Application to Force Sale of Land
Corporate Update
Jun 2018 Charity & NFP Law Update
Consultation on Proposed Service Fees
On May 31, 2018, Corporations Canada began public consultations to update its fee schedules for services provided under the Canada Business Corporations Act (“CBCA”), the Canada Cooperatives Act (“CCoA”) and the Canada Not-for-profit Corporations Act (“CNCA”). Fees for services under the CBCA and the CCoA have not changed since 2001 and under the CNCA since 2011. The consultation document contains tables of current and proposed fees. It also indicates that the proposed changes will better align the fees with the costs of delivering these services and will allow Corporations Canada to achieve the government’s objectives of encouraging the use of low-cost services delivery methods. For the non-profit sector under the CNCA, a number of services (such as filing annual returns and copies of corporate documents) will be free or have a reduced fee when requested online. However, other services (such as applications for restated articles and certificates of arrangements) will increase. The consultation will remain open for public comment until July 13, 2018.
New Interactive Tool on Corporations Canada’s Website
On June 5, 2018, Corporations Canada launched a new interactive online by-law builder tool to help boards of trade incorporated under the Boards of Trade Act (“BOTA”) create by-laws. While the responsibility for the final document remains with the relevant board of trade that uses this new feature, the interactive tool offers a number of advantages: it combines BOTA’s requirements and good corporate governance practices, is intended to promote the standardization of practices in the sector, and allows boards of trade to customize suggested options or put in their own provisions.
Tax Court Rules on the Appropriate Methodology for Valuing Wine Donations
Jun 2018 Charity & NFP Law Update
On June 12, 2018, the Tax Court of Canada (“TCC”) dismissed an appeal concerning a taxpayer’s reassessment by the CRA in McCuaig Balkwill v The Queen, regarding the fair market value of donated wines to be sold at auctions hosted by charities. The issue before the TCC was the determination of the appropriate valuation methodology. The taxpayer had donated 21 bottles of wine of “different labels and vintages” to two charities which valued the donated bottles at $23,600.00 and issued corresponding tax receipts to the appellant. The CRA reassessed the donations and determined that the fair market value of the wine was $4,700.00, reflecting the approximate amounts raised by the charities for the same bottles at auction.
On appeal before the TCC, each party relied on its own expert. The taxpayer’s expert, a qualified appraiser of personal property specializing in wine, provided a valuation as of 2016, when the report was prepared, based on online list prices from sellers around the world. This report found that the donated wines had an approximate value of $5,500.00, which, adding estimated markups, levies, taxes, tariffs, duties, freight transportation costs typically charged by Liquor Control Board of Ontario (“LCBO”)’s Private Ordering program, resulted in a fair market value of approximately $17,200.00. The appraiser’s testimony did not indicate how to extrapolate the 2016 valuation back to the relevant years of 2005 and 2006, when the actual donations took place, but it stated that the overall LCBO resulting prices can be assumed to have been in excess of three times the global wine market list price for years prior to 2016. It was important in this decision that none of the wines are available at the LCBO.
The CRA’s expert, a qualified appraiser of personal property specialized in fine art, relying on known sales at wine auctions available to the taxpayer in 2005 and 2006, with data on actual auction sales in the United States, arrived at an aggregate fair market value of the donated wines of approximately $2,650.00 at the relevant time.
The TCC relied on the definition of “fair market value” adopted by the Federal Court of Appeal in Canada (Attorney General) v. Nash in the following terms:
the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell.
Recognizing that there are “actual, normal, functioning, lawful, and available real markets” in which an Ontario resident may sell a bottle of wine, the TCC found no weight should be given in this case to a proxy market based on the LCBO’s Private Ordering pricing, which is a virtual, single seller monopoly. It further held that the provincial regulatory restrictions on the sale of wine in the province do not affect the adopted definition of “fair market value” requiring an open and unrestricted market, as the experts did not opine on whether these restrictions had any negative impact on prices obtained using Ontario markets available to the taxpayer.
In this regard, the TCC accepted the evidence from the CRA’s expert as the only valuation available for the relevant period, but since it could not order CRA to reassess using a lower value than what it had already used in the reassessments, it dismissed the appeal.
Being asked to provide additional guidance, the TCC held that this decision does not preclude the donation of a wine bottle to have a fair market value equal to the purchase price available at an LCBO store, and that there may be other methodologies acceptable to the court in other circumstances, such as actual data for comparable wines that are not identical labels and vintages to the ones donated, or even the LCBO’s Private Ordering methodology, provided it is fully supported with evidence and accurately applied. Charities receiving non-cash donations, such as bottles of wine, should therefore bear in mind the various methodologies available in calculating fair market value and maintain evidence that fully supports any such calculations.