Below Warren Porter shares his thoughts on the latest Canadian Tax Court decision on wine valuations and the ruling’s potential impact on donations to charity wine auctions.
Last week the tax court rendered it’s long awaited decision regarding the definition of fair market value for wines donated to charity. I won’t reiterate the details here as a well written article was done by the Financial Post and can be seen by clicking HERE.
Iron Gate manages the charity auction wine for most of the larger auctions in Toronto including the Toronto Symphony Orchestra, Canadian Opera Company, Upper Canada College, and Cystic Fibrosis to name a few. The impact of this decision will be significant to these fundraising efforts.
The long and short of it as I understand it is this; many appraisers previously valued a wine based on what an Ontarian could buy the wine for which essentially took the retail value in the US and applied all the taxes, duties, transport etc. A $1000 bottle of wine selling in New York therefore could be worth over $2000 here in Canada and fetch a tax receipt for same. The courts decision is that the value of the wine is what it can be sold for by a Canadian using options including US auction houses, the Waddington’s auction and through wine retailers including IronGate.Wine.
So what does that mean for collectors looking to liquidate some or all of their wine? Simply that the delta between a charitable tax receipt and cash sale value of wine is now marginal (although we’re not sure if the new appraisal methodology will include the cost of sale in the equation). A $2000 tax receipt or a $1000 sale in a 50% tax bracket used to net the same result to the collector and helped the charity. The new tax receipt will be closer to the $1000 sale value.
For the charities it means that they’re going to have to work much harder on getting wines donated for their fundraising auctions. There’s now little financial advantage, if any, to donating as opposed to selling wine.
We’re in calls this week with parties involved in the case and will send out further details as we get them. Feel free to call me if you have any questions and, while I’m no lawyer, I’d be happy to share my thoughts and opinions.
The full court decision can be found HERE.