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: Donation of artwork
Position: See Document
Reasons: See Document
Conference for Advanced Life Underwriting - 2000
Question 8
Donation of Artwork
A recent court case, Zelinski et al vs. MNR (2000 DTC 6001) dealt with the issue of the appropriate valuation of artwork donated to charity. The Tax Court of Canada concluded that the appraised value of $992,900 which was provided to the purchaser by the vendor (based on third party valuation), was not reliable, but the value of $129,350 assessed by the CCRA was too low and that a value of $660,000 was more realistic.
Appeals by the Agency and the taxpayer to the Federal Court of Appeal were subsequently dismissed.
After this decision was released the Agency issued a warning to taxpayers concerning "art donation schemes". In that warning it is stated that if "...the donation is not a true gift or that the appraisal value is inflated, the donation claimed will be disallowed or adjusted. Gross negligence penalties could also be applied if circumstances call for them." It is further suggested that taxpayers get assurances from the promoter and seek competent independent professional advice from a tax advisor before signing the documents.
Given the Agency's stated position and assuming the penalties contained in Bill C-25 are implemented as proposed, in circumstances similar to those in the Zelinksi case, would the Agency comment on the following:
a) Will the Agency seek the application of penalties where their recommended course of action is not followed?
b) One of the Agency's recommendations to taxpayers is that they ask for the details and certification by the appraiser to ensure that the appraiser is properly qualified and an independent third party. In this context, would the taxpayer be able to rely on:
- a certification by the Canadian Cultural Property Export Review Board, and/or
- an appraisal by the Professional Art Dealers Association of Canada?
c) In light of the Agency's recommendations, will it be necessary in future for the promoter to obtain an advance tax ruling in order to ensure that the civil penalties will not apply to the contemplated transaction?
Agency's Response:
At the time that the Charities Division issued it Newsletter #8 it appeared that the number of "art donation schemes" were on the increase. Accordingly the Agency believed it prudent to remind taxpayers that in order for a donation credit to be available with respect to a gifting arrangement not only must there be a voluntary transfer of property by a donor to a registered charity without consideration, the fair market value of the gifted property must clearly be supported by an independent appraisal. Any comments made by the Agency with regard to supporting the fair market value of a gift is only intended as prudent advice. Whether penalties would be assessed under the changes proposed to section 163.2 of the Act will be determined on the facts of the particular case and not whether any precautionary recommendations made by the Agency were followed.
With regard to appraisals the Agency generally does not question appraisals made by the Cultural Import and Export Review Board which is a statutory authority. Any appraisal, including these made by the Professional Art Dealers Association of Canada, is subject to review with reference to the facts of the particular situation taking into account generally accepted valuation techniques.
While an advance income tax ruling can be requested with respect to the application of a specific provision of the Act to a proposed transaction, the ruling would not comment on valuation issues nor provide any comfort in this regard. It seems to us that a promoter is the person that is in the best position to know whether an appraisal that is part of an arrangement that he puts together is supportable, and therefore whether there is exposure to the penalties provided for in the amendments proposed to section 163.2.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content