6 October 1993 Income Tax Severed Letter 932697A F - Gift

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Charitable Fundraising Program

The Honourable Garth Turner, Minister of National Revenue, has asked us to reply to your letter of August 24, 1993, concerning a charitable fundraising program XXXXXXXXXX

You describe a program under which taxpayer/clients (the "Client") will be sought to pay approximately $XXXXXXXXXX including all administrative costs, artist fees and GST, to produce a package of limited edition prints having a retail value of approximately $XXXXXXXXXX The artist would retain the original piece of art and a small number of artist's proofs for future sale by the artist. The Client would then gift the prints, which he has paid to produce, to a registered charity for subsequent sale by the charity. The charity would issue a receipt to the Client for the full retail value of the prints, being approximately $XXXXXXXXXX The Client will receive no other consideration for his donation.

Our views regarding the issues raised in your submission follow:

1.     It is a question of fact as to whether the person who incurs costs related to the production of the prints would be considered the beneficial owner of such prints. The incurring of costs may not in and by itself result in beneficial ownership of the related prints. The question of beneficial ownership of specific prints must be established on the basis of all the facts in each particular case.

2.     The determination as to whether a specific donation of prints to a registered charity would constitute a voluntary transfer of property without consideration must be made on the basis of the facts in each particular case.

3.     Paragraph 3501(1)(h) of the Income Tax Regulations requires that the "official receipt" must inter alia show the fair market value of the property donated. A widely accepted definition of "fair market value" is that contained in Black's Law Dictionary, 6th edition, which reads as follows:

     "the amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts".

Paragraph 6 of Interpretation Bulletin IT-297R2 states that the person who determines the fair market value of the property must be competent and qualified to evaluate the particular property being transferred by way of gift.

4.     The donation of the prints would result in a disposition. In each specific case it is a question of fact, which must be determined on the basis of all the details in that particular case whether the gain on the disposition of the prints would be considered a disposition of an inventory item in an adventure in the nature of trade or whether it would be considered a disposition of a capital property. Although, it is not necessarily decisive in and by itself, an acquisition followed shortly thereafter by a disposition is an indication of an adventure in the nature of trade.

A donation of prints, which is established to be an adventure in the nature of trade, would result in the gain on the disposition being included in the income of the Client pursuant to subsection 9(1) of the Income Tax Act (the "Act"). However, a donation of prints, which are established to be capital property, by the Client to a registered charity would result in a capital gain as determined under paragraph 39(1)(a) of the Act. Subparagraph 40(1)(a)(i) of the Act provides that a taxpayer's gain from the disposition of a capital property is the amount by which his proceeds of disposition exceed the aggregate of the adjusted cost base of the property immediately before the disposition and any outlays and expenses incurred for the purpose of making the disposition.

5.     Where the prints, donated by the Client to the registered charity, are capital property any resulting capital gain would be eligible for the capital gains deduction to the extent permitted under subsection 110.6(3) of the Act.

In accordance with paragraph 21 of Information Circular 70-6R2, the above comments are not advance rulings and are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

E. Wheeler A/DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch