Gifts in kind

The Canada Revenue Agency says...

Gifts and Income Tax Guide (P113)

A gift in kind refers to a gift of property other than cash such as capital property (including depreciable property) and personal-use property (including listed personal property). A gift in kind does not include a gift of services.

Do you have property to donate?

Do you have property to donate?

Here are some things to keep in mind when you donate property:
  • If you plan to give away property, any capital gain you have made on the property since you got it may be subject to tax. For more information, see Capital Gains and losses.
  • Your own situation will affect the tax status of the gift. If you are an artist, dealer, or collector, different tax rules apply when you donate property from your inventory.
  • You have to decide where you are going to donate your property. CRA cannot advise you on which museum, art gallery, archive, municipality, or institution you should approach. Remember that the tax implications may differ depending on the way in which you make the gift, or to whom.
  • Once you have chosen a qualified donee, and have determined that it is willing to accept your gift, you or the qualified donee may have to have the property appraised to determine its fair market value (FMV).

Donation appraisals

Donation appraisals

Donors and qualified donees often approach appraisers, dealers, and other people who are knowledgeable about particular objects to get appraisals for income tax purposes. Determining fair market value (FMV) is not a simple process. You must consider numerous facts regarding the property.

You may need to get one or more appraisals to establish the FMV of the property you are donating. Use the appraised FMV to calculate the eligible amount of the gift unless the deemed FMV rules apply. The eligible amount is used to calculate the tax credit you can claim on your return. The appraised FMV is also used in the calculating any capital gain or loss you may have from donating your property.

Who should appraise a gift?

Who should appraise a gift?

For every situation, whether the property is personal property, real property, or intangible property, donors and qualified donees are encouraged to contact a professional appraiser, valuator, or other individual who is accredited in the field of valuation. That individual should be knowledgeable about the principles, theories, and procedures of the applicable valuation discipline and follow the Uniform Standards of Professional Appraisal Practice or the standards of the profession. Also, he or she should be knowledgeable about and active in the marketplace for the specific property.

The chosen individual should be independent. For instance, he or she should not be associated with the donor, the qualified donee, or another party associated with the purchase, sale, or donation of the property.

The individual should also be knowledgeable about the elements of a properly prepared and credible valuation report.

Gifts of property with an FMV of less than $1,000 will probably not require a professional appraisal, but the donor should keep all documents supporting the determination of the FMV, in case we ask to see them.

The appraisal report

The appraisal report

The appraisal or valuation report should be based on the principles, theories, and procedures of the applicable valuation discipline and follow the standards of the profession. The report has to be an estimate of the FMV of the property as of the date of donation. Also, if you owned the property on valuation day (December 31, 1971), you may need to get a valuation reflecting the value on that date.

Note: The Canadian Cultural Property Export Review Board (CCPERB) has requirements for appraisals. Before applying for certification, please consult the Review Board Secretariat.

Donation date

Donation date

The donation date is the date that the gift is made. The donation date may not be the date of physical delivery, since a property may be on loan to the qualified donee before the actual donation date.

Receipts

Receipts

Under proposed changes, the eligible amount of a gift made is deemed to be nil if the donor fails to inform the donee of information that would be relevant to the application of the limitations regarding deemed FMV

For donations of gifts in kind, the qualified donee can issue an official donation receipt after the property has been appraised. The receipt should show the FMV or deemed FMV of your gift. It will also show the eligible amount of the gift.

If your gift comes under the Cultural Property Export and Import Act, and the CCPERB has certified it, you will receive Form T871, Cultural Property Income Tax Certificate, from the Board. Attach Form T871 and the official receipt from the qualified donee accepting your gift, to your return.

If your gift is ecologically sensitive land that the federal Minister of the Environment has certified as important to the preservation of Canada's environmental heritage, you will receive a Certificate for Donation of Ecologically Sensitive Land. Attach the certificate and official receipt to your return.

If the land you give is located in the province of Quebec, you will receive a Certificate Respecting Gifts of Land with Ecological Value or Servitudes Encumbering Land with Ecological Value, issued by the ministère du Développement durable, de l'Environnement et des Parcs. Attach the certificate and the official receipt to your return.

Generally, the eligible amount that qualifies for the tax credit applies for the year you give the gift. You can choose the part of the eligible amount of the gift you want to claim in the year and you can carry forward any unused part for up to five years.

If you are filing a paper return, include your Schedule 9, as well as your official receipts showing either your or your spouse's or common-law partner's name. You do not have to attach receipts for amounts shown in box 046 of your T4 or T4A slips, in box 48 of your T3 slips, in box 103 of your T5013 slips, or on financial statements showing an amount a partnership allocated to you. If you receive a T5003 slip(s) with an amount in box 13, you must submit this slip as well as a charitable donation receipt that you will receive from the charity. You must also complete and attach to your return Form T5004, Claim for Tax Shelter Loss or Deduction.

You may have included with a previous return, a receipt for a donation you are claiming for the current year. If so, attach a note indicating the return with which you submitted the receipt. However, if you are filing electronically, keep all of your documents in case we ask to see them.

Gifts of capital property

Gifts of capital property

Capital property includes depreciable property, and any property that, if sold, would result in a capital gain or a capital loss. Capital property does not include the trading assets of a business, such as inventory.

The following properties are generally capital properties:
  • cottages;
  • securities, such as stocks, bonds, and units of a mutual fund trust; and
  • land, buildings, and equipment you use in a business or a rental operation.

If you donate capital property, we consider you to have disposed of that property for proceeds equal to the fair market value (FMV) of the property. You have to report any capital gain on your return in the year you donated the property. In some cases, you may be able to claim a capital loss in the year you donated the property.

Note: All references to FMV in this section are subject to the deemed FMV rules as discussed under "Deemed fair market value."

However, if you make a gift of capital property to a registered charity or other qualified donee such as Canada or one of its provinces or territories, and the FMV of the donated capital property, otherwise determined, is more than its adjusted cost base (ACB), you may designate an amount that is less than the FMV to be the proceeds of disposition. This may allow you to reduce the capital gain otherwise calculated.

The amount that you may choose to designate in respect of the donation cannot be greater than the FMV and not less than the greater of:
  • any advantage in respect of the gift; and
  • the ACB of the property (or, if the property was depreciable property, the lesser of its ACB and the undepreciated capital cost of the class of the property).

Treat the amount you choose as the proceeds of disposition when you calculate any capital gain. Also use this amount to determine the eligible amount of the gift, which you need to calculate the tax credit.

If when you made the donation, the FMV was less than the ACB, the proceeds of disposition must equal the FMV of the donated property. This amount will be used to calculate any capital loss on the disposition of a non-depreciable capital property and the eligible amount of the gift, which you need to calculate the tax credit.

For more information, see Interpretation Bulletin IT-288, Gifts of Capital Properties to a Charity and Others.

Deemed fair market value

Deemed fair market value

Under proposed changes, for a gift of property made to a qualified donee, the fair market value (FMV) of the property gifted will be deemed to be the lesser of the property's:
  • FMV otherwise determined; and
  • its cost (or ACB if it is capital property) immediately before the gift was made.
This limitation applies to property that was acquired under a gifting arrangement that is a tax shelter. Unless the gift is made as a consequence of the taxpayer's death, this rule also applies if the property was acquired:
  • less than 3 years before the day the gift was made; or
  • less than 10 years before the day the gift was made and it is reasonable to conclude that when the property was acquired, one of the main reasons for the acquisition was to make a gift of it.

If a gifted property was acquired in a non-arm's length transaction during the 3-year or 10-year period, the cost (or ACB if it is capital property) of the gifted property will be deemed to be equal to the lower of the cost to the donor and the lowest cost to a party to the non-arm's length transaction.

The limitation does not apply to gifts of:
  • inventory;
  • real or immovable property located in Canada;
  • certified cultural property;
  • ecologically sensitive land (including a covenant, an easement, or, in the case of land in Quebec, a real servitude);
  • a share, debt obligation, or right listed on a designated stock exchange;
  • a share of the capital stock of a mutual fund corporation;
  • a unit of a mutual fund trust;
  • an interest in a related segregated fund trust;
  • a prescribed debt obligation;
  • a share of the capital stock of a corporation issued by the corporation to the donor, if immediately before the share was gifted, the corporation was controlled by the donor or other persons related to the donor, and if the limitations described would not have otherwise applied; or
  • a property by a corporation if the property was acquired by the corporation in consideration for shares of the corporation's capital stock in a rollover transaction and, immediately before the gift, the shareholder from whom the corporation acquired the property (or other persons related to the shareholder) controlled the corporation, and if the limitations would not have otherwise applied

If a donor attempts to avoid limitations with the acquisition or disposition of a property before gifting it, the eligible amount of the gift is deemed to be nil. This rule applies to gifts made after July 17, 2005.

If an applicable property is sold to a registered political organization or candidate or a qualified donee and all or part of the proceeds of disposition is property that is the subject of a gift or monetary contribution, the FMV of the gift or monetary contribution is deemed to be the lesser of the FMV of the property sold and its cost.

If the property was acquired through a tax shelter that is a gifting arrangement, the eligible amount will be reported in box 13 of Form T5003, Statement of Tax Shelter Information.

Note: Despite numerous warnings and audit actions by the Canada Revenue Agency (CRA), some taxpayers are still participating in gifting tax shelters. If you are considering entering into a gifting tax shelter arrangement, you should get independent professional advise from a tax advisor before signing any documents. For more information, you can go to our web page at www.cra.gc.ca/nwsrm/1rts/2008/1081204-eng.html.

Gifts of securities acquired under a security option plan

Gifts of securities acquired under a security option plan

You can claim an additional deduction on line 249 of your return for donating publicly-listed shares of corporations or mutual fund units you acquired through your employer's security option plan. However, you must meet all of the following conditions:
  • You acquired a security under an option that was granted to you as an employee of a corporation or a mutual fund trust.
  • You disposed of the security in the year it was acquired, and not more than 30 days after its acquisition, by donating it to a qualified donee.
  • You are entitled to claim a security option deduction on line 249.

The additional deductionis equal to 50% of the amount of the taxable benefit, which may effectively exempt from tax the employment benefit associated with the exercising of the stock option.

When calculating the amount of the additional deduction that can be claimed on line 249, you determine the employment benefit by using the lesser of:
  • the FMV of the security at the time of acquisition; and
  • the FMV of the security at the time of disposition.

For more information on gifts to private foundations, see Capital gains realized on gifts of certain capital property.

Are you an artist?

Are you an artist?

If you are an artist, we usually consider any works you create and own as inventory, not capital property. When an artist creates a work of art intending to sell it but instead donates it to a qualified donee, we consider the gift to be a disposition of property from the artist's inventory.

As an artist, if you donate a gift from your inventory and if the gift's fair market value (FMV) is more than its cost amount, you can designate any amount for the value of the donated property as long as it is:
  • not greater than the FMV; and
  • not less than the greater of:
    • the amount of any advantage in respect of the gift; and
    • the cost amount.

Use the amount you choose for the value of the gift as proceeds of disposition to determine your income. This amount will also be used to calculate the eligible amount of the gift, which you need to calculate the tax credit.

If, at the time you made the donation, the FMV is less than the cost amount, the proceeds of disposition must equal the FMV of the donated property. This amount will also be used to calculate the eligible amount of the gift, which you use to calculate the tax credit.

As an artist, you may donate a work of cultural property you created, from your inventory, to a designated institution or public authority. If you do this, and the Canadian Cultural Property Export Review Board (CCPERB) certifies the gift, we consider that you received proceeds of disposition equal to the greater of the cost amount of your gift and the amount of any advantage in respect of the gift. The amount that qualifies for the tax credit on certified cultural property will be based on the eligible amount of the gift, provided you meet all other requirements outlined in the section called "Gifts of certified cultural property."

Note:

An artistic endeavour occurs when you are in the business of creating paintings, murals, original prints, drawings, sculptures, or similar works of art. An artistic endeavour does not include reproducing works of art.

When you calculate your income from an artistic endeavour, you can choose to value your ending inventory at nil. If you do this, we consider the cost amount of your gift to be nil. Your choice stays in effect for each following year, unless we allow you to change it. For more information, see Interpretation Bulletin IT-504, Visual Artists and Writers.

Are you an art or antiques dealer?

Are you an art or antiques dealer?

If you buy and sell art, antiques, rare books, or other cultural property as a business, and you donate one of these objects, we consider the objects as part of your inventory, not capital property or personal-use property. Therefore, we consider the proceeds to be business income based on the fair market value of the donated property at the time you donated it. You can claim a tax credit based on the eligible amount of the gift if it otherwise qualifies.

If your gift is from a private collection that you maintain apart from those works we consider to be your business inventory, the usual rules for donating capital property or personal-use property apply.

Listed personal property

Listed personal property

Listed personal property (LPP) is a type of personal-use property. The principal difference between LPP and other personal-use properties is that LPP usually increases in value over time. LPP includes all or any part of any interest in or any right to the following properties:
  • prints, etchings, drawings, paintings, sculptures, or other similar works of art;
  • jewellery;
  • rare folios, rare manuscripts, or rare books;
  • stamps; and
  • coins.

We consider all or any part of such properties, a part interest in them, or any right to them, as listed personal property. You should have a Valuation Day value established for any listed personal property you acquired before December 31, 1971, that is worth more than $1,000, either separately or as a set. In most cases, you may find an indication of the fair market value for many of these items by checking dealers' catalogues, or by asking art antiques, coin, jewellery, or stamp dealers.

Special rules may apply to personal-use property and listed personal property. For more information, see Guide T4037, Capital Gains.