16 September 1988 Income Tax Severed Letter 5-6380 - [Donations of Canadian 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.

R.B. Day 957-2136

SEP 16 1988

XXXX

We are writing in reply to your letter of July 28, 1988, wherein you requested our comments regarding your understanding of the relevant legislation relating to donations of Canadian Cultural Property.

We are enclosing for your information a copy of our Interpretation Bulletin IT-407R2 which discusses the "Disposition of Canadian Cultural Property". We will respond to the items set out in your letter in the order in which they appear and will, where applicable, refer to appropriate commentary in IT-407R2 .

1. We agree that under the provisions of the Cultural Property Export and Import Act ("CPEIA") taxpayers, individual and corporate, are encouraged to dispose of such property to designated institutions or public authorities in Canada. (Paragraph 1)

2. We agree that the taxpayer who intends to dispose of a Canadian cultural property, and receive a tax benefit, must obtain from the Canadian Cultural Property Export Review Board (CCPERB) a certificate establishing that the property meets all of the criteria set out in paragraph 23(3)(b) and (c) of the CPEIA. (Paragraph 2)

3 & 4. In general we agree that, in the 1987 and prior taxation years, the full value of qualified cultural property, certified by the CCPERB to a designated institution or designated public authority, is deductible up to 100% of the donor's net income.

A donor does not have to use the deduction in the year it is made. He may choose to claim only a portion of the amount of the gift. The balance may be carried forward up to five years. (Paragraphs 6 and 7)

The deductions in computing taxable income of an individual previously permitted for the 1987 and prior taxation years under paragraph 110(l)(b.l) of the Income Tax Act (the Act) are, as a result of recent amendments, relevant for computing a deduction from tax payable for the 1988 and subsequent taxation years under new section 118.1 of the Act. Corporations continue to be entitled to deduct the amount of qualifying gifts in computing taxable income under new paragraph 110.1(1)(c) of the Act.

5. Although there is no specific requirement in the Act for an appraisal of gifts of Canadian Cultural Property, one or more appraisals are usually required by the donor to establish the property's fair market value for income tax and other purposes. The appraiser or appraisers should not be associated in any way with either the donor or the recipient institution. The CCPERB has, however, its own appraisal requirements. That body should be consulted before certification of any Cultural Property is contemplated. A copy of our pamphlet "Gifts in Kind" is enclosed for your information.

6. Subparagraph 39(1)(a)(i.1) of the Act excludes from income, capital gains realized on the disposition, by way of sale or gift, of Canadian Cultural Property. (Paragraph 3) However, whether or not the disposition of Canadian Cultural Property gives rise to a capital gain or an income gain would involve a finding of fact in each particular case.

For example, if the gift involves an item of inventory of the donor, the value of the gift would be included in computing income in the year the gift is made. Similarly, if a property is acquired and shortly thereafter, gifted to an institution the gain realized therefrom could be considered an adventure in the nature of trade and could be included in the taxpayer's income. (Paragraph 8)

7. Although there is no provision in the Act which requires a donor to own the cultural property for a specified period of time, should a taxpayer acquire a property solely for the purpose of making the gift, no benefit or advantage should accrue to the donor in any manner whatsoever, other than by way of a deduction from tax payable under new section 118.1 of the Act. The comments in paragraph 6 above should also be considered in this context.

8. Pursuant to section 207.3 of the Act, any institution or public authority that disposes of a gift of cultural property, within five years of the time it was first certified by the CCPERB, will be subject to a tax equal to 30% of the fair market value of the property at the time of the current disposition. However should the disposition be made to another designated institution or public authority, section 207.3 of the Act would not be applied. (Paragraph 12)

Should you have a situation involving an actual taxpayer and a proposed transaction you may wish to apply for a binding advance income tax ruling. We are enclosing, for your information, a copy of Information Circular IC 70-6R dated December 18, 1978 and the addendum thereto dated June 23, 1980. In this regard we wish to draw your attention to the comments in paragraphs 15 and 16 under the heading "Procedures for Requesting Advance Rulings" Our fee for servicing advance ruling requests has recently been increased to $65 per hour, a deposit of $325 should accompany your request.

In the event that you have a factual situation involving an actual taxpayer and a completed transaction, you may wish to forward all relevant facts and documentation to the appropriate District Taxation Office.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch