Artworks and Income Tax
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.