On May 18, 2016, CRA released technical interpretation 2015-0593921 in response to an email request for comments on “whether an official receipt for a gift of property to a municipality can be made out for an amount other than the fair market value of the gifted property.” For the purposes of the response, CRA made the following assumptions about the gifting arrangement: “the donor is an individual, the gifted property is capital property, and the municipality is a qualified donee.”
CRA points out that the provision that allows a taxpayer to claim a tax credit is found in section 118.1 of the Income Tax Act (“ITA”) if the eligible amount is made to a qualified donee (“QD”), and is supported by an official receipt. According to subsection 118.1(2) of the ITA, this means that the official receipt must be in the prescribed form which is found in section 3501 of the Income Tax Regulations (the “Regulations”). For a gift which is a “gift of property other than cash,” the official receipt “must contain the fair market value of the property at the time that the gift was made.” If the QD cannot reasonably determine the fair market value (“FMV”) at the time the gift is made, then the official receipt for the donation may not be issued.
CRA also points out that generally, when subsections 118.1 (5.4) and (6) are considered together, “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 addition, CRA notes that if an individual designates an amount, that amount may not exceed the FMV of the property. Likewise, the designated amount cannot be less than whichever of the following three is greater: the amount of advantage, the adjusted cost base (“ACB”) of the property, or (for depreciable properties) the undepreciated capital cost. In any case, CRA notes that, for the purpose of determining the eligible gift amount, a designation under subsection 118.1(6) still requires that the FMV of the property at the time the gift was made is included on the official receipt.
Finally, CRA notes that there may be situations in which the deeming provision of subsection 248(35) may be relevant. The effect of this deeming provision is that, for the purpose of the eligible amount of the gift, “the fair market value of the gifted property is deemed to be the lesser of its fair market value otherwise determined and its cost, or in the case of capital property, its adjusted cost base, or in the case of a life insurance policy in respect of which the taxpayer is a policyholder, its adjusted cost basis, of the property immediately before the gift is made.”