Macleans article “An artful scheme” on use cultural property as part of tax shelter scheme

July 26, 2010 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, Canadian Charity Law, Ethics and Canadian Charities, Avoiding 'Charity' Scams

Chris Sorensen of Macleans recently wrote a piece entitled “An artful scheme: One firm’s pitch to help people use a tax shelter by buying and then donating old photos is raising eyebrows in the art world and words of caution from experts”.  It discusses a scheme called VIA (Vintage Iconic Archives) Project.

Here is the full article:  http://www2.macleans.ca/2010/07/22/an-artful-scheme/

I am quoted in the article as saying “The courts have shown little sympathy for inflated donation receipts, no matter what scheme is used to inflate the donation receipts.  I would personally never suggest to a client that they get involved in a cultural property scheme such as this.  There are legal, practical and ethical problems.”


Here are a few other comments:

There is only limited information on this scheme on its website.  It also seems that a number of those involved with the scheme are not prepared to discuss or answer detailed questions about the scheme.  If an investigative journalist from a major Canadian magazine cannot get answers to all his questions, or some of those involved are not prepared to discuss the scheme with him, this is one of many “red flags”.

The CRA has publicly stated that they will be auditing all charity gifting arrangements and this appears to be one.  So one thing seems pretty clear – if you invest you will be audited and you need to prepare for a multi-year and costly process in which your promoter may or may not be in for the long haul.

While some of the photos on the website look interesting, one may ask whether these are works of “outstanding significance and national importance” or OSNI.

Although the Canadian Cultural Property Export Review Board may determine the fair market value of a piece of cultural property, which determination is outside the Charities Directorate’s mandate to question, the registered charity receiving the cultural property has to issue an official donation receipt as part of the scheme.  The charity must reduce the amount of the receipt by the value of any advantage or benefit received by the donor and this is very much within the purview of CRA.  To the extent that any advantage or benefit cannot be properly valued, the registered charity should not issue any receipt at all. To the extent that any advantage is not properly taken into account in the issuance of the receipt, CRA can audit the charity as well as the donors.  An advantage or benefit is construed very broadly and if the advantage is greater than 80% of the value of the “gift” then under the split receipting rules no receipt would be issued.  Is there an advantage in joining the Cultural Heritage Association?  Is there an advantage in receiving a loan?  In the various financial transactions are there any other advantages which need to be subtracted?

Is there a legal opinion on this scheme? I did not see one on the website.  It would be interesting to read that opinion.  A legal opinion is just that - an opinion.  There are 3 Canadian law firms now defendants in class action litigation over legal opinions they provided to charity gifting tax shelter arrangements. But it is always interesting to see what is said, what is not said and the caveats that are thrown in.

It will be interesting to see how the Canadian Cultural Property Export Review Board deals with this scheme in light of the public attention this scheme has broached.  I am thinking they will be quite careful in making sure they have all the facts before making any determination and carefully considering what is the real fair market value of the particular objects.  Sometimes people think FMV is about the highest price an item would bring but it is not.  Fair market value “Generally means the highest price, expressed in dollars, 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.”  Is this an open and unrestricted market? Is there a willing buyer and willing seller who are “knowledgeable, informed, and prudent, and who are acting independently of each other.”  Does belonging to an association make you “knowledgeable”?  I wonder whether the Canadian Cultural Property Export Review Board is going to provide the high values necessary to make this scheme work and even if it did, that still only answers the FMV part and not the advantage part of the receipt).  These are the sort of issues that a Court would have to look at.

It is interesting that according to the article the institution or university that would ostensibly receive the cultural property wants to keep its involvement confidential.  Are they embarrassed by this scheme?  Are they some completely unknown “university” that does not add any credibility to the scheme?  This is another red flag for me. 

A Designated Institution that participates in any scheme that is viewed as being an abusive gifting scheme may lose its designated status as well as its registered charity status.  Such an institution may also be required to pay penalties, up to 125% of the value of any inappropriate receipt.  Furthermore, if that institution receives government funding it may find that its funding is reduced as a result of its participation in such a scheme.

Also remember that a taxpayer is responsible for the tax return that he or she files.  It is your tax return and not that of the promoter. If you are aware that you are filing a return that contains false information, for example a receipt inflated by the fact that certain advantages were not subtracted from the FMV of the art, then that is an issue you have to take responsibility for.   

Although tens of thousands of Canadians have invested in different types of charity gifting arrangements, almost all of which claim they are different than other arrangements, the financial and emotional costs to many of these individuals have been very substantial.  Many of the schemes end up in protracted court battles that can last 10–12 years and meanwhile the investor has to deal with uncertainty for a substantial amount of time, ongoing legal costs, and the investor may be flagged for greater CRA scrutiny.


There is a lot of information available about appropriate receipting practices on websites, books, etc.  If you are interested in supporting cultural property in this country there are many good charities doing work in that area.  Over the next few months I will be putting out some material on what is appropriate and innapropriate receipting by registered Canadian charities for the Charity Law Information Program (CLIP) and on the CLIP website.  CLIP is funded by contributions from the Ontario Community Support Association (OCSA), the Charities Directorate and Blumbergs.  For further information on CLIP see: http://www.capacitybuilders.ca/clip/clip.php

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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