gifts provide the same tax relief as gifts
to other charities. There are separate
rules for gifts made prior to 1997 to the
federal or provincial crown.
For this purpose, the crown will
include an agent of the crown. In early
2008, the federal government amended
the Museums Act to include the new
Canadian Museum for Human Rights.
Gifts to that museum and the other
museums listed in that Act (including,
for instance, the National Gallery of
Canada, the Canadian Museum of
Civilization and the Canadian Museum
of Nature) will all be treated as gifts to
the crown.
9. Charitable Donations of RRSPs, RRIFs and TFSAs Donations made as a consequence of
a direct designation of proceeds of
RRSPs, RRIFs or TFSAs to a charity on
the death of an individual qualify as
gifts eligible for the individual donation
tax credit, if the transfer of funds from
RRSPs or RRIFs to the charity occurs
within 36 months of death. The
transfer is deemed to be a gift made
immediately before death by the
individual to the charity. The fair
market value of the gift is deemed to
be the fair market value, at the time of
the individual’s death, of the right to
the transfer. Since the balance in an
RRSP or RRSP is treated as income in
the year of death, in the absence of a
rollover to a spouse, the credit for a gift
to charity in the year of death will
effectively eliminate the tax otherwise
payable on the balance, if there is a
direct designation. This is the same
result as if there were a bequest by will
of the amount included in income
under the RRSP or RRIF, without
having to determine the amount in
advance. A direct designation of a
charity will be treated as a donation.
The same comments made above with
respect to the valuation of a gift where
there is a direct designation under a
life insurance policy apply to direct
designations of proceeds of RRSPs,
RRIFs and TFSAs.
Anti-Terrorism Rules
Very broad rules in the ITA and other
legislation give sweeping powers to the
federal government to try to address
abuses through which terrorism is
funded through Canadian registered
charities. Donors should be aware of
these rules and carry out appropriate
due diligence before making donations
to organizations that may be subject to
these rules. Similarly, charities should
carefully consider the identity of donors,
and the way in which donors have
obtained funds and other donated
property. Charities should review their
lists of donors for organizations that
may be identified as terrorist groups or
affiliated with such groups or that might
(even unknowingly) be assisting that
type of activity. This can be of particular
concern for organizations that are
members of affiliated groups of charities,
since one organization can be exposed
for activities of another in certain
circumstances. Both charities and
donors would be well advised to
consider these issues if there is any
possibility of a terrorist connection.
CRA has issued a checklist to help
charities and donors identify potential
problems and assist charities in
developing good management practices.
In addition to the ITA, the Charities
Registration (Security Information) Act
(“CRSIA”) may be relevant. Under the
CRSIA and the ITA, registration can be
revoked if a charity makes its resources
available, directly or indirectly, to a
“listed entity” for purpose of the
Criminal Code or an entity that engages
in “terrorist activities” or activities that
“support” terrorist activities. There are
other prohibitions on funding or
otherwise facilitating terrorism. More
information can be obtained from the
CRA website.
The annual T3010 return that must
be filed by registered charities requires
disclosure of information about funding,
and in particular information about
funding from non-resident donors.
Proposed Changes
A number of changes proposed for
charities and charitable donations were
introduced in former Bill C- 10. These
will be retroactive when enacted. One
significant change deals with “split
receipting”, under which the value of a
gift will be the excess of the value of the
property given over the value of any
benefit or advantage received by the
donor or a person not dealing at arm’s
length with the donor. As noted above,
this is the basis for the new administrative
position dealing with charitable
annuities. CRA has indicated that this
policy will also apply to situations in
which a payment is made, for which
some consideration is received from the
charity, such as recognition, a small gift,
membership, a meal, etc. The previous
administrative practice of CRA was not
supported by the law and CRA and the
Department of Finance are attempting
to rectify this. Under the proposals, a
charity will be required to place a value
on any benefit received by the donor in
exchange for the payment, and issue a
receipt only for the net amount. There
will be some limits on the scope of this
change, which will apply to gifts made
after December 20, 2002.
The proposed amendments include
significant changes in the rules for
determining the value of a gift in kind.
As a result of perceived abuses arising
out of arrangements under which
property was acquired at a low cost and
valued at a much higher cost when
donated, an arbitrary rule is proposed
under which the value of the property
will not exceed its cost, if the gift occurs
within three years of acquisition of the
property. This rule will apply regardless
of the actual value of the property. In
addition, if property is acquired with
any expectation that it may be given
during the lifetime of the owner, its
value cannot exceed its cost. These
rules will not apply to gifts of inventory,
marketable securities, Canadian real
estate, certified cultural property or
approved ecological property or to gifts
on death. As a result, all other gifts of
capital property will be subject to these
new valuation rules.
In determining the fair market
value of the donated property, the
intention of the donor at the time of
acquisition will now be relevant. If
one of the main reasons for acquiring
the property was to make a gift (other
than by will), in most cases the donor
will have to use the acquisition cost as
the fair market value at the time of the
gift. For both gifts that are subject to
the three year rule and gifts that are
subject to the ten year rule, there will
be extensive “tracing” rules to deal
with transfers of property prior to the
time of the gift.
