As a painter, I know the intrinsic value of Canadian art. I am enamored with the Group of Seven who referred to themselves as “adventurers in paint.” Theirs was a post-impressionist style that could accommodate the aesthetic inclinations of Art Nouveau. Being a patron of Canadian art, it is a beautiful way to transform a blank wall or liven up a space, adding some personality to your office or place of business. Now, with the tax incentives implemented by the Canadian government to promote investing in Canadian art, it can do so much more than that.
Collecting Canadian art is growing into one of the most popular types of investments because the Canada Revenue Agency (CRA) has established that taxpayers who purchase or rent Canadian artworks either for their personal office, or for the common areas of their place of business, can claim a tax deduction for the cost of the purchase or rental. Buying artwork (drawings, paintings, etchings, sculptures, photographs etc.) is considered a capital expense for corporations or individuals who operate a business. An individual or organization may qualify for an annual tax deduction if the criteria are met. Let’s dive a little deeper.
Investing in Canadian art
So, yes, I said that correctly, the purchase of original art in Canada is tax-deductible. Investing in Canadian art not only beautifies your space but also presents a unique opportunity to support Canadian artists, all while benefiting from tax incentives offered by the Canadian government.
Why consider Canadian Art?
Art has the power to transform a blank wall, adding vibrancy and personality to any environment. More than aesthetic appeal, Canadian art represents an investment avenue that’s growing in popularity. When displayed within a business, art serves a dual purpose. It elevates the ambiance and showcases a commitment to supporting Canadian artists. Institutions like the Vancouver International Airport, which proudly displays over 200 works of Canadian art, have transformed their spaces and their client experiences, standing as a testament to the impact that Canadian art can make.
Tax incentives for art
The CRA recognizes the purchase or rental of Canadian artworks as a capital expense for both corporations and individuals operating businesses. Meeting specific criteria, businesses can claim an annual tax deduction for these artworks. These deductions can be quite advantageous. For instance, artwork valued at over $200 can be claimed at 100% of the purchase price as a class 8 capital cost allowance, depreciating at a rate of 20% per year. Conversely, artwork priced below $200 qualifies for a 100% one-time class 12 deduction.
Criteria for tax deductions
To qualify for these benefits:
- The artwork must be created by a Canadian artist.
- It must be valued over $200.
- The art should be displayed in a place of business, visible to clients, and aim to generate income.
If you are a GST/HST/QST registrant, you can recover taxes paid during the purchase by claiming input tax credits. Additionally, if you opt to rent the artwork for business purposes, those rental expenses are also deductible.
Selling the artwork
Art collectors can be a fickle bunch. It is not unusual to buy and eventually sell artwork. Should you decide to sell the artwork:
- If it’s sold for less than the remaining undedicated cost, the difference can be claimed as a terminal loss deduction.
- If it appreciates in value and sells for more than its purchase price, amounts claimed as a class 8 capital cost allowance will be subject to recapture and considered business income in the year of sale. Any profit from the sale will be subject to capital gains.
The bottomline
There’s no doubt that investing in Canadian art is good for business. It not only enhances the atmosphere but also reflects a dedication to the Canadian art scene and offers significant tax benefits.
That said, I strongly recommend consulting a Certified Financial Planner (CFP) and a Chartered Professional Accountant (CPA) to understand the specifics before purchasing Canadian art for the purpose of investing and to ensure you maximize your deductions. Of course, the above information is for general understanding and should not be regarded as tax advice. Understanding your options and tax responsibilities is always important for Keeping Life Current.
