BEWARE OF TAXPAYERS BEARING GIFTS

A CRITIQUE OF MEASURES IN THE INCOME TAX ACT TO PREVENT TAX AVOIDANCE THROUGH IN-KIND DONATIONS OF PROPERTY

Abstract

The tax system encourages charitable gifts with generous tax incentives. However, these rules have been easily abused, particularly for in-kind gifts where valuation can be inflated to maximize the credit to the taxpayer. Such abuse is costly to the government, and to the integrity of the tax system overall. The most prevalent abuse arises with assets whose value is easily manipulated (such as art and cultural property) or transacted in non-arm’s length situations (such as private shares). While stricter and more complex anti-avoidance measures have been implemented to discourage taxpayers from abusing charitable credits, Parliament has also expanded the types of gifts which may qualify for preferential treatment. There is room for improvement in the current system.