Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
What are the income tax implications when an artist donates a work of art from his inventory?
Position:
Provided general comments on subsections 10(6), 118.1(7) and (7.1).
Reasons: Legislation.
XXXXXXXXXX 2000-002068
May 9, 2000
Dear Madam:
Re: Donation of Art by Artists
This is in reply to your letter dated March 23, 2000 which was forwarded to us for reply by the XXXXXXXXXX Tax Services Office. You have requested confirmation that in a situation where an artist donates a work of art to a charitable organization, the amount shown on the charitable donation receipt should be included in the artist's income.
You advise that your husband is an established artist who has been asked to donate paintings to charitable organizations to be used for their fundraising activities. We have assumed from your letter that the paintings created by your husband constitute inventory to your husband in his business. We can provide you with the following general comments which are not binding on the Agency.
When an individual creates a work of art, the cost of materials and supplies, labour (other than that of the artist), and a reasonable allocation of overhead cost are considered to be the cost amount to the artist of the work of art. When the individual then donates the work of art, the individual is considered to have disposed of property from the individual's inventory and to have received proceeds of disposition equal to the fair market value of the work of art. The difference between the proceeds of disposition and the cost amount of the work of art is included in computing the individual's income from business. If the donation is made to a qualified donee, the individual may claim a donation tax credit for the fair market value of the donated art. A qualified donee is a registered charity and certain other organizations which are permitted under the Income Tax Act (the "Act") to issue charitable donation receipts. The donation tax credit available to an individual to reduce his or her federal taxes is set at 17% of the first $200 worth of donations for the year and 29% on the amount of donations in excess of $200.
Subsection 118.1(7) of the Act allows an individual to make an election where the individual donates a work of art from his or her inventory to a qualified donee and the fair market value of the work of art exceeds its cost amount to the individual. In making the election, the individual may designate in his or her income tax return, an amount that is not less than the cost amount and not more than the fair market value of the work of art. The amount so designated will then be considered to be the proceeds of disposition of the work of art and the amount of the donation for which the individual may claim a donation tax credit.
If an individual has made an election under subsection 10(6) of the Act to have the value of his or her inventory deemed to be nil, then the cost amount of the work of art donated would be nil. In such cases, it is our view that in selecting a designated amount under subsection 118.1(7) of the Act as discussed above, the individual would select an amount not less than zero and not more than the fair market value of the work of art gifted.
Where an individual makes a gift of property described in the definition of "total cultural gifts" in subsection 118.1(1) of the Act that is a work of art created by the individual from the individual's inventory to a designated institution or public authority, the individual will be deemed, under subsection 118.1(7.1) of the Act, to have received proceeds of disposition equal to the cost amount of the work of art. Therefore, even though the individual will be entitled to a tax credit based on the fair market value of the gift, as determined by the Canadian Cultural Property Export Review Board, the individual will reflect neither a profit nor a loss on the disposition of the donated art in calculating income from business for income tax purposes.
In summary, in circumstances where an artist donates a work of art from his or her inventory to a qualified donee, the proceeds of disposition to be used in computing the artist's income will also be the amount of the donation in respect of which the artist may claim a tax credit unless the work of art qualifies as a gift of cultural property to which subsection 118.1(7.1) of the Act applies.
We trust that our comments will be of assistance to you. If you have any further questions regarding this matter, please contact Jenie Leigh of the Financial Industries Division at (613) 952-1505.
Yours truly,
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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