A recent Tax Court of Canada decision set out the criteria for the determination of the fair market value of a charitable donation.
In 2003, the taxpayer made a charitable tax donation of multimedia courseware (the “Courseware”) to the Canadian Charity Association of Ontario (“CCAO”). The official tax receipt issued to the taxpayer by the CCAO (the “Receipt”) stated that the donation amount was $42,000.
The taxpayer had purchased multimedia courseware comprised of computer software training programs. The name of each package reflected the purchase price of that package. She had purchased two $1,000 packages and one $5,000 package for a total purchase price of $7,000. Each of the courseware packages was valued by the vendor at six times the name of the package. For example, the $1,000 package was valued at $6,000. In the taxpayer’s case, the total fair market value attributed to the three courseware packages purchased (i.e., to the Courseware) was $42,000.
The taxpayer therefore based her claim for the charitable donation tax credit on the donation amount stated on the Receipt. The taxpayer reported a capital gain equal to the difference between the $7,000 purchase price paid by her for the Courseware and the $42,000 value attributed to the Courseware in the Receipt.
However, in 2007, the Minister of National Revenue (the “Minister”) issued a reassessment basing the charitable donation tax credit allowed to the taxpayer for the donation of the Courseware to the CCAO on the price paid by the taxpayer to purchase the Courseware. The Minister did not, however, eliminate the capital gain reported by the taxpayer until a further reassessment was issued, 9 years after the initial reassessment.
Positions of the Parties
The taxpayer submitted that the donation amount of $42,000 stated on the Receipt should determine her entitlement to the charitable donation tax credit.
The Minister submitted that the price paid by the taxpayer for the Courseware was the best indicator of the value of the Courseware at the time that it was donated to the CCAO.
The only issue raised on appeal was the fair market value of the Courseware at the time that it was donated by the taxpayer to the CCAO. The taxpayer submitted that the correct amount was $42,000 while the Minister submitted that the correct amount was no greater than $7,000.
Tax Court of Canada Decision
The court reviewed case law on the determination of fair market value of charitable donations. As such, fair market value and how it is calculated are questions of fact. The determination of the appropriate market is part of determining fair market value and is an issue of fact.
Additionally, where the dates of acquisition and disposition are very close in time, barring evidence to the contrary, the cost of acquiring the asset will likely be a good indicator of its fair market value. The court emphasized the “barring evidence to the contrary” aspect of this principle.
As a result, the court concluded:
“The [taxpayer] purchased the Courseware […] for $7,000 and immediately donated the Courseware to the CCAO. The Minister assumed as a fact that the fair market value of the Courseware at the time that it was donated by the [taxpayer] to the CCAO was no greater than the $7,000 purchase price of the Courseware.
To reject this assumption of fact I would at a minimum require cogent and compelling evidence from a properly qualified expert as to why the purchase price of the Courseware in the market created […] is not a good indicator of the fair market value of the Courseware at the time the [taxpayer] donated the Courseware to the CCAO and why the donation amount of $42,000 on the Receipt should be accepted as the fair market value of the Courseware. Since no such evidence has been tendered in this appeal, the Minister’s assumption as to the fair market value of the Courseware at the time that it was donated by the [taxpayer] to the CCAO must be accepted as true.”
For these reasons, the appeal was dismissed.
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