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.
Principal Issues: 1. Can a donation receipt be issued to a person other than the donor? 2. What are the consequences of transferring art to a person so that he or she can in turn gift to a registered charity? 3. Can artwork from an artist's inventory be transferred on a tax deferred basis to a spouse? 4. What are the consequences of gifting artwork from an artist's inventory to a registered charity?
Position: 1. No. 2. The transfer to the charity is not a gift by the person, therefore the person is not entitled to a tax credit. 3. Disposition of an artist's inventory to his or her spouse will result in proceeds equal to fair market value for Canadian tax purposes. 4. Where an individual makes a gift to a qualified donee of a work of art that is inventory, the individual may designate an amount under subsection 118.1(7) which will be deemed to be the individual's proceeds of disposition and the fair market value of the gift. The designated amount cannot be greater than the fair market value of the property, nor less than its cost amount.
Reasons: 1. ITA reg. 3501, a donation receipt can only be issued to the donor. 2. To qualify as a "gift", a transfer of property must be voluntary. 3. Tax deferred transfer provisions under subsection 73(1) not applicable to property other than capital property 4. Subsection 118.1(7)
2008-030487
XXXXXXXXXX Sylvie Danis
(613) 957-3496
March 30, 2009
Dear XXXXXXXXXX :
Re: Issuance of donation receipts for directed gifts
This is in response to your letter of December 12, 2008, wherein you requested our comments with respect to the following:
1. Can a donation receipt for a charitable gift be issued to a person other than the donor?
2. What are the consequences of gifting art to an individual so he or she can in turn gift to a registered charity?
3. Can artwork from an artist's inventory be transferred on a tax deferred basis to a spouse?
4. What are the consequences of gifting artwork from an artist's inventory to a registered charity?
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (CRA).
Section 118.1 of the Income Tax Act (the "Act") provides that individual taxpayers may claim a credit against taxes payable, within specified limits, for an eligible amount of a gift made to a qualified donee (which includes a registered charity), if supported by an official receipt. Paragraph 3501(g) of the Income Tax Regulations provides that an official donation receipt issued by a registered organization must bear the name and address of the donor. As such, a charitable donation receipt can only be issued to the actual donor.
The term "gift" is not defined in the Act and therefore assumes its common law meaning. Under common law, a bona fide gift is a voluntary transfer of property from a donor, who must freely dispose of his or her property, to a donee, who receives the property 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.
Note that proposed amendments to the Act will allow the transfer of property to a qualified donee to be recognized as a gift, for tax purposes, in certain circumstances where a donor has received consideration for property transferred after December 20, 2002.
As noted above, in order for a transfer to be considered as voluntary there must be no legal, moral or perceived obligation to make such transfer. If a person is given a work of art and is directed to transfer the property to a charity, the transfer of property to the charity will not qualify as a gift made by that person as the transfer would not be voluntary. In this situation, the person will not be entitled to a tax credit with respect to the donation.
Subsection 73(1) of the Act permits tax deferred transfers between spouses of capital property where both the transferor and transferee are residents of Canada at the time of the transfer and the transfer is considered a "qualifying transfer" as defined in subsection 73(1.01) of the Act. The definition of a "qualifying transfer" does not include a transfer of inventory. Accordingly, when an artist makes a gift of inventory to his spouse or to a charity, subject to the exception below, there will be a disposition of that inventory for proceeds, which pursuant to subsection 69(1) of the Act is deemed to occur at fair market value of that inventory. These proceeds will be included in the artist's income. Where transferred to a spouse, the spouse may subsequently gift the same property to a registered charity and receive an official donation receipt for the eligible amount of the gift.
Where an individual makes a gift to a registered charity of a work of art that is property in his or her inventory, the individual may designate an amount under subsection 118.1(7) of the Act which will be deemed to be the individual's proceeds of disposition and the fair market value of the gift for Canadian tax purposes. The designated amount cannot be greater than the fair market value of the property, nor less than its cost amount.
We trust the above comments are of assistance. However, as stated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Charitable and Financial Institutions Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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