This learning module provides information on: The rules around deemed fair market value (FMV); When do you apply the deemed FMV rule?; How to determine deemed FMV for gifts-in-kind?; What are the exceptions to the rule?; and Where can you find additional information on deemed FMV?

Introduction

This learning module provides information on:

• The rules around deemed fair market value (FMV);
• When do you apply the deemed FMV rule;
• How to determine deemed FMV for gifts-in-kind;
• What are the exceptions to the rule; and
• Where you can find additional information on deemed FMV.

The Rules

The deemed fair market value rules apply if:

• the gift was donated after December 5, 2003

and

• 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.

Gifts-In-Kind

For gifts-in-kind that are not acquired under a tax shelter arrangement, the deemed FMV rules generally apply to tangible personal property such as art, collectibles, jewelry, antiques.

The deemed FMV of the gift-in-kind is 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.

Example:

 In October, 2008 your Charity receives an oil painting. The donor has an appraisal dated August, 2008 with a value of $1,000.

Your Charity should ask:

• Did the donor buy the painting within the last three years?
• If yes, how much did he pay for it (cost)?

Let’s say he bought it for $300 in July, 2006. This is within three previous years. Therefore, the deemed fair market value rule applies. This means a tax receipt can be issued for $300 and not $1,000, the appraised value.

Exceptions

The deemed fair market value rule does not apply to gifts such as:

• gifts made as consequence of a taxpayer’s death
• inventory
• real property situated in Canada
• Certified Cultural Property
• gifts of certain publicly traded securities
• Ecologically Sensitive Gifts

For a complete listing, go to P113 “Gifts and Income Tax” at:

 www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html

More Information

Information on fair market value (FMV) can be found here.

Notice

Information in this module is provided for general educational purposes and not as legal or accounting advice. Consult a lawyer or accountant for professional advice.

Information is accurate as of January, 2009.

For changes after this date, consult Canada Revenue Agency.