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Art is not my favorite topic. Early in my charitable career I received a number of collections of art as gifts. Each had valuations from authorities which resulted in tax receipts based on the valuations.
To monetize the collections, I sent the art to a local auction house which offered to help. When the art was reviewed, the auction house managed my expectations by letting me know that I may not receive bids that match or exceed the prior valuation amounts. In fact, we received nothing from the auction- none of the pieces received a minimum bid. Lesson learned. Valuations from the industry are not dependable and do not completely trust industry valuations pertaining to items involving art, collections, etc. (we did get a bequest of a piece of art that was auctioned in New York for over $700,000 USD, so every rule has its exception).
A gift of art is similar to any gift of property. The donor is deemed to dispose of the property for value which of course is the amount of the donation receipt. So, there could be a capital gain. One could elect to have a lower donation receipt and have your proceeds of disposition be the adjusted cost base (“ACB”) to avoid a capital gain. Subsection 248(35) of the Income Tax Act (the “ITA”) will limit the donation receipt to the ACB if the art was purchased within three years of the gift.
One then needs a third-party evaluation to substantiate the donation receipt. For Quebec tax purposes, unless the art is used by the donating institution, the amount of the donation receipt is limited to the amount of the monetization of the piece.
One small opportunity exists if the art is personal use property. In this case, one is deemed to have a cost of at least $1,000 for every item of art and 5 pieces in a collection will each have an ACB of $1,000. One of the collections I received was a group of 53 prints of an artist. The valuation for all was $39,000 and as each print had a deemed ACB of $1,000 there was no capital gain. That gift was made before subsection 248(35) of the ITA was enacted but also before another section of the ITA was introduced which stated that if you purchased the art after the year 2000, for the purpose of a gift then you could not take advantage of the $1,000 deemed cost rule.
A gift of art is similar to any gift of property.
Of course, there is great tax legislation for art called the Canadian Cultural Property Review Act. Under this legislation, if you donated art to the right places i.e., museums there would be very favorable tax ramifications. This legislation applies to all cultural institutions, so for example, an ancient book could qualify for a donation to a library. This art is not necessarily Canadian art but rather art that Canada would like to keep in Canada. There is an application process by the donee and a review board approves the transaction.
The benefits of donating under the Canadian Cultural Property Review Act:
Capital gains exemption on the gift.
Receipt, based on value, applicable against 100% of income (rather than 75%).
Can carry forward unused donation receipts for ten years.
Subsection 248(35) of the ITA does not apply.
Obviously receiving such a donation receipt could warrant estate planning. For example, donating a $20m piece of art under the aforementioned Canadian Cultural Review Act may suggest creating a capital gain on your other assets to use up the donation receipt and thus avoiding death taxes.
There is similar tax legislation for ecological gifts which involves a determination by the Minister of the Environment of the gift, and if accepted, the same tax treatment as art under the Canadian Cultural Property Review Act is afforded. There is no other special benefit for the donation of real estate so this provision for ecological land is quite unique.
I have started watercolour painting. I have a beautiful picture that I would like to donate. My granddaughter has evaluated it to be priceless. Any takers??
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Robert (Bobby) Kleinman FCPA, FCA
Bobby started in philanthropy in August of 1994 by becoming the Executive Director of the Jewish Community Foundation of Montreal (JCF) which is seen to be Canada’s most donor-centred foundation.
Previously a Partner in Taxation at Ernst and Young, he is now a Planned Giving Consultant specializing in tax-assisted giving. Bobby has helped many Canadian charities design their planned giving programmes, and has written numerous articles on the subject. He is also Past-President of the Conseil de la Philanthropie du Quebec, the Table Ronde du Quebec of the CAGP, JIAS Canada, JIAS Montreal, and the Mount Royal Tennis Club.