Art 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 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 (lobbies, hallways etc.) 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.
Under the Tax Act, this purchase must meet the following criteria:
1. The artwork must have been created by a Canadian artist and must be related to the business’s commercial activities and exhibited in a place of business where clients will see it.
2. A print, etching, drawing, painting, sculpture, or other similar work of art that is greater than $200 in value
3. Made by a Canadian artist at the time the art was created, whether a Canadian citizen or a permanent resident
4. If the buyer is a GST and/or QST registrant, he can recover the taxes paid at the time of purchasing the artwork by claiming input tax credits. If the art is rented instead rather than purchased, the rental expenses are also deductible as long as the expense was made for business purposes.
If your purchase meets these criteria, you can consider how it can serve you as either inventory (indicating that you have the intent to resell) or a capital acquisition (purchased as an investment for display to improve your client’s experience in your business).
Tax Deductions for Capital Acquisitions
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.
Example: If a painting is $10,000, the 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.
Artwork valued at less than $200 is a one-time class 12 deduction at 100% of the purchase price.
Artwork valued at greater than $200 can be claimed at 100% of the purchase price as a class 8 capital cost allowance depreciable at a rate of 20% per year.
What if I Sell The Artwork?
In the event that the artwork is sold by the business (i.e. sale of a corporate asset), there are two different factors to consider depending on whether the artwork has appreciated or depreciated in value.
a) If the artwork is sold for less than the remaining undedicated cost of the artwork, the balance can be claimed as a terminal loss deduction. For example, if $1000 remains unclaimed based on the class 8 capital cost allowance depreciation rate, but the work is sold for $500 due to depreciation of the artwork. The remaining unclaimed cost of $500 can be claimed as a terminal loss deduction.
b) More commonly, if the artwork 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 year of sale. The profit from the sale will be subject to capital gains.
There’s No Doubt About it, Investing in Canadian Art is Good For Business
For years now, supporting Canadian artists and local businesses has been at the top of mind for many consumers. This ideology extends to the artwork displayed at your business. Proudly displayed Canadian art can help you to stand out to customers. People remember and respond positively to seeing themselves represented.
Consider the Vancouver International Airport as a prime example of this. Instead of having the reputation of being another stressful, boring airport, it is world-renown for its collection of over 200 Canadian works of art. This has completely changed their client experience and has landed them on several ‘must see’ lists.
If you are looking for Canadian artwork, GS&Co is the place to begin your search. We carry a wide variety of works by incredible Canadian artists.
The article above is for general information purposes only and should not be considered tax advice. The Income Tax Act has many nuances and exceptions. We encourage you to reach out to a CPA (Chartered Professional Accountant) regarding the specifics of your purchase to determine if Investing in Canadian Art will qualify you for a deduction.