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 places of business (such as the lobby or hallway) can claim a tax deduction for the cost of purchasing or renting the work.

If the purchase meets the CRA's criteria, buying artwork is considered as an amortization expense for corporations or individuals who operate business. The cost can deducted over a period of several years as capital cost allowance. You will need to speak to your accountant about specifics. Also, if the buyer is a GST registrant, they can recover the taxes paid at the time of purchasing the artwork by claiming input tax credits.   

The Canadian government has implemented attractive tax incentives to promote the purchase of original Canadian works of art.

Buying artwork (paintings, etchings, sculptures, drawings, photographs, etc.) is considered as an capital expense for corporations or individuals who operate a business. An individual or organization may quality for an annual tax deduction provided certain criteria are met.

If you own a business, there are some great tax benefits to collecting Canadian Art.

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 it will be seen by clients.

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 QST registrant, he can recover the taxes paid at the time of purchasing the artwork by claiming input tax credits. Lastly, if the work is rented instead of being purchased, the rental expenses are also deductible as long as the expense was made for business purposes.

If the purchase meets these criteria, the buyer is entitled to a declining deduction of 33% of the cost of purchasing the artwork (class 8.1) at the provincial level and of 20% (class 8) at the federal level.

Some works of art are, however, excluded and do not qualify for a tax credit, more specifically works having a value of less than $200 or created prior to the 1900s – created over 100 years ago.

• Art value over $200
• Not be held for resale or otherwise included in inventory
• Must be created by a Canadian artist

*please refer to your own business accountant on your own specific tax deductions*

"As an example – in 2013 a Toronto based law firm acquires a piece of art from a local art gallery for $20,000 to display in their lobby. The artist who originally produced the work was a permanent resident of Québec at time of creation. Since the artwork was created by a Canadian artist, costs over $200, and is used as a beautifying fixture in their office, the $20,000 acquisition would be considered a Class 8 capital asset for tax purposes and would be eligible for deduction at a declining rate of 20% per year. Due to CRA’s half-year rule, the deduction in year 1 would be equal to $2,000, or half of the normal 20%.

With the new Accelerated Investment Incentive rules, the year 1 deduction in the above example would be increased to $6,000 if the artwork were purchased in 2019. This offers a way for companies to reinvest inside their business, reduce tax, and participate in any appreciation in the value of the artwork.

So, what happens in the event that the artwork does in fact appreciate and is subsequently re-sold? Investors should be mindful that any sale of a depreciated art asset will result in recapture, up to the amount originally paid for the artwork. This recapture will be included as business income, and any amounts received over and above the original cost would be considered a capital gain. Given the tax deferral in this scenario, purchasing Canadian artwork could be considered as a viable tax planning opportunity." 

-Cascade Accounting