Is Canadian Art Tax Deductible?
Everything you need to know about tax rules and benefits around purchasing art in Canada.
Between the dull, over-complicated, acronym-riddled reports from the Canada Revenue Agency (CRA) and the hand-wavy assurances of tax benefits promised by galleries, art consultants, and artists, information on the tax implications of purchasing Canadian art can be VERY unclear. Frustrated by the inconsistency and inaccessibility of information on this topic, we decided to sharpen our pencils and do a deep dive on this rather uninteresting (but important!) topic.
This report is the result of our research: a comprehensive, no-nonsense guide on the tax benefits of buying Canadian art for incorporated businesses, unincorporated businesses, and everyday folks. Our goal is to make it straightforward enough for even us accounting-illiterate art folks to comprehend. Since it’s not the most exciting topic, we will also sprinkle in some Canadian art throughout.
Artwork by Alison Philpotts
The Short Answer – Is Canadian Art Tax Deductible?
If you don’t want to read this whole report and simply want to know if you can deduct a Canadian art purchase as an expense to reduce your taxable income, the short answer is…
YES, Canadian art is tax deductible…
if you are operating a business (incorporated or unincorporated, including freelancers and sole proprietors), and the piece of art has been purchased with the intent of holding on to it for a long-term, to benefit your place of business (e.g. exhibited in a place of business where it will be seen by clients and/or employees). If this applies to you, we recommend reading on to understand the intricacies of deducting art.
NO, Canadian art is not tax deductible…
if the art was purchased for any reason other than benefitting your place of business, e.g. for your home (unless your home is your place of business), as a personal, non-business related item, as a gift, or as a short term purchase to re-sell for profit.
Types of Art Purchases That Are Tax Deductible
The criteria for Canadian art purchases that are eligible as a business expense to reduce your taxable income are quite simple. For the purchase to qualify, the artwork must be:
- A print, etching, drawing, painting, sculpture, or other similar work of art – in other words, basically any form of visual art where evidence of the artist’s hand is apparent (a print purchased at Homesense does not apply!).
- Valued at $200 or more, verifiable by invoice / receipt.
- Produced by a Canadian artist, or an artist who was Canadian at the time of creating the artwork.
Art that is not created by a Canadian artist is specifically excluded as property that can be deducted for tax purposes. Another great reason to support Canadian artists!
Artwork by Jazz Aline
Types of Business That Can Treat Art Purchases as an Expense
First and foremost, since we are talking about Canadian taxes here, you would of course have to be a business operating in Canada, who is filing taxes with the CRA, for tax deductions to be applicable.
Tax deductions for art purchases are available to both incorporated and unincorporated Canadian businesses, including freelance workers and sole proprietorships.
The key criteria is less about what kind of business you are, and more about how you intend to utilize the art purchase. Like any business expense, it must be considered relevant to your business operation. This is subjective, but the reasons below should be considered valid justifications to classify an art purchase as a business expense.
- The art is on display at the place of business, and improves employee morale, creativity, dialogue, etc.
- The art is on display at the place of business, and communicates the businesses sophistication, taste, style, professionalism, etc. to clients or customers.
- The art purchase is directly relevant to business activities, e.g. an art print to decorate a construction hoarding wall, a commissioned painting of the business headquarters or founder, etc.
The following reasons are NOT likely to be considered valid justifications to classify an art purchase as a business expense.
- The art was considered as profitable inventory which could be resold in the short-term due to the rising price and status of the artists. The profits would be re-invested in the business.
- The CEO of the business loves the artist and intends to hold on to the artwork for an extended period, but it is being kept out of sight, in storage, or at the CEOs home where no business activities are occurring.
Keep it simple. If you are purchasing art for the genuine benefit it will bring to your workplace (a benefit proven by numerous studies), then you shouldn’t have an issue justifying it as a business expense!
Deducting Art for Remote Workers
If a non-trivial amount of your business activities occur at home, in your home office or otherwise, you are likely eligible to deduct a portion of the artwork value as a business expense.
Now let’s be clear about what we mean by “non-trivial”. If you are answering the occasional email from home, or working an odd our here and there, it seems unlikely that the piece of art in your house is genuinely contributing to business activities. Similarly, if you work full-time from home, but piece of art is in your attic, or a place you rarely work such as your bedroom, it is probably not justifiable.
However, if you spend a significant portion of your working hours at home, or host clients and employees for meetings in your home office, and the art is present in the place where such business activities occur, a valid case can be made.
If you decide that it is valid to deduct art in your home as a business expense based on the criteria above, you must factor in the time spent at home that you work vs. the time spent otherwise.
For example, if you spend 8 hours a day working from home, and the remaining 16 hours of the day not working, that means one-third, or 33%, of your time at home is spent working. Say you have an $1,000 painting which you’d like to deduct as an expense. You should not deduct the full $1,000 value, but instead deduct 33% * $1,000 = $330, to represent the time in which the artwork’s benefit is being enjoyed by business activities.
Artwork by William Parker
OK Great, Sounds Like I Can Deduct My Art Purchase. How Much Can I Deduct?
According to the CRA’s Classes of Depreciable Properties guide, it is generally considered that art used in business (and not as inventory for selling) and that was created by a Canadian artist, qualifies as a Class 8 depreciable capital property for which Capital Cost Allowance (CCA) can be claimed.
What do all those words mean? Capital Cost Allowance (CCA) is a tax deduction for the depreciation (wear and tear, breakdown, replacement, other causes of lost value) of your business or property. When you purchase something and use it for business activities, it inherently starts to lose its value with time, as its useful life comes to an end. For this reason, the government allows businesses to claim the value lost on property (known as “depreciation”) as a business expense which can be deducted from taxes – also known as CCA.
Despite the incredible longevity of art, it is considered a depreciable asset eligible to be claimed for CCA. There are many classes of depreciable assets, but the CRA includes art as a “Class 8” item. According to the CRA, Class 8 property depreciates at a yearly rate of 20%, meaning it loses 20% of its value per year. This yearly value which is lost can be deducted as a business expense.
To illustrate how this is calculated, here is a basic example:
Halfway through 2021, ArtMatch (our example business) buys a painting for $10,000. Upon being purchased and showcased in the ArtMatch office, it can be considered a depreciating business asset, depreciating in value at 20% per year. We would calculate its depreciation year over year as per the table below
|Value at Start of Year||Yearly Rate of Depreciation for Class 8 Property||Percent of Year Property Was Owned|
|Year||Calculation of Value Lost||Value at End of Year|
|2021||$10,000 * 20% * 50% = $1,000||$9,000|
|2022||$9,000 * 20% * 100% = $1,800||$7,200|
|2023||$7,200 * 20% * 100% = $1,440||$5760|
In the table above, the resulting value of the “Calculation of Value Lost” is the amount which can be claimed as a business expense each year ($1,000, $1,800, and $1,440 for 2021, 2022, and 2023, respectively).
NOTE: if the artwork is eventually sold, and has been depreciated for tax purposes, this must be taken into account. Following the example above, say that in 2024, the artwork, which has been depreciated by $4,240 to a value of $5,760, is sold by the business for $8,000. According to what has been reported to the CRA, the value of this artwork was $5,760. Since it sold for $8,000, the business who sold the art now owes the CRA tax on the income, which is calculated as the difference between the depreciated value of the asset ($5,760) and the realized value of the asset ($8,000). That means $2,240 of income would need to be reported to the CRA for the 2024 tax year, against which income tax would be applied.
Designated Immediate Expensing Property (DIEP)
This will be the last CRA acronym we tackle in this report – but it is an important one!
On April 19, 2021, the Canada Government announced new rules under “DIEP”, which allows for immediate expensing (100% write off in the year of purchase) of designated capital assets (including Class 8 capital assets) acquired and in use from the following dates:
- For Canadian corporations: April 19, 2021 – December 31, 2023.
- For Canadian unincorporated businesses operated by individuals and partnerships (but not trusts): January 1, 2022 – December 31, 2024.
What does that mean?!? Instead of depreciating artworks at 20% yearly for tax purposes, as outlined in detail in the previous section, under the new rules, businesses are permitted to deduct 100% of the artwork value as a business expense — as long as all the previous criteria outlined in this report are adhered to.
In other words, if you’re reading this in 2023, take advantage of this while you can!! We can not yet say how the rules will be changed in 2024 and onwards.
Artwork by Słavek Pytraczyk
What are the Tax Deduction Rules for Art Rentals?
We almost forgot! Luckily, the answer is straightforward. Art rentals are eligible for tax deductions based on the cost of renting the art, in the exact same way as art purchases are. As long as the criteria outlined throughout this report are met, your monthly (or yearly) art rental fees are a valid tax-deductible business expense. Art rentals are also captured under the DIEP, meaning 100% of the rental fee can be claimed.
At ArtMatch, we firmly believe that art should be acquired because of the inherent value of the art, in the meaning it brings to the life of the artist, and the community / purchaser who gets to enjoy it. The benefits to having great art in your life – whether it is your home, your place of business, or your city – are immeasurable. However, if you need another reason to be convinced of purchasing or renting art by Canadian artists, the tax benefits outlined in this report might be the benefit that allows you to take that leap of faith!
We at ArtMatch are focused on curating an online gallery and providing art consulting services which bring exposure to local artists, within their communities and across Canada. Have a peek at our Canadian artist representation and feel free to shop the collection.
While the information enclosed in this report has been researched and is presented with the intent of accuracy, it is for generic information purposes and should not be considered professional tax advice applicable to all persons or businesses. Income Tax rules have many nuances and exceptions, and we always encourage reaching out to a Chartered Professional Accountant regarding the specifics of your purchase to determine if it will qualify for a deduction.