holdings rules for private foundations
(as discussed below) and “acquisition of
control” issues for public foundations
and private foundations.
As discussed more fully below, the
proposed amendments will significantly
change the rules for determining the
value of gifts of property in many
situations.
6. Gifts of Art, Cultural and Ecological Property (i) Art
Certain gifts of inventory by an artist
receive special treatment. In those
circumstances, where an appropriate
designation is made, an artist is entitled
to a credit based on the fair market
value of the property but no income is
triggered on the disposition.
Artwork is generally considered to be
personal-use property unless it is
inventory. Personal-use property is
property that is used primarily for the
personal use or enjoyment and includes
jewellery, clothing, furniture, and
certain works of art. For purposes of
calculating the capital gain or loss, the
adjusted cost base and proceeds of
disposition of personal-use property are
deemed to be at least $1,000. This rule
eases the compliance and administrative
burden associated with the reporting of
dispositions of personal-use property.
The $1,000 deemed adjusted cost base
and deemed proceeds of disposition for
personal-use property will not apply if
the property is acquired after February
27, 2000, as part of an arrangement in
which the property is given to a charity.
Therefore, where this type of property
with a value of less than $1,000 is
donated to a charity in those
circumstances, it will no longer be
treated as personal-use property, and
any resulting capital gain will be taxable.
(ii) Cultural Property
A gift of certified cultural property to
a designated institution will not trigger
a capital gain. The donor will be allowed
a credit (if an individual) or a deduction
(if a corporation) for the fair market
value of the property and will not be
limited to 75% of income. There are
special rules for determining the fair
market value of cultural property. In
addition, any capital gain on an object
that is donated is exempt from tax. The
determination is made by the Canadian
Cultural Property Export Review Board
and there are extensive rules for the
procedures to be followed and appeals
if the amount determined is not
acceptable to the donor. The Board
must certify the property and designate
the institution.
Any unused credits or deductions
can be carried forward for five years, or
back one year in the event of death.
Charities receiving gifts of cultural
property are subject to a penalty tax in
certain circumstances if they dispose of
the gifted property within ten years of
its receipt. CRA’s administrative position
on gifts by artists is set out in IT-504R2
entitled “Visual Artists and Writers”,
and its position on gifts of cultural
property set out in IT-407R4 entitled
“Dispositions of Cultural Property to
Designated Canadian institutions”.
(iii) Ecological Property
There are similar rules for gifts of
ecologically sensitive property to the
crown, a municipality or a charity that
is approved for the conservation and
protection of the environment. There
are incentives for owners of ecologically
sensitive land to protect that land while
at the same time qualifying for a tax
benefit. The precise nature of the
conveyance of property will depend on
legal issues and in some cases there may
be split ownership.
There are special valuation rules for
gifts of ecological property. These
include gifts of the land itself and gifts
of easements over the land. The use of
easements provides some flexibility,
permitting the owner to retain legal title
while fettering its future use and
preventing development, but this can
raise difficult valuation issues in some
cases. The fair market value will be
determined by the Minister of the
Environment and there are extensive
rules for the procedures to be followed
and appeals if the amount determined is
not acceptable to the donor. As in the
case of gifts of cultural property, a
charity accepting a gift is subject to a
penalty if it disposes of the property
within ten years or changes its use
without the consent of the Minister of
the Environment. Under the Ecological
Gifts Program, Environment Canada
certifies that land is ecologically
sensitive and an expert panel certifies
the value. Gains realized on gifts made
after May 1, 2006 are exempt. Where
gifts were made prior to that date, 50%
of the gain is taxable.
7. Gifts of Inventory Unlike gifts of capital property, gifts of inventory do not permit the donor to
choose an amount between the cost of
the property and its fair market value.
As a result, a gift of property that is part
of the inventory of a business will result
in an income inclusion. While there will
be a corresponding eligible amount for
the gift (the eligible amount will depend
on whether any advantage is received
by the donor), it is frequently less
advantageous to donate inventory
rather than capital property. This is one
of the reasons why special rules were
enacted for gifts of inventory made by
artists, as discussed above.
Changes introduced in the March
19, 2007 budget permit corporations
to claim a deduction for gifts of
medicine held in inventory to a
registered charity, if the charity has
received financial assistance from
CIDA and uses the medicine in carrying
out its foreign activities. For gifts made
on or after July 1, 2008, the medicine
must have been available to be used by
the charity at least six months prior to
its expiration date and must qualify as
a drug (within the meaning of the
Food and Drugs Act) which meets
certain technical requirements. In
addition, a prescribed return must be
filed and the charity must in the
opinion of the Minister of International
Cooperation meet certain conditions
prescribed by regulation. This limits
the situations in which corporations
can claim tax relief for donations of
medicine from inventory.
8. Gifts to the Crown A gift to Her Majesty in right of
Canada or Her Majesty in right of a
Province (a “crown gift”) is subject to
the same income limitation as other
gifts, i.e. 75% of the donor’s income for
the year plus 25% of any taxable capital
gain, plus an amount equal to 25% of
recapture of previously claimed capital
cost allowance. Consequently, crown
