Donors can get special tax benefits when they make a gift of cultural property.
A gift of cultural property is a gift of property that meets two criteria:
- the property is of “outstanding significance by reason of its close association with Canadian history or national life, its aesthetic qualities, or its value in the study of the arts or sciences”; and
- the property has “such a degree of national importance that its loss to Canada would significantly diminish the National Heritage”.
The Cultural Property Export Review Board decides whether to certify the property as cultural property and, if certified, will then determine value of the gift for the purpose of the charitable tax receipt.
Not all charities can accept gifts of cultural property. Gifts of cultural property can only be accepted by a designated institution under Section 32 of the Cultural Property Export and Import Act. A list of designated institutions is available here. However, a charity can apply to become a designated institution, either on an ongoing basis or for the purposes of receiving a one-time gift.
There are a few special benefits of making a gift of cultural property. First, there is no capital gain inclusion in the donor’s income if the capital gain arose upon gifting cultural property to a charity. Therefore, a donor can avoid capital gains tax. Similarly, were the gift is made by an artist who created the cultural property, the Income Tax Act deems the artist to receive proceeds of disposition equal to the artist’s cost of creating the cultural property. Thus, the artist does not have an income inclusion when it makes the gift.
While the donor does not have to pay tax on the disposition of the cultural property, the donor can still get a receipt for its fair market value. This receipt can be used to offset the 100% of the donor’s taxable income for the year. For gifts that are not certified as cultural property, the charitable tax receipt can be used by the donor to eliminate only up to 75% of the donor’s income for the year. For all gifts, any unused portion of a charitable tax receipt can be carried forward to apply against the donor’s income for five years.
With these benefits comes a restriction. If within ten years of receiving the gift of cultural property, a charity transfers the gift to an institution that is not designated under the Cultural Property Export and Import Act, then the charity must pay a tax on the gift’s value.
Lawyers in Miller Thomson LLP’s charity and not-for-profit specialty group can assist donors and charities in navigating the cultural property rules.