In advising potential art donors I find my clients are surprised when I ask “Are you the owner of the art?” At times there is no quick or obvious answer. Who was the buyer of the art? Who was listed on the Bill of Sale? Is it you, your spouse or your corporation? What if you and your spouse are no longer married and living together, but the Bill of Sale shows that the artwork was sold to Mr. and Mrs. X? Who can donate it? Keeping the original Bill of Sale is an important aspect of donating art as a museum or art institution will ask you to sign a Deed of Gift confirming that you are the owner of the art and have authority to donate it.
The deed of gift
The Deed of Gift will also ask you to warrant that the artwork is free and clear of any encumbrances; that is, that you have not pledged it to the bank for a loan or an ongoing loan agreement and that no creditor has filed any claim against your assets, including the artwork.
It is also common for the Deed of Gift to ask, and have you confirm, that the artwork has not been imported into Canada in contravention of any cultural property laws of the country of origin of the artwork (a Mexican object, as an example) or in contravention of Canadian law.
Canada is a signatory to UNESCO Convention dealing with the rules for importing and exporting of cultural property from member states.
Where to donate?
Mandates of collecting differ significantly from one institution to another. Selecting the right institution is important as the donor does not wish to be embarrassed by having an institution refuse the work as being outside its mandate. For example, the George Gardiner Museum of Ceramic Art collects only ceramics and related material. Other museums may collect only Canadian art or military art - or may not collect at all and may only exhibit art on loan.
Institutions will consider other factors:
- How important is the artwork;
- How the work fits into its collection;
- The size of the work;
- Whether it can be easily accommodated in storage; and
- How often the institution will want to show the work to the public (that is, its importance as art).
Your personal appreciation of the work in question does not necessarily make it an important work for an institution to receive as a donation. There must be a value and a relationship to the institution’s existing collection to warrant its acceptance of the work. You should ask the institution in advance as to its mandate and what the institution may be looking for in the way of art donations.
Donation of money
It is not unusual for an institution to tie its acceptance of the art donation to a requirement that the donor also contribute money to help cover the cost of “the care and feeding of the artwork”, and/or the cost of independent appraisals by professional appraisers to establish the fair market value of the art donation that will be reflected on the donor’s tax receipt. Often times, such a monetary contribution can be made to the institution for its general purposes. Care has to be taken to avoid direct or directed payment to the appraisers, as this may not qualify as a donation for income tax purposes.
Fair market value
If a tax receipt is requested or required, the artwork must be valued by independent appraisers at or near the time of the donation. Sometimes the curator of the institution itself may appraise the work. If the artwork has an original cost and a current value less than $1,000, there is no tax ramification for a capital gain under the Income Tax Act.
“Fair market value” is not defined in the Income Tax Act. However, it has been established by various court decisions as being the highest price an artwork is expected to bring in the context of willing buyers and willing sellers in the appropriate “sales market” applicable to that artwork, and under no compunction to transact. Often times, in seeking to quantify the artwork’s value, the tax authorities will look at the original price paid by the donor as the starting point, as well as the qualifications of the independent appraisers who valued the artwork.
Many institutions will require that the donation of the artwork be approved not only by the relevant curator, but also by an acquisition committee or even by the institution’s board of trustees. This is not a quick process. Usually, acquisition committees sit only three or four times a year. If timing of acceptance of a donation of artwork is important for tax reasons (i.e. the receipt is required for a particular tax year), sufficient time has to be given to the institution to process the artwork for donation in accordance with the rules of the institution and the tax authorities.
The institution must be a ‘charitable organization’ in order to issue tax receipts. It will not wish to put its status in jeopardy for having a faulty donation acceptance program.
Certified cultural property
A donation may be made by a collector to an institution under normal donation rules for a tax receipt for fair market value of the artwork. However this process will result in a taxable capital gain to the donor based on the increased value of the work from the time of purchase to the time of donation. There may be different tax issues for an art donation made by an art dealer, or artists donating their own artworks, but that is outside the purview of this article. However, an art donation made under Canada's Cultural Property Export Import Act may qualify for a special benefit given to the donor.