By: Kara Johnson
On November 8, the CRA issued Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value. The Folio Chapter replaces and cancels Interpretation Bulletin IT-110R3, Gifts and Official Donation Receipts and Income Tax Technical News No. 26 (ITTN 26).
Most of the content of the Folio is either merely restating or rewording of the law. While the Chapter provides overview and context which would seem, at first, to frame the entire topic for access even by a layperson, nevertheless it offers little new or greater understanding of the CRA’s interpretation for those working in the weeds.
Among potential items of interest that the new publication does provide are, first, four examples on split-receipting which illustrate how CRA will be working with these rules in typical charitable fundraising situations. They deal with fundraising dinners, charity auctions, golf tournaments, and membership fees, and are available here.
Secondly, the new Folio conveniently restates the Donor Recognition Policy in paragraph 1.23, although with no obvious changes.
The Folio also flags the proposed repeal of the eligible capital property regime, pending legislation implementing the 2016 federal budget. This has particular application to subsection 248(39) which has special anti-avoidance rules for the donation of capital property. When the new legislation is passed, eligible capital property will be reclassified as depreciable property of a new Class 14.1 of Schedule II to the Regulations, effective January 1, 2017. There will therefore be amendments to s. 248 (39), and presumably to this Folio as well.
In the meantime, paragraph 1.38 comes with Example 6, which deals with as situation where one property is substituted for another under the circumstances where the donor will only be entitled to a receipt for the adjusted cost base of the original property:
In 2013, a taxpayer acquires a capital property with an adjusted cost base of $2,000. The property is not a property listed in the exceptions to the deemed fair market value rule in subsection 248(37).
In 2014, the taxpayer sells the property (substantive gift) to a registered charity for $2,500, which represents the property’s fair market value.
In 2015, the taxpayer makes a cash donation (gifted property) to the registered charity.
Computation of deemed fair market value
Donation of full proceeds
If, in 2015, the taxpayer gifts the full proceeds of disposition ($2,500) to the registered charity, the fair market value of the gifted property for purposes of determining the eligible amount of the gift under subsection 248(31) is deemed to be $2,000, which is the lesser of:
- $2,000, the taxpayer’s adjusted cost base of the capital property, and
- $2,500, the fair market value of the capital property.
Donation of partial proceeds
If, in 2015, the taxpayer makes a $500 cash donation to the registered charity, the fair market value of the gifted property for purposes of determining the eligible amount of the gift under subsection 248(31) is deemed to be $400. This amount is computed as the lesser of (a) and (b) above multiplied by the proportion of the fair market value of the gifted property is of the fair market value of the capital property, as follows:
$2,000 x $500/$2,500 = $400
Further, for the purposes of determining the proceeds of disposition of the substantive gift, the sale price of the substantive gift ($2,500) is reduced by the difference between the fair market value of the gifted property ($500) and its deemed fair market value ($400). In this example, the proceeds of disposition of the substantive gift will be reduced to $2,400 ($2,500 – ($500 – $400)).
Finally, with reference to information formerly covered in three sections of the IT-110R3, the Chapter History indicates where it can now be found:
- Pamphlet P113, Gifts and Income Tax , covers gifts of cultural property and ecological gifts;
- The following CRA website pages cover:
- Receiving Gifts: the former ¶13-14 on Separation of Purchase and Gift, and ¶15, Non-Qualifying Contributions, and
- Issuing Receipts: the topics formerly under Official Donation Receipts (¶16-22)