Donation of Intellectual Property Rights Can Be Controversial
By Brent Randall
Intellectual property rights, which include trade-marks, copyrights and patents, are frequently transferred or licensed between parties. Generally, ownership of intellectual property allows the owner to profit by way of royalties, licensing fees or sale of the rights. The right to profit from intellectual property includes the right to profit from personality rights such as one’s name or likeness. By way of example, celebrities often profit from allowing their name or likeness to be associated with a product or service. And just like other property, intellectual property – including personality rights – can also be donated to charity.
In a 1990 Interpretation Bulletin on gifts in kind, CRA states that a taxpayer can make a gift to a charity of the following:
capital property, depreciable property, personal-use property including listed personal property, a leasehold interest, a residual interest, a right of any kind whatever, a licence, a share, a chose in action and inventory of a business. A gift in kind, however, does not include a gift of services.[1]
While intellectual property or personality rights are not explicitly stated, they would clearly fall into at least one of, if not more than one of these categories, including “capital property”, “a right of any kind whatever” or “licences” when the original holder of the property still maintains some rights.
Although the donation of intellectual property or personality rights to a charity may not theoretically appear to be controversial, in practice it can be. First, the fact that such donations are uncommon means that the donee who claims a tax credit from such a donation may face increased scrutiny by CRA.
To go along with concerns of increased scrutiny is the difficulty that valuing a gift of intellectual property poses. When charities issue tax receipts to donors for gifts in kind, those gifts must be accurately valued by a disinterested third party valuator. Valuing tangible, but more commonly sold goods like a vehicle can sometimes be a difficult undertaking. Finding a reasonable valuation of the worth attached to someone’s name, patent or copyright could prove to be an even harder task. If the valuation does not attract a re-assessment, it would at least invite a closer look by CRA.
There also may be some concern about the nature of the intellectual property, when it comes to how the donee should declare it for tax purposes. The copyright to a book or artwork could be considered capital property, as it is able to generate profits via publishing, licensing or other forms of reproduction. The ability to derive value from using someone’s name or likeness is much harder to characterize. The name or likeness clearly has value, but their value does not come from their reproduction, and any benefit derived from them cannot be calculated as easily as a copyright could. Personality rights could still ultimately be considered capital property, but there has been no definitive statement on this matter so far.
Those who are considering donating intellectual property rights to a charity should not be concerned about CRA’s consideration of such a donation. What these potential donors do need to wary of, however, is that due to the less traditional nature of such property, possible problems must be adequately identified and addressed from the outset.
[1] Gifts in Kind to Charity and Others, IT-297R2.