In Ebert vs His Majesty the King, this case deals with what CRA argues is the inflated valuation of wine that was donated to a charity. The CRA argued that “The fair market value of the wines donated by the Appellant and appraised by Nico van Duyvenbode was at most 20% (i.e., a ratio of 1/5) of the amount stated on the charitable tax receipts[.]” The donors had argued that the Tax Court of Canada should have struck CRA’s assumption from the pleading. The Federal Court of Appeal decided, “The appellants have not established that the Tax Court made a palpable and overriding error in declining to strike the FMV Assumption.” The Federal Court of Appeal was accepting of the Tax Court judge’s decision that the valuation issue is a factual issue that can be dealt with at trial.
Charities need to be very careful about their valuations when it comes to gifts-in-kind. If a valuation is inflated, it can result in a charity being revoked and the receipts received by the donor not being accepted by CRA.
Fundamentally, Finance should really rethink the system that we have for donations of gift-in-kind items. Some countries don’t give tax benefits for gift-in-kind donations, only cash. Some countries only give benefits when it is a larger gift-in-kind donation, say over $5000. Some countries require preapproval of gift-in-kind receipts by a government agency before a charity can issue such a receipt.
Here is a PDF of the case.
By Mark Blumberg, Blumbergs Professional Corporation
- Ebert vs His Majesty the King – procedural decision by FCA relating to donation of wine to a registered charity and valuation - May 7, 2024
- To what extent can the special provisions of an Ontario non-profit charitable organization be used to give another group approval rights? - April 26, 2024
- CRA recently updated their Basic Guidelines Checklist for registered charities - March 5, 2024
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