Art & Taxation

Did you know that for the income tax of your business, you can enjoy some incentives for the purchase of artwork?

You can fully depreciate the purchase of artwork. Two criteria are fundamental to profit from depreciation on the purchase of artwork. The purchase was done in order to earn an income related to the company: that is, the work will be displayed at the premises of the company in view of the customers to identify a brand image of the company. In addition, the work was conducted by a Canadian artist.

If these two criteria are met, the annual deduction equals 20% of the value of the work at the federal, and 33.3% of the value of the work in Quebec. You can after resell the work or make a donation.

If a donation is made to a Quebec museum institution (museum in Québec or museum institution accredited by the Minister of Culture and Communications), an increase of 25% of the value of the artwork will be added to the eligible amount for donation for the purposes of Quebec income tax.

In addition, if the property subject to the donation qualifies as a cultural property (must meet criteria of interest and national importance and be recognized as such) and that the donation is made to a recognized institution, no capital gain will be realized on the donation. This type of donation requires proof on the part of the Canadian commission of review of the exportation of cultural property and the Commission of the cultural heritage of Quebec.

Example:

A company or self-employed bought a work by a Canadian artist to hang it in an office at the sight of the customers. The cost of the work is $ 5,000. Amortization of the work will be at the rate of 20% per year for federal tax and 33.3% for the Quebec tax.

In the case of resale, after completely amortized at the two levels of Government work, a tax recovery will be made of the amount of the original cost of the artwork and the difference with the resale price will be considered to be capital gain. If the purchased work at $5,000 is resold five years later at a price of $8,000, $5,000 depreciation will be declared as recaptured capital cost allowance (included at 100% in the calculation of income) and $ 3,000 difference as capital gain (included at 50% in the calculation of income).

If the same piece is given to a Quebec museum institution, instead of being sold, the $5,000 amortized will also be the object of a recaptured capital cost allowance (included at 100% in the calculation of income) and $3,000 difference of a capital gain (included at 50% in the calculation of income). On the other hand, the donor will receive a receipt for income tax purposes of $8,000 federal, and $10,000 in Quebec.

Furthermore, it is noted that if donation is termed “cultural property” and that he was the subject of an attestation; no capital gain would be included for the donor. Other specific texts are related to the purchase, resale and donation of works of art relating to tax.

Source: Association des galeries d’art contemporain (AGAC)

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