Revenue Canada Taxation Head Office
N.M. Sheerin 957-2135
XXXX
AUG 18 1987
Dear Sir:
Re: Artist's gift of own work to public institution ---------------------------------
This is in reply to your letter of June 19, 1987 concerning the income tax implications of an artist's donation of his own work to a public institution.
We enclose a copy of Interpretation Bulletin IT-504 and would draw your attention to paragraphs 9 to 11 therein. Generally, where a visual artist makes a gift of his own work to a person or an institution, for income tax purposes the transaction is considered to be a disposition of inventory; the artist is deemed to have received proceeds equal to the fair market value of the property donated and an amount equal to that fair market value must be included in the artist's income. If the gift is to a registered charity, the government of Canada or a province and certain other institutions, part or all of the value of the gift may be deductible in computing the artist's taxable income.
In certain exceptional circumstances, property donated by an artist may be considered to be capital property and not inventory. Whether a work created by an artist is inventory or a capital property is a question of fact which can only be determined by examining the nature of the work itself and the manner in which the artist has used it in the course of carrying on his business. In the case of a cartoonist, it is possible (depending on the facts involved) that the original cartoon drawings may be considered capital property. In those circumstances, a gift of the original drawings to a public institution could result in a deemed capital gain. In this connection, we enclose a copy of Interpretation Bulletin IT-288 , which discusses the income tax consequences of gifts of capital property to charities and other institutions.
The tax deduction available in respect of certain donations (depending on the institution involved) is limited to 20 per cent of the donor's net income; other gifts are deductible up to 100 per cent of the donor's net income. These provisions are explained in the enclosed pamphlet "Gifts in Kind".
If property donated by an artist is considered to be capital property and not inventory, the donor may be interested in the provisions of the Income Tax Act and the Cultural Property Export and Import Act, which provide tax incentives to individuals who wish to sell or donate significant cultural property to certain Canadian institutions. These provisions are explained in the pamphlet, at page 9 and 10.
We trust this information will be of assistance to you.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
Enclosures