to be a gift made immediately before value of the property given over the value
In determining the fair market value
death by the individual to the charity. of any benefit or advantage received by of the donated property, the intention of
The fair market value of the gift is the donor or a person not dealing at arm’s the donor at the time of acquisition will
deemed to be the fair market value, at the length with the donor. As noted above, now be relevant. If one of the main
time of the individual’s death, of the right this is the basis for the new administrative reasons for acquiring the property was to
to the transfer. Since the balance in an position dealing with charitable annuities. make a gift (other than by will), in most
RRSP or RRSP is treated as income in the CRA has indicated that this policy will cases the donor will have to use the
year of death, in the absence of a rollover also apply to situations in which a acquisition cost as the fair market value
to a spouse, the credit for a gift to charity payment is made, for which some at the time of the gift. For both gifts that
in the year of death will effectively consideration is received from the charity, are subject to the three year rule and gifts
eliminate the tax otherwise payable on such as recognition, a small gift, that are subject to the ten year rule, there
thebalance, ifthereisadirectdesignation. membership, a meal, etc. The previous will be extensive “tracing” rules to deal
This is the same result as if there were a administrative practice of CRA was not with transfers of property prior to the
bequest by will of the amount included supported by the law and CRA and the time of the gift.
in income under the RRSP or RRIF, Departmentof Financeareattemptingto
These new rules will also apply to
without having to determine the amount rectify this. Under the proposals, a
property that was acquired under what is
in advance. A direct designation of a charity will be required to place a value
called a “gifting arrangement” for tax
charity will be treated as a donation.
on any benefit received by the donor in
shelter reporting purposes, or involving
exchange for the payment, and issue a
debt that the donor may not have to pay.
ANTI-TERRORISM RULES
receipt only for the net amount. There
There will be an anti-avoidance rule
will be some limits on the scope of this
Very broad rules in the ITA and other which will address situations in which a
change, which will apply to gifts made
legislation give sweeping powers to the cash gift is made and the charity uses the
after December 20, 2002.
federal government to try to address
cash to buy property from the donor at
abuses through which terrorism is funded
The definition of “tax shelter”
more than its cost. These new rules are
through Canadian registered charities. very far reaching and unless they are
includes certain arrangements under
Donors should be aware of these rules changed before they are implemented,
which property is given by an individual
and carry out appropriate due diligence will have a very serious effect on a
to a charity if the tax credit claimed by an
beforemakingdonationstoorganizations number of situations in which donors
individual donor will exceed the cost of
that may be subject to these rules.
the property to the donor, or if limited-
expect to receive credit for the value of
Similarly, charities should carefully
recourse debt is involved. This permits
the gift rather than its cost.
consider the identity of donors, and the
CRA to identify various tax planning
The proposals will reduce the value
way in which donors have obtained
techniques that have not been treated as
of the gift by any advantage that is in any
funds and other donated property.
tax shelters because the definition has
way related to the gift. The scope of the
Charities should review their lists of
not included situations in which there is
wording is uncertain and it will be
donors for organizations that may be
a reduction in taxes payable through a
difficult to apply in many cases. CRA has
identified as terrorist groups or affiliated
tax credit, rather than a reduction in
indicated that it expects charities to
with such groups or that might (even
income or a reduction in taxable income.
unknowingly) be assisting that type of
undertake due diligence in establishing
The proposed amendments include
the fair market value based on the “cost”
activity. This can be of particular concern
significant changes in the rules for
approach, and in determining the value
for organizations that are members of
determining the value of a gift in kind.
of any advantage that would reduce the
affiliated groups of charities, since one
As a result of perceived abuses arising out
eligible amount of a gift.
organization can be exposed for activities
of arrangements under which property
of another in certain circumstances. Both
was acquired at a low cost and valued at
If a donor fails to inform the registered
charities and donors would be well
charity of circumstances that reduce the
a much higher cost when donated, an
advised to consider these issues if there is
eligible amount, despite the amount
arbitrary rule is proposed under which
any possibility of a terrorist connection. shown on the official receipts, under the
the value of the property will not exceed
CRA recently released a checklist proposals the eligible amount will be nil.
its cost, if the gift occurs within three
intended to assist charities in identifying This is a serious penalty for a donor who
years of acquisition of the property. This
potential problems and developing good is prepared to gamble that an advantage
rule will apply regardless of the actual
management practices.
will not reduce the eligible amount of the
value of the property. In addition, if
gift. Registered charities are advised to
property is acquired with any expectation
RECENT AND PROPOSED CHANGES
review carefully the circumstances in
that it may be given during the lifetime of
A number of changes are proposed the owner, its value cannot exceed its
which gifts of property are received,
for charities and charitable donations. cost. These rules will not apply to gifts of
when determining the eligible amount of
These were last introduced in former Bill inventory,
marketable
the gift. In many cases, this will require
securities,
C- 10, but are expected to be retroactive Canadian real estate, certified cultural
consultations with the donor.
when reintroduced and eventually property or approved ecological property
The proposals also deal with the rules
enacted. One significant change deals or to gifts on death. As a result, all other for designation of a registered charity
with “split receipting”, under which the gifts of capital property will be subject to as a charitable organization, public
value of a gift will be the excess of the these new valuation rules.
foundation or private foundation and a
