21 June 1994 External T.I. 9410015 - GIFTS IN KIND TO THE CROWN

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Amount of credit that can be claimed by an individual for donation of a painting to an agent of Her Majesty in Right of a Province

Position TAKEN:

FMV of gift is amount for calculating the federal tax credit; however can elect to designate any value between ACB and FMV. No 20% limit of taxpayer's net income applies.

Reasons FOR POSITION TAKEN:

118.1(1) def. "total Crown gifts" "total gifts"; 118.1(3) deduction; 118.1(6) right to designate amount

			5-941001
XXXXXXXXXX		M. Shea-DesRosiers

June 21, 1994

Dear Sir:

Re: Gifts in Kind to the Crown by an Individual

This is in reply to your letter of April 15, 1994 concerning the above-mentioned subject. Unless as otherwise stated all references to statute are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

You enquire as to the amount of credit that can be claimed by a taxpayer (an individual) who donated a painting after February 22, 1994 to an agent of Her Majesty in Right of a Province as well as how it should be reported. The painting, which was purchased as of XXXXXXXXXX (valuation day), has an original cost of $XXXXXXXXXX and a current appraised value of $XXXXXXXXXX

Where a gift in kind is made to an agent of the Crown in Right of a Province, the fair market value of the gift as of the date of the donation must be determined before an amount can be recorded on a receipt for income tax purposes. Where the property was owned on XXXXXXXXXX, a valuation as of that date may also be required for capital gains purposes. The person who determines the fair market value of the property must be competent and qualified to evaluate the particular property being transferred by way of a gift.

Normally, the maximum charitable donations in a year that are eligible for the deduction for the two-tier tax credit ( 17% up to $250 and 29% in excess of $250) in the case of individuals cannot exceed 20 percent of a taxpayer's net income. However, no such limit applies to total Crown gifts made by an individual.

Subject to our comments below, the fair market value of a gift in kind is the relevant amount for the purposes of calculating the federal tax credit for individuals.

Before a claim for a tax credit can be made, an official receipt must be issued for all creditable donations and be included in a taxpayer's income tax return for the year. Subsection 3501(1.1) of the Income Tax Regulations requires that each official receipt (other than one issued by a registered organization) acknowledging a donation must contain the following information:

-a statement that it is an official receipt for income tax purposes, the name and address of the recipient of the gift, the serial number of the receipt and the place or locality where the receipt was issued, the name and address of the donor; the day on which the receipt was issued when it differs from the date of the donation.

-where the donation is a gift of property other than cash, the day on which the donation was received, a brief description of the property and the name and address of the appraiser of the property if an appraisal is done; the amount that is the fair market value of the property at the time that the gift was made; the signature of a responsible individual who has been authorized by the recipient of the gift to acknowledge the gift.

Generally, when anything is disposed of to any person by way of a gift inter vivos, the donor is deemed to have received proceeds of disposition equal to the fair market value of the property.

However, subsection 118.1(6) of the Act provides the taxpayer with the right to designate the proceeds of disposition of the capital property to the donee to be any value between the adjusted cost base and the fair market value. In the present situation, that amount would be between $XXXXXXXXXX and $XXXXXXXXXX. This designated amount then becomes the proceeds of disposition and the amount of the gift made by the individual.

The taxpayer must account for any capital gain where the property is capital property such as a painting. Where a capital gain is realized by the taxpayer making the donation and the capital gains deduction has not been fully utilized, the individual may be able to fully or partially offset the capital gain by applying any available capital gains deduction. Please note that the February 22, 1994 budget announced that the $100,000 lifetime capital gains exemption was being eliminated for gains accruing after the date of the budget.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate