Gifts of cultural property

Gustave Caillebotte. Iris bleus, jardin du Petit Gennevilliers, c. 1892. Oil on canvas, 55.2 × 46.4 cm.

Gustave Caillebotte. Iris bleus, jardin du Petit Gennevilliers, c. 1892. Oil on canvas, 55.2 × 46.4 cm. Purchase, with funds by exchange from the R. Fraser Elliott Estate and the Bequest of F.W.G. Fitzgerald. © ART GALLERY OF ONTARIO 2019/2268.

In the last year, legislative changes have been enacted in Canada that clear up uncertainty regarding gifts of cultural property and their qualification for tax incentives. Donations that qualify as gifts of Canadian cultural property can claim exemption from income tax for any capital gains arising on the disposition of the property.

These changes arose from a 2018 Federal Court decision regarding the sale and export of a French Impressionist painting and that decision’s reversal by the Federal Court of Appeal.

The ruling by the Federal Court of Appeal restored the decision of the Canadian Cultural Property Export Review Board (CCPERB) to delay the issue of an export permit for a painting sold by Heffel Gallery to a U.K. buyer, on the basis that the painting was of “national importance.” The painting, Iris bleus, jardin du Petit Gennevilliers (1892) by Gustave Caillebotte, had been in a private Canadian collection for 50 years. The legislation at issue, the Cultural Property Export and Import Act (CPEIA), is intended to restrict exports of works of “outstanding significance” and “national importance.” These terms are also used in the definition of “total cultural gifts” in the Income Tax Act (ITA) to determine whether a particular gift is eligible for the enhanced tax benefits of a gift of cultural property.

The initial Federal Court decision restricted the application of the criterion of “national importance” to works with “such a degree of national importance that its loss to Canada would significantly diminish the national heritage.” As a result, CCPERB required applications for certification of cultural property to demonstrate a direct connection with the cultural heritage that is particular to Canada, including the extent to which the object had an influence on the Canadian public or the practices of Canadian creators or Canadians working in a particular field of work or study. This interpretation created uncertainty in the cultural community and would likely have negatively affected the quantity and quality of donations made to Canadian cultural institutions, particularly with respect to major works with tenuous connections to Canada. And contrary to the original intent of the provision, this would have reduced the transfer of cultural property from private to public collections.

As a result, the federal government enacted changes to the ITA and CPEIA to remove the requirement that property be of “national importance” in order to qualify for the enhanced tax incentives for donations of cultural property. Effectively, a gift of cultural property for the purposes of the ITA will only have to be a work of outstanding significance because of its close association with Canadian history or national life, its aesthetic qualities, or its value in the study of the arts or sciences. Further, the Federal Court of Appeal overturned the lower court’s decision and confirmed that objects may still form part of Canada’s national heritage even if the object or its creator do not have a direct connection to Canada.

Canada provides enhanced tax incentives to encourage donations of cultural property to certain cultural institutions in Canada, including Queen’s University. The Heffel case had raised concerns that some donations of artwork that are of outstanding significance, but of foreign origin, may not qualify for these enhanced tax incentives. Those concerns have now been resolved. Significant cultural objects that originate outside Canada do not require a direct connection to Canadian cultural heritage to qualify for these enhanced tax incentives. Therefore, they should be included in any comprehensive philanthropic gift planning.

Karen Cooper is a member of the Queen’s University Gift Planning Advisory Committee. She is a partner at Drache Aptowitzer LLP in Ottawa, where she practises charity and not-for-profit law with an emphasis on corporate and tax issues.

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