29 November 1999 External T.I. 9923095 - CHARITABLE DONATION

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: Income tax treatment of property donated to Her Majesty in right of Canada or a province or an agent of the Crown that is NOT certified by the Canadian Cultural Property Export Review Board.

Position TAKEN: Depends on whether the property in question is in the donor's inventory, or is capital property, depreciable property or personal-use property.

Reasons FOR POSITION TAKEN: General comments provided.

Sonia M. Lismer
Canadian Cultural Property
Export Review Board 5-992309
15 Eddy Street, 3rd Floor G. Moore
Hull, Quebec
K1A 0M5

November 29, 1999

Dear Ms Lismer:

Re: Gain on Donation of Archival Material Not Certified by the Canadian Cultural Property Export Review Board

This is in response to your letter of July 29, 1999, addressed to the Charities Division, regarding the calculation of gains, if any, on the donation of archival material that is not certified by the Canadian Cultural Property Export Review Board (CCPERB).

You are asking about the calculation of a capital gain, if any, on the donation of archival property when the material is not certified by the CCPERB in the following circumstances:

• when the author of the archival property is the donor; and
• when the donor of the archival property is someone other than the author.

Our Comments

The determination of the proper tax consequences relating to any particular situation will depend on an analysis of all the facts, documentation and other information pertaining to the situation. However, we can provide you with the following general comments.

A gift includes a gift in kind. Gifts in kind of a taxpayer include capital property, depreciable property, personal-use property including listed personal property, a leasehold interest, a residual interest, a right of any kind whatever, a licence, a share, a chose in action and inventory of a business. A gift in kind, however, does not include a gift of services. Generally, when anything is disposed of to any person by way of a gift, the taxpayer (donor) is deemed to have received proceeds of disposition equal to the fair market value of the property. Each taxpayer must account for any income under section 9 of the Income Tax Act (the "Act") if the property was inventory of a business; or capital gain or capital loss if the property was capital property; or recapture of capital cost allowance if the property was depreciable property. Subject to certain exceptions provided in section 118.1 of the Act, the fair market value of a gift in kind is the relevant amount for purpose of calculating the non-refundable tax credit pursuant to subsection 118.1(3) of the Act for individuals.

As indicated in Interpretation Bulletin IT-332R, Personal-Use Property, (copy enclosed), personal-use property includes any property owned by a taxpayer which is used primarily for the personal use and enjoyment of the taxpayer, a person related to the taxpayer, or where the taxpayer is a trust, a beneficiary under the trust or a person related to such beneficiary. A gain on a disposition of personal-use property is normally a capital gain within the meaning of paragraph 39(1)(a) of the Act. Under subparagraph 40(2)(g)(iii) of the Act, a loss on a disposition of personal-use property, other than listed personal property, is deemed to be nil. As discussed in paragraph 11 of IT-332R, where personal-use property is disposed of, if the adjusted cost base of the property immediately before the disposition is less than $1,000, it is deemed to be $1,000, and if the proceeds of disposition of the property are less than $1,000, it is deemed to be $1,000. Where personal-use property is disposed of, a capital gain may result only where the proceeds of disposition exceed $1,000 and a capital loss may result only where the adjusted cost base of the property immediately before disposition exceeds $1,000. Listed personal property is defined in subsection 54(1) of the Act to mean personal use property that is all or any portion of, or any interest in or right to, any print, etching, drawing, painting, sculpture, or other similar work of art; jewelry, rare folio, rare manuscript, or rare book; stamp; or coin. While it is a question of fact whether a donated property is personal-use property, it is our view that, generally, archival property, whether the owner is the author or not, would not likely be personal-use property. However, such a determination would have to be made on a case by case basis.

If the donated archival property is capital property, the donor would be deemed to have disposed of the property for proceeds of disposition equal to the fair market value of the property at the time of the gift. A capital gain would arise if the proceeds of disposition was greater than the adjusted cost base of the property, subject to whether the donor made a designation pursuant to subsection 118.1(6) of the Act. Interpretation Bulletin IT-288R2, Gifts of Capital Properties to a Charity and Others, (copy enclosed) discusses a designation available pursuant to subsection 118.1(6) of the Act to a taxpayer (donor) who makes a gift of capital property to a registered charity or Her Majesty in right of Canada or a province including an agent of the Crown. If the fair market value of a property is greater than its adjusted cost base, this designation allows a donor to reduce the capital gain that would otherwise result. The donor may reduce the capital gain by designating an amount that is less than the property's fair market value, but not less than the property's adjusted cost base, to be its proceeds of disposition. This designated value is also deemed to be the fair market value of the gift for purposes of the tax credit for charitable gifts. A designation under subsection 118.1(6) of the Act must be made in the individual's income tax return for the year in which the gift is made.

When an artist, author or composer creates a work of art, literary manuscript, or musical composition with the intention of selling it but later donates it to another person, the donation is considered to be a disposition of property from inventory. However, the donation by an artist, author or composer of certain other types of property such as diaries or correspondence is generally considered to be a disposition of capital property. Similarly, the donation by an author or composer of original manuscripts or musical compositions, letters, memoranda or similar papers is generally considered to be a disposition of capital property, since it is not usually the business of authors or composers to sell such original documents. Donations that are dispositions of property from inventory are not subject to these provisions but may be subject to subsection 118.1(7) of the Act. Paragraphs 11 to 18 of Interpretation Bulletin IT-504R2, Visual Artists and Writers, (copy enclosed) discusses the donation of a gift by an artist from inventory. When an individual who is carrying on an artistic business makes a gift of a property that is in his or her inventory, the individual is deemed to have received proceeds of disposition for the property equal to its fair market value at the time of the gift and an amount equal to that fair market value must be included in the individual's income, subject to whether the individual has made an election under subsection 118.1(7). Where an individual makes a gift to a qualifying donee of a work of art of the individual's own creation that is property in his or her own inventory and at the time of the gift, the fair market value of the property is greater than its cost amount, the individual may designate an amount under subsection 118.1(7) of the Act and such designated amount will be deemed to be the individual's proceeds of disposition and the fair market value of the gift for purposes of the tax credit for charitable gifts. In addition, the designation must be made in the individual's return for the year in which the gift was made.

With respect to your query as to how a gain is calculated when archival property is donated, whether the owner is the author or not, this is a question of fact which would depend on whether the property in question was in the donor's inventory or was capital property, and in the latter case, if it was personal-use property. As mentioned above, we would be inclined to think that only in exceptional circumstances would archival property, whether owned by the author or not, be considered personal-use property. Accordingly, where the archival property is not personal-use property, the $1,000 adjusted cost base rule does not apply. Should you have a situation where you can provide more facts with respect to the background of the archival property, we would be glad to review the situation again.

We trust that these comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosures

c.c. Neil Barclay

Director
Charities Division

- 4 -