D4. Our charity received a gift of a musical instrument. How does our charity determine the fair market value of gifts in kind?
Short answerLong 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.
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.
Under certain conditions, the deemed fair market value rule may also apply.
See Who should appraise a gift? for further information.