Is there a way to transfer a cultural donation tax receipt?

[Dmaynard]

My father is planning on making a cultural donation to a museum. He will receive a 100K tax receipt for the donation. My marginal tax rate is significantly higher than his, and he already has more write-offs than he can use. Can he transfer the tax receipt to me, or sell/gift me the piece which I can then donate?

The Canada tax code seems to suggest that any transfer of property between us would be assessed at the fair market value because we don't have an "arm's length" relationship (Income Tax Act 69(1)(c)) Source (https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-69.html). This would mean that if he gave or sold me the piece he would have to declare it as 100k of income (which defeats the purpose of getting a write-off).

Is there some way to transfer the piece without incurring the tax from the added 'income'? Is there a situation where this would work if the transfer was made several years ago, or the piece was of a lower value? Could he sell me the piece and apply a "friends and family" discount (is this even legal?)? It seems strange that you can give gifts of cash and not pay a penalty, but giving any object triggers this requirement to declare it as income for the giver.

[bluebelle]

short answer - no.   The only way you're getting the tax receipt is if your father gave it to you and you then donated it.

Has the cultural item appreciated greatly in value since your father acquired it?   Since he's getting a $100K tax receipt, whatever the item is, it's valuable.

I believe the item would be treated as capital property and thus, if your father gives it to you, he'd need to pay the taxes on any increase in value of the item during the time he's owned it.   Depending on your situation, this could still be beneficial to your family.  You'd have to run the numbers....say for example it was worth $50K when your father acquired it, he'd have to pay the taxes on 1/2 of the $50K capital gain.  You could 'gift' your father the cash to pay those taxes.  If the $100K tax receipt reduced your taxes by more than the taxes your father would need pay if he gifted the item to you, it's beneficial.   Note - I am a lowly IT geek, not a tax specialist, this feels like a loop-hole, and I do not know if the CRA would later come back and deny it.  You need to talk to an accountant who specializes in Canadian taxes.
 
There is no "gift tax" in Canada.  Any resident of Canada who receives a gift or inheritance of any amount from almost any source (except from an employer) will not have to include this in their income.  However, if capital property (e.g. real estate, investments) is given as a gift, the person who has given the gift will be deemed to have sold the capital property at fair market value (FMV), and will have to pay tax on any resulting capital gain.  The FMV is deemed to be the "cost" to the person to whom the shares were given.  If money or capital property is given or loaned to a spouse or a related minor child, attribution rules will apply.

[Dmaynard]

Has the cultural item appreciated greatly in value since your father acquired it?   Since he's getting a $100K tax receipt, whatever the item is, it's valuable.

Thanks bluebelle, my father is the artist who created the piece that is being donated many years ago. So I suppose it went from $0 to $100K.

short answer - no.

I suspected as much. It just seemed like there should be a way to do this-- I grew up getting paintings from my dad as birthday presents and never even considered that they'd need to be declared to CRA, so this whole notion of my dad needing to declare gifts he gives as income seems weird to me.

[bluebelle]

Has the cultural item appreciated greatly in value since your father acquired it?   Since he's getting a $100K tax receipt, whatever the item is, it's valuable.

Thanks bluebelle, my father is the artist who created the piece that is being donated many years ago. So I suppose it went from $0 to $100K.

wouldn't the painting have a value once completed?   If your father's art has a 100K value while he's still alive, the painting would have had a value just as he completed it?  There is probably not that much appreciation, is there?  unless he painted it 50 years ago as an unknown and now his paintings are work more.
Like I said, you need to talk to a tax specialist....this example feels very different that if he'd bought something that had appreciated or something handed down for generations.

[Dmaynard]

you need to talk to a tax specialist

Thanks for the advice, I talked to my accountant already, she said that she'd give it some thought but she'd never encountered anything like that before and thought it would be covered under the Income Tax Act 69(1)(c) that I cited. I thought I'd try and see if anyone had any suggestions of things to look into.

wouldn't the painting have a value once completed?

Interesting point, but I think it's immaterial. If my dad gives me the artwork he'll have to declare the gift as income at the fair market value of the work. If he sells me the work he'll have to declare the sale as income since he's the creator of the work and being an artist is his profession; I don't think the capital gains tax rules apply here e.g. even if the work was worth 99K when he initially created it I'm pretty sure he doesn't get to sell it to me for 100K and only pay tax on 50% of 1K. If he was a collector who acquired it then sure.

[Mighty Eyebrows]

Just one more thought: If your father made a living making artwork, then when he sold artwork in the past, it would have been considered business income not a capital gain. Things we usually think of as capital gains may not be, such as when you buy and flip too many houses, CRA considers you to be in the business of flipping and stops you from treating it as capital gain.

However, this could mean that the artwork is only worth what he says it is worth until it leaves his hands. In essence, it might be that he can give it to you for free (well, for the cost of canvas and paint) since he is the creator, not an investor who bought the item. Employee discounts are generally not taxed as capital gains for the same reason.

Warning: You really need an accountant with expertise in this area. I am not a tax professional and the above may not be the correct interpretation of the situation. Just some food for thought.

[Dmaynard]

Any idea on how to find an accountant or tax-specialist who is knowledgeable in these areas? I kind of assumed my personal accountant would have the know-how on this, or at least be able to direct me to the people who would know, but so far it doesn't seem like they're doing much work for me in that regard.