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.
The acquisition of wildlife art (original paintings and prints) followed by the gift of such art by an individual to a registered charity at a value far in excess of the amount paid to purchase the art.
Declined to comment on values. General comments given.
Tax savings depends on a sudden increase in FMV at time of making gift as compared to the actual cost a short time earlier. It is also a determination of fact as to whether the disposition is an adventure in the nature of trade or a capital disposition.
XXXXXXXXXX A.M. Brake
November 13, 1997
Re: Gifts of Art to Registered Charity
This is in reply to your letter of March 4, 1997, wherein you outlined various scenarios in connection with the acquisition of wildlife art (original paintings and prints) followed by the gift of such art by an individual to a registered charity at a value in excess of the amount paid to purchase the art. In your submission, you describe how the acquisition cost of the art can vary when compared to its fair market value ("FMV") when it is donated to the charity. In so far as your concerns involve the determination of FMV, we are unable to comment. However, we offer the following general comments on the income tax considerations.
1.Subsection 118.1(1) of the Income Tax Act (the "Act") defines "total charitable gifts" of an individual to be, in general terms, the total of all amounts each of which is the FMV of a gift made by the individual in the year or in any of the 5 immediately preceding years to certain entities, including a registered charity but does not include a not-for-profit organization. A similar definition for "charitable gifts" of a corporation is set out in paragraph 110.1(1)(a) of the Act. Paragraph 3501(1)(h) of the Income Tax Regulations requires that the "official receipt" must show the FMV of the property at the time the gift was made. A widely accepted definition of FMV is that contained in Blacks'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, Gifts in Kind to a Charity and Others, states that the person who determines the FMV of the property must be competent and qualified to evaluate the particular property being transferred by way of gift.
2.The donor could retain the original and gift only the prints but the FMV of the prints (being the property disposed of) would have to be established at the time the gift is made.
3.The residency or citizenship of the artist is not relevant. However, the cost of the property, if acquired with foreign currency, would have to be converted into the Canadian equivalent at the time of acquisition.
4.The donation of the art would result in a disposition. In each particular 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 property 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 art, 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 donor pursuant to subsection 9(1) of the Act. However, a donation of art, which is established to be capital property, by the donor 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 the 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.
In your example, you have referred to a "citizen" and have calculated a donation deduction in computing taxable income. We wish to clarify that only corporations are permitted to deduct the amount of their charitable gifts in computing taxable income, whereas individuals are entitled to non-refundable tax credits. In this regard, we are forwarding the portion of the 1996 T1 General Income Tax Guide and Forms that relates to the tax credit calculation for individuals. We refer you to page 3 of the return and lines 340 and 342 in the guide relating to this calculation.
5.Please note the limited comments above regarding fair market value.
6.Under disbursement quota rules in the Act both charitable foundations and organizations annually must spend a specified portion of the donations for which they issue tax receipts. Charities that are registered for income tax purposes are exempt from Part I tax under the Act. However, charities could lose their registered status if their disbursement quotas, pursuant to the Act, are not met.
The foregoing comments are given in accordance with the practice of providing opinions referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on Revenue Canada.
We trust our comments will be of assistance to you.
John F. Oulton
Business and Publications Division
Income Tax Rulings and
Policy and Legislation Branch
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