9 July 1999 Internal T.I. 9915587 - DONATION RECEIPT

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:

Has a gift been made where donor retains or has the right to use a work of art?

Will a gift of a residual interest in a work of art that is a Canadian cultural property qualify as a cultural gift?

Does a work of art have to be "Canadian" to qualify as a Canadian cultural property?

Position:

1. No.

2. No.

3. Only the Canadian Cultural Property Export Review Board can make this determination.

Reasons: See response

									July 12, 1999

	VICTORIA TAX SERVICES					HEADQUARTERS
	Verification and Enforcement Division		Financial Industries
									  Division
	Attention:  Brian Norman
			991558

Charitable Donation Receipt

This is in reply to your facsimile dated May 31, 1999, wherein you requested our views on the income tax consequences where an art collector donates an art collection to a museum and the museum consents to let the collector hold possession of the collection until such time as his/her death.

Your question concerns the timing of the charitable gift for the purposes of section 118.1 of the Income Tax Act (the "Act"). You also ask whether the gift of the art collection would be considered a gift of a residual interest in such property and if so whether the residual interest could be considered as a gift of cultural property for the purpose of the definition of "total cultural gifts" in subsection 118.1(1) of the Act. In your facsimile you refer to an opinion issued by this directorate dated January 4, 1996 on this subject (document # 952477).

The term "gift" is not defined in the Act and therefore it must assume its common law meaning. Under common law, a bona fide gift is a voluntary transfer of property by a donor to a donee who receives and accepts the gifted property as given with no right, privilege, material benefit or advantage conferred on the donor or any person designated by the donor in exchange for the donor making the gift. A charitable gift must be made out of affection, respect, charity or like impulses, and not from the constraining forces of any moral obligation or legal duty. Therefore, to qualify as a charitable gift under the Act the transfer of the property must not contain any condition, obligation or consideration that would cause the transfer to lose its status as a gift.

Where a taxpayer obtains or retains the right to use a work of art that is transferred to a designated institution this right will constitute valuable consideration received by the taxpayer such that the transfer of the particular work of art would not constitute a gift for the purposes of section 118.1 of the Act. The taxpayer would nevertheless be considered to have disposed of the artwork for proceeds of disposition equal to its fair market value and any capital gain resulting from this disposition would be subject to income tax at the normal rates (i.e., paragraph 39(1)(i.1) of the Act would not apply). Further, when the taxpayer dies or otherwise ceases to use the work of art no donation credit is available under section 118.1 of the Act at that time since the work of art is no longer owned by the taxpayer.

This is consistent with paragraph 13 of IT-407R4 which indicates that it is not possible for a residual interest in a work of art (where the work of art otherwise qualifies as a Canadian cultural property) to qualify as part of an individual's total cultural gifts for the purpose of subsection 118.1(1) of the Act.

For a gift of property to be considered as part of an individual's "total cultural gifts" as defined in subsection 118.1(1) of the Act the object must be certified by the Canadian Cultural Property Export Review Board ("CCPERB") as a Canadian cultural property meeting the criteria set out in paragraphs 29(3)(b) and (c) of the Cultural Property Export and Import Act ("CPEIA"). Further, the Act requires that a gift of such property must be made to an institution or a public authority in Canada that was, at the time the gift was made, designated under subsection 32(2) of the CPEIA.

Paragraphs 29(3)(b) and (c) of the CPEIA provide that an object will be of outstanding significance where one or more of the reasons set out in paragraphs 11(1)(a) are met and the degree of national importance referred to in paragraph 11(1)(b) is met. Paragraph 11(a) provides that the object must be of outstanding significance by reason of its close association with Canadian history or national life, its aesthetic qualities, or its value in the study of the Arts or sciences and paragraph 11(b) provides that the object must be of such a degree of national importance that its loss to Canada would significantly diminish the national heritage.

While it appears possible, based on the aforementioned criteria, that an object (or the person(s) that created the object) may not necessarily have to be of Canadian origin for it to be considered as a Canadian cultural property under the CPEIA any decision in this regard is the sole responsibility of the CCPERB. Without proper certification from the CCPERB that a particular object qualifies as a Canadian cultural property it will not form part of an individual's total cultural gifts for the purpose of subsection 118.1(1) of the Act.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 819-994-2898. The severed copy will be sent to you for delivery to the client.

We trust the above comments will be of assistance and if you have any comments or would like to discuss the matter further please do not hesitate to contact either F. Lee Workman at 957-3497 or Michael Cooke at 957-3496.

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate