Split Receipts

1
Split Receipts

• John Loukidelis
• Simpson Wigle LLP
• blog.simpsonwigle.com
• May 10, 2007

2
Introduction

• Outline of issues
• Recent CRA technical interpretations

3
Issues

• Intention
• "Eligible amount"
• Deemed fmv rules

4
Status

• Draft legislation on split receipts first
  released December, 2002
• Bill C-33 debated at second reading at the end of
  March

5
Summary
6
Intention Whats it good for?

• "The existence of an amount of an advantage in
  respect of a transfer of property does not in and
  by itself disqualify the transfer from being a
  gift" IF
• amount of advantage not greater than 80 of fmv
  of property transferred OR
• transferor satisfies Minister that the transfer
  was made with the intention to make a gift

7
Intention Whats it good for?

• Finance and CRA 248(30) requires intention in
  all cases
• Even where 80 threshold not exceeded, CRA can
  demand proof of intention
• Charity auction Values must be posted before you
  can issue receipt
• "Intention" seems to mean subjective feelings.

8
Intention Whats it good for?

• McPherson v. The Queen, 2006 TCC 648 no donative
  intent, no tax benefit
• "20 There is an element of impoverishment
  which must be present for a transaction to be
  characterized as a gift. Whether this is
  expressed as an animus donandi, a charitable
  intent or an absence of consideration the core
  element remains the same."

9
Eligible Amount

• Deduction in respect of eligible amount
• Eligible amount is the fmv of the gifted property
  minus "the amount of the advantage"

10
Advantage

• the value of any "property, service,
  compensation, use or other benefit"
• that the donor or any person or partnership who
  does not deal at arm's length with the donor
• has "received, obtained or enjoyed"
• including "in the future and either absolutely or
  contingently"

11
Advantage

• That is
• consideration
• gratitude or
• related in any other way
• to the transfer
• Limited-recourse debt

12
FMV Rules

• Why? Toronto Star Apr 28/07 Toronto church
  receipts 273 million in five years.
• "Buy low, donate high"
• CRA has succeeded in the courts even without the
  new rules

13
FMV Rules

• If transfer of certain types of property, then
  deemed fmv of lesser of (a) fmv otherwise
  determined and (b) tax cost
• In buy low, donate high programs gov't denies
  that fmv is amount paid (you are paying for tax
  shelter)

14
FMV Rules

• If you acquired property from non-arm's length
  person, its deemed fmv could be the persons cost
• "excepted property" listed securities mutual
  fund units Canadian real property inventory
  cultural property
• What is caught? Prints, comic books, school
  supplies

15
CRA Pronouncements

• Allocation of Advantage
• Generally, advantage calculated for each property
  BUT if advantages relates to all properties, then
  total of advantages subtracted from value of all
  gifts
• Eg 3 x 100 gifts. 90 advantage
• Advantage related to one gift eligible amount
  200
• Advantage related to all gifts eligible amount
  210

16
CRA Pronouncements

• Gift of Art With Loan-Back
• A donates art (cultural property) to B, and B
  loans art back to A
• Loan cancelled upon the death or disability of A
• A cannot derive income from the property
• B can repossess if A does not respect terms of
  the arrangement

17
CRA Pronouncements

• Gift of Art With Loan-Back
• Advantage to A (the loan) would be valued by
  expert based on A's age and rents normally
  charged for this type of loan
• CRA ruled that A can claim tax credit in respect
  of fmv of art minus loan value
• No deemed fmv rule because object is cultural
  property (39(1)(a)(i.1))

18
CRA Pronouncements

• Texas Hold'em
• 500 individuals pay 250 each to attend the
  tournament.
• They receive 20 of food.
• 20,000 of prizes available.
• Fee for similar event is 100 (if can't determine
  this amount, eligible amount is nil)

19
CRA Pronouncements

• Texas Hold'em
• Advantage is not cost of goods and services to
  charity rather look at what participant would
  pay for similar goods and services in
  unrestricted open market
• 250 20 (20,000/500) 100 90

20
CRA Pronouncements

• Gift of Books
• Grandpa donates money to school board with
  direction to buy books for library of school
  attended by grandson
• Advantage/benefit?
• CRA Generally, no