Determining Eligible Amounts

Receipting - Determining Eligible Amounts

This section of Frequently Asked Questions covers Determining the Eligible Amount on Official Donation Receipts including questions about the principles of fair market value, advantage, de minimis and split receipting; then, how those rules apply to such special gifts as services, certified cultural property, ecologically sensitive land, and other types of investments. There are twenty-eight questions divided into two sections:
  1. General Rules

  2. Special Gifts

Remember: You can move around the FAQs by choosing from the six (6) main question areas listed in the left hand menu under FAQs or you can use the Search box found in the top right corner of every page.

General Rules

D1. What is fair market value and why is it important?

D1. What is fair market value and why is it important?

Fair market value (FMV), which is not defined in the Income Tax Act , is understood as:

  • the highest dollar value you can get for your property;
  • in an open and unrestricted market;
  • on the day that it was transferred;
  • between a willing and knowledgeable buyer;
  • and a willing and knowledgeable seller;
  • who are acting independently of each other.

This concept is important for several reasons.

  • To issue an official donation receipt, a charity must know the fair market value of what it has received. If the fair market value cannot be reasonable determined, then an official donation receipt cannot be issued.
  • A charity must also determine the fair market value of any advantage that it provides to the donor.
  • The fair market value is required to calculate the eligible amount of the gift; as well, calculations are required to determine the amount of the advantage in relation to the intention to make a gift and the de minimis thresholds.
  • If the charity’s receipts are not based on the concept of fair market value, it risks its registration as a charity. Charities bear the onus of ensuring that the fair market value reflected on official donation receipts is accurate.

D2. What is the “deemed fair market value” rule? Why is it important?

D2. What is the “deemed fair market value” rule? Why is it important?


Short answer

The deemed fair market value rule states that, under certain conditions, a receipt issued for a non-cash gift—known as a “gift in kind”—must be issued for the lesser of:

the gift’s fair market value
or
the cost to the donor or, in the case of capital property, its adjusted cost base, immediately before the gift was made.

 

Long answer

The conditions of the deemed fair market value rule are that

1. the gift was donated after December 5, 2003
 

and

2. the gift was acquired by the donor as part of a tax shelter arrangement
 

or

  the gift was acquired less than three years before the time of the donation
 
or
  the gift was acquired less than ten years before the time of the donation and one of the main purposes of the acquisition was to gift the property to a registered charity or other qualified donee.

Exceptions
There are also exemptions from the deemed fair market value rule. That is, the following gifts will be valued at their fair market value:
  • gifts made as a consequence of a taxpayer’s death;
  • gifts of inventory;
  • gifts of real property situated in Canada;
  • gifts of certified cultural property , which has its own set of rules;
  • gifts of certain publicly traded securities; and
  • some ecological gifts , which have their own set of rules, unless the charity is a private foundation.


Example
  • A donor purchases a work of art in 2004 for $300.
  • Six months later, the donor donates the work of art to a registered charity.
  • Prior to the donation, the donor had the work appraised at $1000.
  • Because the donor is giving the art within three years of having bought it, the charity must issue a receipt for the lesser of its fair market value ($1,000) or the cost to the donor ($300).
  • Therefore, the donation receipt must be made out for $300.

 

More…

For more information on the deemed fair market value rule, see the following Canada Revenue Agency Publications:

D3. A donor told our charity that we should apply the “deemed fair market value rule” to his gift in kind. Whose responsibility is it to ensure that the rule is applied?

D3. A donor told our charity that we should apply the “deemed fair market value rule” to his gift in kind. Whose responsibility is it to ensure that the rule is applied?


Short answer

A donor must inform the charity that the deemed fair market value rule applies.

Long answer

If a donor gives a gift in kind to a charity for which a receipt is issued and the donor fails to notify the charity that the deemed fair market value rule applies, the value of the donor’s gift could be reduced to zero.

More…

Deemed Fair Market Value Rule

D4. Our charity received a gift of a musical instrument. How does our charity determine the fair market value of gifts in kind?

D4. Our charity received a gift of a musical instrument. How does our charity determine the fair market value of gifts in kind?


Short answer

To determine the fair market value of gifts in kind, your charity requires knowledge of the property being appraised or valued and a specialized knowledge of the principles, theories, and procedures with respect to that property. If no one in your organization has these skills and knowledge, you should find someone who does.

Long Answer

A valuator should research the property and obtain market data in the appropriate market place. In the case of personal property, various market levels need to be analyzed to determine the most relevant market for the subject property. The effective date of the valuation is another key factor since economies, markets, and market levels change frequently and rapidly.

If valued at less than $1000
Generally, if the fair market value of the property is less than $1,000, a member of the registered charity or another individual with sufficient knowledge of the property may determine its value. That person should be competent and qualified to evaluate the particular property.

If valued at more than $1000
If the value of the donated property is anticipated to have a fair market value greater than $1,000, an independent appraiser or valuator—someone who is not associated with either the donor or the charity—should determine the fair market value of the items. The Charities Directorate strongly recommends that the property be appraised by a third party. The services of a competent, qualified individual in the appropriate specialty area are important to obtaining a supportable, well-reasoned opinion of value. When the property is appraised, the name and address of the appraiser must be included on the official donation receipt.

The CRA also uses the services of professional appraisers and valuators to ensure the fair market value of the property is appropriately stated.

In some circumstances, the cost of the appraisal may represent a significant cost to the charity relative to the worth of the gift. This is not a basis for foregoing the appraisal. when this is the case, however, the charity may wish to seek an additional cash gift from the donor to defray the cost of the appraisal.

Note
Under certain conditions, the deemed fair market value rule may also apply.

More…

See Who should appraise a gift? for further information.

D5. Our charity received a gift in kind worth more than $1,000. Do higher-priced items have to be appraised by more than one appraiser?

D5. Our charity received a gift in kind worth more than $1,000. Do higher-priced items have to be appraised by more than one appraiser?


Short answer

No. Your charity, however, must be satisfied that the appraised amount accurately reflects the fair market value of the item.

D6. What if the fair market value cannot be determined?

D6. What if the fair market value cannot be determined?


Short answer

If the fair market value of an item cannot be reasonably determined, an official donation receipt cannot be issued.

D7. When determining the fair market value of an item should we include the GST/ HST?

D7. When determining the fair market value of an item should a registered charity include the GST/HST?

No.

The fair market value of an item should not include taxes paid on purchasing the item. Taxes are a cost incurred by the purchaser and are payable to the Crown. The seller merely acts as an agent of the Crown in collecting the taxes

For example, a donor purchases a book from a dealer, pays the dealer the GST/HST on the transaction, then gifts the item to a registered charity. The amount entered on the official donation receipt should be the fair market value of the book before taxes.

D8. What is split receipting

D8. What is split receipting?


Short answer

The term “split receipting” refers to the fact that, from the charity’s perspective, the donation is split into two portions:

  • the portion for which the charity can issue a receipt (that is, the eligible amount)
    and
  • the portion for which the charity cannot issue a receipt (that is, the advantage).
Long answer

Split receipting is a legislative concept in which a donor can receive something in return for a gift and still be eligible for a tax receipt. In such a case, the donor is said to receive an advantage and split receipting is required. The gift must, however, still be a voluntary transfer of property and must meet the intention to make a gift threshold, which means that there is a limit on how much advantage a donor can receive and still get a tax receipt.

Note that, to be taken into account for split receipting purposes, an advantage must meet the intention to make a gift threshold and exceed the de minimis amount for purposes of the donation). If the intention to make a gift threshold is surpassed, that is, the value of the advantage exceeds 80 per cent of the gift, no receipt may be issued for the transaction. If the de minimis amount is not met (the lesser of 10 per cent of the gift or $75), the advantage is not taken into consideration in determining the amount of the receipt.

More...

For more information on split receipting, see

D9. What is an "advantage" and why is it important?

D9. What is an "advantage" and why is it important?


Short answer

An advantage is the total value of any property, service, compensation, use, or any other benefit that a donor receives in return for his or her donation. This value must be taken into consideration when determining the eligible amount of a gift for receipting purposes. In other words, your charity must know this amount in order to issue an official donation receipt for the correct amount.


Example
You donate money to your town’s opera company, which is a registered charity. In gratitude, the company provides you with three tickets to a performance that are valued in total at $150. You are therefore considered to have received an advantage of $150.

 

Long answer

The concept of advantage is very broad. It includes the value of property, the use or enjoyment of property, services, user licences, or other benefits granted to the donor or to a person who is related to the donor.

For receipting purposes, the manner in which the advantage is handled depends on the amount in question.

  • If the value of the advantage is 80 per cent or less of the fair market value of the donation, then a receipt may be issued for the difference (see split receipting).
  • If the value of the advantage is greater than 80 per cent of the value of the donation, no gift is deemed to have been made and an official donation receipt cannot be issued.
  • If the value of an advantage is the lesser of $75 or 10 per cent of the value of the donation, it is considered nominal (called de minimis) and it need not be deducted from the donation amount of the gift for receipting purposes.
  • If the fair market value of the advantage cannot be determined, a receipt cannot be issued.

D10. How does our charity determine the fair market value of an advantage?

D10. How does our charity determine the fair market value of an advantage?


Short answer

Determining the fair market value of an advantage is similar to determining the fair market value of a gift in kind. While only donations of property can be receipted as gifts in kind, the fair market value of any type of advantage (for example, services, accommodation, or meals) must be taken into consideration when determining the eligible amount of a gift for receipting purposes.

The determination of the fair market value of the advantage must be done regardless of the item’s actual cost to the registered charity. That is, even if the charity did not pay for the item it offers as an advantage, its fair market value must be calculated.

Example
One hundred (100) books are donated to the charity by a retailer. These books are worth $25 each on the open market. So the fair market value of the advantage is $25. If the Charity decides to give these books to their donors, this advantage of $25 has to be taken into consideration in determining the eligible amount on the official donation receipt.

 

Note

If the fair market value of the advantage cannot be determined, receipts cannot be issued.


D11. Our charity plans to offer door prizes and baseball caps at our next fundraising event. Do all these benefits have to be treated as an advantage?

D11. Our charity plans to offer door prizes and baseball caps at our next fundraising event. Do all these benefits have to be treated as an advantage?


Short answer

Yes.

Long answer

The value of any complementary benefits provided to participants for attending the event (for example, caps and pens) and the value of door prizes that all attendees are eligible for will be viewed as an advantage unless the aggregate value of such items, per ticket sold, does not exceed the de minimis threshold—that is, the lesser of 10 per cent of the ticket price or $75.

Therefore, for the purpose of establishing the eligible amount, that is the amount of the official donation receipt, your charity needs to combine and average out across all participants the value of all the benefits.

D12. What is the “de minimis” threshold and why is it important?

D12. What is the “de minimis” threshold and why is it important?


Short answer

The de minimis threshold rule allows a donor to receive an official donation receipt for the full amount, when the advantage that the donor receives does not exceed the lesser of $75 or 10 per cent of the amount of the gift to the registered charity.

Example

A museum gives small gifts to acknowledge donations of certain amounts:
  • For a $150 donation, donors receive a calendar worth $14
  • For a $200 donation, donors receive a tote bag worth $25
  • For a $1,000 donation, donors receive a gift certificate worth $100

Can the museum issue donation receipts for these gifts?


The $14 calendar is worth less than the lesser of $75 or $15 (10 per cent of the $150 donation) and is therefore not considered an advantage.
An official receipt can be issued for $150.

The $25 tote bag is worth more than the lesser of $75 or $20 (10 per cent of the $200 donation) and must be considered an advantage.
An official receipt can be issued for $175.

The $100 gift certificate is greater than the lesser of $75 or $100 (10 per cent of the $1,000 donation) and must be considered an advantage.
An official receipt can be issued for $900.

 

D13. Does our charity have to consider every advantage in the calculation of the de minimis amount?

D13. Does our charity have to consider every advantage in the calculation of the de minimis amount?


Short answer

No. Not all the advantages are included in calculating the de minimis amount. But all the advantages are included in determining the eligible amount on the official donation receipt.

Long answer

For purposes of calculating the de minimis threshold, CRA distinguishes between conferring advantages that are integral to a fundraising event and those that are secondary. It does so by not including an advantage that is the “object of the event” in the de minimis calculation.. However, this “object of the event” advantage is still included when determining the eligible amount of the donation,

So a charity must first consider what the object of the event is, and what the value associated with the object of the event is. The value of that activity is not to be included in the calculation of the de minimis threshold. However, the value of that activity is taken into account when calculating the eligible amount and determining how much the receipt is issued for.

As well, any elements of an event offered as benefits or consideration in addition to the activity that is the object of the event, for example, T-shirts given to participants in a fundraiser, are taken into account for purposes of calculation of the de minimis threshold.

Example

At a fundraising dinner, while the gourmet dinner is a value received, the object of the event is a meal. If donors pay $100 per ticket for a fundraising dinner and the meal is valued at $45 per person, the official donation receipt should read $55. If there is also a draw for a $50 door prize, it is counted in determining whether the de minimis threshold is surpassed. That is, are the benefits or consideration beyond providing the meal more than $75 or 10 per cent of the ticket price?

Other examples of objects of an event

  • the value of a comparable ticket for a concert;
  • the value of green fees, cart rental, and meal at a golf tournament.
More…

See FAQ D14 and CRA’s Technical News No. 26

D14. How does our charity determine the eligible amount of the gift?

D14. How does our charity determine the eligible amount of the gift?


Short answer

Your charity can issue an official donation receipt for only the “eligible” amount of the gift. This is the fair market value of the gift minus the fair market value of the advantage.

Example

A donor donates $5,000 to a registered charity.

As a thank you, the registered charity gives the donor a $250 hotel stay.

The eligible amount of the gift is calculated as follows:

  • The fair market value of the property transferred to the charity
$5,000.00
  • Less the fair market value of the advantage to the donor
$250.00
========

Equals the eligible amount of the gift

$4,750.00

Although the $250 is less than 10 per cent of $5,000, the de minimis threshold still applies, since the amount is more than $75.


Long answer
  • If there is no advantage to the donor or if the advantage is of a de minimis amount, the eligible amount will be the same as the donation amount (and it is not a split-receipting situation).

  • If there is an advantage to the donor, the amount of the gift is not the same as the amount that appears on the official donation receipt (and it is a split-receipting situation).
Note

When completing this calculation, a charity must keep in mind the concept of the “intention to make a gift” threshold. In order to meet this threshold, the amount of the advantage received by the donor cannot exceed 80 per cent of the fair market value of the total property transferred. And the advantage received by the donor must not exceed the de minimis amount.

D15. In split receipting, what is the "intention to make a gift" threshold?

D15. In split receipting, what is the "intention to make a gift" threshold?

When a donor has received an advantage in return for his or her gift to a registered charity, in order for the donation to qualify for an official donation tax receipt, the gift must meet what is called the “intention to make a gift” threshold.

In order to meet this threshold, the amount of the advantage received by the donor cannot exceed 80 per cent of the fair market value of the total property transferred.

Example

A donor gives a charity $200 and receives in return dinner theatre tickets worth $175.
  • The intention to make a gift threshold is $160 (80 per cent of $200)
  • The tickets, which have a fair market value of $175, exceed the threshold ($160) by $15.
  • Therefore, the gift is not eligible for an official donation tax receipt.

Special Gifts

D16. What is the general principle on receipting of donations of services?

D16. What is the general principle on receipting of donations of services?


Short answer

Contributions of services (that is, time, skills, or effort) do not qualify as gifts. At law, in order for there to be a gift, there must be a transfer of property; services do not involve such a transfer.

Long answer

A charity can, however, pay for services rendered and later accept the return of all or a portion of the payment as a gift, provided it is returned voluntarily. This is often referred to as a cheque exchange. In such a case, a charity should make sure that it keeps a copy of the invoice issued by the service provider. The invoice and cheque exchange not only ensure that the charity is receipting a gift of property, but they also create an audit trail, as the donor must account for the taxable income either as remuneration or as business income.

A charity should not issue an official donation receipt to a service provider in exchange for an invoice marked “paid”. Eoing so would raise questions about whether any payment has been transferred from the charity to the service provider and, in turn, whether any payment has been transferred back to the charity.

(Although, in some circumstances, CRA does permit a charity to issue a donation receipt to volunteers, in lieu of re-imbursing expenses incurred by the volunteer, this practice does not extend to service providers. For more information on when volunteers can receive a donation receipt, see question S30. Re-imbursed expenses are not income for a volunteer, and do not have to be reported as remuneration or business income.)

 

Example  
  ABC Landscaping ploughs the snow and sands the parking lot of a charity.
 
  • Between January and March, ABC cleans the charity's parking lot ten times.
  • Each cleaning is worth $200.
  • At the end of March, the owner of ABC says, “Just give me a donation receipt for $2,000.”
  Can the charity issue a donation receipt to ABC?
  No. The charity cannot issue a receipt. Gifts must involve a transfer of property; providing a service does not involve a transfer of property.
 

However, ABC could bill the charity for the $2,000. The society would pay the invoice.

If ABC subsequently gives the charity $2,000, or another amount, ABC can receive a donation receipt for that amount.

 

Longer answer

Sometimes the line between what constitutes a property and what constitutes a service is quite clear. If an individual or company cleans the charity’s office, the individual or company is providing a service rather than a property and this cannot be receipted as a gift in kind.

Other scenarios are less clear, either because it is not certain whether the scenario involves a service or property or whether the donor can be considered to have transferred property to a charity. For example, can a website be considered property for the purposes of making a gift? The Income Tax Rulings Directorate considers such proposed transactions on a case-by-case basis.

D20. What are the benefits of having property certified as cultural property?

D20. What are the benefits of having property certified as cultural property?


Short answer

The Income Tax Act provides favourable income tax treatment for the disposition of certified cultural property to institutions and public authorities designated by the Minister of Canadian Heritage.

Long answer

This treatment includes:

  • a tax exemption for capital gains realized on the disposition of cultural properties to those designated institutions;
    and
  • when disposition is as a gift to those institutions, a tax credit or a deduction to donors of up to 100 per cent of their net income.
More…

For further information, see
Guide T4037 Capital Gains .

D17. What are the general principles on receipting of capital property as gifts?

D17. What are the general principles on receipting of capital property as gifts?


Short answer

Capital property is depreciable property that, if sold, would result in a capital gain or a capital loss to the owner. Capital property does not include the trading assets of a business, such as inventory. The deemed fair market value of a gift of capital property made by a taxpayer is used by the charity to determine the eligible amount of the gift for receipting purposes.

Long answer

The following properties are generally capital properties:

  - cottages;
- securities, such as stocks, bonds;
 

and

  - units of a mutual fund trust and land, buildings, and equipment used in a business or a rental operation

Generally, a taxpayer or corporation that gives capital property as a gift is deemed to have received proceeds of disposition equal to the fair market value of the property, subject to the deemed fair market value rule. If the fair market value of the property exceeds its adjusted cost base, the taxpayer or corporation will realize a capital gain as a result of such a disposition. A taxpayer or corporation can reduce the capital gain, however, when the gift or bequest of a capital property is made to a registered charity.

In addition, if a donor makes a gift of capital property to a registered charity and the fair market value (or deemed fair market value, if applicable) of the donated capital property is determined to be more than its adjusted cost base, the donor may designate an amount that is less than the fair market value to be the proceeds of disposition. This may allow a donor to reduce the capital gain otherwise calculated.

Any such amount that a donor chooses to designate in respect of the donation must be within the following limits:

(a) it cannot be more than the fair market value of the property at the time the gift is made
 

and

(b) it cannot be less than the adjusted cost base of the property.

The designated amount is deemed to be the proceeds of disposition of the property. It is also considered to be the fair market value (or deemed fair market value, if applicable) of the gift made by the taxpayer for the purposes of determining the amount of the deduction or tax credit. Furthermore, this amount is used by the charity to determine the eligible amount of the gift for receipting purposes.

Keep in mind that a charity always issues the receipt for fair market value or deemed fair market value. The donor may choose to use the adjusted tax base.

Note

Because of the complexity of capital property as gifts, a charity will benefit from seeking professional help in sorting out all related issues.

 

D18. What are the general principles on receipting gifts of certified cultural property?

D18. What are the general principles on receipting gifts of certified cultural property?


Short answer

Certified cultural property is property that has been determined by the Canadian Cultural Property Export Review Board to be of “outstanding significance and national importance” to Canada. The Review Board issues tax certificates for the fair market value of such items. Certified cultural property can include, among other examples:

  • art
  • archival material
  • decorative arts
  • musical instruments
  • military objects
  • technological objects

Long answer

Special incentives have been created to encourage Canadians to keep in Canada cultural property that is of outstanding significance and national importance. Under the Cultural Property Export and Import Act, people can donate this type of property to Canadian institutions and public authorities that have been designated by the Minister of Canadian Heritage. You can find a list of institutions and authorities designated by the Minister of Canadian Heritage here

The eligible amount of the gift is calculated based on the fair market value of the property, as of the date the donor legally transferred ownership.

The fair market value of the donated property, as determined by the Canadian Cultural Property Export Review Board, applies for a 24-month period. When that 24-month period lapses, the fair market value is re-determined and the new value holds for the following 24 months. When a donor makes a gift of the property, it is the last determined or re-determined fair market value that is used to calculate the eligible amount of the gift.

 

Note

As this is another complex area, charities receiving gifts of certified cultural property will benefit from professional help in sorting out related issues.

D19. Does cultural property have to be certified by the Canadian Cultural Property Export Review Board to be considered a gift-in-kind?

D19. Does cultural property have to be certified by the Canadian Cultural Property Export Review Board to be considered a gift in kind?


Short answer

No, not all cultural property has to be certified by the Review Board. Cultural property not certified by the Review Board is considered a regular gift in kind. So, the charity receiving the non-certified property may still issue an official donation receipt based on the fair market value as determined for any gift in kind (see FAQ D4). The donor would NOT receive the tax advantages described in FAQ D18 for certified cultural property.

Exception

Cultural property donated to registered charities or other qualified donees within Canada that are not designated Canadian institutions or public authorities is not subject to valuation through the Review Board process.

D21. If a charity that is a designated institution disposes of cultural property other than to another designated institution, what are the tax implications?

D21. If a charity that is a designated institution disposes of cultural property other than to another designated institution, what are the tax implications?


Short answer

Unless the property is transferred to another designated cultural institution
and
if the property were disposed of within 10 years of first being certified by the Canadian Cultural Property Export Review Board,
the organization would be subject to a special tax equal to 30 per cent of the fair market value of the property.

More…

More information on this topic is available in IT-407 Dispositions of Cultural Property to Designated Canadian Institutions.

D22. Our charity received a donation of ecologically sensitive land from a farmer. Can we issue an official donation receipt?

D22. Our charity received a donation of ecologically sensitive land from a farmer. Can we issue an official donation receipt?


Short answer

It depends. In order for an official donation receipt to be issued, the donation must:

  • fully qualify as a gift under Canadian tax law
    and
  • must meet the requirements for ecologically sensitive land.
Long answer

For it to be a gift, there must be a voluntary transfer of property. For example, a farmer donated a part of her land to your charity because as a condition for developing a portion of her property, she must donate part of her land for parkland. This donation would not qualify as a gift, as it was not voluntary.

All requirements for the gifting of ecologically sensitive land must also be met before a donation will be considered and treated as such. The requirements include:

  • the charity must be approved as an environmental charity and
  • each donation of land or a partial interest in land must be certified as ecologically sensitive before it can be included under the Ecological Gifts Program. The federal Minister of the Environment or a designated authority carries out this certification.
More…

A gift of ecologically sensitive land is dealt with in FAQ D20 and D21. Because of its complexity, a charity may wish to seek professional advice in dealing with this kind of donation.

 

D23. What are the general principles on receipting of gifts of ecologically sensitive land?

D23. What are the general principles on receipting of gifts of ecologically sensitive land?


Short answer

Gifts of ecologically sensitive land to a municipal or public body performing a function of government in Canada qualify for favourable tax treatment. Corporate donors may deduct the amount of their ecological gifts (eco-gifts) directly from their taxable income, while the value of an individual’s eco-gift is converted to a non-refundable tax credit. Donors of eco-gifts also receive a reduction in the taxable capital gain realized on the disposition of the property.

There are a number of steps involved in this process, including

  • arranging the donation
  • preparing and filing information on ecological sensitivity
    and
  • determining the fair market value of the donation.
Long answer

In order to receive a gift of ecologically sensitive land, a registered charity must:

  • have as one of its primary purposes “the conservation and protection of Canada’s environmental heritage” or some similar statement acceptable to the federal Minister of the Environment
    and
  • apply to Environment Canada for eligibility.

In addition, before it can be included under the Ecological Gifts Program, a donation of land or a partial interest in land must be certified as ecologically sensitive, that is, important to the preservation of Canada’s environmental heritage. The federal Minister of the Environment or a designated authority carries out this certification.

The Minister—through the offices of an appraiser—will also ultimately determine the fair market value of the gift. For a gift of a covenant or an easement or, in Quebec, a real servitude, the fair market value of the gift will be the greater of:

  • the determined fair market value of the gift
    or
  • the amount of the reduction of the land’s fair market value that resulted from the gift.

The fair market value of the donated property, as determined by the Minister, will apply for a 24-month period after the last determination. When 24 months have elapsed, a re-determination is required. The last determined or re-determined value is the value a charity must use to calculate the eligible amount of the gift, whether the gift is claimed as a gift of ecologically sensitive land or as an ordinary charitable gift.

Donors may gift fee simple donations (comprehensive rights to the real property) or partial interests (any one or combination of lesser rights short of a fee simple donation). Whether fee simple donations or a donation of a partial interest in land, all owners have a responsibility to maintain the biodiversity and environmental heritage of these properties in perpetuity.

More...

For more information, visit the Ecological Gifts Program or contact the program’s National Secretariat at 1-800-668-6767.

In addition, a very detailed and helpful handbook is available.

Note

This is a complex area, so charities receiving gifts of ecologically sensitive land will benefit from professional help in sorting out related issues.


D24. A donor wants to give our charity some ecologically sensitive land, but also wants to pass it on to her heirs. What does our charity do if the donor wants to maintain some connection with the land?

D24. A donor wants to give our charity some ecologically sensitive land, but also wants to pass it on to her heirs. What does our charity do if the donor wants to maintain some connection with the land?


Short answer

Although many eco-gifts are outright donations of land with no conditions (called “fee simple” donations), making such a gift does not necessarily mean severing the connection donors have with their land. There are options available.

Long answer

A conservation easement, covenant, or servitude is an agreement that is registered on title and that protects a property’s conservation value by permanently placing terms and conditions on its use that are determined by the donor. It can place limitations on subdividing, the number and location of structures, and the types of land use. Under the terms of the agreement, the donor continues to own the land and may live on it, sell it, or pass it on to heirs. The recipient ensures that the restrictions put on the property are followed in the future, regardless of who owns the land.

Whether your charity receives a fee simple donation or a donation that is a partial interest in land, in exercising your rights both you and the donor have a responsibility to maintain the biodiversity and environmental heritage of these properties in perpetuity.

D25. Our charity received a gift of mortgaged property. In what amount should we make out the official donation receipt?

D25. Our charity received a gift of mortgaged property. In what amount should we make out the official donation receipt?


Short answer

In order to determine the value of mortgaged property, your charity will have to consider all relevant factors, including market prices, the terms and conditions of the mortgage, and the amount and conditions of any other charges on the property.

In order to determine the eligible amount, it will be necessary to value the mortgage. Accurate valuation of a mortgage may involve examining the terms and conditions of the arrangement and not just calculating the outstanding principal. To do this, you may wish to hire an expert in the area.

Example

  • A house is transferred to a charity. The only advantage given by the charity is the assumption of the mortgage. The fair market value of the house is $575,000. The amount of the mortgage being assumed by the charity is $124,000.

  • If the terms and conditions of the mortgage were in line with the current market, the eligible amount would be $451,000 ($575,000 – $124,000 = $451,000).

  • The terms and conditions of the mortgage could be unfavourable, however. For example, high interest rates or high penalties for transfer might result in the charity having to pay a third party $150,000 to assume the mortgage. In such a case, the eligible amount would be $425,000 ($575,000 – $150,000 = $425,000).

Note: If any other advantage were being given to the charity, the amount of that advantage would also have to be considered when determining the eligible amount.

 

D26. What are the general principles on the receipting of charitable annuities?

D26. What are the general principles on the receipting of charitable annuities?


Short answer

A charitable gift annuity is an arrangement under which a donor contributes funds to a charitable organization in exchange for guaranteed payments for life at a specified rate depending on life expectancy or for a fixed term. When this occurs, the advantage received by the donor is a stream of guaranteed payments for a period of time.

The eligible amount for receipting

 
of the amount contributed by the donor
is equal to the excess
______________over__________________
 
the amount that would be paid at the time of donation to an arm’s length third party, like a trust company or bank, to acquire an annuity to fund the guaranteed payments.

 

Example

A donor makes a $100,000 contribution to a charitable organization.
  • The donor’s life expectancy is eight years.
  • The donor is to be provided annuity payments of $10,000 per year, which amounts to $80,000 over eight years.
  • The cost of an annuity that will provide $80,000 over eight years is $50,000.

Tax treatment

  • The donor receives an official tax receipt for $50,000 for the year of donation.
  • The donor receives $80,000 in annuity payments, of which $30,000 will be included in income over the eight years.

 

As indicated, the eligible amount for receipting is equal to the excess of  
$50,000

over the amount contributed by the donor over

$100,000

The amount that would be paid at the time of donation to an arm's length third party, like a trust company or bank, to acquire an annuity to fund the guaranteed payments equals

$50,000

 

Long answer

Charitable annuities issued after December 2002 are taxed under the Income Tax Act in the same manner as all other annuity contracts are taxed. Assuming the annuity is a “prescribed annuity contract” as defined in subsection 304(1) of the Income Tax Regulations, annuity payments are included in the taxpayer’s income in the year the payments are received and the taxpayer may claim a deduction in respect of the capital element of the payments.

While charities are advised to seek professional help in sorting out charitable annuities, specific reference should be made to section 300 of the Regulations. The calculation of the capital element of a life annuity apportions the “adjusted purchase price” of the donor’s interest in the annuity (that is, the cost of the annuity) over the expected life of the donor. The expected life of the donor is determined by referring to the 1971 Individual Annuity Mortality Table as prescribed in Volume XXIII of the Transactions of the Society of Actuaries.

D27. Our charity has been given a "charitable remainder trust". What is it and how is it receipted?

D27. Our charity has been given a "charitable remainder trust". What is it and how is it receipted?


Short answer

Generally, a charitable remainder trust involves transferring property to a trust whereby the donor or beneficiary retains a life or income interest in the trust but an irrevocable gift of the residual interest is made to a registered charity. A charitable remainder trust may be created either through provision in a will (a testamentary trust) or through a living (inter vivos) trust established and effective during the lifetime of the donor. Your charity can issue an official donation receipt for the fair market value of the residual interest at the time that the residual interest vests in your charity.

Long answer

The Canada Revenue Agency will consider a gift of residual interest to have been made if all of the following requirements are met:

  • property is transferred
  • the property must vest with the recipient charity at the time of transfer.

  • A gift is vested if:
    • the person or persons entitled to the gift are alive and their whereabouts is known,
    • the size of the beneficiaries’ interests are ascertained,
      and
    • any conditions attached to the gift are satisfied.

  • the transfer must be irrevocable
    and
  • it must be evident that the recipient organization will eventually receive full ownership and possession of the property transferred.

The method of valuing a residual interest in real property or an equitable interest in a trust, whether for determining the amount of a charitable donation or other tax consequences, will vary according to the type of gift, other interests in the property or trust, and the documentation providing the gift. The general approach is to value the various interests taking into consideration the fair market value of the property itself, the current interest rates, the life expectancy of any life tenants, and any other factors relevant to the specific case. In the case of property other than real property, the longer the period before full ownership of the property is passed to the charity, the more difficult it is to establish its value.

In cases where the size of a residual or equitable interest at the time of the donation cannot reasonably be determined, such as when a life tenant or trustee has a right to encroach on the capital of the trust, no deduction or tax credit in respect of the donation will be allowed.

Example 1
Assume that a trust is created by the will of a taxpayer to hold property gifted by the deceased to a registered charity.

The terms of the will require the trustees to pay all of the income earned by the trust to the taxpayer’s surviving spouse and, on the death of that spouse, to transfer the property to the charity.

Neither the spouse nor any other person has the power to encroach on the capital of the trust.

In this case, a testamentary gift of an equitable interest in a trust is considered to have been made and the taxpayer is deemed to have made a gift of the interest to the charity in the taxation year in which he or she died. Once it is established that a gift has been made, the value of the gift at the time of the transfer must be determined before it can be claimed for income tax purposes.

 

Example 2

Assume a taxpayer transfers a property to a trust and the trustee is instructed to pay all of the income earned by the trust to the taxpayer during the taxpayer's lifetime and, on the death of the taxpayer, to transfer the property to a registered charity.

If all of the requirements listed above were satisfied at the time of the transfer to the trust, an inter vivos gift of an equitable interest in a trust is considered to have been made at that time.

 

Note

Considering the complexity of a charitable remainder trust, your charity is well advised to consult professional help.