Subsection 248(35) was introduced as an amendment to the Canadian Income Tax Act with the intention of eliminating the incentive for taxpayer's to engage in "buy-low", "donate-high" arrangements. Essentially, these arrangements allow an individual to purchase property, such as pharmaceuticals or art at wholesale prices and almost immediately donate them to a registered charity at substantially inflated prices. The individual then files a claim for a charitable donation tax credit based on the inflated price. The new provision provides that the value of this property will be deemed to be the acquisition cost where a donation is a part of such a gifting arrangement. It will also apply where the donation is not part of a gifting arrangement if the property is donated within three years after acquisition, or if the individual intended to make a gift at the time of acquisition and does so within ten years of acquisition.
Subsection 248(35) is effective as of 6:00PM (EST) December 5, 2003. There a severe penalties for non-compliance with the new provisions, so consult a legal professional or your financial advisor for more information about how this may affect you specifically. You may also review the Gifts and Income Tax Guide for a discussion about how gifts of capital property are treated or read the Interpretation Bulletin dealing with the same issue. For a general search on Charities, visit the CRA website link under the Resources Heading.
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