Is Your Charitable Gift a Tax Shelter? Learn from the Leibovitz Controversy

Charitable gifts are steadily gaining popularity among Canadians. While including a charitable gift in your will is not a new concept, more and more people are choosing to make charitable gifts while they are still living, too.

This seemingly perfect way to gift your assets to your loved ones and organizations comes with a warning, however, as questions of tax shelters begin to arise.

The four-year Canadian controversy over a $20 million dollar Annie Leibovitz collection serves as an example for all Canadians of the potential dangers one must consider before deciding to make a charitable gift, but first let’s answer the question of “what is a tax shelter?”

What Is A Tax Shelter?

Canadians need to understand what a tax shelter is if they are to avoid creating one when making a charitable gift.

“…an agreement where an investor can purchase something, donate it, and receive a charitable receipt that leads to tax deductions equal to or greater than what they paid.” – Richard Cuthbertson, CBC News (2017)

Some people use tax shelters inappropriately, in which they make a monetary profit from charitable gifts.  This type of scheme is typically not tolerated by the Canada Revenue Agency.

As mentioned earlier, a great example of how such a discrepancy could arise is the ongoing Leibovitz controversy.

The Leibovitz Controversy

Annie Leibovitz, the famous American photographer who has documented pop-culture icons and events for decades, is at the center of an ongoing controversy over a collection of photographs valued at $20 million dollars.

    • The controversy began with Annie Leibovitz selling her collection of 2,000 photographs to a well-to-do Toronto family.

    • The family was first approached in 2012 and agreed to buy the collection for $4.74 million USD, however, the total value of the collection was previously appraised at approximately $20 million.

  • After purchasing the Leibovitz collection, the purchaser wished to donate it to the Art Gallery of Nova Scotia; the AGNS applied to the Cultural Property Export Review Board for certification of the collection as “cultural property” of outstanding significance, which if allowed, would achieve significant tax benefits for the family and make a meaningful gift to gallery.

To this day, only a small portion of the collection has been certified as important cultural property while the rest has been rejected on three occasions. Without the required certification, the gift and the intended tax benefits are stalled and the entire wisdom of the gift plan is in question.

Steps for Making a Charitable Gift

H&R Block Canada suggests that anyone who is considering making a charitable gift should follow these two steps:

  1. Have the Item Appraised

    • Determine the current market price of the item.  It is advised that you keep any documentation of your appraisal for future reference.

  1. Consult with an Independent Tax Advisor

      • Before you fully commit to any charitable gifts or potential tax shelters, it is strongly suggested that you consult with your tax advisor.

    • A consultation will provide insight towards your charitable gift and raise any “red flags” that might potentially occur.

If you’re looking for more advice on including a charitable gift in your will, feel free to download this complimentary Will Preparation Guide or visit ERAssure.com for more practical tips and information.