To depreciate or not to depreciate, that is the question

The taxpayer has the option of claiming annually a depreciation expense on the works of art that he has acquired, provided certain requirements are met. A person who sells a work of art must, if its value has increased, be taxed on the capital gain, i.e. the difference between the price paid and the selling price (only 50% of the gain is taxable). In addition, he must add to his business income the recovery of the depreciation claimed in the course of time, unless he possesses other works of art or a new work is acquired within a period of two years; This is called the choice of replacement property.

"Unless he possesses other works of art." What does that mean? "The works of art are all grouped into the same category of fixed assets; There is no separate category for each of the works. Thus, even if a taxpayer realizes a capital gain by selling a fully depreciated work of art, the artwork will not necessarily be subject to the recovery of depreciation, since all works of art are grouped within one same category ". Therefore, if he has other assets with a sufficient undepreciated cost in the same category, only the balance of the undepreciated capital cost will be reduced.

There are two schools of thought regarding depreciation or amortization. First, take advantage of the tax benefit of depreciation each year and pay more tax later at the time of resale, or do not take amortization and pay less tax on resale. "One of the goals of most tax specialists is to delay taxation as long as possible; and by claiming an amortization expense this makes it possible to achieve this objective ".

Finally, if you donate a work of art to charity, it will be treated the same way as if you had made a cash donation. If the value of the work is less than $ 1,000.00, the assessment made by a competent employee of the donor will be accepted. On the other hand, if the value of the work Is more than $ 1,000.00, an appraisal must be done by a recognized independent expert.

767,  Paul-Desruisseaux

Sherbrooke (Québec) J1J 4L9

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Art.
Investment or love at first sight?

The first and most important criteria for the purchase of any artwork is that the pieces appeals to you, you love what it represents and that every time you look at it you discover something new. However, when you are contemplating the purchase of a piece and the price is stopping you from making a decision consider this: many portfolio managers recommend adding artwork to all diversified portfolios. The sales index of artwork used by these managers indicates an average annual return on investment of 6.5% for the last 4 decades. 75% of collectors base their purchase decisions on the two most important factors, the artistic value of the art work and the return on investment potential.

Nothing prevents you from speculating on an artist you feel will be famous one day. Before purchasing a masterpiece to enhance your collection expecting a return on your investment it is important to note that the artists who generate interesting returns are artists with a well known reputation. Fundamentally, each purchase of art work must be fueled by passion, the investment aspect should be the element that helps you justify your purchase decision.

We at Galerie Gagne can not guaranty a return on your investment for the purchase of artwork.
The only guaranty me make is that you will love it.