Art can do more than transform a blank wall or enliven a space. It provides an instant colour palette, creates a focal point, brings a sense of texture and gives a room that finishing touch. Banksy famously said that Blank Walls Are Criminal – so if you were looking for a sign, I’m about to show you this is it!
The Art of Expensing
In recent years art acquisitions have become an integral part of the office culture that is as much about the employees as it is about the clients. Instead of buying art that will impress the clients, companies are now investing in art that will be motivating and uplifting for the employees.
The Canadian government has recognized the importance of encouraging the Canadian art market and its creators and they have implemented tax incentives intended to promote the purchase of Canadian artwork. 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.
Buying artwork (paintings, etchings, sculptures, drawings, photographs, etc.) is considered as an capital expense for corporations or individuals who operate a business. An individual having a home office or an organization can deduct for tax purposes an amount annually for depreciation. This amount is normally equal to a 20% declining deduction. To qualify, the artwork 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.
Practical Case
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.
The above is for general information purposes only and should not be considered tax advice. The Income Tax Act has many nuances and exceptions; we strongly encourage you reach out to a Chartered Professional Accountant regarding the specifics of your purchase to determine if it will qualify for a deduction.
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