If you own culture-related property and want to give or sell it to a worthwhile cause, you may be able to benefit from friendly tax rules that make the transaction more advantageous for you. Here is what you need to know to find out if you qualify.
Definition of Certified Canadian Cultural Property
Certified Canadian Cultural Property is culture-related property such as paintings, sculptures, books and other similar items that are of outstanding significance and national importance. It must be movable property — real estate does not qualify — and does not need to be Canadian in origin.
The certification of the property for tax purposes is made by the Canadian Cultural Property Export Review Board, an independent administrative tribunal that reports to the Minister of Canadian Heritage. The criteria used to determine if property can be certified are:
* Whether the object is of outstanding significance due to its close association with Canadian history, its close association with national life, its aesthetic qualities, its value in the study of the arts, or its value in the study of the sciences.
* Whether the object is of such national importance that its loss to Canada would significantly diminish national heritage. If you sell or donate a qualified object to an eligible charity, you will be eligible for two different tax benefits.
Tax Advantages When Donating or Selling Certified Canadian Cultural Property
The tax advantages of donating or selling Certified Canadian Cultural Property are related to capital gains and losses, as well as to charitable donations tax credits.
First, capital gains on certified cultural property are exempt from tax. Even if the property has greatly appreciated in value since you acquired it, you will not pay taxes on the gain when you dispose of it. However, while capital gains from dispositions of certified cultural property are exempt from tax, if you incur a loss you are entitled to deduct it. This loss can be carried back three years and forward indefinitely.
Second, you will also be eligible for a non-refundable tax credit of the full fair market value of the certified cultural property if it is donated. Therefore, you will be able to effectively lower or eliminate your taxes owed, depending on the value of the donation.
Obtaining the Certification
To obtain the Board’s certification for your property, you first need to identify the charity who will eventually receive it. The Government of Canada’s Canadian Heritage website lists qualified donees provincially. The application for certification is then submitted to the Review Board by the charity on your behalf.
If the criteria for certification are met, the board will also determine the fair market value of the property. Then, the Board will issue you a Cultural Property Income Tax Certificate using Form T871.