One of kareen coo–
per’s clients has a box of videotapes shot by a noted Canadian artist. Cooper, an Ottawa-based lawyer with Carter & Associates, says there are two reasons why her client might need to have the tapes appraised:

> the tapes might be donated someday to a charity or some other institution, earning a tax credit;

> after the client’s death, the executor preparing the client’s estate income tax filing might need to have had all items appraised.

This scenario is not uncommon — nor are valuation disputes with the Canada Revenue Agency. Most difficulties arise from interpretation of the “fair market value” of an item.

The CRA generally follows a definition set out by the Federal Court of Appeal that says: “The highest price, expressed in terms of money or money’s worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm’s length, neither party being under any compulsion to transact.”

While clear, the definition is not very instructive as to how to calculate fair market value, says Kim Moody, a chartered accountant and a partner with RSM Richter LLP in Calgary. The consequences of getting a valuation wrong can be high, he notes.

Moody describes the case of a man who, as executor, filed the final income tax return for his deceased mother. The man reported the sale of a piece of real estate. The CRA reassessed the return, contending that the property was worth more than stated. “They said the man had participated in tax evasion, and they laid charges,” he says.

The charges were later dismissed, but the case illustrates how the CRA can act. So, when obtaining a valuation for tax purposes, it’s best to make sure you get it right.

The Appraisal Institute of Canada (www.aicanada.ca) is a good source for real estate appraisals. For business valuations, a good source is the Canadian Institute of Chartered Business Valuators
(www.cicbv.ca).

A recipient may assist with the appraisal of art work, especially if the recipient is a museum, art gallery or university archive.

While the CRA makes it clear that a third party must appraise items for donation, museums and institutions with qualified archivists can value certain items worth less than $1,000. For example, an artist’s etchings may be of value to certain institutions.

“Here, you’re talking about a box of important papers that no one else can evaluate. That’s what we do,” says Gordon Burr, a senior archivist for collections management digital services at McGill University in Montreal.

For anything else, Burr says, the university hires evaluators from the National Archival Appraisal Board. The board subjects art, books and other items to a panel of three people — an archivist, a historian and someone who has commercial dealings with objects similar to the one at hand.

In certain rare instances, the NAAB may recommend that items be passed to the Canadian Cultural Property Export Review Board. The benefit includes a tax exemption for capital gains realized on the disposition of cultural properties to designated institutions. When the disposition is by way of a gift to those institutions, individual donors get a tax credit up to 100% of their net income for that tax year.

In these cases, the recipient makes an application to the CCPERB with the donor or on the donor’s behalf. A lengthy process is used to determine whether an item has government-approved value. But, ultimately, the value of the object is certified and there is no risk the CRA will take issue with it later.

Richard Gingras, owner of Le Chercheur des Tresors, a Montreal store that sells used and rare books, is approved by Ottawa to evaluate items for the review board.

“The government created tax breaks so that people can donate to institutions, but they need external evaluation,” says Gingras, who has appraised manuscripts, photos and other archival material concerning former prime minister Pierre Trudeau. “It’s for transparency.” IE