Amortization
Business owners!
Did you know that the purchase of a work can entitle you to a depreciation deduction?
Indeed, “Several companies buy works of art and decorate the walls of their premises with them. Under certain conditions, these works of art may give rise to a deduction for capital cost allowance. »
To learn more about the subject, check out this article that appeared on AgentSolo.com a while ago.
Continuation of the article:Capital cost allowance
A business that purchases an eligible work of art and uses it to earn business income may claim capital cost allowance in calculating its taxable income. All eligible works of art are included in the same category (category 8). The capital cost allowance is equal to 10% (half the normal rate) of the acquisition cost in the first year and 20% of the residual balance of the class for the following years. In Quebec, the amortization rate for eligible works of art acquired after April 21, 2005 has been increased from 20% to 33 1/3%.
Eligible works of art
Eligible works of art are prints, etchings, drawings, paintings, sculptures or other similar works of art costing at least $200, as well as tapestries or rugs hand-woven or hand-made applications costing at least $215 per square meter. In addition, it is mandatory that the creator be, at the time of the creation of the work, a Canadian citizen or a permanent resident within the meaning of the Immigration Act of 1976.
Use for the purpose of earning business income.
Works of art must be acquired for the purpose of earning business income.
It can be justified that the works of art are acquired for this purpose when they are installed in the premises of the company, for example the reception, the conference room, the corridors or the offices of the employees and that they are at the view of the company's customers. These works of art can thus contribute to the prestige of the company.
It is more difficult to justify this purpose when the works of art are installed in the premises of management companies which are not frequented by customers or in the personal residence of a shareholder or owner of the company.
You can fully amortize the purchase of a work of art. Two criteria are fundamental to benefit from amortization on the purchase of a work of art. The purchase was made in order to earn an income linked to the business: that is to say that the work will be exhibited in the premises of the business in view of the customers in order to create a brand image of the 'business. In addition, the artwork was made by a Canadian artist.
If these two criteria are met, the annual deduction is equivalent to 20% of the value of the work at the federal level, and 33.3% of the value of the work in Quebec.
You can then resell the work or make a donation.
If a donation is made to a Quebec museum institution (museum in Quebec or museum institution accredited by the Minister of Culture and Communications), an increase of 25% of the value of the work will be added to the amount eligible for donation, and for Quebec tax purposes.
In addition, if the property being donated qualifies as cultural property (must meet criteria of national interest and importance and be recognized as such) and the donation is made to a recognized, no capital gain will be realized during the donation. This type of donation requires certification from the Canadian Cultural Property Export Review Board and the Commission des Biens Culturels du Québec.
Example:
A business or self-employed person purchases a work by a Canadian artist to hang in an office where clients can see it. The cost of the work is $5,000. The amortization of the work will be done at the rate of 20% per year for the federal tax and at the rate of 33.3% for the Quebec tax.
In the case of resale, after having completely depreciated the work at both levels of government, a tax recovery will be made of the amount of the initial cost of the work and the difference with the resale price will be considered as a capital gain. If the work purchased for $5,000 is resold five years later at a price of $8,000, the amortized $5,000 will be declared as depreciation recapture (100% included in the calculation of income) and the $3,000 difference as a capital gain (included at 50% in the calculation of income).
If the same work is donated to a Quebec museum, instead of being sold, the $5,000 amortized will also be subject to depreciation recovery (100% included in the calculation of income) and the 3 $000 difference of a capital gain (included at 50% in the calculation of income). However, the donor will be entitled to a tax receipt for $8,000 federally and $10,000 in Quebec.
In addition, it should be noted that if the donation qualified as “cultural property” and was the subject of a certificate, no capital gain would be included for the donor.