17 October 1990 Ministerial Letter 900848 F - Election Re Value of Inventory of Artistic Endeavour

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.

October 17, 1990

Dear Sirs:

Re:  Subsection 10(6) Election

This is in reply to your letter of May 14, 1990, wherein you requested our opinion on the income tax consequences to a deceased artist who bequeathed his inventory of art to a person with whom he dealt with at arm's length.

As indicated in paragraph 6 of Interpretation Bulletin IT-212R3, inventory of an artist that is valued at nil pursuant to subsection 10(6) of the Act is considered to be a "right or thing" subject to the provisions of subsection 70(2) of the Act. If the inventory is, transferred to a beneficiary within the time period specified in subsection 70(3) of the Act, the income tax liability in respect thereof would be deferred until such time as the works are disposed of by the beneficiary.

The beneficiary's adjusted cost base of the inventory transferred by virtue of subsection 70(3) of the Act is the adjusted cost base to the deceased by virtue of subsection 69(1.1) of the Act. When the inventory is eventually sold by the beneficiary, any gain on the disposition will be on income account even though the beneficiary is not a trader in art.

With respect to an artist who follows the accrual basis of accounting for income and has never made an election under subsection 10(6) of the Act in respect of his/her Inventory of unfinished works, it is the Department's view that subsection 70(2) of the Act would not be applied to such inventory on the death of the artist.

We trust that our comments are of assistance to you in this matter.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch