Feds tighten charitable gifting rules

(December 8, 2003) The government has introduced legislation aimed at tightening the rules governing tax treatment for charitable donations.

“Gifts in kind” have come under increasing scrutiny in the past few weeks, with the Finance Department warning that certain donation plans would be sure to attract the attention of the auditor’s office.

Typically, such plans involve a taxpayer buying a product, such as educational software or medicine, from an intermediary at a deep discount. The product is then donated to a registered charity, which issues a tax receipt for the product’s fair market value. Usually this is appraised much higher than the price the taxpayer actually paid.

“These ‘buy-low, donate-high’ arrangements provide taxpayers with a tax benefit greater than their actual cost of the donated property,” read a press release from the Finance Department. “These proposed amendments will not apply to gifts of publicly traded securities, certified cultural property, ecological gifts or real property situated in Canada.

“As of 6:00 p.m. EST on December 5, 2003, the value of a gift of property for charitable donation purposes will be limited to a donor’s cost of the property, where it is donated within three years of acquisition by the donor or is otherwise acquired through a gifting arrangement or in contemplation of donation.”

“These changes will basically kill this type of tax shelter, effective from Friday night at 6 p.m.,” said Jamie Golombek, vice-president of tax and estate planning at AIM Trimark Funds. “If you buy after that time, you will not be allowed to claim a tax donation credit for any amount larger that the amount you paid.”

Golombek called the proposed revision “a surprisingly fast response by Finance, given that this whole issue only broke in the media two weeks ago tomorrow.”

What do you think about this development? Is the government being unfair or is it about time they moved on these plans? Share your thoughts about this topic in the Talvest Town Hall on Advisor.ca.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com