Hi Richard:

Artists everywhere should be blessed, severely, for donating so many paintings to so many charities. When you donate an artwork to a registered charitable organization and they issue you an official donation receipt you have two transactions to report. First, because you converted an item of inventory (a painting) to personal use (making the donation) you are deemed to have earned revenue equal to the fair market value of the painting and must report that as a donated artwork in your revenue and expense return for the year. Second, you have made a charitable donation of the same amount for income tax purposes and can claim a ?non-refundable tax credit? against your income tax for the year.

There is, however, a special option available only to artists in that they may elect to use a number between zero and the fair market value of the art work for both the revenue and the donation but the same number must be used for both. This allows you to not report the revenue and the donation if it is not to your advantage.

It will likely be to your advantage to use the higher figure unless you are in the top tax bracket (reached at approx. $114,000). The aggregate donations in excess of $200 generate a tax credit at the top rate (approx. 44%) whereas the tax rate on an equal amount of income will be between 22% and 40% depending on your tax bracket. If you are not sure if this works for you, do your tax calculation twice, once with both figures in and once without.

Best regards,
Bob

Hello Mr. Flaig

PST is not dealt with in the same way as GST. PST is calculated and collected on all retail sales but not on sales to resellers, i.e., galleries. You obtain the resellers? PST Number and are then free of the obligation to collect PST on those sales. The only relief you get on purchases is on the materials that go directly into the resale item, the painting (ground, pigment, media, varnish, framing, etc.). You get this relief by quoting your PST number to the supplier and they will exempt your purchase of these items. Most suppliers will have you fill out a form and keep it on your file so when you give the clerk at Opus your telephone number, it will show that you have a PST number. It is then up to you to identify the items that are exempt from PST. Other items like brushes, easels, folios, etc. that do not go directly into the resale item are taxable at the time of purchase. If you have registered for PST at the beginning of the year but paid PST on your direct materials you can obtain a refund by filing a form 413 application with the Consumer Taxation Branch of the Provincial government.

The form that you file is sent to you after you register for GST. You can opt to file quarterly, semi-annually or annually. I suggest quarterly so that you pay as you go and will not have a big bill at the end of the year. The form asks for the total GST collected and deducts the GST on inputs (expenses). If the balance is a positive figure that?s what you pay. If it is a negative figure that amount will be refunded.

Income tax calculation-GST is excluded from both revenue and expense amounts used for tax purposes from the time that you are registered for GST. PST is excluded from revenues and is included in those expenses on which you are taxable and have paid the PST. Since you are exempt on purchase of resale materials there is no PST to consider. GST and PST collected are apart from your business sales and GST paid is apart from your business expenses. PST on business accounts is not related to form BC428 which is used to calculate the BC tax on your total income.

Best regards,
Bob

Hello Maidie

Cultural properties are dealt with under the Cultural Property Export and Import Act. For the painting to qualify under this program it would have to be certified by the Canadian Cultural Property Export Review Board. See information at www.canadianheritage.gc.ca/progs/cebc-cperb for details on the Movable Cultural Property Program. Access to lists of certified or designated institutions can be found at www.pch.gc.ca/progs/mcp-bcm/design_e.cfm.

The requirements under this legislation are fairly complex but, if you meet them, you could claim a donation credit on the certified value without having to report the corresponding capital gain.

If you do not meet the requirements then you can still proceed to make a ?gift in kind? and, assuming that the community music school is a registered charitable organization, you would receive a donation receipt upon which you could get a tax credit. However, you would still be deemed to have disposed of the painting and, if you are not dealing in artworks as a business, you would report the corresponding deemed capital gain (receipt value less the greater of cost or $1,00?the latter applying to artworks costing less than $1,000). This would still be to your advantage since only half of the capital gain is included for tax purposes whereas most if not all of the donation tax credit will be at 44%.

You say that you inherited the artwork so your ?cost? would be the value placed on it in the estate of your benefactor?that is something that you would need to determine.

The cultural property gifts are a bit complicated so I would suggest that you work with your tax advisor on that one.

Best regards,
Bob