VARLEY-McKAY ART FOUNDATION OF MARKHAM

June 16 2008

Policy With Respect to Donations and Official Donation Receipts

This document outlines the policies surrounding the issues of gift acceptance and official donation receipts for donations to the Varley-McKay Art Foundation of Markham (the “Foundation”). The policy was approved by the Foundation’s Board at its meeting of May 5, 2008.

General

1. The Foundation is authorized to encourage donations. All donations shall be subject to the oversight of the Treasurer or in his/her absence the Chair and ultimately of the entire Board.

2. The policy of the Foundation is to inform, serve, guide, or otherwise assist donors who wish to support the Foundation’s activities, but never under any circumstances to pressure or unduly persuade. In particular, whenever a gift involving an irrevocable transfer of assets is under consideration, every effort should be made to ensure that completing the gift would not jeopardize the donor’s personal or financial security.

3. For cash gifts over $100,000 or non cash gifts over $25,000 persons acting on behalf of the Foundation shall require that the donor discuss the proposed gift with independent legal and/or tax advisors of the donor’s choice, so as to ensure that the donor receives a full and accurate explanation of all aspects of the proposed charitable gift.

4. The Chair or Treasurer or their designate is authorized to negotiate gift agreements with prospective donors, following the policies approved by the Board.

5. All gift agreements requiring execution by the Foundation shall first be reviewed and approved as to form by the Foundation’s legal counsel. Where substantially the same agreement is used repeatedly, only the prototype needs to be approved.

6. The gifts listed below must be reviewed and approved by the Board.

· real estate, tangible personal property, partnership interests, and other property interests not readily negotiable;

· residual interest gifts;

· charitable remainder trusts;

· flow-through shares;

· publicly listed securities valued over $100,000;

· any gift subject to unacceptable restrictions; and

· donations with tax shelter identification numbers

7. These policies are based on guidelines published by the Canada Revenue Agency and are subject to change as those published guidelines change. These policies may be amended at any time by the Board of the Foundation.

Value of Official Donation Receipt

8. The value of each official donation receipt will be reduced by the amount of any advantage accruing to the donor in respect of the gift.

9. Generally, a gift at common law is a voluntary transfer of property for which the donor receives nothing of value in return for having made the gift. The Income Tax Act now allows donors to be receipted for the “eligible amount” of the donation. Eligible amount is defined as the difference between the fair market value of the property transferred to the Foundation by the donor and any “advantage” received by the donor. Advantage is defined very broadly to include anything of value received by the donor or persons dealing not at arm’s length with the donor from the Foundation or any other person.

10. Where the advantage received by a donor is not more than 80% of the fair market value of the property transferred to the Foundation, the Foundation will issue a receipt for the difference for the excess of the fair market value of the property over the amount of the advantage. If the value of the advantage is less than $75 and 10% of the value of the donation it need not be deducted from the eligible amount of the receipt.

11. If the fair market value of the advantage cannot be determined, the Foundation will not issue an official donation receipt.

12. Official donation receipts for gifts of less than $25 will not be issued.

Gifts of Cash

13. The Foundation will accept gifts of cash. A gift of cash to an endowment must meet any minimum funding requirements set by the Board.

14. A donor may complete a gift in a single transaction or make a pledge to be paid over whatever period of time is mutually acceptable to the donor and the Foundation.

15. An official donation receipt will be issued for cash donations as soon as possible after receipt of the cash donation. If the receipt is not issued on the exact day that the donation was received by the Foundation, the receipt will show the date on which the donation was received and the date on which the receipt was issued.

16. If a donor makes a series of cash donations, the Foundation may issue one receipt for the aggregated cash donations in the year and the receipt will list the year in which the cash donations were received.

Gifts of Marketable Securities and the Like

17. The Foundation may accept gifts of the following marketable securities:

· a share, debt obligation or right listed on a prescribed stock exchanged under the Income Tax Regulations or a designated stock exchange under the Income Tax Act;

· a share of the capital stock of a mutual fund corporation;

· a unit of a mutual fund trust;

· an interest in a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a) of the Income Tax Act (Canada));

· a debt obligation prescribed under the Income Tax Regulations.

18. The donation of marketable securities will be valued at the closing bid price of the security on the date the donation is received by the Foundation, unless factors such as the trading volume or share holding periods suggest that the closing bid price is not the fair market value of the security.

19. The Foundation will generally sell the marketable security as soon as practically possible after receipt of the donation.

20. Donations of shares and similar securities of private corporations will not be accepted.

Gifts In Kind

21. The Foundation may accept gifts in kind.

22. Official donation receipts can be issued for the fair market value of gifts in kind (such as art). Generally, “fair market value” is the highest price that an item would bring in an open and unrestricted market between a willing buyer and a willing seller who are each knowledgeable, informed, and prudent, and who are acting independently of each other. Where an item is donated within three years of the donor acquiring the property, or within ten years of the donor acquiring property with an intention to gift the property, or where the property was acquired through a tax shelter the fair market value of the gift is deemed to be the lesser of the fair market value and the cost or adjusted cost based of the property to the donor.

23. The fair market value of donated goods is determined at the time that the donation is made, not the actual amount for which the goods would ultimately by re-sold at a retail outlet or at auction. The time of the gift is usually when the gift is received; however gifts by will are deemed as received immediately before the date of death.

24. An appraisal of the fair market value of the gift may be required before the Foundation will accept the gift. The appraised amount will be used as the fair market value for the purpose of the official donation receipt and the appraiser’s name and address will be included on the official donation receipt. The Foundation also reserves the right to secure the appraisal before accepting the property and issuing a donation receipt.

25. If the fair market value of a gift is $1,000 or less, a qualified staff member of the Varley Art Gallery of Markham can appraise the gift.

26. If the fair market value of the gift is over $1,000, but less than $10,000, the property must be appraised by someone who is not associated with either the Foundation or the donor. The appraiser must be competent and qualified to evaluate the particular property.

27. If the fair market value of the gift is $10,000 or over, then the property must be appraised by two independent appraisers and a receipt will be issued for the average value of the valuations. However, where the donation is of art, only one appraisal is required if the appraisal is provided by a committee of the Professional Art Dealers Association of Canada (PADAC), Association des galleries d’art contemporain (AGAC), or Art Dealers Association of America (ADAA).

Cultural Gifts

28. A gift of art that qualifies as cultural property as defined under the Cultural Property Export and Import Act can only be made through the Town of Markham as the Town, not the Foundation, is a designated institution under that Act.

Services

29. Under no circumstances will the Foundation issue a tax receipt for the contribution of services to the Foundation as the provision of services is not considered a gift under Canadian law.

Sponsorship

30. The Foundation considers recognition as a sponsor of an event as an advantage and will not issue official donation receipts for sponsorships. The Foundation will issue a business receipt to event sponsors.

Auctions

A. Receipts for Property Gifted for use in an Auction

31. Art donated for auction by the Foundation is subject to the policy above on gifts in kind and therefore the Foundation will issue an official donation receipt for the appraised price of the donated property (i.e. the artwork), regardless of the amount received for the item at auction. Where an appraiser cannot determine the fair market value with any certainty, the auction price may be relevant to a determination of the fair market value of the particular item at the time it was donated. However, the auction price would not generally be relevant to this issue.

B. Receipts (if any) for Amounts bid at an Auction

32. Receipts can only be issued for an amount bid at an auction when the value of the item auctioned can clearly be determined and is posted and made known to all bidders in advance of the bidding and the amount bid is more than the posted value. The Foundation will issue a tax receipt for the excess paid over the posted value where the bidder receives goods having a value that is less than 80% of the value of the accepted bid. Generally, it is difficult to determine the value of the item up for auction (i.e. there is no known value for an autographed tee-shirt). In that instance, the bid value is the best estimate of the fair market value of the property received on auction and no receipt would be issued to the successful bidder.

Bequests

33. The Foundation may accept gifts bequests, including specific amounts of property in a will or a percentage of an estate.

34. Sample bequest language for bequests will be made available to donors and their lawyers to ensure that the bequest is properly designated. Donors will also be invited to provide information about their bequest provisions and, if they are willing, to send a copy of that section of their will naming the Foundation.

35. Upon receipt of a gift from a bequest, the Foundation will issue a receipt on the date the individual died or on such other date as may be required by the CRA rules and regulations.

Retirement Plan Assets

36. The Foundation can receive gifts of assets distributed from retirement plans. Donors should be encouraged to consult with their professional advisor to ensure that they can part with such assets without compromising the financial security of their retirement years and that the tax consequences are acceptable.

37. The Foundation can be designated as a beneficiary of an individual's registered retirement savings plan or registered retirement income fund. Donors should be encouraged to consult with their own advisor to determine that this is compatible with their overall estate plan.

38. Where the Foundation receives a transfer of money within 36 month from an individual’s date of death as the result of being a beneficiary of a retirement plan (other than a plan of which a licensed annuities provider is the issuer or carrier) where the deceased was the annuitant under the plan, the Foundation will issue a receipt to the individual for the fair market value of the gift at the time of the individual’s death.

Life Insurance

39. The Foundation may accept the following donations of life insurance:

· Assigning irrevocably a paid-up policy to the Foundation;

· Assigning irrevocably a life insurance policy on which premiums remain to be paid; and

· Naming the Foundation as a primary or successor beneficiary of the proceeds.

40. In the event a policy is contributed on which premiums remain to be paid, the donor will be encouraged to pay any premiums directly or to make equivalent contributions to the Foundation, which can pay the premiums.

41. The Foundation reserves the right to pay premiums, surrender the policy for cash, or elect a reduced paid-up policy.

42. When policy ownership is irrevocably assigned to the Foundation, the donor is entitled to a donation receipt for the fair market value of the gift and for any premiums subsequently paid. The fair market value of the gift will be established by an appraiser based on the following factors:

· cash surrender value

· the policy's loan value;

· face value;

· the state of health of the insured and his/her life expectancy;

· conversion privileges;

· other policy terms, such as term riders, double indemnity provisions; and

· replacement value.

43. When the Foundation receives proceeds from a life insurance policy as a consequence of the individual’s death, which meets the conditions in section 118.1(5.1) of the Income Tax Act, the Foundation shall issue a receipt to the deceased individual for the fair market value of the gift at the time of the individual's death.

Gifts of Real Estate

The Foundation will only accept a gift of real estate after:

· determining the gift would be in the best interests of the Foundation;

· determining the donor has clear title to the property;

· obtaining an independent qualified appraisal of the property;

· reviewing zoning restrictions, marketability, current use, proposed use, maintenance costs and feasibility;

· conducting an environmental assessment, which may include an environmental audit, and determining that the property contains no toxic substances, or they are removed or other remedies taken assuring that the Foundation assumes no liability or limits its liability to an acceptable level.

44. The Foundation may accept gifts of a residual interest in real estate irrevocably donated to the Foundation, where the donor retains use of the property for life or a term of years. The foundation will issue an official donation receipt for the present value of the residual interest. The donor shall continue to be responsible for real estate taxes, insurance, utilities, and maintenance unless the Foundation agrees to assume responsibility for any portion of these items. The Foundation reserves the right to inspect the property from time to time to assure that its interest is properly safeguarded. There shall be an agreement that specifies the respective rights and responsibilities of the Foundation and of the person(s) for whose benefit any life estate has been retained.

45. The Foundation’s interest in the real property shall be conveyed by deed.

Annuities

46. The Foundation will not issue gift annuities but may accept assets from a donor, pursuant to an agreement authorizing the Foundation to: a) use a portion of the assets to purchase a commercial annuity paying a stipulated amount to the donor and/or other annuitant; and b) retain the remaining assets for charitable purposes.