Principal Issues: What happens when a corporation acquires works of art from foreign artists that are used to decorate the offices of the corporation's business?
Position: In this scenario, the work of art will likely not be considered to be property for the personal use of the corporation. It will be treated as capital property that cannot be depreciated.
Reasons: Income Tax Act.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 3
Nature of the works of foreign artists held by a corporation
In our view, two provisions of the Act are relevant in determining the tax character of a work of art such as a painting.
Under paragraph 1102(1)(e) of the Income Tax Regulations (ITR), certain assets are specifically excluded and therefore cannot be depreciated. These assets include, among others, the following:
- a print, etching, drawing, painting, sculpture, or other similar work of art, the cost of which was not less than $200,
- a hand-woven tapestry or carpet, the cost of which was not less than $215 per square metre.
This rule does not apply to the above-mentioned works when they are produced by an artist who was a Canadian citizen or permanent resident on the date the work was created. Such works may therefore be included in Class 8 and depreciated according to the usual rules.
Furthermore, according to the definitions in section 54 , "listed personal property" is property for the personal use of the taxpayer, i.e., property that is used primarily for the personal use or enjoyment of the taxpayer, consisting of one or more of the listed assets, including prints, etchings, drawings, paintings, sculptures or other works of art of the same nature.
Consider the following situation: a public corporation acquires such works of art from foreign artists, for example, paintings for the purposes of its business. Those paintings are used to decorate the boardroom.
Questions to the CRA
(a) With this in mind, can the CRA tell us whether it considers the works of foreign artists to be listed personal property or capital property that cannot be depreciated?
(b) Would the answer be the same if the painting were located in a director's office and there were no clients in the director's office?
(c) If it is determined that the CRA's position is that works of art by foreign artists are listed personal property, can such works of art be held by a corporation without being subject to subsection 15(1)?
CRA Response to Questions (a) and (b)
(a) First, it is our view that a work of art by a foreign artist that is owned by a taxpayer and that qualifies as listed personal property would also be capital property that cannot be depreciated.
The question of whether works of art by foreign artists having a cost to the taxpayer of not less than $200 are listed personal property and/or capital property that cannot be depreciated is a question of fact that can only be resolved after a full examination of all the relevant facts of a particular situation. Nevertheless, we can make the following general comments.
For a painting to be a listed personal property, it must first be for personal use. Personal-use property includes property that is owned by a taxpayer and that is used or enjoyed primarily for the personal use or enjoyment of the taxpayer or a person related to the taxpayer pursuant to subsection 251(2).
We are of the view that a painting by a foreign artist that is owned by a public corporation and used exclusively to decorate a boardroom of that corporation is probably not personal-use property of that corporation (footnote 1). In general, a painting by a foreign artist that has a cost to the corporation of not less than $200 and is not listed personal property would then be considered to be capital property that is not depreciable because of ITR paragraph 1102(1)(e).
(b) Our response would remain the same in the case of a painting located in the office of a director who does not receive clients in that office, although in certain circumstances, such as where the director is related to the public corporation and the painting is used primarily for the director's personal use or enjoyment, the painting would then be personal-use property that is listed personal property, as well as capital property that cannot be depreciated.
Pierre-Luc Meunier
(514) 956-7086
October 8, 2010
2010-037331
CRA Response to Question (c)
(c) It should first be emphasized that in determining whether a benefit has been conferred on a taxpayer in a particular situation, an examination of all the particular facts and circumstances relating to that situation must be made. In that regard, the facts described in the statement of this question are very limited. Notwithstanding this, the following general comments can be made.
We are of the view that generally, in situations where a painting by a foreign artist, acquired by a public corporation, is used exclusively to decorate a boardroom or office of a shareholder who is an employee of the public corporation, subsection 15(1) would not apply unless the corporation acquired the painting at the express request of the shareholder to decorate his or her office or boardroom.
Marc LeBlond
(613) 957-2108
October 8, 2010
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 See Mid-West Feed Ltd. v. M.N.R., 87 D.T.C. 394 (TCC).