Tax Deductions for Art Gifts - Canada

Gifting and Tax in Canada

Canada Customs and Revenue Agency (CCRA) allows you to claim a tax credit on donations of up to 75% of your net income, plus 25% of most taxable gains arising from gifts of securities or property.  Works of art gifts 'in kind' (certified cultural property) allow the limit to be increased to 100% of net income. The monetary benefits realized from donating these things can also go towards legal settlements, such as inherited estates, divorces or business disputes, because the donation provides the liquidity necessary for equitable division of the assets. Donations of "Cultural Property" (Canadian art that is culturally significant) will also qualify for tax credits.

Donations of other than Canadian art can also have tax advantages, but this type of donation is considered the same as any charitable donation. To receive a tax credit for making a charitable donation of your art you will need a Certified Appraisal to determine if the property is "Cultural Property" or not. The criteria for cultural property are set out in the "Cultural Property Export and Import Act". The Canadian Cultural Property Export Review Board makes this determination based on paragraph s 11(1) (a) and (b) of the Act. These determinations are made for the purposes of subparagraph 39(1)(a) (i.1) of the Income Tax Act, which established the additional tax benefits for which donors of certified cultural property are eligible.

The assessor shall provide "Fair Market Value" appraisal(s); this is the only type of value acceptable for donations. A Fair Market Value definition would be as follows: "The (highest) price, expressed in money that the property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed and prudent, and who are acting independently of each other". 

The cost for the appraisal service may be paid by either the donor or the recipient. Appraisals are not required for any object (or collection) being sold to an institution. The actual cost of the donation (what your client paid) may not be what determines the amount of the tax credit; rather Revenue Canada considers that the value of cultural property can be based on an arm's-length sale or purchase of a similar property at or near the same date (of donation). See the comments of Justice Murray A. Mogan, Tax Court of Canada, in Whent, Zelinski, Pustine v. The Queen, 1996 Can. Tax Ct. LEXIS 2875. 

You will require only one appraisal when the aggregate estimated FMV of the donation is $10,000 Canadian or less. Above $10,000 requires two appraisals. If two are required, they must be prepared totally independently of each other.

You can obtain more information on Art Gifting and Tax in Canada by visiting http://www.cra-arc.gc.ca