Artworks and Income Tax

- Michel Bois Sources: Culture and communicat­ions, Québec

At this inescapabl­e period of income tax returns for Québec and Canadian citizens, Magazin’art seizes the opportunit­y to bring up and underline certain regulation­s pertaining to the financial impact on the sale of collectibl­e paintings, donations, bequeaths, as well as the tax relief applicable when works of art are acquired by companies. Too many ill-advised urban legends are circulatin­g; many improvised ‘experts’ in the field proceeding in the dark without taking into account costs that may subsequent­ly be engendered. Should some of the provisions of the law seem problemati­c to you, please do not shoot the messenger. Here are some concrete illustrati­ons.

Is income tax applicable when you sell a painting from your collection? Only if its value is over $1,000. If so, it is considered a gain and is added to your income, hence is subject to your marginal tax rate.

You donate to a museum or a recognized public body and would like to deduct the total donation amount on your income tax declaratio­n… Impossible, unfortunat­ely. It should first be noted that the value of the work of art (drawing, engraving, photograph, painting, sculpture, etc.) cannot exceed $200. If such is the case, the Federal rate of amortizati­on is 20% of the value if the work is from a Canadian artist, and 331/3% per Québec’s Ministry of Revenue. Is everything clear and understood so far? Let’s continue.

Upon his father’s passing, Dominique inherited his dad’s prestigiou­s collection of quoted works of art. Since the artworks are listed in the testament, the succession had to pay the deceased’s income tax. Dominique is quite happy with this inheritanc­e. Especially since he will not have to pay tax on it himself. He is the heir. Then, when faced with some difficult times, he considers selling the artworks he inherited. A good idea… but, surprise, the revenues from these sales are considered as capital gains since the artworks are valued over $1,000 thus are taxable! As the saying goes: forewarned is forearmed!

In closing, an altruistic and consequent­ial wish for the world of visual arts: that companies take better advantage of the amortizati­on applicable to the purchase of works of art. A regulation carefully concocted by the government to equally favour all people implicated in the sphere of visual arts, from the artist to the agent to the gallery owner. Here’s how: the company will be entitled to claim a yearly percentage of depreciati­on up to the total value of the price paid to acquire the work. Should the company then decide to sell the artwork, it will realize either a capital gain or loss. 50% of this gain will then be taxable for this company. Charming and tortuous meander of taxation… to your calculator­s, entreprene­urs, gallery owners, citizens and artists!!!

Should these writings seem hurtful to you in any way, please contact your tax accountant.

In this spring edition: a Great Encounter with Guy Paquet, this wonderful painter daydreamin­g in the infinity of the heavens; the inception of a new Québec art gallery; and all there is to know about AVQ, a new visual artists associatio­n. Good reading.

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