Budget 2014 - Donations of Certified Cultural Property
Notice to the reader
This measure has received Royal Assent.
Currently, for the purpose of determining the eligible amount of a donation where the donor acquired a property as part of a tax shelter gifting arrangement, the fair market value (FMV) of the property is deemed to be the lesser of the actual FMV and the cost to the donor of the property (subject to any reduction required under the income tax rules). An exception exists for donations of certified cultural property where the FMV of the donated property is instead determined by the Canadian Cultural Property Export Review Board (CCPERB).
For donations of certified cultural property made after February 10, 2014, the budget proposes that where the property was acquired through a tax shelter gifting arrangement, this exception will no longer apply.
What is a Certified Cultural Property?
Cultural properties (such as paintings, sculptures, books, etc.) that are of outstanding significance and national importance are certified by the CCPERB. This process encourages the transfer of cultural property to Canadian organizations where they are made accessible to the public. For more information about this process, please consult Heritage Canada website.
What is a tax shelter gifting arrangement?
In a tax shelter gifting arrangement, donors receive a charitable donation receipt with a higher value than the amount they donated. This can typically be four or five times of the amount donated.
What is the general rule to calculate the FMV of donated property when the property was acquired as part of a tax shelter gifting arrangement?
The FMV of a donated property is deemed to be the lesser of:
- the actual FMV of the property, and
- its cost to the donor.
For example, in 2005, Mr. Johnson acquired a property for $125,000 as part of a tax shelter gifting arrangement. In March 2014, he donated the property now having an actual FMV of $1M. The FMV of the donated property is deemed to be $125,000, which is the cost to the donor, Mr. Johnson.
What is the current exception to the general rule for determining the FMV of certified cultural property?
As an exception to the general rule, the FMV of a certified cultural property is determined by the CCPERB.
For example, in 2005, Mrs. Giles acquired a sculpture for $800 as part of a tax shelter gifting arrangement. In March 2013, she donated the sculpture that was valued at $10,000, a FMV which was subsequently confirmed by the CCPERB. In this case, the FMV is $10,000 as determined by the CCPERB.
What are the changes proposed by the budget for certified cultural property?
For donations of certified cultural property made after February 10, 2014, the budget proposes that, where the property was acquired through a tax shelter gifting arrangement, this exception will no longer apply. Therefore, the FMV of the donated certified cultural property will be deemed to be the lesser of:
- the actual FMV of the property, and
- its cost to the donor.
For example, in 2005, Mr. Brown acquired a sculpture for $800 as part of a tax shelter gifting arrangement. In March 2014, he donated the sculpture that he considered to have a FMV of $10,000, which was subsequently confirmed by the CCPERB. As a result of the new rule, the FMV will now be deemed to be $800, which is the cost to the donor of the certified cultural property.
What are the reasons for this change?
The donation of certified cultural property could be used by tax shelter promoters because of the combination of its favourable tax treatment, inherent uncertainties in appraising the value of art and artefacts, and the exemption from the rule that deems the value of a donated property to be no greater than its cost to the donor in certain circumstances.
Does this measure affect the tax treatment of the capital gains associated with the donation of certified cultural property?
No, capital gains associated with the donation of certified cultural property continue to be exempt from tax.
Where can I get more information about the changes to donations of certified cultural property?
The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its Web pages often. All new forms, policies, and guidelines will be posted as they become available.
In the meantime, please consult the Department of Finance Canada's Budget 2014 documents for details.
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