26 January 1998 External T.I. E9800605 - GIFTS OF PAINTINGS

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:

Whether a gift of personal-use property to a registered charity would qualify for the non-refundable tax credit relating to donations.

Position:yes

Reasons:

Position in paragraph 3 of IT-297R2 is quite clear.

               	                           980060
XXXXXXXXXX		                                 Jacques E. Grisé

January 26, 1998

Dear XXXXXXXXXX:

Re: Gifts of Paintings

This is in reply to your letter of December 17, 1997 concerning the gift of XXXXXXXXXX paintings you made to XXXXXXXXXX.

You have indicated that XXXXXXXXXX The latter organization is a registered charity.

A gift made to a registered charity qualifies for a non-refundable tax credit in respect to donations. A gift may include a gift in kind such as a painting. The amount of the gift is equal to the fair market value of the gift in kind at the time it is given to the registered charity.

Fair market value may be defined as the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact. The cost of producing a particular property, such as a painting, is not necessarily indicative of its fair market value. The fair market value of property is a matter of fact which can only be established by applying appropriate valuation and appraisal techniques.

An official receipt issued by a registered charity for a gift it has received, must be made in accordance with subsection 3501(1) of the Income Tax Regulations. Where the donation is a gift in kind, the receipt must include, among other information, the day on which the donation was received, a brief description of the property, and the name and address of the appraiser of the property if an appraisal is done.

The disposition of a taxpayer's capital property by way of a gift to a registered charity may result in a capital gain. A taxpayer who disposes of property to any person by way of gift is deemed to have received proceeds of disposition equal to the fair market value of the property at the time of the gift. A capital gain could occur where the proceeds of disposition of a particular property exceeds the adjusted cost base (generally the cost) of the property. However, special rules apply where the capital property is a personal-use property such as a painting. Personal-use property as defined in the Income Tax Act includes property that is used primarily by a taxpayer for his or her personal use or enjoyment.

Where personal-use property is disposed of, if the adjusted cost base of the property immediately before the disposition is less than $1,000, the adjusted cost base is deemed to be $1,000. Furthermore, if the proceeds of disposition of the property are less than $1,000, they are deemed to be $1,000. Thus, where a personal-use property is disposed of, a capital gain will only result where the proceeds of disposition exceed $1,000. This provision would apply to each personal-use property of a taxpayer.

We hope that our comments are of assistance.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch