Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
MINISTER/DEPUTY MINISTER'S OFFICE 97-07406M
ADM'S OFFICE
RETURN TO 15TH FLOOR, ALBION TOWER
March 6, 1998
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to respond to your letter of October 8, 1997, addressed to the Honourable Paul Martin, Minister of Finance, concerning the taxation of an artist's inventory upon death. A copy of your letter was received by this Department on December 15, 1997.
You express the view that it is not reasonable to require the fair market value of an artist's inventory to be included in income for the year of death since part of an artist's inventory may not be intended for market or alternatively, there may not be an available market for the art until some years after the artist's death.
As noted by the Department of Finance, if the inventory has a nominal value, any deemed disposition of the artist’s inventory upon death will not result in a significant hardship. However, an alternative exists with respect to the artist who has elected to value his or her inventory at nil under subsection 10(6) of the Income Tax Act ("the Act"). As indicated in paragraph 6 of the enclosed Interpretation Bulletin IT-212R3, Income of Deceased Persons - Rights and Things, inventory of an artist which is valued at nil by reason of subsection 10(6) of the Act is considered to be a "right or thing" and is 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 is deferred until such time as the art is disposed of by the beneficiary.
A beneficiary's cost of an artist's inventory acquired in circumstances under which subsection 70(3) of the Act applies is deemed, by subsection 69(1.1) of the Act, to be equal to such part, if any, of the cost of that inventory to the artist that has not been deducted in computing the artist's income, plus any expenditures made by the beneficiary to acquire the inventory. When the inventory is eventually sold by the beneficiary, any gain on the disposition will be on income account even if the beneficiary is not a trader in art. Paragraph 25 of IT-212R3 provides further details on the application of subsection 70(3) of the Act.
I trust that this information will be of assistance to you.
Yours sincerely,
Denis Lefebvre Assistant Deputy Minister Policy and Legislation Branch
Enclosure
c.c. Department of Finance
A. Humenuk
957-2134
March 6, 1998