Finance Committee on Feb. 28th, 2013

[Davine Roach]

Absolutely.

[Shelly Glover, Conservative, Saint Boniface, MB]

If it benefits them, I would think they'd welcome the change.

Regarding the others, Mr. Cook, could you address why those are minor in detail as well and didn't require any extensive...?

[Ted Cook]

With respect to the short-term resident measure I was talking to, in fact it was released by way of comfort letters, so it's relieving to the taxpayer. In fact, we just kind of wedged it into the bill because we actually received a letter from a lawyer representing one of the affected people who had posted security with the CRA. I think they had posted security in the order of $5 million or $7 million and they were asking us to take action as quickly as we could so they could access the funds, but because it was posted with the CRA.... the CRA administers the act, but there are certain things it cannot do on the basis of draft legislation. It couldn't release posted security in this case, so it couldn't cut a cheque. It can't require the kind of anti-avoidance reporting that we've talked about, requiring taxpayers to provide additional information.

Then, with respect to the third measure, relating to labour-sponsored venture capital corporations, I'll just pass that to Mr. Short.

[Shelly Glover, Conservative, Saint Boniface, MB]

It was a relieving measure that was obviously intended to make life easier, but again as a minor detail there really has been no indication of anyone saying, “Oh, don't give us extra. Don't fix this for us”.

[Ted Cook]

Certainly, as Ms. Roach mentioned, on those measures as well, we haven't heard anything negative since the bill was released in October as a notice of ways and means.

[Shelly Glover, Conservative, Saint Boniface, MB]

Mr. Short?

[Edward Short]

Yes. The labour-sponsored venture capital corporation measures were asked for by people in the sector. They're there because of the withdrawal of the LSVCC credit in Ontario that caused liquidity problems.

With regard to these measures, all they do is implement what was requested by people within the sector, to turn off some penalties if those corporations want to wind down, and otherwise help them deal with their liquidity issues. They were relieving measures. They were not policy changes.

Again, we haven't heard anything from the industry since then.

[Shelly Glover, Conservative, Saint Boniface, MB]

I just wanted to give you an opportunity to explain those.

Thanks.

[The Chair, Conservative, James Rajotte]

Mr. Caron, over to you.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

This bill has almost 1,000 pages. So it is difficult to ask all the questions we have. That is why we are focusing on two or three specific aspects. You will receive written questions from us and we would like all the committee to get written answers.

I would like to go back to a matter that Mr. Côté brought up when we were talking about clause 248, which amends the tax credit for charitable donations. We are always talking about terms that are defined, or more or less defined to allow for flexibility, such as “market value”, “fair market value” and “fair value”. You explained a little about the objective of this clause.

Could you tell me how it might apply in a specific situation? I am referring to an article published in the Vancouver Sun at the end of January. It deals with the purchase by groups of investors of some little statues attributed to Michelangelo. They were donated to the Museum of Vancouver, a museum that has no mandate to display historical artifacts of that kind. Quite the contrary, given that it is not a major museum.

The investors claimed that an appraisal, conducted anonymously, put the value of the sculptures at about $30 million. There were 18 of them. So the Museum of Vancouver issued tax receipts for $30 million, which provided the investors with a tax credit of about $13 million.

But Sotheby's, which has expertise in appraisals, puts the value of the terra cotta sculptures at between $200,000 and $300,000. So, from $30 million, we are now at $300,000, which makes a huge difference in the tax credit.

How would the amendment in clause 248 about tax credits for charitable donations deal with a situation like that? There are strong suspicions in this case that the donation of cultural property was being used for inappropriate tax purposes.

[Ted Cook]

By way of opening response, I think we can talk to the nature of the amendment. But in terms of specific transaction and specific taxpayers and specific charity, whether the CRA may be looking at something or not—

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Let me ask the question more precisely.

In what way could the flexibility provided by not defining the terms “market value”, “fair market value” and “fair value” more closely leave the door open to situations of this kind?

[Ted Cook]

By way of opening remark, the concept of fair market value is not defined in the act. It is certainly one of the foundational concepts used in the Income Tax Act and it has been subject to quite a bit of jurisprudence.

When you're looking at drafting an income tax act, you can either rely on jurisprudence as it develops or try to specify....

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I have another question.

Mr. Short mentioned that various court cases have been a little contradictory, have gone different ways. How can the case law really help you?

What do you say, Mr. Short?

[Edward Short]

On any individual case it is a question of fact as to what the value of the property is. I'm not familiar with the example that you've given, and I guess I couldn't comment on it anyway, being a specific case, but in general, what I can tell you about donations of certified cultural property is that they're not covered by these rules that are in Bill C-48. The rule that I mentioned before—that is to deem the fair market value for the gifting provisions to be equal to the cost if you acquired it within the last three years—does not apply to certified cultural property. The reason that it does not is because two things have to happen, and the government is involved in the process.

The Cultural Property Export Review Board will certify, first, that this is a property that's of cultural importance to Canada. The second thing is that the board has to also certify the appraised value of that property. Those are checks and balances that, because they exist within that system, it would be considered perhaps inappropriate to have a policy to then reduce the amount of the value of those gifts for tax purposes back down to the cost.

The point to start from is that when somebody gives up something of value, even if they bought it at a lower price, still when they give that property up, the expectation is that they could have sold it and received, in that example you gave, they would say $30 million. Is it really $30 million, or is it $200,000? That's a question of fact, and for that you need experts in the field to be able to appraise that. In this case, as I say, the cultural board is responsible for making sure that those values are accurate, so it's for that reason that we don't feel that the tax rules in Bill C-48 need to or should apply to that process.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

We'll go to Mr. Jean, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

I have very quick question on something that Mr. Van Kesteren brought up.

Mr. Cook, I thought I'd heard you describe a new amendment in relation to gifts in kind for charity purposes. If I'm wrong on this, just tell me. My understanding is somebody, for example, gives a gift of a condominium, let's say a vacation property, to a charity and they auction that off, which is very popular where I come from in Fort McMurray. They auction it off for $5,000, let's say. Even though the value might be $6,000, the $5,000 can be used as a charity donation. Is that correct, or is there some sort of change?

[Ted Cook]

I'll pass that over to Mr. Short, but I think what I was responding to with Mr. Van Kesteren was the notion that some of the rules in here allow for what is generally called split receipting. It's not so much you give something and what's the value of it and it's auctioned off or something like that, it's when you make a donation and as part of making that donation, you might get something of ancillary value, like—

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Gifts in kind, of labour or—

[Ted Cook]

The most common examples are if you attend a charity dinner, you get the dinner. If you go to a charity golf tournament, you get the value of the round of golf. Those are probably the simplest examples—and I'm going to pass it to Mr. Short to correct me.

[Edward Short]

I'm sorry, it's just the opposite. Say you pay $150 for a round of golf and the green fee is $50, you'll get a charitable receipt for $100.

Now I'm not sure that we're talking about the same thing. Yes, there are rules in there to deal with that. That is, there are rules that will allow the charity to issue a receipt for $100 in that example, but that didn't sound like the same thing that you were asking about. There are also rules, which Monsieur Côté was asking about, that suggest that if you have purchased a property within the last three years and then you make a donation, then your fair market value will not exceed, for tax purposes, whatever you paid for it.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Within that three-year period. If it's within three years, you mean?

[Edward Short]

That's right. That goes to the idea that you're supposed to get recognition for tax purposes for the amount by which you were impoverished. That is, how much did you really give up to the charity?

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

But would that be fair in the case of, for instance, an increase in property of 10% per year in the third year? Can you actually argue the case and come up with a fair market value or an appraisal for the new value? For instance, if you paid $300,000 for the property you donated in year 3, but the property's now worth $400,000 and you get an actual qualified appraiser to come in to give you an appraisal saying that.

[Edward Short]

The new rule will override that.