26 September 1995 Internal T.I. 9521406 - WHETHER GIFT? WHETHER CULTURAL CANADIAN 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 Department.

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

Principal Issues:

1. Whether proposed donation gift?

2. If gift whether gift of Canadian cultural property?

Position TAKEN:

1. Doubtful that it qualifies as a gift.

2. If it qualifies as a gift doubtful that it qualifies as a gift of Canadian Cultural Property.

Reasons FOR POSITION TAKEN:

1. Donor will obtain an agency contract from the donee which could in appropriate circumstances be viewed as consideration.

2. Donor will have the right to direct the donee to give all or a portion of the royalty income, related to the property, to certain charities thereby donating only an interest in the property. Paragraph 12 of IT-407R3 requires that all interests in the property must be transferred.

		September 26, 1995
R. A. Davis	HEADQUARTERS
	Director	W.P. Guglich
	Charities Division			(613) 957-8953

			952140

Donation of Cultural Property

As requested we are providing our comments respecting the various issues raised in the XXXXXXXXXX letter dated August 14, 1995.

The following situation has been described:

• A recording artist (the "Artist") owns the copyright in a number of "masters" which are digital types and acetate discs.
• The masters are used to manufacture tapes and compact discs which are sold. The Artist receives royalties from such sales.
• The Artist's representative is of the view that the masters are certifiable by the Canadian Cultural Property Export Review Board as "cultural property".
• The Artist proposes to donate these masters to a designated institution (the "Designated Institution") under the Cultural Property Export and Import Act and enter into a contract with the Designated Institution which would allow the Artist to:

(i)continue to manufacture tapes and compact discs from the masters as the agent of the Designated Institution,

(ii)have the right to direct that all or a portion of the royalty income received by the Designated Institution from the sale of the tapes and compact discs be given to charities that are not necessarily designated institutions under the Cultural Property Export and Import Act.

OUR COMMENTS

Before the specific issues raised by the Artist's representative can be addressed we have two concerns which must be resolved first and these are whether the proposed donation constitutes a gift and if it is a gift whether it qualifies as a gift of an "object" within the definition of "total cultural gift" in subsection 118.1(1).

A gift for purposes of sections 110.1 and 118.1 of the Act is a voluntary and gratuitous transfer of real or personal property and no right, privilege, material benefit or advantage may accrue to the donor. In addition the donee must have unfettered use of the transferred property. In the present case the Artist will obtain an agency contract with the Designated Institution. The agency contract could, in appropriate circumstances (especially if it was a condition of the donation of the masters or if a material benefit flows to the Artist), be viewed as consideration for the donated masters, such that the donation would not be a "gift" for purposes of the Income Tax Act. In addition the Artist will have the right to direct that the royalty income from the sale of tapes and compact discs be given to certain charities, therefore the Designated Institute would not be considered to have unfettered use of the masters and the donation would not be considered a gift. Complete factual information will be required to determine whether the proposed donation would constitute a gift. The onus of proof rests upon the Artist. The courts have consistently held that it is up to the taxpayer to establish his entitlement to a deduction.

If it is established that the donation is a gift then a determination must be whether the property donated qualifies as a gift of an "object" within the definition of "total cultural gifts" in subsection 118.1(1). Paragraph 12 of IT-407R3 states that unless all interests in the property are transferred it would not be considered a gift of an "object". By retaining the right to direct the Designated Institution to give all or a portion of the royalty to charities the Artist would be considered to have donated an interest in the property and such a donation would not be viewed as the gift of an object.

It appears that the issues raised and the interpretations requested relate to a proposed transaction to be undertaken by a specific taxpayer and, therefore, we suggest you bring to the attention of the Artist and his representative paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation. Confirmation of the tax consequences with respect to the proposed donations by the Artist can only be provided in response to a request for an advance income tax ruling. If the Artist's representative wishes to obtain an advance income tax ruling for the Artist with respect to the donations which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular.

We trust our comments will be of assistance.

B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch