Principal Issues: 1. Can a donor include in "total cultural gifts" for the year, as defined in subsection 118.1(1), an amount in respect of a gift of cultural property where the property is not certified by the Canadian Cultural Property Export Review Board until after the gift is completed? 2. Similarly, where certification occurs after the gift is completed, will subparagraph 39(1)(a)(i.1) apply in computing the donor's capital gain?
Position: 1. Yes, provided that the requirements of that definition are otherwise satisfied. 2. Yes.
Reasons: Words of the Act and the Cultural Property Export and Import Act.
XXXXXXXXXX 2004-010121 R. Maley November 23, 2004
Dear XXXXXXXXXX :
Re: Donation of Cultural Property
This is in reply to your letter of October 26, 2004 pertaining to the definition of "total cultural gifts" in subsection 118.1(1) of the Income Tax Act ("the Act") and paragraph 39(1)(a)(i.1) of the Act.
You have noted that the definition "total cultural gifts" in subsection 118.1(1) of the Act includes the total of all amounts each of which is the fair market value of a gift of an object that the Canadian Cultural Property Export Review Board ("the Board") "has determined" meets the criteria set out in paragraphs 29(3)(b) and (c) of the Cultural Property Export and Import Act (i.e., has determined that the object is cultural property). You are seeking our confirmation that the fair market value of a gift may be included in the donor's "total cultural gifts" for the year where the recipient of the gift was an institution or public authority in Canada that was, at the time of the gift, designated under subsection 32(2) of the Cultural Property Export and Import Act, the requirements of that definition are otherwise satisfied and the Board made this determination subsequent to the completion of the gift. Similarly, you ask that we confirm that, in those circumstances, the donor may rely on subparagraph 39(1)(i.1) of the Act in computing the capital gain in respect of the gift.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
We agree that a person's "total cultural gifts" for the year as defined in subsection 118.1(1) includes the fair market value of an object that is, after completion of the gift, determined by the Board to be cultural property, where the other requirements of that definition are otherwise satisfied. Similarly, where an amount in respect of a gift may be included in a donor's "total cultural gifts" for a taxation year, subparagraph 39(1)(a)(i.1) will apply in computing the donor's capital gain in respect of the gift.
In this regard, we note that section 32 of the Cultural Property Export and Import Act specifically empowers the Board to make such determinations for both proposed and completed dispositions of objects "for the purposes of subparagraph 39(1)(a)(i.1), paragraph 110.1(1)(c), the definition "total cultural gifts" in subsection 118.1(1) and subsection 118.1(10) of the Income Tax Act".
We would also note that, pursuant to section 33 of the Cultural Property Export and Import Act, where a taxpayer has irrevocably disposed of an object that has been the subject of a determination or redetermination under section 32 of that Act, the Board will issue a certificate attesting to the fair market value of the object and to the object's satisfaction of the criteria set out in paragraphs 29(3)(b) and (c) of that Act. Subsection 118.1(11) of the Act empowers the CRA to make such assessments or reassessments as are necessary to give effect to such a certificate.
We trust that this is helpful.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch