13 CANADIAN CULTURAL PROPERTY The Government of Canada has set up the Canadian Cultural Property Export Review Board to certify which artwork or other item has cultural significance to Canadians. This not only applies to works with a Canadian aspect, but it also applies to any cultural work that Canada may want to keep within its borders. If the donation is certified and made to a designated institution, there is no tax due on the disposition. Thus, if the charity is hoping to attract donations of property with a particular cultural significance, it is important to secure the designation. There are two categories of designation: • Category A is granted for an indefinite period to institutions that are well-es- tablished and meet all of the criteria related to certain legal, curatorial and environmental requirements. • Category B is granted in relation to an institution involved in the proposed acquisition of an object (or collection) that does not meet all of the criteria for designation, but which has demonstrated its capability to effec- tively preserve the type of property in question. The criteria by which the review board makes its decisions is beyond the scope of this article, but the board has pub- lished a guide on the subject available on their website. More information on the program is available from the Department of Canadian Heritage on its website at https://www.canada.ca/en/ser- vices/culture/history-heritage/mov- able-cultural-property.html. As a proper certification may involve many months of research, a request for certification should be made well before the donation is contemplated. If a taxpayer donates certified property to a designated institution, there will not be any tax owing on the gift. In addi- tion, the taxpayer is entitled to a tax receipt for 100% of the value of the gift (as determined by the review board). INVENTORY The determination of whether an item is inventory or capital is one of the most fundamental areas of our income tax system, but nevertheless is shrouded in vagueness and controversy. For example, to most people a house is a capital prop- erty. But if the owner of the home is engaged in the business of buying and selling homes, the property becomes inventory of a business. There is a differ- ent tax treatment on the disposition of inventory as 100% of the value is included in income. Nonetheless, the donation of inventory will result in tax credits that will at least offset the tax due on the disposition of the inventory. Example: Spock runs a bakery. His business is not incorporated, so all of the income of the business is taxed at his personal rates during the year. After Spock has deduct- ed all of his expenses, he is left with tax- able income in the year of $50,000. If Spock sells one more cake that is worth $100, he will pay tax at his bracket on that cake of, say, $31. However, upon donating the cake, he will be entitled to tax credits of approxi- mately $40 (assuming that he has already made at least $200 worth of donations). This is because at this tax bracket the donation credit rate is high- er than the tax payable rate. Hence, Spock can offset the tax owed by donat- ing this last cake and using the addition- al $9 against the tax owing on his other $50,000 of income. It’s all very logical! Of course, as income grows, so too does the tax rate, meaning that there are fewer leftover credits. In those provinces where the tax is equal to or greater than the credits generated by donation (which is all provinces except Alberta), there would be no additional tax credits left over for use. In Alberta however, the credits will always more than offset the tax on the disposition of the donated item, even at the highest brackets. Given the number of provinces, the multiplici- ty of tax rates and brackets, and the fre- quency with which they change, an accountant should be retained to calcu- late the results of any donation of inven- tory. PERSONAL USE PROPERTY Personal Use Property (PUP) is property that is owned by the taxpayer and that is primarily for the personal use and enjoyment of the taxpayer or persons related to the taxpayer. 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
