14 PUP includes: • Bottles of wine • Loyalty points programs • Air Miles • Shoppers Optimum points • Religious items • Gift certificates • Clothes • Artwork • Hobby items • Comic books • Model trains • Toys • Land (e.g. a fishing hole) • Books Normally, when these types of items are donated to a charity, the charity does not issue a receipt, nor does the owner expect one. This is, in most cases, the appropriate treatment. However, technically it does not have to be so. The ITA specifies that for donations of PUP, the minimum cost is deemed to be $1,000. This is true regardless of the actual cost to the owner. The ITA also deems the item sold for a minimum of $1,000, again regardless of the actual sale/donation value. So, when taken into the donor’s tax return, there is no tax- able event on items that are worth less than $1,000. On the other hand, a tax receipt can still be issued for these types of items. The value on the receipt would reflect the item’s fair market value. This receipt could then be used to generate some tax credits on the return (small though they may be). Charities should note, howev- er, that valuing household items can be very difficult, and receipts should only be issued if value can be defensibly determined. Example 1 Sulu bought a “Tickle Me Elmo” doll for $20. Shortly thereafter, it became a col- lector’s item and the fair market value increased to $100. Realizing that there are needy children without a Tickle Me Elmo, Sulu donates the toy to a local charity. In return, he receives a tax receipt for the value of $100. On his tax return Sulu calculates his capital gain as follows: Deemed Proceeds of Disposition $1,000 Deemed Cost -$1,000 Capital Gain 0 As there is no capital gain, there is no tax payable. On the other hand, Sulu will receive a tax receipt for the fair mar- ket value of the doll ($100). Applying our assumptions (i.e. a tax rate of 46% and Sulu has already made at least $200 of donations), the $100 receipt will allow Sulu to claim back $46 of taxes owing from other sources. The implication of this policy is that when items are donated which have an actual value greater than $1,000 but a cost lower than $1,000, the value of the donation will be enhanced because the amount of the capital gain will be reduced. Example 2 McCoy decides to donate a model train set that he purchased for $100, but has it appraised in advance and discovers to his delight that it is actually worth $2,000. McCoy still decides to donate the train set to a willing charity, which issues him a receipt for $2,000. He then calculates his taxes as follows: Actual Proceeds of Disposition $2,000 Deemed Cost $1,000 Capital Gain $1,000 Tax $230 Tax Credits $920 Total leftover credits $690 There are three notes to make about the type of property donated. First, make sure that the property is actually transferable. While loyalty pro- gram points are property, some plans will not allow you to transfer the points to anyone else, and so they effectively cannot be donated. In this scenario, a donor may consider redeeming the points and then donating the actual item. Of course, this may prove to be of limited assistance to a charity that sud- denly finds itself obligated to use a plane ticket to some place it did not want to go on a date it did not want to travel. Second, both the individual and the charity must obtain a reliable valuation. From the perspective of the individual, an improper valuation could lead to a donation tax credit being disallowed by the CRA. The charity, on the other hand, has an obligation to issue proper receipts. So, if the receipts are overval- ued, the charity may find itself facing uncomfortable questions from the CRA. And the donor a difficult fight about their tax receipt. Finally, there are rules in the ITA which prevent situations where donors are buying and donating items that fall below the $1000 threshold simply to create tax receipts to shelter income from other sources. While the charity will not necessarily be punished if involved in such a scenario, the donor could have the receipts disallowed. LISTED PERSONAL PROPERTY Listed Personal Property (LPP) is a sub- class of PUP. It consists of certain specif- ic items which are held both as an investment and as hobby items. The list includes artwork, stamps, books, coins and sculptures. Unless it is Certified Canadian Cultural Property (see earlier in this article), LPP has the same tax treatment as PUP. REAL ESTATE Generally, the donation of most real estate will be treated like the donation of any other type of capital property. If the item is inventory, the donor will be taxed on the full proceeds of disposi- tion, and, if the item is capital, the donor will only pay tax on 50% of the proceeds of disposition. There are, how- ever, two significant exceptions to this rule. Principal residence The first exception is the donation of a principal residence. Canadian residents are not taxed on the gain arising from the appreciation of their principal resi- dence. So, if a donor bought his home for $100,000 and sells (or donates) it when it is worth $1,000,000, no tax will be payable on the appreciation in value (assuming the home was the donor’s principal residence for that entire time). If the donor were to donate the home to a charity, not only would there be no tax consequences on the disposition, but he
