31 March 2003 External T.I. 2003-0004375 - GAIN ON GIFT OF CULTURAL PROPERTY

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 CCRA.

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

Principal Issues:

If an individual disposes of cultural property to an institution or public authority that is not designated under subsection 32(2) of the Cultural Property Export and Import Act until after the individual disposes of the property to the institution or public body, will any capital gain that arises on the disposition, be excluded in computing individuals' income by virtue of subparagraph 39.1(1)(a)(i.1)?

Position:

No. Any capital gain on the disposition would not be excluded from the computation of the taxpayer's income by virtue of subparagraph 39.1(1)(a)(i.1).

Reasons:

There is no provision that would permit the CCRA to treat an institution or public body that is designated after the time of the disposition as though it had been designated at the time of the disposition for the purposes of subparagraph 39.1(1)(a)(i.1).

XXXXXXXXXX 						2003-000437
									Alison Campbell
March 31, 2003

Dear Sir:

Re: XXXXXXXXXX

We are writing in response to your letter of February 10, 2003, wherein you asked for a ruling in respect of a gift of property that you made in the 2000 tax year. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. However, we are prepared to provide the following general comments.

Paragraph 39(1)(a) of the Income Tax Act (the "IT Act"), defines what is a capital gain for the purposes of computing a taxpayer's income for a year, and what property can be disposed of by a taxpayer without giving rise to a capital gain. In particular, subparagraph 39(1)(a)(i.1) of the IT Act provides that no capital gain will result from the disposition, in certain circumstances, of an object that is certified cultural property. In order for the disposition of the object to not result in a capital gain, the property must be disposed of to an institution or public body, that at the time of the disposition is designated under subsection 32(2) of the Cultural Property Export Import Act (the "CPEI Act").

By virtue of subsection 118.1(11) of the IT Act, where property disposed of by way of gift to a qualified donee but the property is not certified as cultural property until after the time of the disposition of the property, the disposition will not result in a capital gain because the property will treated as though it had been certified cultural property at the time of the disposition. However, there is nothing within the IT Act provisions that would deem an institution or public body, which is not designated under subsection 32(2) of the CPEI Act until some time after the time of the property disposition, to have been designated under the CPEI Act at the time the property was disposed of, for the purposes of subparagraph 39(1)(a)(i.1) of the IT Act. Therefore, if the recipient of the property is not an institution or public body designated under subsection 32(2) of the CPEI Act at the time that the property was actually disposed of to it, subparagraph 39(1)(a)(i.1) of the IT Act will not apply.

While our comments are not binding on the CCRA in respect of any particular transaction, we hope that they will be of assistance to you.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Branch