they will make for valid gifts as long as the act under which they are witnessed is in accordance with the required conditions as to form.[45] Under civil law, a sale made in return for consideration that will not be paid or that is much less than the value of the property sold may be a disguised gift.[46] An indirect gift stems from a contract that is not a gift, but which has the effect of giving a monetary benefit without consideration to an individual, such as the release of a debt or a payment on behalf of another person without subrogation.[47]

1.6 Gifts and trusts

One last point should be made concerning a gift that creates a trust. Under the Civil Code of Lower Canada, trusts could traditionally only be created through gifts or wills.[48] The Civil Code of Québec introduced the concept of patrimony without titleholder into Quebec's civil law, such patrimony having been created for specific purposes by its settlor.[49] This is why a trust is a patrimony by appropriation.[50]

Under the Civil Code of Québec, a trust can be set up by onerous title or gratuitously, by will, or, in certain cases, by operation of law. Where authorized by law, a trust may also be established by judgement.[51] Furthermore, the Civil Code of Québec indicates that a foundation, which is an organization dedicated to a social purpose for an extended period of time, must be established by gift or will when it is created by trust.[52]

On the other hand, one author proposes that a trust cannot be set up by gift because under the Civil Code of Québec, the definition of a gift does not take into account the transfer to a patrimony that has no titleholder; this author argues that a gratuitous trust constitutes an independent method of liberality of the same order as a gift or will.[53]

In the case of wills, under the Civil Code of Québec, a trustee cannot be an heir to whom the succession is devolved and whose patrimony is modified as a result of this transmission. On the other hand, the beneficiary is not seized of the successoral patrimony, and is limited both in the exercise of his or her right to opt and in his or her responsibility for the debts of the succession.[54] In terms of the gift, the transfer of property by the settlor is not done in favour of the trustee or beneficiary: the trustee is not enriched by this transfer and the beneficiary obtains only a right in personam with respect to the trust, not a property right directly from the settlor.[55]

The trust will result from a gratuitous contract between the settlor and the trustee, which will establish a patrimony to which will be transferred property intended for the purposes determined by this settlor.[56] If such an assumption can be upheld, the term “gift” could exclude the establishment of a gratuitous trust.

1.7 Summary

In summary, in civil law, the term “gift” might only refer to gift inter vivos and gift mortis causa contracts, thus excluding wills, which represent unilateral acts, and trusts, since the formalities of their creation, which involve the transfer of a property to a patrimony assigned and accepted by the trustee, do not correspond to the requirements of the Civil Code of Québec in respect of gifts.