Did you Know? Tax incentives on Canadian Art

Purchasing Art: Tax incentives on Canadian Art

Tax-Deductions are available on purchase of Original Art in Canada

The Canada Revenue Agency (CRA) has implemented tax incentives to promote the purchase of original Canadian works of art. Original artwork purchases are considered a capital expense for corporations or individuals who operate a business. An individual or organization may qualify for an annual tax deduction provided the following criteria are met:

•  Created by a Canadian artist
• Over $200 dollars in value
• Displayed in your place of business, in a location where it can be seen by clients

Taxpayers can claim a tax deduction for the cost of purchasing or renting the work, and if the buyer is a HST and QST registrant, can recover the taxes paid at the time of purchasing the art by claiming input tax credits.

Guide to Corporate Art Purchase Allowances and Requirements Art purchase by a corporation can be considered as either:

1. inventory (with the intent to resell), or
2. capital acquisition (as an investment for display to improve their business environment for clients) 

If the purchase is a capital acquisition, it can be claimed as a class 8 capital cost allowance depreciable at a rate of 20% per year. Purchase of the art must be:

• an original artwork by a Canadian artist (citizen or permanent resident). 
  • valued less than $200 is a one-time class 12 deduction at 100% of the purchase price.
• valued at greater than $200 can be claimed at 100% of purchase price as a class 8 capital cost allowance depreciable at a rate of 20% per year.
  • Example: If a painting is $10,000, amount that can be claimed each tax year is: 
    • Year 1 - 20% of $10,000 can be claimed as a deduction = $2000
    • Year 2 - 20% of $8000 (the remaining value from year 1)=$1600 etc. depending on whether the art has appreciated or depreciated in value.

1)     If the artwork is sold for less than the remaining undedicated cost of the art, the balance can be claimed as a terminal loss deduction. For example, if $1000 remains unclaimed based on class 8 capital cost allowance depreciation rate but the work is sold for $500 due to depreciation of the art, then the remaining unclaimed cost of $500 can be claimed as a terminal loss deduction.

2)     More commonly, if the art has appreciated in value and is sold for more than the purchase price the amount that has already been claimed as a class 8 capital cost allowance will be subject to recapture. The claimed amount will then be considered business income in the next year of sale. The profit will be subject to capital gains.

Further information for individual collectors can be requested from the Canadian Revenue Services Individual Income Tax Department at 1-800-959-8281.