5 mistakes to avoid when donating art

Donating art is a great way to give back to the community, build your legacy, and maybe save on taxes at the same time. But the best intentions won’t get you anywhere if you don’t donate properly.

Here are five common mistake to avoid:

1. Giving to unqualified recipients.

There are 11 types of qualified recipients under the Income Tax Act, from registered charities to the United Nations. If you instead want to donate art elsewhere, such as the law firm where you were partner, you won’t qualify for any tax benefit, says Joel Secter, a lawyer at Drache Aptowitzer who specializes in art donations.

In fact, Canada Revenue Agency (CRA) will consider the transfer a sale at fair market value, and you may have to pay capital gains tax.

2. Assuming armchair appraisals.

Don’t go into an appraisal with a preconceived notion of what the piece is worth, says Sharon Berlin, a professional appraiser. Sometimes, a piece may have actually lost value, she notes.

3. Asking for too much.

To qualify for the donation tax credit, CRA says the gift must be irrevocable. Museums may turn down gifts if you demand too much control, says Jim Stokoe, a senior accountant for KPMG.

4. Giving fake or stolen art.

The Art Loss Registry is the world’s largest database on stolen art. INTERPOL also keeps a registry of stolen art. Resources like these can help you determine a piece’s provenance. If a donated piece turns out to be forged, the cultural review board could change its certified value and CRA could re-assess your return.

5. Missing information.

CRA is strict about the information that must be included on a tax receipt for a charitable gift, says Secter. “Any failure to meet all of those criteria may result in a failed gift.”

The receipt must include:

• the names and addresses of the organization and the donor;
• the organization’s registration number;
• a receipt serial number;
• where the receipt was issued;
• the date of donation;
• a description of the donated property;
• the name and the address of the appraiser;
• the fair market value;
• the signature of institution’s agent;
• the name “CRA” and the CRA’s website; and
• a statement that it is the official receipt.