6 June 1990 Internal T.I. 9002877 F - Tax Implications of Gifts-in-kind

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.

We are writing in reply to your letter of January 31, 1990, wherein you requested our views regarding the income tax implications of "gifts-in- kind" where the donor of tangible property retains, in perpetuity, the copyrights and/or exhibition rights attached to the property.  We apologize for the delay in replying to your enquiry.

Our Comments

Interpretation Bulletin IT-407R3, entitled "Disposition after 1987 of Canadian Cultural Property" (copy attached) makes the following comments regarding gifts of "objects":

     "12. It is the Department's view that the gift of an "object" (within the definition of "total cultural gifts" in subsection 118.1(1) or "objects" (within paragraph 110.1(1)(c)) and the disposition of an "object"   (within subparagraph 39(1)(a)(i.1)) refers to the gift and  disposition of all interests in the object or the objects.

Consequently, a gift of an interest in an object (including a residual interest) is not viewed as the gift of an object".

Should the "gift-in-kind" involve Canadian Cultural Property, it is our opinion that there would be no gift for income tax purposes because the donor did not transfer all rights in the property to the donee at the time the property was physically transferred.

Should the "gift-in-kind" not involve Canadian Cultural Property, there remains the legal question of whether the ownership of the property can be split in the way proposed by the would-be donor.

Whereas the law clearly permits the creation of interests in real property or in a trust, the general rule appears to be that ownership of a chattel is indivisible.  The transfer of the chattel to the Museum may be, in law, a bailment and not a gift.

Assuming that it is possible to divide the ownership in a particular property, Interpretation Bulletin IT-226, entitled "Gift of Residual Interest to a Charity" (copy attached) makes the following comments regarding the valuation of residual interests, which may be relevant to the kind of divided interest described in your letter:

      "3. The valuation of the residual interest for the purposes  of determining the amount of the charitable donation     and the resultant capital gain or loss will vary according to the type of gift, `the interest retained    and the wording of the document that sets out the gift.  The general approach will be to value the ... interest   retained, ...  and to deduct this amount from the total  value ...

It would, therefore, appear that the copyrights and the exhibition rights would have to be valued separate from the tangible property donated.

In any particular situation, it would involve a finding of fact as to whether there has been a "gift-in-kind" and what the actual value of the "gift-in-kind" is, relative to the value of the rights retained by the donor.  We would suspect that in many cases, the residual value attaching to the tangible property would be virtually nil.

We trust our comments will be of assistance to you

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

cc.      Ron Dacey

c.c. Registration Division