Gifts in Kind

December 29, 2011 | Kate Lazier

Gifts in kind (such as art, real estate and rare books) can cause issues for charities. It is important for charities to have procedures in place to avoid potential pitfalls.

When a gift is offered by a donor, a charity should consider whether it wants the gift.  Can the gift be used in the charity’s activities? Can the charity afford to repair and maintain the gifted property?  Can the item be easily sold?  Is the gift in any way connected to a tax shelter?

Assuming that the charity accepts the gift, the charity should consider whether it can receipt the gift and, if so, the proper value of the receipt. It is the responsibility of a charity to issue proper receipts. The September issue of the Charity and Not-for-Profit newsletter included an article on the information requirements for proper receipts. Failure to issue proper receipts can result in the charity facing penalties and revocation of charitable status.

The Three Year Rule

In 2002, the Federal government introduced legislation aimed at eliminating situations where a donor would acquire property at a low price and then gift it to a charity for a receipt with a higher value.  While this legislation has not been passed, it is drafted to be retroactive to 2002 and, therefore, it is recommended that charities follow it as though in force.

The proposed legislation provides that where a donor has owned the gifted property for less than three years (or less than ten years, if it is reasonable to conclude that the main reason the property was acquired was to gift it to a charity), then the charitable tax receipt can only be issued for the lesser of the donor’s cost of the gifted property and the fair market value of the property at the time of the gift.

There is an exception to this rule for gifts made as a consequence of the donor’s death (bequests), gifts of inventory, real property in Canada, cultural property, securities listed on a designated stock exchange, ecologically sensitive land or shares of a corporation if the corporation issued the shares to the donor as part of certain types of corporate re-organizations.

In order to comply with this rule, a charity should ask the donor when they acquired the property and whether it was acquired with the intent to gift it to charity.

Fair Market Value

Where the receipt can be issued for the fair market value of the property, the charity has a responsibility to ensure that the fair market value is properly determined.

Fair market value is often defined as the highest price, expressed as a dollar amount, that a property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are knowledgeable, informed, and prudent, and who are acting independently of each other.

For some gifts, such as securities on a listed stock exchange, determining the fair market value can be straightforward and appraisals of the gift may not be necessary.  For other gifts, ascertaining the fair market value of the gift is more difficult.  CRA takes the position in Guide P113 “Gifts and Income Tax”, that where a gift is worth less than $1,000.00 a qualified representative of the charity might be able to appraise it.  However, if the gift is worth more than $1,000.00, it is usually advisable to have the property appraised by a qualified appraiser.

Where a donor provides an appraisal of a gift, the charity should consider whether the appraisal is reasonable.  The charity should consider the qualifications of the appraiser, whether the appraiser was given the mandate to determine fair market value and what the date of the valuation is at the time of the gift.

Where the fair market value of a gift cannot be determined, CRA suggested that the item cannot be receipted.  Similarly, where a charity is not comfortable with the appraisal, the charity can decline to receipt the gift.

Lawyers in Miller Thomson LLP’s Charity and Not-For-Profit group can assist charities with issues arising from proposed or completed gifts.


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