CRA recently released a letter which discusses whether an official receipt issued for property donated in kind can include an amount less than the fair market value of the property. CRA cited section 3501 of the Income Tax Act (Canada) Regulations to confirm that an official donation receipt should include the amount of the fair market value or the deemed fair market value of the property, in certain circumstances.
In this letter the donor was an individual, the gifted property was capital property and the qualified donee was a municipality. CRA had the following comments:
Section 3501 of the Income Tax Regulations (the “Regulations”) provides that the official receipt in respect of a gift issued by a qualified donee must contain certain information, which includes, for a gift of property other than cash, the amount that is the fair market value of the property at the time that the gift was made. A qualified donee may not issue a donation receipt if it cannot reasonably determine the value of the property gifted.
Subsection 118.1(6) of the Act, in conjunction with subsection 118.1(5.4) of the Act, generally provides that, if an individual donates capital property to a qualified donee, the individual may designate an amount between the adjusted cost base and the fair market value of the donated property to be treated both as the proceeds of disposition for the purpose of calculating the individual's capital gain and the fair market value of the donated property for the purpose of determining the eligible amount of the gift in calculating the donation tax credit. In particular, the designated amount may not exceed the fair market value of the property otherwise determined, and may not be less than the greater of:
* the amount of the advantage, if any, in respect of the gift, and
* the adjusted cost base of the property or, if the property is depreciable property, the undepreciated capital cost of the class of the property at the end of the individual’s taxation year.
As noted above, the designation under subsection 118.1(6) of the Act applies for the purpose of determining the eligible amount under subsection 248(31) of the Act. Therefore, regardless of whether or not the designation is made, the official receipt must include the fair market value of the property at the time the gift was made as required under section 3501 of the Regulations.
Here is a copy of the full CRA letter.
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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.