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V. Gift of Services

24.A54. Gifts do not always take the form of a transaction in property. A person who provides his services for the benefit of another is making a gift as effectively as someone who gives a sum of money sufficient to procure the performance of the same services by a third party. The law should not be concerned with the provision of services for the maintenance, support or education of members of a taxpayer's family or with services for philanthropic organisations or, more generally, for those in need. But if, for example, a businessman acts as the full-time managing director of a company and draws an annual salary of $5,000, whereas an appropriate salary, negotiated at arm's length, would be of the order of $20,000, it cannot be disputed that he is making a gift to the shareholders of the company (or to whoever else will receive the benefits) of the difference between what he could obtain and what he is obtaining. The same may be said of comparable services provided to another individual, or to a trust, or to a partnership. If there are no provisions to deal with such cases, there must be some loss of equity, which taxpayers may be more conscious of under a system that allows a much lower annual exemption than the present system.

24.A55. The problem is to identify a gift of services with which the law ought to be concerned. The administration of the tax law cannot depend upon a determination of work value every time the provision of services is involved. It would be convenient to limit the operation of any provisions taxing a gift of services so that they apply only to the benefit of services performed for a related person. The notion of ‘related’ for this purpose would be wide enough to cover cases where one of the parties to the transaction involving services is an entity such as a trust, partnership or company and a relative of the other party has an interest in that entity or where a person has an interest in an entity which is one of the parties and a relative of his has an interest in an entity which is the other party.




  ― 467 ―

24.A56. Moreover, in view of the exemptions proposed by the Committee in paragraph 24.40, it would be appropriate to limit any provisions so as to apply only to services given to an individual, partnership, trust or company in relation to business operations conducted by that individual, partnership, trust or company.

24.A57. Nevertheless, the question remains whether the administrative costs of applying the provisions, notwithstanding these limitations on their operation, would be warranted. The Committee inclines to the view that the administrative costs in applying provisions extending to gifts of services involving all related persons would not be warranted.

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